<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
Pacific Gulf Properties, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660
------------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
To our shareholders:
The 1998 annual meeting of shareholders of Pacific Gulf Properties Inc.
(the "Company") will be held Wednesday, May 13, 1998, at the Sheraton
Hotel-Newport Beach, 4545 MacArthur Boulevard, Newport Beach, California, at
10:00 a.m. (Los Angeles time), for the following purposes:
1. To elect two Class I Directors for a term of three years and one
Class II director for a term of one year and until their successors are
duly elected and qualified;
2. To approve an amendment to the Company's 1993 Share Option Plan
that would increase the number of Common Shares authorized for issuance
under such plan by 1,250,000 shares (300,000 of which will be reserved for
issuance to non-employee directors) to an aggregate of 2,300,000 shares;
3. To approve an amendment to the Company's Articles of Amendment and
Restatement as filed with Maryland's State Department of Assessments and
Taxation (the "Charter") that would increase the number of authorized
shares of Common Stock, par value $.01 per share (the "Common Stock"), from
25,000,000 shares to 100,000,000 shares.
4. To approve an amendment to the Company's Charter that would (a)
increase the authorized number of shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"), from 5,000,000 shares to 10,000,000
shares and (b) reclassify the issued and outstanding shares of Class B
Senior Cumulative Convertible Preferred Stock (the "Class B Preferred
Stock") as additional shares of Class A Senior Cumulative Convertible
Preferred Stock (the "Class A Preferred Stock") and change the liquidation
preference of the Class A Preferred Stock to reflect the economic terms of
such reclassification of the Class B Preferred Stock.
5. To approve an amendment to the Company's Charter relating to the
ownership limit to eliminate the shares of Excess Stock (including the
5,000,000 shares currently authorized), implement a mechanism for the
automatic transfer of shares to a trust, create a separate ownership limit
for Common Stock and make conforming changes to facilitate the Company's
maintenance of its status as a real estate investment trust (a "REIT").
6. To transact such other business as properly may come before the
meeting and any adjournment thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on April 1, 1998 are
entitled to notice of, and to vote at, the meeting.
Please help the Company by promptly marking, dating, signing and returning
the enclosed Proxy Card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your Proxy.
By Order of the Board of Directors
DONALD G. HERRMAN
Secretary
April 16, 1998
YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3
PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660
------------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
------------------------
GENERAL INFORMATION
The Board of Directors of Pacific Gulf Properties Inc. ("PAG" or the
"Company") is soliciting the accompanying Proxy for use at the 1998 annual
meeting of shareholders (the "Annual Meeting") to be held Wednesday, May 13,
1998, at the Sheraton Hotel-Newport Beach, 4545 MacArthur Boulevard, Newport
Beach, California, at 10:00 a.m. (Los Angeles time), and at any and all
adjournments or postponements thereof. Any shareholder giving a Proxy has the
right to revoke it at any time before it is voted by giving written notice to
the Secretary of PAG, by delivering to the Secretary of PAG a duly executed
proxy bearing a later date, or by attending and voting in person at the Annual
Meeting. At the Annual Meeting, the designated proxy holders will vote the
shares of common stock, $0.01 par value per share (the "Common Shares"),
represented by a Proxy which is received and not revoked. Where the shareholder
specifies a choice on the Proxy Card with respect to any matter to be acted
upon, the Common Shares will be voted in accordance with the choice specified.
Where no choice is specified, the shares represented by a signed Proxy Card will
be voted in favor of the election of each of the nominees for director and in
favor of each of the other proposals set forth in the Notice attached hereto.
Shareholders are invited to attend the Annual Meeting. Whether or not you
expect to attend, you are urged to sign, date, and promptly return the enclosed
Proxy Card in the enclosed postage prepaid envelope. If your shares are held of
record by a broker, bank or other nominee and you wish to attend and vote your
shares at the Annual Meeting you must obtain a letter from the broker, bank or
nominee confirming your beneficial ownership of the shares and a written Proxy
from the holder issued in your name, and bring it to the Annual Meeting.
This Proxy Statement and the accompanying Proxy Card are first being mailed
to shareholders on or about April 16, 1998.
The cost of soliciting proxies will be borne by PAG. The Company has
engaged Corporate Investor Communications, Inc. ("CIC") to assist in the
solicitation of proxies, for which CIC will be paid a fee of $6,000. In addition
to solicitation by mail, and without additional compensation for such services,
proxies may be solicited personally, or by telephone or telegraph, by CIC and/or
by officers or employees of PAG. PAG will also request banking institutions,
brokerage firms, custodians, trustees, nominees, fiduciaries and other like
parties to forward the solicitation materials to the beneficial owners of Common
Shares held of record by such persons, and PAG will upon request of such record
holders reimburse forwarding charges and expenses.
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on April 1, 1998, the record date for
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting, approximately 19,986,609 Common Shares of PAG were outstanding. Each
whole Common Share is entitled to one vote. In addition, the holders of the
Company's Class A Preferred Stock and Class B Preferred Stock have the right to
vote with the holders of the Common Shares. At April 1, 1998, the holders of the
Class A Preferred Stock and Class B Preferred Stock had an aggregate of
2,763,116 votes (equal to the number of such shares outstanding). There is no
right to cumulative voting. The holders of a majority of the issued and
outstanding Common Shares and shares of Class A Preferred Stock and Class B
Preferred Stock represented in person or by proxy will constitute a quorum at
the Annual Meeting.
<PAGE> 4
Assuming the existence of a quorum, the three nominees for election as
directors who receive the highest number of votes therefor at the Annual Meeting
will be elected as directors under Proposal 1. Approval of the Amendment to the
1993 Share Option Plan under Proposal 2 requires the affirmative vote of a
majority of the shares voting at the Annual Meeting. Approval of the amendments
to the Charter described under each of Proposals 3, 4 and 5 requires an
affirmative vote of the majority of the shares of outstanding voting stock
entitled to vote thereon (i.e., the Common Stock, the Class A Preferred Stock
and the Class B Preferred Stock), voting together as a single class. In
addition, approval of each of Proposals 4 and 5 requires the consent of Five
Arrow Realty Securities L.L.C., the sole holder of the Class A Preferred Stock
and the Class B Preferred Stock.
Representatives of PAG's transfer agent will assist PAG in the tabulation
of the votes. Abstentions, votes "withheld" and broker non-votes are counted for
purposes of determining a quorum. An abstention has the same effect of a vote
"withheld" with respect to the election of directors under Proposal 1.
Otherwise, abstentions and broker non-votes are counted as votes against any
given proposal. Broker non-votes are not entitled to vote because they indicate
the withholding of power to vote on a specific matter and therefore have no
effect on the outcome of a proposal.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Shares of the Company as of December 31, 1997 by each
person known by the Company to be the beneficial owner of more than five percent
(5%) of the Company's outstanding Common Shares, each director of the Company,
the officers of the Company, and by all directors and officers as a group. To
the Company's knowledge, each person named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by such
person, and the address of each person named is the same as the Company's unless
otherwise indicated in the accompanying notes.
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL OWNER AMOUNT CLASS(1)
---------------- --------- ----------
<S> <C> <C>
Five Arrows Realty Securities L.L.C.(2).... 2,763,116(2) 12.1%(2)
Morgan Stanley, Dean Witter, Discover &
Co. ..................................... 2,503,600(3) 12.5
Glenn L. Carpenter......................... 231,073(4) 1.2
Donald G. Herrman.......................... 144,155(5) *
Lonnie P. Nadal............................ 113,384(6) *
Robert A. Dewey............................ 69,597(7) *
Angela M. Wixted........................... 61,892(8) *
Kimberly G. Brown.......................... 57,786(9) *
Peter L. Eppinga........................... 22,296(10) *
Carl C. Gregory, III....................... 10,000(11) *
John F. Kooken............................. 18,800(10) *
Royce B. McKinley.......................... 25,500(10) *
Robert E. Morgan........................... 42,854(10) *
James E. Quigley 3rd....................... 9,000(11) *
Keith W. Renken............................ 15,000(10) *
All officers and directors as a group (13
persons)................................. 821,337 4.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise stated in the notes below, all percentages shown are
without assuming conversion of any of the Company's Convertible
Subordinated Debentures or Preferred Stock into Common Shares.
(2) As holder of 100% of the outstanding shares of Preferred Stock, Five Arrows
Realty Securities L.L.C. ("Five Arrows") maintains the contractual right to
elect one preferred director to the Board, and Five Arrows elected Mr.
