<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 26, 1996
Commission File Number: 1-12546
PACIFIC GULF PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 33-0577520
(State of Incorporation) (I.R.S. Employer Identification No.)
363 SAN MIGUEL DRIVE, SUITE 100, NEWPORT BEACH, CALIFORNIA 92660-7805
(Address of principal executive offices, including zip code)
714-721-2700
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
NEW ACQUISITIONS
Pacific Gulf Properties Inc. (the "Company") completed the following
new acquisitions since September 30, 1996:
Miramar Business Park
On October 11, 1996, the Company acquired a multitenant
warehouse/industrial project containing 186,022 leasable square feet
located in the City of San Diego, California (the "Miramar Business
Park"). The Company purchased Miramar Business Park, which is subject
to a ground lease expiring in July 2035, from Burnham Pacific, a
real estate investment trust, for a total consideration of
$7,242,000. The Company funded the acquisition with $7,100,000 of
borrowings under its revolving line of credit which bears interest
at date of acquisition of 7.125% (LIBOR plus 1.75%).
Raintree Apartments
On November 7, 1996, the Company acquired an apartment community
containing 165 apartment units located in Ontario, California (the
"Raintree Apartments"). The Company purchased Raintree Apartments
from Coast Savings, a financial institution, for a total
consideration of $6,259,000. The Company funded the acquisition with
$6,200,000 of borrowings from a mortgage note payable bearing a fixed
rate of interest at date of acquisition of 6.4% and cash.
PROBABLE ACQUISITIONS
On December 5, 1996, the Company entered into an agreement to
purchase a warehouse/distribution property containing 201,364
leasable square feet located in the city of Algona, Washington (the
"Algona Warehouse"). Additionally, on November 19, 1996, the Company
entered into an agreement to purchase a multitenant industrial park
containing 323,226 leasable square feet located in the city of Costa
Mesa, California ("Harbor Business Park"). The acquisitions of Algona
Warehouse and Harbor Business Park are expected to be funded from
proceeds raised from the issuance of common stock under the Company's
shelf registration statement declared effective May 23, 1996. The
Company has contracted to purchase Algona Warehouse from The
Principal Financial Group, a life insurance company, for a total
consideration of $9,550,000, and Harbor Business Park from M.S.
Vickers Limited Partnership, a division of MetLife, for a total
consideration of $15,200,000. Both acquisitions remain subject to
certain conditions to closing, accordingly, there can be no assurance
that the acquisitions will be consummated.
-1-
<PAGE> 3
ITEM 5. OTHER EVENTS.
DEBENTURE-FOR-STOCK EXCHANGE
On December 26, 1996, the Company completed an exchange of
$42,069,000 of its 8.375% Convertible Subordinated Debentures (or
74.45% of the aggregate principal amount at September 30, 1996) for
shares of the Company's Common Stock. The exchange was consummated
pursuant to the Company's tender offer to exchange the Debentures as
filed on December 11, 1996 with the Securities and Exchange
Commission (the "Debenture-for-Stock Exchange"). In connection with
the Debenture-for-Stock Exchange, the Company converted 42,069 of its
$1,000 principal amount Debentures at the rate of 58 shares of Common
Stock for each $1,000 of Debentures. Included in the 58 shares of
Common Stock issued for each $1,000 principal amount of Debentures
were 4.3014 shares of Common Stock (the "excess common shares"),
representing the excess of 58 shares over the original conversion
rate of 53.6986 shares of Common Stock for each $1,000 principal
amount of Debentures. As part of the exchange of the tendered
Debentures, the Company issued a total of 2,440,002 shares of Common
Stock, and will recognize a one-time charge to earnings of
approximately $3,597,000 for the year ending December 31, 1996
resulting from the issuance of 180,956 excess common shares at a
price of $19.875 per share, the market price of the Common Stock on
the date of the exchange. Approximately $14,237,000 in principal
amount of Debentures remain outstanding after the consummation of the
Debenture-for-Stock Exchange.
PREFERRED STOCK
On December 31, 1996, the Company entered into an agreement to issue
1,351,351 shares of Class A Senior Cumulative Convertible Preferred
Stock (the "Class A Preferred Shares") to Five Arrows Realty
Securities L.L.C. ("Five Arrows") at a price of $18.50 per share. The
Company is obligated to issue the Class A Preferred Shares over the
course of 1997 in a maximum of three separate issuances, the timing
of which may be specified by the Company, provided that the Company
will be charged with certain availability fees if all of the Class A
Preferred Shares are not issued before July 1, 1997. Management
believes the issuance of the Class A 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 holders of the Class A Preferred Shares and the holders of the
Common Stock vote together as a single class. Each Class A Preferred
Share is convertible into one share of Common Stock, subject to
adjustment upon certain events. The annual dividend per share on the
Class A Preferred Shares is (i) $1.70 from the date of issuance until
December 31, 1997, and (ii) the greater of $1.70 or 104% of the
then-current dividend on the Common Stock thereafter. At its option,
the Company may redeem the Class A Preferred Shares beginning on
December 31, 2001 for cash at a premium of 6% over the initial $18.50
per share liquidation value. This premium will decrease to zero by
December 31, 2009.
The Company has granted to Five Arrows, for as long as Five Arrows
maintains its ownership of either all of the Class A Preferred Shares
or an amount of voting securities that, if converted into Common
Stock, would exceed 10% of the outstanding Common Stock, a seat on
the Company's Board of Directors. In addition, upon the occurrence
of certain events, Five Arrows could be granted one additional
seat.
Five Arrows is prohibited from transferring any Class A Preferred
Shares, or any shares of Common Stock into which such Class A
Preferred Shares have been converted, until December 31, 1997. At
that time, Five Arrows will have the right, subject to certain
conditions, to demand the Company effect the registration under the
Securities Act of the Class A Preferred Shares or the shares of
Common Stock into which such Class A Preferred Shares have been
converted.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) See Index to Financial Statements attached hereto.
(b) Exhibits
99.1 Press Release Issued by the Company on December 27,
1996 relating to the Debenture-for-Stock Exchange.
99.2 Investment Agreement between Pacific Gulf Properties
Inc. and Five Arrow Realty Securities L.L.C.
99.3 Articles Supplementary Classifying 1,351,351 Shares of
Preferred Stock as Class A Senior Cumulative
Convertible Preferred Stock.
99.4 Operating Agreement.
-2-
<PAGE> 4
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.