James Quigley 3rd to such position. The shares of Class A Preferred Stock
and Class B Preferred Stock held by Five Arrows are immediately convertible
into Common Shares; pursuant to the Company's Charter, Five Arrows has the
right to vote such shares at the Annual Meeting. The percent of class with
respect to Five Arrows has been calculated assuming that all of the shares
of Class A Preferred Stock and Class B Preferred Stock were converted into
Common Stock.
(3) Morgan Stanley, Dean Witter, Discover & Co.'s ("Morgan Stanley") address is
1585 Broadway, New York, New York 10036. Information regarding ownership of
common shares by Morgan Stanley is included herein in reliance upon
information set forth in an Amended Schedule 13G filed by Morgan Stanley on
February 13, 1998. Morgan Stanley has indicated in such Schedule 13G that
all shares are owned by various investment advisory clients of Morgan
Stanley and that Morgan Stanley is deemed to be the beneficial owner
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(4) Includes 178,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 46,363 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 4,533 shares
allocated to Mr. Carpenter in the Company's Thrift Plan. (See "Executive
Compensation -- Share Option Plan" and "Thrift Plan.")
(5) Includes 122,500 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 18,818 shares of restricted stock
granted under the Company's 1993 Share Option Plan,
3
<PAGE> 6
and 2,837 shares allocated to Mr. Herrman in the Company's Thrift Plan.
(See "Executive Compensation -- Share Option Plan" and "Thrift Plan.")
(6) Includes 102,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 10,025 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 859 shares
allocated to Mr. Nadal in the Company's Thrift Plan. (See "Executive
Compensation -- Share Option Plan" and "Thrift Plan.")
(7) Includes 61,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan, 7,863 shares of restricted stock
granted under the Company's 1993 Share Option Plan, and 658 shares
allocated to Mr. Dewey in the Company's Thrift Plan. (See "Executive
Compensation -- Share Option Plan" and "Thrift Plan.")
(8) Includes 56,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan and 5,363 shares of restricted stock
granted under the Company's 1993 Share Option Plan and 61 shares allocated
to Ms. Wixted in the Company's Thrift Plan. (See "Executive Compensation --
Share Option Plan.")
(9) Includes 55,250 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan and 2,000 shares of restricted stock
granted under the Company's 1993 Share Option Plan and 220 shares allocated
to Ms. Brown in the Company's Thrift Plan. (See "Executive
Compensation -- Share Option Plan.")
(10) Includes 10,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "Executive Compensation -- Share
Option Plan.")
(11) Includes 9,000 shares purchasable upon exercise of options granted under
the Company's 1993 Share Option Plan. (See "Executive Compensation -- Share
Option Plan.")
4
<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
PAG's Board of Directors (the "Board") consists of eight members, divided
into three classes which are designated as Class I, Class II and Class III.
Currently, there are two Class I directors, three Class II directors (one of
whom was elected by, and will stand for re-election at the expiration of his
term at the direction of, the holder of the Preferred Stock) and three Class III
directors.
At the Annual Meeting, the Class I directors are to be elected for a term
of three years (expiring 2001) and until the election and qualification of their
successors. Management proposes re-election of Messrs. Glenn L. Carpenter and
Keith W. Renken as Class I directors of PAG. In addition, one Class II director
is to be elected for a term of one year (expiring 1999) and until the election
and qualification of his successor. Management proposes the election of Mr. Carl
C. Gregory, III as a Class II director of PAG. Stockholders are required to vote
on the election of Mr. Gregory as a director because the provisions of the
Company's Charter require that any director elected by the Board to fill a
vacancy -- as Mr. Gregory was -- be subject to the approval of the Company's
stockholders at the next Annual Meeting, regardless of the class in which such
director serves. Each nominee has consented to being named in this Proxy
Statement and to serve if elected.
Unless the proxy holder directs otherwise, the Common Shares represented by
the accompanying Proxy will be voted for the election of the three nominees
named herein. Should any of the three nominees named herein become unavailable
for election, which is not anticipated, the Common Shares represented by the
accompanying Proxy will be voted for the election of another person recommended
by PAG.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-ELECTION OF THE NAMED
NOMINEES AS DIRECTORS OF PAG.
The following table sets forth certain information as to the nominees, as
well as other members of the Board whose terms do not expire in 1998, including
their ages, principal business experience during the past five years, the year
they each first became a director and other directorships currently held in
companies with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of that Act or any
company registered as an investment company under the Investment Company Act of
1940. (An asterisk in the chart denotes ownership of less than 1% of the
outstanding Common Shares.)
NOMINEES FOR ELECTION AS DIRECTORS -- CLASS I
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE BENEFICIAL OUTSTANDING
DURING PAST FIVE YEARS AND DIRECTOR OWNERSHIP OF COMMON
DIRECTOR ALL POSITIONS WITH PAG AGE SINCE COMMON STOCK STOCK
- --------------------- ----------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Glenn L. Carpenter Chairman of the Board since January 55 1993 231,073 1.2%
1, 1996, President and Chief
Executive Officer since inception
of PAG; Chief Executive Officer,
Santa Anita Realty Enterprises,
Inc., February 1992 to February
1994; President of Santa Anita
Realty Enterprises, Inc., December
1989 to February 1994
Keith W. Renken Retired; formerly Managing Partner 62 1994 15,000 *
of Los Angeles office of Deloitte &
Touche; director, Coast Federal
Bank; "Executive in Residence"
teaching program at University of
Southern California's School of
Accounting
</TABLE>
5
<PAGE> 8
NOMINEE FOR ELECTION AS DIRECTOR -- CLASS II
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE BENEFICIAL OUTSTANDING
DURING PAST FIVE YEARS AND DIRECTOR OWNERSHIP OF COMMON
DIRECTOR ALL POSITIONS WITH PAG AGE SINCE COMMON STOCK STOCK
- --------------------- ----------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Carl C. Gregory, III Chairman and Chief Executive 53 1997 10,000 *
Officer of West Capital Financial
Services, Inc.; past Chairman and
Chief Executive Officer of MIP
Properties, Inc., formerly a
publicly-traded real estate
investment trust; director, Apex
Mortgage Capital, Inc.
</TABLE>
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999 -- CLASS II
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE BENEFICIAL OUTSTANDING
DURING PAST FIVE YEARS AND DIRECTOR OWNERSHIP OF COMMON
DIRECTOR ALL POSITIONS WITH PAG AGE SINCE COMMON STOCK STOCK
- --------------------- ----------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Royce B. McKinley Chairman of the Board of Directors 77 1994 25,500 *
of PAG March 1994 through December
31, 1995; retired; formerly
Chairman of the Board and Chief
Executive Officer, Santa Anita
Realty Enterprises, Inc.; director,
Santa Anita Realty Enterprises and
Operating Company, 1979 to 1993
James E. Quigley 3rd Sr. Vice President and Treasurer of 41 1997 9,000 *
Rothschild Realty since 1990;
director, Charter Oak, a subsidiary
of Rothschild Realty, since 1989
</TABLE>
6
<PAGE> 9
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000 -- CLASS III
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
PRINCIPAL BUSINESS EXPERIENCE BENEFICIAL OUTSTANDING
DURING PAST FIVE YEARS AND DIRECTOR OWNERSHIP OF COMMON
DIRECTOR ALL POSITIONS WITH PAG AGE SINCE COMMON STOCK STOCK
- --------------------- ----------------------------------- --- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Peter L. Eppinga Practicing attorney specializing in 56 1994 22,296 *
corporate securities and real
estate; former President of Laguna
Hills Properties, 1991 to 1994;
former Senior Vice President of
Sears Savings Bank
John F. Kooken Retired; former Vice Chairman and 66 1994 18,800 *
Chief Financial Officer of Security
Pacific Corporation, 1987 to 1992;
director, The Centris Group,
Glendale Federal Bank, Southern
California Healthcare Systems, and
Huntington Memorial Hospital
Robert E. Morgan Retired; former President, Coldwell 78 1993 42,854 *
Banker First Newport Corporation;
former President, Coldwell Banker
Real Estate Finance Services;
director, Bixby Ranch Company,
Meridian Point Realty Trust 83;
former director of Santa Anita
Realty Enterprises and Operating
Company, 1975 to 1995
</TABLE>
INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has created and delegated certain authority to its
Executive Committee, Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee as follows:
Executive Committee. The Executive Committee consists of Messrs. Kooken,
McKinley, Eppinga, Gregory and Quigley. The Executive Committee has the
authority to perform all functions of the full Board, including the approval of
real estate investments up to $25 million, subject to certain limitations
prescribed by the Board and by Maryland law. The Executive Committee held 11
meetings during the year ended December 31, 1997.