/s/ Donald G. Herrman
- -------------------------------------
Donald G. Herrman
Executive Vice President,
Chief Financial Officer and Secretary
DATED: January 13, 1997
-------------------------------
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<PAGE> 5
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 ............... 5
Pro Forma Condensed Consolidated Statement of Operations for the
Nine Months Ended September 30, 1996 ............................................. 6
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1995 ..................................................... 7
Notes to Pro Forma Condensed Consolidated Financial Statements ........................ 8
MIRAMAR BUSINESS PARK (NEW ACQUISITION)
Report of Independent Auditors ........................................................ 20
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 21
Notes to Statement of Revenues and Certain Expenses ................................... 22
ALGONA WAREHOUSE (PROBABLE ACQUISITION)
Report of Independent Auditors ........................................................ 25
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 26
Notes to Statement of Revenues and Certain Expenses ................................... 27
HARBOR BUSINESS PARK (PROBABLE ACQUISITION)
Report of Independent Auditors ........................................................ 29
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 30
Notes to Statement of Revenues and Certain Expenses ................................... 31
</TABLE>
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<PAGE> 6
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON
COMPANY FOR-STOCK STOCK STOCK COMPANY PRO
HISTORICAL EXCHANGE OFFERING OFFERING FORMA
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net $339,457 $ 13,501 (A) $352,958 24,750 (F) 377,708
Cash and cash equivalents 2,631 (1,190)(B) 1,441 1,441
Accounts receivable 1,114 1,114 1,114
Other assets 6,489 (1,411)(D) 5,078 5,078
--------------------------------------------------------------------------
$349,691 $ 10,900 $360,591 $ 24,750 $385,341
==========================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Loan payable $137,774 $ 6,200 (A) $143,974 $ $143,974
Line of credit 39,244 7,100 (A) 46,344 (3,858)(G) 42,486
Accounts payable and accrued
liabilities 7,340 201 (A) 7,101 234 (F) 7,335
(440)(B)
Dividends payable 2,928 2,928 2,928
Convertible subordinated
debentures 55,722 (41,485)(C) 14,237 14,237
--------------------------------------------------------------------------
243,008 (28,424) 214,584 (3,624) 210,960
Minority interest in
consolidated partnership 3,518 3,518 3,518
Shareholders' equity
Common shares 74 24 (D) 98 15 (G) 113
Outstanding restricted stock (918) (918) (918)
Additional paid in capital 114,877 42,897 (B)(D) 157,774 28,359 (G) 186,133
Distributions in excess of
earnings (10,868) (3,597)(E) (14,465) (14,465)
--------------------------------------------------------------------------
103,165 39,324 142,489 28,374 170,863
--------------------------------------------------------------------------
$349,691 $ 10,900 $360,591 $24,750 $385,341
==========================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
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<PAGE> 7
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON COMPANY PRO
COMPANY FOR-STOCK STOCK STOCK FORMA
HISTORICAL EXCHANGE OFFERING OFFERING (T)(V)(W)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $14,469 $ 3,787 (H) $18,256 $ 2,028 (M) $ 20,284
Multifamily properties 21,673 738 (H) 22,411 -- 22,411
--------------------------------------------------------------------------
36,142 4,525 40,667 2,028 42,695
EXPENSES
Rental property expenses
Industrial properties 3,791 1,243 (H) 5,034 647 (M) 5,681
Multifamily properties 8,527 436 (H) 8,963 -- 8,963
-------------------------------------------------------------------------
12,318 1,679 13,997 647 14,644
Depreciation 5,921 535 (I) 6,456 371 (J) 6,827
Interest (including amortization
of debenture discount and
financing costs) 13,613 1,427 (K) 12,078 (217)(Q) 11,861
(2,962)(P)
General and administrative 2,056 2,056 2,056
---------------------------------------------------------------------------
INCOME BEFORE GAIN ON
SALE OF PROPERTIES $ 2,234 $ 3,846 $ 6,080 $ 1,227 $ 7,307
===========================================================================
WEIGHTED AVERAGE
COMMON SHARES (R)(S) 5,955,680 11,242,359
=========== ===========
INCOME BEFORE GAIN ON
SALE PER COMMON
SHARE $ 0.38 $ 0.65
=========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-6-
<PAGE> 8
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON COMPANY PRO
COMPANY FOR-STOCK STOCK STOCK FORMA
HISTORICAL EXCHANGE OFFERING OFFERING (T)(V)(W)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 12,193 $ 11,334 (L) $23,527 $2,233 (M) $ 25,760
Multifamily properties 24,898 3,956 (L) 28,854 -- 28,854
----------------------------------------------------------------------------------
37,091 15,290 52,381 2,233 54,614
EXPENSES
Rental property expenses
Industrial properties 2,567 4,246 (L) 6,813 788 (M) 7,601
Multifamily properties 10,215 2,062 (L) 12,277 -- 12,277
----------------------------------------------------------------------------------
12,782 6,308 19,090 788 19,878
Depreciation and amortization 6,081 1,913 (N) 7,994 495 (J) 8,489
Interest (including amortization of
debenture discount and financing
costs) 14,066 5,596 (O) 15,718 (289)(Q) 15,429
(3,944)(P)
General and administrative 2,423 2,423 2,423
----------------------------------------------------------------------------------
INCOME BEFORE GAIN ON SALE
OF PROPERTIES $ 1,739 $ 5,417 $ 7,156 $1,239 $ 8,395
==================================================================================
WEIGHTED AVERAGE
COMMON SHARES (R)(S) 4,830,723 11,206,306
========== ===========
INCOME BEFORE GAIN ON
SALE PER COMMON SHARE $ 0.36 $ 0.75
========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-7-
<PAGE> 9
(Dollars in thousands, except per share data)
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
Pacific Gulf Properties Inc. (the "Company") was formed in 1993 and completed
its initial public offering in February 1994. It is anticipated that the Company
will acquire two additional properties containing approximately 524,000 leasable
square feet located in California (the "Probable Acquisitions") from proceeds
raised from the proposed issuance of 1,500,000 shares of Common Stock, plus up
to 225,000 shares subject to an overallotment option granted to the underwriter
(the "Common Stock Offering") under the Company's Shelf Registration Statement
declared effective May 23, 1996.
The pro forma condensed consolidated balance sheet as of September 30, 1996 is
based on the unaudited historical financial statements of the Company and has
been prepared as if the following transactions had occurred as of September 30,
1996: (i) the exchange of $42,069 aggregate principal amount of the Company's
8.375% Convertible Subordinated Debentures due 2001 (the "Debentures") for
2,440,002 shares of Common Stock which was completed on December 26, 1996
pursuant to the Company's offer to exchange such Debentures as filed with the
Securities and Exchange Commission in a registration statement on Form S-4 dated
December 11, 1996, as amended (the "Debenture-for-Stock Exchange"); (ii) the
acquisition of Miramar Business Park, a multitenant industrial/warehouse project
containing approximately 186,000 leasable square feet located in the City of
Mira Mesa, California, and the acquisition of Raintree Apartments, a 165-unit
apartment community located in Ontario, California both of which were purchased
by the Company subsequent to September 30, 1996 (the "New Acquisitions"); (iii)
the purchase of the Probable Acquisitions: (a) Algona Warehouse, a
warehouse/distribution facility containing approximately 201,000 leasable square
feet located in Algona, Washington, and (b) Harbor Business Park, a multitenant
industrial park containing approximately 323,000 leasable square feet located in
the city of Costa Mesa, California, both of which are currently subject to
definitive agreements; (iv) and the completion of the proposed Common Stock
Offering and the application of net proceeds thereof to complete the purchase of
the Probable Acquisitions and to repay certain outstanding indebtedness.