Audit Committee. The Audit Committee consists of Messrs. Renken, Kooken and
Morgan. The Audit Committee performs numerous functions, including review of the
annual financial statements with both management and the independent auditors.
The Audit Committee also recommends the engagement of the independent accounting
firm and meets with the independent accountants regarding the scope and conduct
of the annual audit. In addition, the Committee may inquire about and discuss
policies and procedures with respect to principles of business conduct,
financial and accounting controls, compliance with the Foreign Corrupt Practices
Act of 1977, areas of special concern and other related matters. The Audit
Committee met three times during the year ended December 31, 1997.
Compensation Committee. The Compensation Committee consists of Messrs.
Morgan, McKinley and Renken. The Compensation Committee reviews the performance
and effectiveness of the Chief Executive Officer and recommends an annual
compensation level for the Chief Executive Officer to the Board of Directors.
The Committee also sets the compensation level of all other officers, approves
all grants of stock options and restricted stock and administers the Company's
stock option and other employee benefit programs and plans. The Compensation
Committee met four times during the year ended December 31, 1997.
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee consists of Messrs. Eppinga, Quigley and Morgan. The
Nominating and Corporate Governance Committee reviews governance issues and
makes recommendations to the Board for committee assignments and chairmanships
of the committees. The Nominating Committee also considers candidates for
appointment
7
<PAGE> 10
to the Board and other such duties delegated to it. The Nominating and Corporate
Governance Committee will consider candidates for appointment to the Board
recommended by shareholders who comply with the provisions of the Company's
Bylaws relating to nomination of directors. See "Shareholder Proposals." The
Nominating and Corporate Governance Committee met three times during the year
ended December 31, 1997.
During the year ended December 31, 1997, all directors attended at least
75%, in the aggregate, of the meetings of the Board and Committees of which they
were members during the periods they were members. During the past year, the
Board of Directors met 11 times.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not officers of the Company fees for
their services as directors. Such directors receive annual compensation of
$12,000 plus a fee of $750 ($1,000 for the Chairman of each meeting) for
attendance (in person or by telephone) at each meeting of the Board of Directors
and committee meetings. Directors of the Company who are also employees or
officers are not paid director fees.
On each December 31, each director of the Company who is not otherwise an
employee of the Company or any of its subsidiaries or affiliates, automatically
receives an annual grant of options to purchase 4,000 Common Shares at an
exercise price equal to 100% of the fair market value of the Common Shares on
the date of grant of such option. Upon appointment to the Board, non-employee
directors receive a grant of options to purchase 5,000 Common Shares at an
exercise price equal to the fair market value of the Common Shares on the date
of grant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than ten percent (10%) of a
registered class of its equity securities, to file with the Securities and
Exchange Commission and the New York Stock Exchange initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Such officers, directors and beneficial owners are also required
by Securities and Exchange Commission rules and regulations to furnish the
Company with copies of all Section 16(a) forms they file.
The Company is aware that the following directors and officer tendered late
reports required by Section 16(a): Mr. Stewart W. Bowie, who retired as a
director in 1997, filed three delinquent Form 4 reports regarding five
transactions; Mr. John F. Kooken filed one delinquent Form 4 report regarding
one transaction; Mr. Robert E. Morgan filed two delinquent Form 4 reports
regarding three transactions; and Ms. Kimberly G. Brown filed one delinquent
Form 4 report regarding one transaction. All delinquencies were subsequently
reported on a Form 5 report, submitted for the year ended December 31, 1997.
8
<PAGE> 11
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE
1993 SHARE OPTION PLAN
On March 11, 1998, the Board of Directors unanimously adopted, subject to
shareholder approval, an amendment to the Company's 1993 Share Option Plan (the
"Share Option Plan") to increase the number of shares reserved for issuance
thereunder from 1,050,000 shares (150,000 of which have been reserved for awards
to non-employee directors) to 2,300,000 shares (300,000 of which will be
reserved for awards to non-employee directors) (the "Increased Share
Amendment"). The Board adopted the Increased Share Amendment to ensure that the
Company can continue to grant stock options to employees at levels determined
appropriate by the Board and the Compensation Committee.
Approval of the Amendment to the Share Option Plan requires the affirmative
vote of a majority of the shares of voting stock present in person or
represented by proxy at the Annual Meeting and entitled to vote on this proposal
(which includes all outstanding Common Shares as of the Record Date and all
outstanding shares of Class A Preferred Stock and Class B Preferred Stock). The
following is a description of the material provisions of the Share Option Plan.
A copy of the proposed Amendment to the Share Option Plan is set forth in
Appendix A to the Proxy Statement.
The Share Option Plan provides for grants of options to purchase a
specified number of Common Shares ("Options"), awards of restricted Common
Shares ("Restricted Stock") and grants of stock appreciation rights ("SARs").
Under the Share Option Plan, the total number of shares available to be granted
prior to the amendment proposed herein was 1,050,000 Common Shares (150,000 of
which have been reserved for awards to non-employee directors). As of December
31, 1997, options and awards of Restricted Stock covering an aggregate of
814,296 shares of the Company's Common Shares had been granted under the Share
Option Plan and 235,704 shares remained available for future grants under the
plan. In the event of certain extraordinary events, the Board of Directors or
the Compensation Committee may make such adjustments in the aggregate number and
kind of shares reserved for issuance, the number of shares and kind covered by
outstanding awards and the exercise prices specified therein as may be
determined to be appropriate.
Participants in the Share Option Plan, who may be officers or any other
employees of the Company, are selected by the Compensation Committee. Directors
of the Company are also eligible to participate, but, in the case of directors
who are not also employees, only pursuant to automatic grants under a specified
formula set forth in the Share Option Plan. The Share Option Plan provides that
each newly appointed or elected director will receive a nonqualified stock
option to purchase 5,000 shares of Common Stock at an exercise price equal to
100% of the fair market value of the Common Stock as of such date of grant.
Moreover, on each December 31, each director automatically receives a
nonqualified stock option to purchase 4,000 shares of Common Stock at an
exercise price equal to 100% of the fair market value of the Common Stock on
such date of grant. No employees may receive a grant of options for more than
100,000 Common Shares in any calendar year.
The Share Option Plan authorizes the Compensation Committee to grant
Options at an exercise price determined by the Compensation Committee, but not
less than 100% of the fair market value of the Common Shares on the date on
which the Option is granted. The exercise price is generally payable in cash or,
in certain circumstances, by the surrender, at the fair market value on the date
on which the Option is exercised, of Common Shares or by requesting that the
Company withhold a number of Common Shares with a fair market value equal to the
aggregate option exercise price. The vesting provisions, if any, of the Options
and Restricted Stock will be determined by the Compensation Committee. The
Committee may accelerate or extend the exercisability or vesting of any Options
or Restricted Stock or extend the term of any Option. However, all Options must
expire no later than ten years after the date of grant. Generally, the right of
any participant to exercise an Option may not be transferred in any way other
than by will or the laws of descent and distribution.
The Company may loan to an Option holder funds sufficient to exercise all
or a portion of any Options, such loans to be made at the absolute discretion of
the Company's Board of Directors. Each such loan shall be
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evidenced by a promissory note of the Option holder bearing interest equal to
the then prime rate of interest charge by Bank of America NT&SA, which rate
shall be adjusted annually. The note shall be unsecured with full recourse
against the Option holder. The note shall be repaid over a period of time not to
exceed five years, with 10% minimum annual installments and the unpaid principal
shall be payable at the end of the fifth year; provided that the Company may
demand payment, in addition to such installments, as may be required for it to
remain in compliance with any applicable state or federal regulation.
The Share Option Plan permits the Compensation Committee to grant shares of
Restricted Stock to a participant subject to the terms and conditions imposed by
the Compensation committee. These terms include a restriction period (the
"Restriction Period") during which the shares of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered. Except for such
restrictions on transfer and such other restrictions as the Compensation
Committee may impose, the participants have all the rights of a holder of Common
Shares as to such Restricted Stock including the right to vote the shares and
the right to receive any cash distributions. If so determined by the
Compensation Committee in the applicable Restricted Stock agreement, the
Compensation Committee may require the payment of cash distributions to be
deferred and reinvested in additional Restricted Stock. Except as provided by
the Compensation Committee at the time of grant or otherwise, upon a termination
of employment for any reason during the Restriction Period, all shares still
subject to restriction will be forfeited by the participant.
The Share Option Plan also permits the Compensation Committee to grant
SARs. SARs will typically be granted in tandem with Options and entitle the
holder to surrender all or a portion of an Option in exchange for an amount
equal to the difference between the fair market value of a Common Share on the
date of exercise and the exercise price of the Option. Amounts may be payable,
at the option of the Compensation Committee, either in cash or in Common Shares.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The following discussion of the federal income tax consequences relating to
the exercise of any option or any disposition of stock acquired under the Share
Option Plan pursuant to an option exercise is based on present federal tax laws
and regulations and does not purport to be a complete description of the federal
income tax laws. Participants may also be subject to certain state and local
taxes which are not described below. Accordingly, each Participant should
consult his or her own tax adviser with respect to the application of the
general principles discussed below to his or her particular situation, the
advisability of making the elections described below, and the impact of state
and local taxes.
Options granted under the Share Option Plan may be either "incentive stock
options", as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options that are not incentive stock options
("nonqualified stock options").
NONQUALIFIED STOCK OPTIONS
The grant of a nonqualified stock option under the Share Option Plan will
not result in taxable income to the recipient at the time of the grant. When the
holder exercises the nonqualified stock option, however, he or she will
generally recognize ordinary income equal to the difference between the option
price and the fair market value of the shares at the time of exercise. The
Company is generally entitled to a corresponding deduction at the same time and
in the same amounts as the income recognized by the Option holder. See "Special
Rules for Insiders" below.
INCENTIVE STOCK OPTIONS
Except as described in the next paragraph, an employee who is granted an
incentive stock option under the Share Option Plan does not recognize taxable
income either on the date of grant or on the date of exercise. Upon disposition
of the Common Stock acquired upon exercise of an incentive stock option, capital
gain or loss (generally mid-term or long-term) will be recognized in an amount
equal to the difference between the sales price and the option exercise price,
provided that the disposition does not occur within two years of the date of
grant of the option or within one year from the date of exercise. If the
employee disposes of the Common Stock without satisfying both holding period
requirements (a "Disqualifying Disposition"), he or she will generally recognize
ordinary income at the time of such Disqualifying Disposition equal to the
lesser
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of the fair market value of the Common Stock on the date the incentive stock
option is exercised or the amount realized on such Disqualifying Disposition,
over the exercise price paid for the shares. Any remaining gain or net loss is
treated as a short-term, mid-term or long-term capital gain or loss, depending
upon how long the Common Stock is held. The Company is not entitled to a tax
deduction upon either the exercise of an incentive stock option or upon
disposition of the Common Stock acquired pursuant to such exercise, except to
the extent that the employee recognizes ordinary income in a Disqualifying
Disposition.
The excess of the fair market value of the Common Stock received upon
exercise of an incentive stock option over the option exercise price is
includable in the employee's AMTI, and therefore exercise of an incentive stock
option could give rise to liability for alternative minimum tax ("AMT"). The AMT
imposed on individual taxpayers is generally equal to the amount by which 28%
(26% of AMTI below certain amounts) of the individual's AMTI (reduced by certain
exemption amounts) exceeds his or her regular income tax liability for the year.
SARS
The recipient of an SAR is not taxed upon the grant of the SAR. Upon the
exercise of an SAR, the recipient generally will be taxed at ordinary income tax
rates on the amount of cash received and the fair market value of any Common
Stock received. The amount of ordinary income recognized by the recipient is
deductible by the Company in the year that the income is recognized.
RESTRICTED STOCK AWARDS
In general, no income is recognized by the recipient upon the grant of a
Restricted Stock award. Unless the recipient makes an election described below,
the recipient will recognize ordinary income when the restrictions lapse equal
to the excess of the fair market value of the Restricted Stock at the time the
restrictions lapse over the amount which the recipient paid for the Restricted
Stock, if any. The Company may deduct an amount equal to the income recognized
by the recipient at the time the recipient recognizes the income. See "Special
Rules for Insiders" below.
The recipient may elect, within 30 days after the date of receipt of the
award, to recognize income arising from the Award as of the award date. If such
election is made, the recipient will recognize ordinary income in an amount
equal to the excess of the fair market value of the stock over the amount paid,
if any, at the time of receipt. If, however, such election is made and for any
reason the restrictions imposed on the Common Stock cause the Common Stock to be
forfeited, the individual will not be entitled to a deduction for the ordinary
income previously recognized.
Upon a sale of Restricted Stock after the restrictions lapse, short-term,
mid-term or long-term capital gain or loss will generally be recognized
depending on how long the shares have been held after the restrictions lapse. If
a recipient made an election to include the value of the stock in income when
awarded, however, short-term, mid-term or long-term capital gain or loss will be
recognized depending on how long the shares have been held after the award date.
SPECIAL RULES FOR INSIDERS
Any shareholder, officer or director of the Company subject to Section
16(b) of the Exchange Act (an "Insider") should consult his or her tax advisor
regarding the receipt, exercise and vesting of an Award under the Share Option
Plan, since the determination of the amount and the timing of income recognition
in connection with an Award, and the beginning of the holding period for any
Common Stock received, may be required to be deferred until the expiration of
any period during which the Insider would be restricted from disposing of any
stock received.
MISCELLANEOUS TAX RULES
In general, the Company will be required to make arrangements for
withholding applicable taxes with respect to any ordinary income recognized by
an employee in connection with Awards made under the Share Option Plan. The
Company may require employees to pay such withholding as a condition to the
employee exercising or otherwise receiving the benefit of Awards made under the
Share Option Plan.
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A holder's tax basis in Common Shares acquired pursuant to the Share Option
Plan generally will equal the amount paid for the shares (including the exercise
price of an option) plus any amount recognized as ordinary income with respect
to such shares. Other than ordinary income recognized with respect to the Common
Shares and included in basis, any subsequent gain or loss upon the disposition
of such stock generally will be capital gain or loss (short-term, mid-term or
long-term, depending on the holder's holding period).
Special rules will apply in cases where a participant pays the exercise or
purchase price of the Award or applicable withholding tax obligations under the
Share Option Plan by delivering previously owned Common Shares or by reducing
the number of Common Shares otherwise issuable pursuant to the Award. The
surrender or withholding of such shares will in certain circumstances result in
the recognition of income with respect to such shares or a carryover basis in
the shares acquired, and may constitute a Disqualifying Disposition with respect
to shares acquired upon the exercise of an incentive stock option.
The terms of the agreements pursuant to which specific Awards are made
under the Share Option Plan may provide for accelerated vesting or payment of an
Award in connection with a change in ownership or control of the Company. In
that event and depending upon the individual circumstances of the participant,
certain amounts with respect to such Awards may constitute "excess parachute
payments" under the "golden parachute" provisions of the Code. Pursuant to these
provisions, a recipient will be subject to a 20% nondeductible excise tax on any
"excess parachute payments." Recipients of Awards should consult their tax
advisors as to whether accelerated vesting of an Award in connection with a
change of ownership or control of the Company would give rise to an excess
parachute payment.
With certain exceptions, an individual may not deduct investment interest
to the extent such interest exceeds the individual's net investment income (as
defined in the Code) for the year. Investment interest generally includes
interest paid on indebtedness incurred to purchase Common Shares. Interest
disallowed under this rule may be carried forward to and deducted in later
years, subject to the same limitations.
The Company generally obtains a deduction equal to the ordinary income
recognized by the recipient of an award. However, the Company's deduction for
such amounts (including amounts attributable to the ordinary income recognized
with respect to options) may be limited to $1,000,000 (per person) annually. In
addition, no deduction is allowed for compensation that is subject to the 20%
excise tax discussed above.
Unless the proxy holder directs otherwise, the Common Shares represented by
a signed Proxy Card will be voted FOR Proposal 2, the amendment of the Company's
Share Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE COMPANY'S
SHARE OPTION PLAN.
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PROPOSAL 3
INCREASE IN AUTHORIZED COMMON SHARES
On March 11, 1998, the Board of Directors unanimously adopted, subject to
shareholder approval, an amendment to the Company's Charter that would, among
other things, increase the number of authorized shares of Common Stock from
25,000,000 shares to 100,000,000 shares (the "Common Stock Amendment"). Proposal
3 would also increase the authorized number of shares of Excess Stock to
105,000,000 unless Proposal 5 is approved, in which case the Excess Stock would
be eliminated.