The pro forma condensed consolidated statement of operations for the year ended
December 31, 1995 is based on the historical financial statements of the Company
and has been prepared as if the following transactions had occurred as of the
beginning of the period presented: (i) the purchases completed by the Company
during 1995 consisting of 12 multifamily properties containing 1,736 apartment
units and one industrial property containing approximately 475,000 leasable
square feet (the "1995 Acquisitions"); (ii) the sale of the Company's four
multifamily properties located in Texas, which occurred in November 1995 (the
"Texas Dispositions"); (iii) the purchase completed by the Company in March 1996
of an industrial property containing approximately 189,000 leasable square feet
located in Garden Grove, California (the "Pacific Gulf Business Park"); (iv) the
purchase of nine industrial properties containing approximately 1,342,000
leasable square feet located in California completed by the Company during June
and July 1996 (the "Acquisition Properties") using proceeds from a public
offering of 2,435,481 shares of Common Stock consummated in May 1996 (the "May
1996 Offering"); (v) the completion of the May 1996 Offering and the
establishment of an acquisition line of credit for the purchase of the nine
Acquisition Properties; (vi) the sale of a ten-acre parcel and a 56,000 square
foot building in August 1996 to an existing tenant at Baldwin Industrial Park
pursuant to purchase options contained in the existing tenant's lease (the
"Tenant Sale"); (vii) the completion
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<PAGE> 10
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)(continued)
(Dollars in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION (continued)
of the Debenture-for-Stock Exchange; (viii) the purchase of the New Acquisitions
and Probable Acquisitions; and (ix) the completion of the proposed Common Stock
Offering and the application of the net proceeds thereof to complete the
purchase of the Probable Acquisitions and to repay outstanding indebtedness.
The pro forma condensed consolidated statement of operations for the nine months
ended September 30, 1996 is based on the historical financial statements of the
Company and has been prepared as if the following transactions had occurred as
of the beginning of the period presented: (i) the purchase of Pacific Gulf
Business Park; (ii) the purchase of the nine Acquisition Properties; (iii) the
completion of the May 1996 Offering and the establishment of an acquisition line
of credit for the purchase of the Acquisition Properties; (iv) the completion of
the Tenant Sale; (v) the completion of the Debenture-for-Stock Exchange; (vi)
the purchase of the New Acquisitions and Probable Acquisitions; and (vii) the
completion of the proposed Common Stock Offering and the application of the net
proceeds thereof to complete the purchase of the Probable Acquisitions and to
repay outstanding indebtedness.
The following pro forma information is not necessarily indicative of what the
Company's financial position or results of operations would have been assuming
the completion of the described transactions as of the beginning of the periods
indicated, nor does it purport to project the Company's financial position or
results of operations at any future date or for any future period. In addition,
the historical operating results for the nine months ended September are not
necessarily indicative of the results to be obtained by the Company for the year
ending December 31, 1996. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and all of the financial statements and notes thereto
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1995.
NOTE 2 - PRO FORMA ADJUSTMENTS
(A) Purchase of Miramar Business Park for $7,242 and Raintree Apartments
for $6,259, (the New Acquisitions completed by the Company subsequent
to September 30, 1996). Funding for the purchases consisted of $7,100
provided by the Company's revolving line of credit and $6,200 provided
by borrowings on a mortgage note payable. In connection with the
purchases the Company received credits through escrow for the
assumption of tenant security deposits related to the properties
totaling approximately $201.
(B) Payment of (i) accrued and unpaid interest of $440 to holders of the
Debentures pursuant to the Debenture-for-Stock Exchange and (ii)
transaction costs of $750 including underwriting, proxy solicitation,
transfer taxes and legal expenses.
-9-
<PAGE> 11
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)(continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(C) Exchange of approximately 74.45% of the Company's outstanding
Debentures ($42,069 aggregate principal amount net of unamortized
debenture discount of $584) into shares of Common Stock pursuant to the
Debenture-for-Stock Exchange.
(D) Issuance of 2,440,002 shares of Common Stock pursuant to the
Debenture-for-Stock Exchange of $42,069 of Debentures completed on
December 27, 1996 as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock, $.01 par value $ 24
Additional paid-in capital $ 42,897
----------
$ 42,921
==========
Par Value is calculated as follows:
Shares per $1
Principal
Amount of
Debentures Total
--------------------------
Shares issued pursuant to
Original conversion terms 53.6986 2,259,046
Excess common shares 4.3014 180,956
--------------------------
58.0000 2,440,002
Par value per share $ .01
----------
Par value of Common Stock $ 24
==========
Additional Paid-In Capital is calculated as follows:
Principal amount of debentures tendered $ 42,069
Issuance of excess common shares (E) 3,597
Less unamortized debenture discount (584)
Less unamortized debenture issuance costs (1,411)
Less transaction costs (750)
----------
$ 42,921
Less par value of Common Stock (24)
----------
Additional Paid-In Capital $ 42,897
==========
</TABLE>
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<PAGE> 12
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(E) Loss on the Debenture-for-Stock Exchange resulting from the issuance of
180,956 excess common shares at $19.875 per share (the closing price
per share on December 27, 1996, the date of the exchange). These
shares represent the additional shares issued at the exchange rate of
58 shares of Common Stock per each $1,000 principal amount of
Debentures, representing 4.3014 additional shares over the original
conversion rate of 53.6986 shares.
(F) Purchase of Algona Warehouse for $9,550 and Harbor Business Park for
$15,200 (the Probable Acquisitions which the Company expects to
complete in early 1997). Funding for the purchases will be provided
from proceeds raised from the proposed issuance of Common Stock under
the Company's shelf registration statement declared effective May 23,
1996. In connection with the purchases, the Company received credits
through escrow for the assumption of tenant security deposits related
to the properties totaling approximately $234.
(G) Proposed issuance of 1,500,000 shares of Common Stock at $19.875 per
share, net of underwriting discounts and commissions and estimated
expenses of $1,492. Proceeds from the proposed issuance will be used to
purchase the Probable Acquisitions ($24,750) and to reduce the balance
of the Company's revolving line of credit ($3,858).
(H) Revenues and certain expenses of the following industrial and
multifamily properties for the period prior to their acquisition by the
Company (adjusted to reflect increased property taxes based on the
properties' acquisition cost and current property tax rates) and
revenues and expenses of the property comprising the Tenant Sale for
the period prior to its disposal by the Company:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
------------------------------------------------------------------------
Pacific Gulf Acquisition New Tenant
Business Park Properties Acquisitions Sale Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental income
Industrial properties $ 195 $ 3,217 $ 1,066 $ (691) 3,787
Multifamily properties 738 738 738 738
------------------------------------------------------------------------
195 3,217 1,804 (691) 4,525
------------------------------------------------------------------------
Rental property expenses
Industrial properties 72 809 394 (32) 1,243
Multifamily properties 436 436
------------------------------------------------------------------------
72 809 830 (32) 1,679
------------------------------------------------------------------------
$ 123 $ 2,408 $ 974 $ 659 2,846
========================================================================
</TABLE>
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<PAGE> 13
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(I) Depreciation expense of $605 relating to the purchase of Pacific Gulf
Business Park, the Acquisition Properties, and the New Acquisitions,
net of a reduction in depreciation expense of $70 due to the Tenant
Sale (the actual depreciation relating to the Tenant Sale during the
nine months ended September 30, 1996). The depreciation expense
relative to the purchase of Pacific Gulf Business Park, the Acquisition
Properties, and the New Acquisitions, for the period prior to their
acquisition, was computed utilizing estimated remaining useful lives of
40 years and the depreciable basis of the properties as follows:
<TABLE>
<CAPTION>
PURCHASE DEPRECIABLE DEPRECIATION
PRICE BASIS EXPENSE
--------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 6,800 $ 3,009 $ 16
56
Acquisition Properties
Eden Landing Commerce Park 7,300 5,460
Riverview Industrial Park 6,442 5,281 66
Bay San Marcos Industrial Center 4,678 2,942 32
Escondido Business Center 10,372 6,523 70
Bell Ranch Industrial Park 3,750 3,000 35
North County Business Park 6,350 3,169 35
San Marcos Commerce Center 2,710 1,871 20
Pacific Park 6,900 3,001 28
La Mirada Business Center 3,600 2,453 26
New Acquisitions
Miramar Business Park 7,242 7,242 136
Raintree Apartments 6,259 4,511 85
------
$ 605
=======
</TABLE>
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<PAGE> 14
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(J) Depreciation expense relating to the purchase of the Probable
Acquisitions (Algona Warehouse and Harbor Business Park), for the
period prior to their acquisition, was computed utilizing estimated
remaining useful lives of 40 years and the depreciable basis of the
properties as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
-----------------------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Algona Warehouse $ 9,550 $ 7,640 $ 143
Harbor Business Park 15,200 12,160 228
-------
$ 371
=======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Algona Warehouse $ 9,550 $ 7,640 $ 191
Harbor Business Park 15,200 12,160 304
-------
$ 495
=======
</TABLE>
-13-
<PAGE> 15
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(K) Interest expense for the nine months ended September 30, 1996 on the
borrowings utilized to finance the purchase of Pacific Gulf Business
Park in March 1996, the purchase of the Acquisition Properties in June
and July 1996 and the purchase of New Acquisitions subsequent to
September 30, 1996 for the period prior to their purchase, calculated
based on the actual interest rates of specific new borrowings, less a
reduction of interest expense resulting from the Tenant Sale of $373
(the actual interest relating to the Tenant Sale):
<TABLE>
<CAPTION>
Interest
Debt Interest Rate Expense
----------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 8,000 7.300% $ 124
Acquisition Properties 19,475 7.500% 997
New Acquisitions
Miramar Business Park 7,100 7.125% 379
Raintree Apartments 6,200 6.400% 298
Amortization of related loan fees and costs 2
-------
$ 1,800
=======
</TABLE>
The Company borrowed $8,000 to finance the acquisition of Pacific Gulf
Business Park which was secured by another property. A total of
$6,800 of the borrowing was used to purchase the property. The
remaining proceeds were used to rehabilitate the property.
The Acquisition Properties were financed in June and July 1996
utilizing borrowings under the Company's acquisition line of credit.
The interest expense on these borrowings is calculated for the period
indicated at an interest rate of 7.5% (LIBOR plus 2%), the actual rate
on the date of the borrowings.
The New Acquisitions were financed utilizing borrowings under the
Company's revolving line of credit and a mortgage note payable.
Interest expense on the line of credit borrowings which totaled $7,100
and the mortgage note payable which totaled $6,200 is calculated for
the period indicated at an interest rate of 7.125% (LIBOR plus 1.75%)
and 6.4%, respectively, the actual rates on the date of the borrowings.
A .125% change in the interest rate on all of the Company's variable
rate debt would increase the Company's pro forma interest expense by
$57 for the nine months ended September 30, 1996.