The Company is currently authorized to issue 25,000,000 shares of Common
Stock, 5,000,000 shares of Preferred Stock and 30,000,000 shares of Excess
Stock. As of April 1, 1998, 19,986,609 Common Shares, 1,351,351 shares of Class
A Preferred Stock, 1,411,765 shares of Class B Preferred Stock and no Excess
Shares were outstanding. The aggregate of 2,763,116 shares of Preferred Stock
were convertible into a like number of shares of Common Stock. As of such date,
options to purchase an aggregate of 691,650 Common Shares were outstanding. The
Common Stock is traded on the NYSE, under the symbol "PAG." Holders of Common
Shares have no preemptive rights.
The Board of Directors believes that it is necessary to increase the number
of authorized shares of Common Stock to provide for flexibility to issue
additional shares in financings or acquisitions when appropriate, to allow
shares for stock splits or stock dividends in the future when appropriate and to
provide shares for issuance pursuant to employee benefits plans. The Company has
completed a number of property acquisitions in recent years using "DOWNREIT"
structures in which units of newly-formed partnerships are issued to the
property sellers as consideration for the property. The units may, in turn, be
tendered by the holder to the Company for redemption and the Company typically
has an option to issue shares of Common Stock or cash in respect of such units.
The Company continues to evaluate acquisitions of this type.
The Board has the authority to issue shares of Common Stock in one or more
series and to establish the rights, preferences and privileges of each such
series without stockholder approval, unless such approval is required by
applicable law or the rules and regulations of the NYSE. If the Common Stock
Amendment is approved, the increase in number of authorized shares would enhance
the ability of the Board of Directors to render more difficult or discourage an
attempt by another person or entity to obtain control of the Company in the
future. Such additional shares could be issued by the Board of Directors in a
public or private sale, merger or similar transaction, increasing the
outstanding number of shares and thereby diluting the equity interest and voting
power of a person or entity attempting to obtain control of the Company. In
addition, the issuance of shares otherwise than on a pro rata basis to all
current stockholders would reduce the current stockholders' proportionate
interests in the Company and could therefore be dilutive to the financial and
voting interests of current stockholders. However, in any such event,
stockholders wishing to maintain their interests may be able to do so through
normal market purchases.
If Proposal 3 is approved, and if Proposals 4 and 5 are not approved,
Article V, Paragraph A of the Charter would be amended (by the filing of
Articles of Amendment) to read in its entirety as follows:
A. Classes and Number of Shares. The total number of shares of stock
of all classes which the Corporation shall have the authority to issue is
210,000,000 shares of which (i) 100,000,000 shares are shares of Common
Stock, par value $.01 per share ("Common Stock"), (ii) 105,000,000 shares
are shares of Excess Stock, par value $.01 per share ("Excess Stock"), and
(iii) 5,000,000 shares are shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"). The aggregate par value of all authorized shares
of stock having par value is $1,050,000.
Stockholders should note that Proposals 4 and 5 also relate to certain
proposed changes to the Company's Charter and, if approved along with Proposal
3, would result in further amendments to Article V of the Company's Charter,
with such amendments to be effected by the filing of the Articles of Amendment
and Restatement in the form attached hereto as Appendix B. Please see Proposals
4 and 5 below for additional information.
Unless the proxy holder directs otherwise, the Common Shares represented by
a signed Proxy Card will be voted FOR Proposal 3, the Common Stock Amendment
described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3, THE COMMON STOCK
AMENDMENT.
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PROPOSAL 4
INCREASE IN AUTHORIZED PREFERRED STOCK
AND AMENDMENT OF CLASS A PREFERRED STOCK
AND RECLASSIFICATION OF SERIES B PREFERRED STOCK
On March 11, 1998, the Board of Directors unanimously adopted, subject to
shareholder approval, an amendment to the Company's Charter that would, among
other things, (i) increase the authorized number of shares of Preferred Stock
from 5,000,000 shares to 10,000,000 shares and (ii) reclassify the issued and
outstanding shares of Class B Preferred Stock as Class A Preferred Stock and, in
connection with such reclassification, amend the liquidation preference and
redemption provision of such Class A Preferred Stock (collectively, the
"Preferred Stock Amendment").
INCREASE IN AUTHORIZED PREFERRED STOCK
As described above, the Company is currently authorized to issue 25,000,000
shares of Common Stock, 5,000,000 shares of Preferred Stock and 30,000,000
shares of Excess Stock. As of April 1, 1998, 1,351,351 shares of Class A
Preferred and 1,411,765 shares of Class B Preferred were outstanding. The
aggregate of 2,763,116 shares of Preferred Stock were convertible into a like
number of shares of Common Stock.
As described above in connection with the proposed Common Stock Amendment,
the Board of Directors believes that it is necessary to increase the number of
authorized shares of Preferred Stock to provide for flexibility to issue
additional shares in financings or acquisitions when appropriate.
The Board has the authority to issue shares of Preferred Stock in one or
more series and to establish the rights, preferences and privileges of each such
series without stockholder approval, unless such approval is required by
applicable law or the rules and regulations of the NYSE. If the Preferred Stock
Amendment is approved, the increase in number of authorized shares would enhance
the ability of the Board of Directors to render more difficult or discourage an
attempt by another person or entity to obtain control of the Company in the
future. Such additional shares could be issued by the Board of Directors in a
public or private sale, merger or similar transaction, increasing the
outstanding number of shares and thereby diluting the equity interest and voting
power of a person or entity attempting to obtain control of the Company. In
addition, the issuance of shares otherwise than on a pro rata basis to all
current stockholders would reduce the current stockholders' proportionate
interests in the Company and could therefore be dilutive to the financial and
voting interests of current stockholders. However, in any such event,
stockholders wishing to maintain their interests may be able to do so through
normal market purchases.
AMENDMENT OF CLASS A PREFERRED STOCK AND RECLASSIFICATION OF CLASS B PREFERRED
STOCK
Overview. The Board has proposed amending the terms of the outstanding
Class A Preferred Stock and reclassifying the outstanding Class B Preferred
Stock to, in effect, blend the two series of Preferred Stock into one series,
which will be referred to as Class A Preferred Stock. No additional Preferred
Stock is being issued in connection with the Preferred Stock Amendment, nor are
the terms of the outstanding shares of Preferred Stock, taken as a whole, being
altered in a material way. The existing terms of the Class A Preferred Stock and
the Class B Preferred Stock are described in more detail below.
Proposed Amendment and Reclassification. The Preferred Stock Amendment
would result in the following changes to the Class A Preferred Stock and Class B
Preferred Stock:
- The authorized number of shares of Class A Preferred Stock would be
increased from 1,351,351 to 2,763,116 (the increase of 1,411,765 shares
being equal to the number of outstanding shares of Class B Preferred
Stock);
- The terms of the Class A Preferred Stock would be amended to (i) change
the liquidation preference from $18.50 to $19.905, which represents the
blended rate (or weighted average) of the existing amounts for the Class
A Preferred Stock and Class B Preferred Stock and (ii) change the date of
earliest redemption to April 1, 2002, the earliest date on which the
Company could have redeemed the Class B Preferred Stock; and
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- Each of the issued and outstanding shares of Class B Preferred Stock
would be reclassified as one share of Class A Preferred Stock.
Reasons for Amendment and Reclassification of Preferred Stock. As
described above, all of the outstanding shares of each of the Class A Preferred
Stock and Class B Preferred Stock are held by Five Arrows. The Articles
Supplementary for the Class B Preferred Stock provide that the holders of Class
B Preferred Stock have voting rights similar to those of the holders of Class A
Preferred Stock with respect to, among other things, the election of directors.
Generally, after June 30, 1998, the holders of the Class B Preferred Stock have
the right, under certain circumstances, to elect one additional director to the
Company's Board of Directors. However, the holders of the Class B Preferred
Stock are not entitled to exercise their right to elect an additional director
as long as all of the outstanding shares of the Class A Preferred Stock and
Class B Preferred Stock are held by the same owner. Furthermore, the right of
the holders of the Class B Preferred Stock to elect an additional director will
be eliminated when and if the Class B Preferred Stock is reclassified as Class A
Preferred Stock as described herein. Thus, if Proposal 4 is approved, the right
of the holders of Class B Preferred Stock to elect an additional director, which
would take effect after June 30, 1998 under certain circumstances, would instead
be eliminated.
Additionally, by combining the two outstanding classes of Preferred Stock
the Company will simplify its capital structure and provide for greater
liquidity for the holders of such Preferred Stock without materially altering
the terms of the Preferred Stock, taken as a whole.
The terms of the Class A Preferred Stock and Class B Preferred Stock are
described in more detail below.