-14-
<PAGE> 16
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(L) Revenues and certain expenses of the following industrial and
multifamily properties for the period prior to their acquisition by the
Company (adjusted to reflect increased property taxes based on the
properties' acquisition cost and current property tax rates), and
revenues and certain expenses of the property comprising the Texas
Dispositions and the Tenant Sale for the period prior to disposal by
the Company:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
------------------------------------------------------------------------------------------------------
1995 Pacific Gulf Acquisition New Texas
Acquisition Business Park Properties Acquisition Dispositions Tenant Sale Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income
Industrial properties $ 3,272 $ 724 $ 7,109 $ 1,294 $ -- $ (1,065) 11,334
Multifamily properties 8,426 -- -- 1,008 (5,478) -- 3,956
------------------------------------------------------------------------------------------------------
11,698 724 7,109 2,302 (5,478) (1,065) 15,290
------------------------------------------------------------------------------------------------------
Rental property expenses
Industrial properties 1,317 378 2,106 514 -- (69) 4,246
Multifamily properties 3,878 -- -- 586 (2,402) -- 2,062
------------------------------------------------------------------------------------------------------
5,195 378 2,106 1,100 (2,402) (69) 6,308
------------------------------------------------------------------------------------------------------
$ 6,503 $ 346 $ 5,003 $ 1,202 $(3,076) $ (996) $ 8,982
======================================================================================================
</TABLE>
-15-
<PAGE> 17
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(M) Revenues and certain expenses of the Probable Acquisitions (Algona
Warehouse and Harbor Business Park), for the period prior to their
acquisition by the Company (adjusted to reflect increased property
taxes based on the properties' acquisition cost and current property
tax rates):
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
--------------------------------------------
Algona Harbor
Warehouse Business Park Total
--------------------------------------------
<S> <C> <C> <C>
Rental income
Industrial properties $ 636 $ 1,392 $ 2,028
Multifamily properties - - -
--------------------------------------------
636 1,392 2,028
--------------------------------------------
Rental property expenses
Industrial properties 166 481 647
Multifamily properties - - -
--------------------------------------------
166 481 647
--------------------------------------------
$ 470 $ 911 $ 1,381
============================================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1995
--------------------------------------------
Algona Harbor
Warehouse Business Park Total
--------------------------------------------
<S> <C> <C> <C>
Rental income
Industrial properties $ 305 $ 1,928 $ 2,233
Multifamily properties - - -
--------------------------------------------
305 1,928 2,233
--------------------------------------------
Rental property expenses
Industrial properties 199 589 788
Multifamily properties - - -
--------------------------------------------
199 589 788
--------------------------------------------
$ 106 $ 1,339 $ 1,445
============================================
</TABLE>
-16-
<PAGE> 18
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(N) Depreciation expense of $2,551 relating to the 1995 Acquisitions,
Pacific Gulf Business Park, the Acquisition Properties and the New
Acquisitions, net of the reduction in depreciation of $533 due to the
Texas Dispositions and $105 due to the Tenant Sale (the actual
depreciation relating to the Texas Dispositions and the Tenant Sale
during the year ended December 31, 1995). The depreciation expense
relating to the 1995 Acquisitions, Pacific Gulf Business Park, the
Acquisition Properties and the New Acquisitions, for the period prior
to their purchase, was computed utilizing the estimated remaining
useful lives and depreciable basis of the properties follows:
<TABLE>
<CAPTION>
Purchase Depreciable Depreciation
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
40-YEAR LIFE PROPERTY
1995 Acquisitions
Konwiser Acquisition Properties 71,469 $ 52,281 $ 817
Heatherwood Apartments 12,500 10,000 222
Tukwila Business park 17,250 11,019 264
Pacific Gulf Business Park 6,800 3,009 75
Acquisition Properties
Eden Landing Commerce Park 7,300 5,460 137
Riverview Industrial Park 6,442 5,281 132
Bay San Marcos Industrial Center 4,678 2,942 73
Escondido Business Center 10,372 6,527 164
Bell Ranch Industrial Park 3,750 3,000 75
North County Business Park 6,350 3,169 79
San Marcos Commerce Center 2,710 1,871 47
Pacific Park 6,900 3,001 75
La Mirada Business Center 3,600 2,453 61
New Acquisitions
Miramar Business Park 7,242 7,242 181
Raintree Apartments 6,259 4,511 113
5-YEAR LIFE PROPERTY
Personal Property 289 289 36
---------
$ 2,551
=========
</TABLE>
-17-
<PAGE> 19
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE $ - PRO FORMA ADJUSTMENTS (continued)
(O) Interest expense of $6,909 relating to the 1995 Acquisitions, Pacific
Gulf Business Park, the Acquisition Properties and the New
Acquisitions, less reduction of interest expense resulting from the
Texas Dispositions of $746 and from the Tenant Sale of $567 (the actual
interest relating to the Texas Dispositions and the Tenant Sale during
the year ended December 31, 1995). The interest expense associated with
the borrowings used to finance the purchase of the 1995 Acquisitions,
Pacific Gulf Business Park and the purchase of the Acquisition
Properties and the New Acquisitions, was calculated for the period
prior to acquisition, based on the actual interest rates on the debt
which was assumed and the specific interest rates on new borrowings, as
follows:
<TABLE>
<CAPTION>
Pro Forma
Interest Interest
Debt Rate Expense
---------------------------------------
<S> <C> <C> <C>
1995 Acquisitions $ 30,263 8.000% $ 1,513
13,000 8.000% 650
24,850 5.700% 885
11,765 7.400% 838
Pacific Gulf Business Park 8,000 7.300% 584
Acquisition Properties 19,475 7.500% 1,360
New Acquisitions
Miramar Business Park 7,100 7.125% 506
Raintree Apartments 6,200 6.400% 397
Amortization of related loan fees and costs 176
-------
$ 6,909
=======
</TABLE>
(P) Reduction in interest expense, resulting from the exchange of the
Debentures as of the beginning of each period presented (including the
related amortization of debenture discount and costs of $319 for the
nine months ended September 30, 1996 and $418 for the year ended
December 31, 1995).
(Q) Reduction in interest expense associated with the repayment of $3,858
of indebtedness with proceeds from the proposed Common Stock Offering.
(R) Represents the weighted average of common shares and common stock
equivalents outstanding during the period indicated. Common stock
equivalents include stock options which are considered dilutive for
purposes of computing primary earnings per common share.
(S) Pro forma weighted average common shares include 2,435,581 shares of
Common Stock issued by the Company in conjunction with its May 1996
Offering, 2,440,002 shares of Common Stock to be issued as part of the
Debenture-for-Stock Exchange and 1,500,000 shares to be issued as part
of the proposed Common Stock Offering.
-18-
<PAGE> 20
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(T) Excludes the effect of a $3,597 nonrecurring loss which will be
recognized by the Company in the fourth quarter of 1996 relating to the
Debenture-for-Stock Exchange and the issuance of 180,956 excess common
shares.
(U) Excludes the effect of a $6,664 nonrecurring gain from the sale of the
four multifamily properties comprising the Texas Dispositions in
November 1995.
(V) Excludes the effect of a $74 nonrecurring gain from the sale of land
and buildings comprising the Tenant Sale in August 1996.
(W) Excludes 1,351,351 shares of Class A Senior Cumulative Convertible
Preferred Stock to be issued pursuant to an agreement executed by the
Company on December 31, 1996. The preferred stock shares, which
will be issued in up to three installments at a price of $18.50 per
share, bear an initial quarterly dividend yield of $0.425 per share
(increasing thereafter as specified in the related Prospectus
Supplement), are redeemable by the Company in whole or part, five years
from the date of issuance and are convertible into shares of Common
Stock, at any time, at the option of the holders based on an initial
conversion ratio of one, subject to adjustment under certain
circumstances.
-19-
<PAGE> 21
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Miramar Business Park for the year ended December 31, 1995. The statement is the
responsibility of management. Our responsibility is to express an opinion on the
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Form 8-K filing) as described in Note 2 to the statement and is not
intended to be a complete presentation of the revenues and expenses of Miramar
Business Park.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Miramar
Business Park for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
December 9, 1996
-20-
<PAGE> 22
MIRAMAR BUSINESS PARK
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
---------- ----------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $1,299,000 $1,066,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 6) 383,000 294,000
Real estate taxes 148,000 97,000
Management fees (Note 4) 52,000 42,000
---------- ----------
583,000 433,000
---------- ----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 716,000 $ 633,000
========== ==========
</TABLE>
See accompanying notes.
-21-
<PAGE> 23
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Miramar Business Park (the "Property") contains 186,022 leasable square feet of
industrial space located in San Diego, California. Pacific Gulf Properties
Inc. (the "Company") acquired the Property from Burnham Pacific Properties
Inc. ("Burnham"), a real estate investment trust, in October 1996.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Form 8-K filing).
Certain expenses that are dependent on the particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented is
not intended to be a complete presentation of the Property's revenues and
expenses nor is it intended to be comparable to the proposed future operations
of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants with lease terms which exceed one
year and are accounted for as operating leases. Revenues from leases are
recognized on a straight-line basis over the term of the related leases. Cost
recoveries from tenants are recognized as income in the period the related costs
are accrued.
-22-
<PAGE> 24
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with John Burnham & Co., a property
management company affiliated with Burnham, to maintain and manage the
operations of the Property. Management fees are based on 3.5% of total collected
income, as defined, from the Property. The agreements with John Burnham & Co.
terminated upon the Company's acquisition of the Property.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases which expire at various dates and
contain provisions for rent increases based on cost of living indices. Certain
leases also contain renewal options. The minimum future lease payments to be
received under the terms of these operating leases for each of the next five
years ending December 31, are as follows:
<TABLE>
<S> <C>
1996 $1,223,000
1997 1,093,000
1998 891,000
1999 702,000
2000 568,000
</TABLE>
-23-
<PAGE> 25
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
6. GROUND LEASE COMMITMENT
The Property is subject to a 57-year ground lease which expires in July 2035 and
is accounted for as an operating lease. Monthly ground lease payments total
$19,800 and are subject to increases based on the Consumer Price Index each
September, with the next adjustment in September 1997. Ground lease payments
totaled $237,000 and $178,000, respectively, for the year ended December 31,
1995 and the period ended September 30, 1996.
-24-
<PAGE> 26
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Algona Warehouse for the year ended December 31, 1995. The statement is the
responsibility of management. Our responsibility is to express an opinion on the
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Form 8-K filing) as described in Note 2 to the statement and is not
intended to be a complete presentation of the revenues and expenses of Algona
Warehouse.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Algona
Warehouse for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
December 6, 1996
-25-
<PAGE> 27
ALGONA WAREHOUSE
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
-------- --------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $305,000 $636,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 61,000 63,000
Real estate taxes 89,000 67,000
Management fees (Note 4) 10,000 11,000
-------- --------
160,000 141,000
-------- --------
REVENUES IN EXCESS OF CERTAIN ASSETS $145,000 $495,000
======== ========
</TABLE>
See accompanying notes.
-26-
<PAGE> 28
ALGONA WAREHOUSE
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Algona Warehouse (the "Property") contains 201,364 leasable square feet of
industrial space located in Seattle, Washington. In December 1996, Pacific Gulf
Properties Inc. (the "Company") entered into an agreement to purchase the
Property from The Principal Financial Group for a total consideration of $9.55
million.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Form 8-K filing).
Certain expenses that are dependent on the particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented is
not intended to be a complete presentation of the Property's revenues and
expenses nor is it intended to be comparable to the proposed future operations
of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants with lease terms which exceed one
year and are accounted for as operating leases. Revenue from leases is
recognized on a straight-line basis over the term of the related leases. Cost
recoveries from tenants are recognized as income in the period the related cost
is accrued.
For the year ended December 31, 1995, the Property was leased to two tenants in
July and December 1995 which occupy 76% of the total leasable square feet in the
Property. At September 30, 1996, the Property was 100% leased and occupied.
-27-
<PAGE> 29
ALGONA WAREHOUSE
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with Martin Smith Real Estate Services
("Martin"), a property management company, to maintain and manage the operations
of the Property. Management fees are based on 1.75% of total collected income or
$850 monthly, whichever is greater. The agreement with Marin will terminate upon
the Company's acquisition of the Property.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases which expire at various dates and
contain provisions for rent increases based on cost of living indices. Certain
leases also contain renewal options. The minimum future lease payments to be
received under the terms of these operating leases for each of the next five
years ending December 31, are as follows:
<TABLE>
<S> <C>
1996 $675,000
1997 713,000
1998 713,000
1999 731,000
2000 734,000
</TABLE>
-28-
<PAGE> 30
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Harbor Business Park for the year ended December 31, 1995. The statement is the
responsibility of management. Our responsibility is to express an opinion on the
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Form 8-K filing) as described in Note 2 to the statement and is not
intended to be a complete presentation of the revenues and expenses of Harbor
Business Park.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Harbor
Business Park for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
January 3, 1997
-29-
<PAGE> 31
HARBOR BUSINESS PARK
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
---------- ----------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $1,927,000 $1,391,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 434,000 458,000
Real estate taxes 191,000 144,000
Management fees (Note 4) 76,000 46,000
---------- ----------
701,000 648,000
---------- ----------
REVENUES IN EXCESS OF CERTAIN ASSETS $1,226,000 $ 743,000
========== ==========
</TABLE>
See accompanying notes.
-30-
<PAGE> 32
HARBOR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Harbor Business Park (the "Property") contains 323,226 leasable square feet of
industrial space located in Santa Ana, California. In November 1996, Pacific
Gulf Properties Inc. (the "Company") entered into an agreement to purchase
the Property from M.S. Vickers Limited Partnership, a division of MetLife, a
life insurance company, for a total consideration of $15.2 million.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Form 8-K filing).
Certain expenses that are dependent on the particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented are
not intended to be a complete presentation of the Property's revenues and
expenses nor are they intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants with lease terms which exceed one
year and are accounted for as operating leases. Revenue from leases is
recognized on a straight-line basis over the term of the related leases. Cost
recoveries from tenants are recognized as income in the period the related cost
is accrued.
-31-
<PAGE> 33
HARBOR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with Koll Management Services ("Koll"),
a property management company, to maintain and manage the operations of the
Property. Management fees under the agreement which commenced in May 1996 are
based on 3% of total collected income. The agreement with Koll will terminate
upon the Company's acquisition of the Property.
For the period January 1, 1996 to May 1996, prior to Koll's involvement, the
Property was managed by Huntington Sea Cliff Corp., a property management firm.
Fees under the Huntington Sea Cliff Corp. management agreement were based on 4%
of total collected income.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases which expire at various dates and
contain provisions for rent increases based on cost of living indices. Certain
leases also contain renewal options. The minimum future lease payments to be
received under the terms of these operating leases for each of the next five
years ending December 31, are as follows:
<TABLE>
<S> <C>
1996 $2,164,000
1997 2,192,000
1998 2,234,000
1999 2,293,000
2000 2,420,000
</TABLE>
-32-
<PAGE> 1
EXHIBIT 99.1
FRIDAY DECEMBER 27 8:00 AM EDT
PACIFIC GULF PROPERTIES ANNOUNCES SUCCESSFUL CONSUMMATION OF DEBENTURE
EXCHANGE OFFER
NEWPORT BEACH, Calif., Dec. 27 /PRNewswire/ -- Pacific Gulf Properties Inc.
announced today the successful consummation of its previously announced Exchange
Offer for any and all of its outstanding 8.375% Convertible Subordinated
Debentures Due 2001 at an exchange rate of 58 shares of Common Stock for each
$1,000 principal amount of validly tendered Debentures.