Description of Class A Preferred Stock. In December 1996, the Company
entered into an agreement with Five Arrows to issue an aggregate of 1,351,351
shares of Class A Preferred Stock at an aggregate price of $25 million ($18.50
per share), all of which shares were issued in 1997. The Class A Preferred
Stock, the Class B Preferred Stock and 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 Stock is the greater of $1.70 or 104% of the
then-current dividend on the Common Stock thereafter. The liquidation preference
of the Class A Preferred Stock is $18.50 per share, plus an amount equal to any
accumulated, accrued and unpaid dividends. The Company may redeem the Class A
Preferred Stock beginning on December 31, 2001 for cash in an amount equal to
$18.50 per share of Class A Preferred Stock plus accrued and unpaid dividends
and plus a premium initially equal to 6.0% of $18.50. This premium decreases to
zero after 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 Stock 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 1997, Five Arrows appointed James Quigley 3rd to serve in this capacity. In
addition, upon the occurrence of the failure of the Company to pay a quarterly
dividend on the Common Stock in an amount of at least $.40 per share, the
failure of the Company to meet certain earnings before interest, depreciation
and amortization budgets for three consecutive quarters or the failure of the
Company to pay accrued dividends on the Class A Preferred Stock, Five Arrows
would be granted one additional seat on the Board.
If a Change in Control or Put Event (each, as defined below) occurs as a
result of the voluntary (and not legally compelled) act, omission or
participation of the Company, which act, omission, or participation the Company
had the discretion under existing laws and regulations to refrain from, then
each holder of Class A Preferred Stock will have the right to require the
Company to redeem such holder's share of Class A Preferred Stock 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, to
the date of purchase or the date that payment is made available. If a change of
Control or Put Event occurs that is not the result of such voluntary act,
omission or participation of the Company, the Company may elect not to make the
foregoing put payment in which event the Conversion Ratio shall be revised to
the greater of (i) 75% of the then current Conversion Ratio so that each Class A
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 then current market price and the
denominator of which is $18.50.
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The following terms, as used herein, have the following meanings:
"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 1934, as amended
(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 Company; (ii) other than with respect to the election,
resignation or replacement of the directors elected by Preferred Shareholders,
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors of the Company (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 Company then in
office; and (iii)(A) the Company 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 Company, which in either event (A) or (B)
is pursuant to a transaction in which the outstanding voting capital stock of
the Company is reclassified or changed into or exchanged for cash, securities or
other property (unless the holders of the voting capital stock of the Company
immediately prior to such transaction hold immediately after such transaction
more than 50% of the outstanding voting capital stock of the Successor Entity.
"Put Event" means each occurrence of any of (i) the Company 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 Class A Preferred Stock; (ii)
the Company 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 Class A Preferred
Stock; or (iii) the Company 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 Company's Annual Report on Form 10-K, as amended, as filed with
the Securities and Exchange Commission for the year ended December 31, 1996.
Five Arrows is prohibited from transferring any Class A Preferred Stock, or
any shares of Common Stock into which such Class A Preferred Stock have been
converted, until June 30, 1998. 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 1933, as amended, of the Class A Preferred Stock or
the shares of Common Stock into which such Class A Preferred Stock have been
converted.
Description of Class B Preferred Stock. In May 1997, the Company entered
into a second agreement with Five Arrows to issue 1,411,765 shares of Class B
Senior Cumulative Convertible Preferred Stock (the "Class B Preferred Stock") at
a price of $21.25 per share. The Company issued all of such shares in 1997. As
part of such agreement, Five Arrows agreed that it would not transfer any Class
A Preferred Stock or Class B Preferred Stock, or any shares of Common Stock into
which such shares of Preferred Stock have been converted, until June 30, 1998.
The terms of the Class B Preferred Stock are substantially similar to those of
the Class A Preferred Stock, except that (i) the liquidation preference of the
Class B Preferred Stock is $21.25 per share (plus accumulated, accrued and
unpaid dividends) and (ii) Five Arrows will not be entitled to designate any
additional representatives to the Company's Board of Directors while it owns
both the Class A Preferred Stock and the Class B Preferred Stock. The voting
rights of the Class B Preferred Stock are described in more detail above.
Stockholders should note that Proposals 3 and 5 also relate to certain
proposed changes to the Company's Charter and, if approved along with Proposal
4, would result in additional amendments to the Company's Charter, with such
amendments to be effected by the filing of the Articles of Amendment and
Restatement in
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the form attached hereto as Appendix B. Please see Proposal 3 and Proposal 5 for
additional information. As reflected below, Proposal 4 would also increase the
authorized number of shares of Excess Stock to an amount equal to the sum of the
number of shares of authorized Common Stock and the number of shares of
authorized Preferred Stock, unless Proposal 5 is approved, in which case the
Excess Stock would be eliminated.
If Proposal 4 is approved, and if Proposals 3 and 5 are not approved,
Article V, Paragraph A of the Charter would be amended (by the filing of
Articles of Amendment) to read in its entirety as follows:
A. Classes and Number of Shares. The total number of shares of stock
of all classes which the Corporation shall have the authority to issue is
70,000,000 shares of which (i) 25,000,000 shares are shares of Common
Stock, par value $.01 per share ("Common Stock"), (ii) 35,000,000 shares
are shares of Excess Stock, par value $.01 per share ("Excess Stock") and
(iii) 10,000,000 shares are shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"). The aggregate par value of all authorized shares
of stock having par value is $700,000.
If Proposals 3 and 4 are approved but Proposal 5 is not approved, Article
V, Paragraph A of the Charter would be amended (by the filing of Articles of
Amendment) to read in its entirety as follows:
A. Classes and Number of Shares. The total number of shares of stock
of all classes which the Corporation shall have the authority to issue is
220,000,000 shares of which (i) 100,000,000 shares are shares of Common
Stock, par value $.01 per share ("Common Stock"), (ii) 110,000,000 shares
are shares of Excess Stock, par value $.01 per share ("Excess Stock") and
(iii) 10,000,000 shares are shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"). The aggregate par value of all authorized shares
of stock having par value is $2,220,000.
In addition, if Proposal 4 is approved, the Charter would be amended
(either by filing Articles of Amendment or the Articles of Amendment and
Restatement, as the case may be) to add Article XIV, as set forth in its
entirety in Appendix B hereto. Article XIV sets forth the terms of the Class A
Preferred Stock, as reclassified and amended as described above. Article XIV
also sets forth the terms of the Company's Class C Preferred Stock, which terms
are not affected by any of the Proposals sets forth in this Proxy Statement. No
shares of Class C Preferred Stock are outstanding. Please see Appendix B for
additional information.
Unless the proxy holder directs otherwise, the Common Shares represented by
a signed Proxy Card will be voted FOR Proposal 4, the Preferred Stock Amendment
described above. Five Arrows, the sole holder of all of the outstanding Class A
Preferred Stock and Class B Preferred Stock has indicated that it will vote in
favor of Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4, THE PREFERRED
STOCK AMENDMENT.
17
<PAGE> 20
PROPOSAL 5
REVISION TO OWNERSHIP LIMIT PROVISION
On March 11, 1998, the Board of Directors unanimously adopted, subject to
shareholder approval, an amendment to the Company's Charter that would, among
other things amend the provisions of the Charter relating to the ownership limit
to eliminate the Excess Stock (including the 5,000,000 shares currently
authorized) and make conforming changes to facilitate the Company's maintenance
of its status as a real estate investment trust (the "Ownership Limit
Amendment").
Proposal 5, if approved, would amend the Charter to implement certain
provisions relating to restrictions on ownership of the Company's stock that are
designed to preserve the Company's status as a "real estate investment trust"
("REIT") as defined in the Code.
With certain exceptions, the Charter currently restricts ownership of the
Company's stock by any one person (including entities and certain groups) to
9.8% of the number of shares (regardless of the class of stock owned) or value
of the outstanding capital stock of the Company, whichever is more restrictive,
and places other limits on ownership of stock of the Company. The purpose of
these restrictions is to preserve the Company's status as a REIT, since the Code
provides that no more than 50% of a REIT's stock may be owned (or considered to
be owned) by five or fewer individuals (including certain entities) during the
last half of the taxable year (the "five or fewer rule"). Under the Charter,
ownership of stock in excess of these limits is void. In addition, the Charter
currently authorizes a class of stock referred to as "Excess Stock," and
provides generally that if the Company obtains a ruling from the Internal
Revenue Service ("IRS") that the issuance of Excess Stock and the conversion of
Common Stock or Preferred Stock into Excess Stock will not cause the Company to
fail to qualify as a REIT, any stock owned in violation the ownership
limitations will be converted into Excess Stock, and will be deemed transferred
to a trust for the benefit of a beneficiary. The precise terms of the trust, the
identity of the trustee and the beneficiary of the trust, and the rights of the
beneficial and record owners of the stock that would be owned in violation of
the ownership restrictions were to be as determined by the Board of Directors of
the Company as required to obtain the IRS ruling. The precise terms of the
Excess Stock were to be as determined by the Board of Directors of the Company
as required to obtain the IRS ruling, and were to be set forth in articles
supplementary to the Charter. The purpose of the trust mechanism was to avoid
certain legal and tax issues that could arise if the sole consequence of
attempted ownership in violation of the restrictions were that such ownership is
void.