As of the expiration of the Exchange Offer at 5:00 p.m., New York time, on
December 26, 1996, an aggregate of approximately $42,069,000 in principal amount
of Debentures (constituting 74% of the outstanding Debentures) had been validly
tendered to the Exchange Agent pursuant to the Exchange Offer (including
$1,775,000 of Debentures yet to be physically delivered pursuant to notices of
guaranteed delivery), and the Company has accepted all validly tendered
Debentures for exchange. As a result, assuming the receipt of all guaranteed
deliveries, the Company will issue 2,440,002 new shares of its Common Stock
pursuant to the Exchange Offer, thereby increasing the number of outstanding
shares of Common Stock to 9,757,917. An aggregate of $14,437,000 in principal
amount of Debentures will remain outstanding.
Glenn L. Carpenter, Chairman and Chief Executive Officer, stated "We are very
pleased with the results of this Exchange Offer. We have strengthened our equity
capital base and reduced our debt, which should enhance our ability to take
advantage of future growth opportunities."
Pacific Gulf Properties Inc. is a self-administered and self-managed equity real
estate investment trust (REIT) that owns, operates, manages, leases, acquires
and rehabilitates multifamily and industrial properties located in California
and the Pacific Northwest. SOURCE Pacific Gulf Properties Inc.
<PAGE> 1
EXHIBIT 99.2
INVESTMENT AGREEMENT
BETWEEN
PACIFIC GULF PROPERTIES INC.
AND
FIVE ARROWS REALTY SECURITIES L.L.C.
----------------------
DATED AS OF DECEMBER 31, 1996
----------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
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
Section 3.4 Availability Fee.............................................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.................................................11
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
<PAGE> 3
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 Expenses of Rothschild Realty Inc...........................16
Section 6.3 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...............................16
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...........................................17
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.................................18
Section 7.11 Operating Agreement........................................18
Section 7.12 Opinions of Counsel........................................18
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
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF
THE COMPANY TO CLOSE
Section 8.1 Representations and Covenants...............................19
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
Section 8.6 Approval of Counsel to the Company..........................20
Section 8.7 No Stop Order...............................................20
Section 8.8 Opinion of Investor's Counsel...............................20
-ii-
<PAGE> 4
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...............................21
Section 10.4 Remedies for Breaches of This Agreement....................22
Section 10.5 Confidentiality............................................23
Section 10.6 Standstill.................................................24
Section 10.7 Lock-Up....................................................24
Section 10.8 Termination................................................24
Section 10.9 Counterparts................................................26
-iii-
<PAGE> 5
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated as of December 31, 1996 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.
"Agreement" means this Investment Agreement, as originally executed
and as hereafter from time to time supplemented, amended and restated.
<PAGE> 6
"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 1,351,351 shares of preferred stock as 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.
"Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate investment trust,
limited liability company, cooperative or association.
-2-
<PAGE> 7
"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.
"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.
-3-
<PAGE> 8
"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.
"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 Senior Cumulative Convertible Preferred Stock.
-4-
<PAGE> 9
"Registration Statement" means the registration statement of the
Company on Form S-3 (Registration No. 333-02798) 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 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
-5-
<PAGE> 10
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.
Defined Term Section
- ------------ -------
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-Qs......................................4.9
1995 10-K.......................................4.2
1996 Proxy Statement............................4.9
Preferred Stock.................................4.10
Purchase Price..................................2.1
Third Party Claim...............................10.4.3
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 1,351,351 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 $18.50
per share (the "Purchase Price") or an aggregate of approximately twenty-five
million dollars ($25,000,000.00).
-6-
<PAGE> 11
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 270,270
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 the one
year anniversary date of this Agreement, the Closing for such Preferred Shares
as shall not have previously been so sold shall occur on such anniversary date.
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 1,351,351 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)
$0.37 and (ii) the difference between (x) 1,351,351 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.
Section 3.4 Availability Fee. If all 1,351,351 Preferred Shares have
not been sold hereunder (other than as a consequence of the events provided for
in Section 3.3) by the dates set forth below (the "Availability Fee Dates") the
Company shall pay, on each such date by wire transfer in immediately available
funds, an amount equal to the product of (i) 0.0025 and (ii) the difference
between (x) $25,000,000 and (y) the aggregate Purchase Price paid by the
Investor in respect of Preferred Shares which the Company has sold to the
Investor pursuant to this
-7-
<PAGE> 12
Agreement prior to such date. The Availability Fee Dates are July 1, 1997,
August 1, 1997, September 1, 1997, October 1, 1997, November 1, 1997 and
December 1, 1997.
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, 1995 (the "1995 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
-8-
<PAGE> 13
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 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 1,351,351 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 1996 Annual Meeting of Shareholders
(the "1996 Proxy
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Statement"), the 1995 10-K, and the Quarterly Reports on Form 10-Q as filed by
the Company under the Exchange Act for the quarters ended March 31, 1996, June
30, 1996 and September 30, 1996 (as amended the "1996 10-Qs").
Section 4.9.1 No Misstatement or Omission. At the time of
filing, the 1996 Proxy Statement, the 1995 10-K and the 1996 10-Qs complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated by the SEC thereunder. The 1996 Proxy Statement, the
1995 10-K and the 1996 10-Qs 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 1995 10-K
and the 1996 10-Qs 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 1995 10-K and the 1996 10-Qs, 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 December 30, 1996, (i) 9,757,917, 0, 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) 1,638,760, 0, 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.
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Section 4.11 Litigation. Except as set forth [on Schedule 4.11 or
]in the 1995 10-K or the 1996 10-Qs, 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 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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<PAGE> 16
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 1995 10-K, the 1996 10-Qs or the 1996 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
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries has received
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<PAGE> 18
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, 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
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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 Expenses of Rothschild Realty Inc. Except as set forth
in Section 6.3, 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 6.2 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 6.3 hereof, shall not exceed $125,000 through the
initial Closing Date and $20,000 (plus any amount of the $125,000 remaining)
through any subsequent Closing Dates, if applicable
Section 6.3 Fees and Expenses of Schulte Roth & Zabel LLP. Subject
to the limitation set forth in Section 6.2, 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 6.3 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.
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
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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, 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.
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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, 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 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.
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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 6.2.
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 6.3.
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.
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.