Since the time the ownership restrictions in the Charter were implemented,
the IRS has issued numerous rulings to other REITs with respect to ownership
restrictions and, while the Company is not entitled to rely on those rulings
(since none of them was issued to the Company), the Company has determined that
current standard practice in the REIT industry is to provide for a trust
mechanism for the ownership of shares acquired or otherwise owned in excess of
REIT ownership restrictions without first obtaining an IRS ruling. In addition,
the Company has determined that, based on other industry precedents and the
rulings referred to above, it is not necessary to have a separate class of stock
(i.e., the Excess Stock) in order to implement the trust mechanism. The
Ownership Limit Amendment would also apply the ownership restrictions to limit
actual or constructive ownership of stock of the Company where, as a result of
that ownership, the Company would be treated as receiving related-party rent
income that could cause the Company to violate the gross income requirements
applicable to REITs. In addition, the Company has decided that it would be in
its best interest to apply the 9.8% ownership limit to ownership (including
constructive ownership) of Common Stock independently of ownership of any other
class of stock, since under the current Charter a person could own more than
9.8% of the Common Stock without exceeding the ownership restrictions (due to
the existence of the Class A Preferred Stock and Class B Preferred Stock) but,
upon certain events, such ownership could result in ownership in violation of
the five or fewer rule.
If Proposal 5 is approved, the Charter would be amended to provide that the
ownership limit would be the more restrictive of (a) 9.8% of the number of
shares or value, whichever is more restrictive, of the outstanding Common Stock,
and (b) 9.8% of the value of all outstanding stock of the Company, provided that
the Board of Directors of the Company would have the right to increase or
decrease the limit subject to certain limitations, including limitations on the
effect of such a change on existing holders of the Company's capital
18
<PAGE> 21
stock. In the event of a transfer or other event that, if effective, would
result in ownership (including "Beneficial Ownership" and "Constructive
Ownership," each as defined in the Articles of Amendment and Restatement
attached hereto as Appendix B), the shares that would be owned in violation of
the restrictions would be deemed to have been transferred to a trust for the
exclusive benefit of one or more charitable beneficiaries designated by the
Company. The trustee of the trust will be permitted to sell the shares to a
third party designated by the trustee (including through the facilities of a
stock exchange). The trustee will have the right to vote and receive dividends
on shares deemed transferred to the trust, and any dividends paid to a person
who would have owned the shares in violation of the ownership limits shall be
paid to the trustee, and the trustee will have to right to rescind any votes
cast by such person with respect to those shares and recast those votes as
desired by the trustee acting for the benefit of the beneficiary (except that
the trustee shall not have the right to rescind a vote upon which the Company
has acted). In addition, Proposal 5 deletes the exemption to the ownership
limitation with respect to Realty, given that Realty sold its remaining interest
in the Company in 1996. Proposal 5 contains other relatively minor changes to
the Charter, all of which are reflected on Appendix B hereto.
If Proposal 5 is approved and Proposals 3 and 4 are not approved, the
Charter would be amended (by the filing of Articles of Amendment) as described
in this Proposal 5 and references to Excess Stock in Article V, Paragraph A
would be deleted. Shareholders are urged to review Appendix B hereto prior to
voting for or against Proposal 5.
Stockholders should note that Proposals 3 and 4 also relate to proposed
changes to the Company's Charter and, if approved, would result in further
amendments to the Charter. Please see Proposals 3 and 4 for additional
information.
Unless the proxy holder directs otherwise, the Common Shares represented by
a signed Proxy Card will be voted FOR the Ownership Limit Amendment described
above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE OWNERSHIP LIMIT AMENDMENT.
19
<PAGE> 22
OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn L. 55 Chairman of the Board, President, Chief Executive Officer
Carpenter and Director
Donald G. Herrman 41 Executive Vice President, Chief Financial Officer and
Secretary
Lonnie P. Nadal 42 Senior Vice President of Acquisitions
Robert A. Dewey 38 Vice President of Industrial Operations
Kimberly G. Brown 42 Vice President of Apartment Operations
Angela M. Wixted 43 Vice President and Treasurer
</TABLE>
The following is a biographical summary of experience for the executive
officers, and key employees of the Company:
Glenn L. Carpenter has been Chairman of the Board since 1996 and President,
Chief Executive Officer and a director of the Company since its formation in
1993. Mr. Carpenter served as Chief Executive Officer of Santa Anita Realty
Enterprises, Inc. ("Realty") from January 1992 until February 1994, and as
President of Realty from December 1989 until February 1994. He was Chief
Operating Officer of Realty from 1989 until 1991, and was Executive Vice
President of Realty from 1988 until 1989. From 1986 until 1988, Mr. Carpenter
served as Senior Vice President-Operations of Realty, and has held a number of
other positions with Realty since 1979. Mr. Carpenter has been a member of the
National Association of Real Estate Investment Trusts ("NAREIT") since 1980, has
served on NAREIT's board of governors and is a member of the Urban Land
Institute, serving on various committees.
Donald G. Herrman has been Executive Vice President of the Company since
May 1995, Senior Vice President, Secretary, and Chief Financial Officer of the
Company since its formation in 1993, and served as Treasurer of the Company from
February 1994 to October 1994. Mr. Herrman served as Vice President-Finance and
Secretary of Realty from January 1992 until February 1994, and as Realty's
Treasurer from 1989 until February 1994. From 1985 until 1990, Mr. Herrman
served as Controller of Realty. Mr. Herrman is a certified public accountant in
California.
Lonnie P. Nadal has been Senior Vice President of Acquisitions since 1996
and prior thereto served as Vice President of Acquisitions since the Company's
formation in 1993. Mr. Nadal served as Vice President-Acquisitions of Realty
from January 1992 to February 1994, and as a Director of Operations from August
1991 until February 1994. From 1983 until 1991, Mr. Nadal was a partner of
Lincoln Property Company, a development and property management company.
Robert A. Dewey has served as Vice President of Industrial Operations since
January 1995, and Vice President of Operations of the Company since its
formation in 1993. Mr. Dewey served as Director of Asset Management for Realty
from 1992 until February 1994. From 1991 to 1992, he was oversight manager of
the Newport Beach office of the Resolution Trust Corporation. From 1988 to 1990,
Mr. Dewey was a Commercial Manager for a development company.
Kimberly G. Brown has served as Vice President of Apartment Operations
since January 1996. Ms. Brown served as Director of Apartment Operations and
Regional Manager for the Pacific Northwest apartment communities owned by the
Company from August 1993 to December 1995. From 1991 to August of 1993, Ms.
Brown served as a district manager for Lexford Properties in Irving, Texas.
Angela M. Wixted has served as Vice President and Treasurer since March
1997. From October 1994 to March 1997, she served as Treasurer and Controller.
Ms. Wixted served as a financial consultant for various clients from 1993 to
1994. From 1992 to 1993, Ms. Wixted was Controller for O'Donnell Property
Services. From 1986 to 1992, Ms. Wixted served as CFO/Controller of SDC
Investments, Inc. Ms. Wixted is a certified public accountant in California.
20
<PAGE> 23
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annualized base salary the Company paid
for 1997 to its Chief Executive Officer and to each of the other most highly
compensated officers and key employees of the Company whose cash compensation
exceeded $100,000 on an annualized basis during the year ending December 31,
1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL ---------------------------
COMPENSATION(1) SECURITIES RESTRICTED
------------------- UNDERLYING STOCK ALL OTHER
NAME CAPACITIES YEAR SALARY BONUS OPTIONS(2) AWARDS COMPENSATION(3)
---- ---------- ---- -------- -------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Glenn L.