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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 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.
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<PAGE> 25
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 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.
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<PAGE> 26
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.
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
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<PAGE> 27
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, 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
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<PAGE> 28
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 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 for a period of one
year, commencing on the date of this Agreement, it shall not sell transfer,
convey, assign, pledge or hypothecate any of the Preferred Shares or any shares
of Common Stock obtained upon conversion of any Preferred Shares.
Section 10.8 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 the date which is the one year anniversary of the date hereof;
providing that the party attempting to terminate this
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<PAGE> 29
Agreement is not in material breach of 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 10.8, 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> 30
Section 10.9 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: s/ Glenn L. Carpenter
-------------------------------------
Name: Glenn L. Carpenter
Title: Chairman, Chief Executive Officer
and President
FIVE ARROWS REALTY SECURITIES L.L.C.
By: /s/ Matthew W. Kaplan
-------------------------------------
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: /s/ Matthew W. Kaplan
-------------------------------------
Name: Matthew W. Kaplan
Title: Senior Vice President
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<PAGE> 1
Exhibit 99.3
ARTICLES SUPPLEMENTARY
CLASSIFYING 1,351,351 SHARES OF PREFERRED
STOCK AS CLASS A 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 December 11,
1996, regarding the possible sale and issuance by the Corporation of convertible
preferred stock, adopted resolutions duly classifying 1,351,351 shares of
Preferred Stock of the Corporation into a single series of Preferred Stock to be
designated as "Class A Convertible Preferred Stock, par value $.01 per share,"
and has provided for the issuance of such shares;
SECOND: The terms of the "Class A 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 and Amount. The
shares of such class of Preferred Stock shall be designated as "Class A Senior
Cumulative Convertible Preferred Stock" and the number of shares constituting
the series so designated shall be 1,351,351 (the "Preferred Shares").
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"),
<PAGE> 2
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 February 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
at any time. Dividends shall begin to accrue and be cumulative from the date of
issuance of such Preferred Share to and including the first to occur of (i) the
date on which the Liquidation Value (as defined herein) of such Preferred Share
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 Share 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. Each of such dividends shall be
fully cumulative, to the extent not previously paid. 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) 2.297% 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) 2.297% 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 $18.50, 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 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.
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<PAGE> 3
(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. Unless
the dividends (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). 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 the prior sentence, 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 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. In addition to the other voting
rights described herein, upon the issuance to Five Arrows Realty Securities
L.L.C. of Preferred Shares such that, and 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
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<PAGE> 4
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"), (i) the number of directors constituting the Board shall be
automatically increased by one (1) member and (ii) upon the first to occur, or
from time to time following the Dividend/Earnings Cure (as defined herein) upon
the first to occur, of (x) 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"), (y) 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 was less than 1.25 to 1.00 (the "Earnings Default"),
or (z) 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. The position on the Board established pursuant
to clause (i) of this Section 4(c) shall remain available until the Minimum
Threshold is no longer satisfied. The position on the Board established pursuant
to clause (ii) of this Section 4(c) shall remain available until the first to
occur of such time as (i) the Minimum Threshold fails to be satisfied and (ii)
the Dividend/Earnings Cure (as defined herein). Any director elected pursuant to
this section shall be deemed to have resigned upon the position created hereby
not being available.
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.
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 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):
(1) 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),
(2) 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),
(3) depreciation and depletion reflected in such
reported net income,
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<PAGE> 5
(4) 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. 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. 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 (i) there are no Preferred Shares of the Corporation
outstanding and (ii) the Dividend Payment Cure (as defined herein). Any director
elected pursuant to this section shall be deemed to have resigned upon the
position created hereby not being available.
(e) Election of Preferred Directors. The holders of the
Preferred Shares shall have the special right, voting separately as a single
class, to elect as soon as practical, 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. The director so elected from time to time in respect
of clause (i) of Section 4(c) shall be referred to herein as the "Section
4(c)(i) Director." The director so elected from time to time in respect of
clause (ii) of Section 4(c) 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. At no time
shall there be more than two Preferred Directors on the Board.
(f) Classification of Board. Each vacancy created upon the
Board from time to time pursuant to clause (i) or (ii) of 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
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<PAGE> 6
(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 outstanding or (ii)
all dividends, including 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
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
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<PAGE> 7
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 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 1,351,351 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 the
date which is the fifth anniversary of the original date of issuance of
Preferred Shares.
(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
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<PAGE> 8
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 subsection (b) above and ending on the thirtieth
day following the date of such mailing, each holder of the Preferred Shares may
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) $18.50 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 $18.50:
<TABLE>
<CAPTION>
Redemption Occurs
On or After But Prior to % Premium
- ----------- ------------ ---------
<S> <C> <C>
December 31, 2001 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,
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<PAGE> 9
dissolution or winding up), the holders of the Preferred Shares shall be
entitled to be paid $18.50 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 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, 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).
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<PAGE> 10
(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
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
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<PAGE> 11
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 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.
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<PAGE> 12
(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 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
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<PAGE> 13
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 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
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<PAGE> 14
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, 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
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<PAGE> 15
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 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.
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<PAGE> 16
(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.
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
$18.50. 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
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<PAGE> 17
tendered. The Corporation shall promptly mail to each holder of Preferred Shares
to be redeemed the Put Payment for such Preferred Shares.
(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, 1995.
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<PAGE> 18
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> 19
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
January, 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
Exhibit 99.4
OPERATING AGREEMENT
OPERATING AGREEMENT, dated as of January __, 1996, 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 December 31, 1996, 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 1,351,351 shares of preferred stock as Class A Senior
Cumulative Convertible Preferred Stock of the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
<PAGE> 2
"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.
"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
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<PAGE> 3
in the case of a shelf registration statement, all Registrable
Securities shall be deemed to be Piggyback Registrable Securities.
"Preferred Shares" means the Class A Senior Cumulative
Convertible Preferred Stock issued by the Company to the Investor,
pursuant to the Investment Agreement.
"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 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
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<PAGE> 4
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 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 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 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
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<PAGE> 5
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 terms 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.
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.
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<PAGE> 6
3. DEMAND REGISTRATION
3.1 Right to Demand Registration. (a) Subject to Section 3.5, at any
time following the one year anniversary of the date hereof, 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 one year anniversary of the date
hereof, the Company shall promptly file with the Commission a "shelf"
registration 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
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<PAGE> 7
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 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
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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 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.
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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,
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
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<PAGE> 10
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 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.
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<PAGE> 11
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:
(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
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<PAGE> 12
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 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
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<PAGE> 13
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;
(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
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<PAGE> 14
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 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.
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<PAGE> 15
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 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.
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<PAGE> 16
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 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
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<PAGE> 17
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 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
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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 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
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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 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
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<PAGE> 20
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 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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