Carpenter Chairman of Board, the 1997 $330,000 $ 95,000 100,000 $ -- $2,025
Chief Executive Officer 1996 300,000 120,000 3,000 117,000 6,930
and President 1995 300,000 86,250 10,000 613,000 5,085
Donald G. Herrman Executive Vice President, 1997 175,000 55,000 70,000 -- 2,025
Chief Financial Officer 1996 156,000 46,800 2,500 84,000 4,350
and Secretary 1995 150,000 37,250 5,000 215,000 5,085
Lonnie P. Nadal Senior Vice President 1997 160,000 49,000 65,000 -- 1,825
of Acquisitions 1996 135,200 42,000 2,000 67,000 4,056
1995 130,000 29,750 5,000 93,000 4,407
Robert A. Dewey Vice President of 1997 125,000 22,500 45,000 45,250(4) 1,544
Industrial Operations 1996 114,500 33,000 1,000 33,000 3,432
1995 110,000 17,250 5,000 59,000 3,729
Kimberly G. Brown Vice President of Apartment 1997 115,000 -- 45,000 22,625(4) 1,303
Operations 1996 95,000 28,000 1,000 17,000 2,850
1995 76,275 19,750 7,500 -- --
</TABLE>
- ---------------
(1) The Company provides automobiles and club memberships to certain key
employees, including certain officers listed above, the value of which is
not included in the table above and which in any case did not exceed the
lesser of $50,000 or 10% of the annual salary and bonus of any individual
for the applicable year.
(2) The amount shown represents the number of shares purchasable upon exercise
of an option granted under the Company's Share Option Plan. The options
shown as granted in 1997 were granted effective as of two dates: (a) March
5, 1997 with an exercise price of $23.125 with vesting occurring in equal
installments on each of the first five anniversaries of the date of grant
and (b) December 1, 1997 with an exercise price of $22.625 and vesting in
equal installments on each of the first five anniversaries of the date of
grant. The options granted in 1996 were granted effective July 1, 1996, with
an exercise price of $16.75 and vesting occuring in equal installments on
each of the first five anniversaries of the date of grant. The options shown
as granted in 1995 were granted effective December 5, 1995 with an exercise
price of $15.00 with vesting occurring in equal installments on each of the
first five anniversaries of the date of grant. For additional details
regarding option grants, see "Option Grants in Last Fiscal Year" below.
(3) The amounts shown are those expensed for financial reporting purposes under
the Company's Thrift Plan. See "Thrift Plan" below for a description of such
Plan.
(4) Restricted Common Stock. The following table sets forth information
regarding the restricted Common Stock issued during 1997 to each of the
named officers and key employees (all of which grants were made under the
Share Option Plan).
RESTRICTED COMMON STOCK GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
DATE NUMBER OF
SHARES SHARES
NAME GRANTED GRANTED VESTING PERIOD
---- ------- --------- --------------
<S> <C> <C> <C>
Robert A. Dewey................... 12/97 2,000 Equally over 5 year period
Kimberly G. Brown................. 12/97 1,000 Equally over 5 year period
</TABLE>
The shares granted in December 1997 were issued as performance-based
compensation. Distributions will be paid on the shares of restricted
Common Stock issued.
21
<PAGE> 24
SHARE OPTION PLAN
The Company adopted the Share Option Plan to provide incentives to attract
and retain officers and employees. In 1996, the Company amended the Share Option
Plan to increase the number of shares for which options may be granted from
700,000 shares to 1,050,000 shares. As described under "Proposal 2" the Company
is proposing to amend the Share Option Plan to increase the number of shares for
which options may be granted from 1,050,000 shares to 2,300,000 shares. The
Share Option Plan provides for grants of options to purchase a specified number
of shares of Common Stock, awards of restricted Common Stock, and grants of
stock appreciation rights. Under the Share Option Plan the total number of
Common Shares available to be granted is 1,050,000 (2,300,000 shares if Proposal
2 is approved), 150,000 (300,000 shares if Proposal 2 is approved) of which have
been reserved for awards to non-employee directors. Participants in the Share
Option Plan who are officers or other employees of the Company are selected by
the Compensation Committee. Directors of the Company are also eligible to
participate, but, in the case of directors who are not also employees, only
pursuant to automatic grants under a specified formula set forth in the Share
Option Plan. No employee may receive a grant of options for more than 100,000
Common Shares in any calendar year.
Stock Options. The following table sets forth (i) all individual grants of
stock options made by the Company during 1997 to each of the named officers and
key employees (all of which grants were made under the Share Option Plan), (ii)
the ratio that the number of options granted to each individual bears to the
total number of options granted to all employees of the Company, (iii) the
exercise price and expiration date of these options, and (iv) the estimated
potential realizable values assuming either a 5% or 10% annualized rate of
appreciation from the relevant date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
COMMON OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED(2) YEAR ($/SH) DATE 5% 10%
---- ---------- ---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn L. Carpenter................ 35,000 24% $23.125 3/04/07 $510,000 $1,287,000
65,000 22.625 11/30/07 926,000 2,338,000
Donald G. Herrman................. 20,000 17% 23.125 3/04/07 291,000 735,000
50,000 22.625 11/30/07 713,000 1,799,000
Lonnie P. Nadal................... 15,000 16% 23.125 3/04/07 219,000 552,000
50,000 22.625 11/30/07 713,000 1,799,000
Robert A. Dewey................... 15,000 11% 23.125 3/04/07 219,000 552,000
30,000 22.625 11/30/07 428,000 1,079,000
Kimberly G. Brown................. 15,000 11% 23.125 3/04/07 219,000 552,000
30,000 22.625 11/30/07 428,000 1,079,000
</TABLE>
- ---------------
(1) The amounts shown in these columns are based upon assumed rates of
appreciation over the option term which are prescribed by applicable SEC
regulations. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Company's Common Stock, overall market
conditions and the option holder's continued employment through the
applicable vesting periods.
(2) In each case, the first amount shown relates to options granted as of March
5, 1997 and the second amount shown relates to options granted as of
December 1, 1997.
22
<PAGE> 25
AGGREGATED OPTIONS EXERCISED IN FISCAL 1997
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the total number of all outstanding
unexercised options held by the named officers and key employees as of the end
of 1997. None of the named officers exercised any options during 1997. On
December 31, 1997, the fair market value per Common Share (based on the closing
price of the Common Shares on the NYSE) was $23.75.
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1997 AT DECEMBER 31, 1997(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn L. Carpenter................ 69,600 108,400 $396,700 $164,300
Donald G. Herrman................. 47,500 75,000 268,500 109,000
Lonnie P. Nadal................... 20,400 81,600 119,300 169,075
Robert A. Dewey................... 8,200 52,800 51,900 96,975
Kimberly G. Brown................. 4,250 51,000 32,925 91,700
</TABLE>
- ---------------
(1) Market value of underlying securities at December 31, 1997, minus the
exercise price of "in-the-money" options.
DEFERRED COMPENSATION PLAN
The Company has established a deferred compensation plan (the "Deferred
Compensation Plan") pursuant to which certain highly-compensated or management
employees of the Company may elect to defer payment of a percentage of the
compensation payable to them by the Company. Pursuant to the Deferred
Compensation Plan, the Company may make certain matching contributions equal to
the amounts of compensation elected to be deferred under the Deferred
Compensation Plan, and may also make other discretionary contributions. All
amounts deferred by employees and all contributions made by the Company under
the Deferred Compensation Plan are held in an investment fund. The Deferred
Compensation Plan is intended to be a nonqualified plan under the Code.
Mr. Carpenter received credit under the Deferred Compensation Plan for
years of service with Realty. The Company assumed the obligations of Realty and
Mr. Carpenter is fully vested. Annualized examples of the benefits, commencing
at age 65, are set forth below. The examples assume retirement as of December
31, 1997 after assumed years of service.
YEARS OF SERVICE
<TABLE>
<CAPTION>
SALARY 5 10 15 20 25 30
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $21,183 $17,365 $13,547 $ 9,730 $ 5,912 $ 7,094
125,000 26,396 21,541 16,687 11,832 6,978 8,373
150,000 31,609 25,718 19,826 13,935 8,043 9,652
175,000 37,444 31,138 24,832 18,526 12,220 14,663
200,000 43,694 37,388 31,082 24,776 18,470 22,163
225,000 49,944 43,638 37,332 31,026 24,720 29,663
250,000 56,194 49,888 43,582 37,276 30,970 37,163
275,000 62,444 56,138 49,832 43,526 37,220 44,663
300,000 68,694 62,388 56,082 49,776 43,470 52,163
325,000 74,944 68,638 62,332 56,026 49,720 59,663
350,000 81,194 74,888 68,582 62,276 55,970 67,163
</TABLE>
RETIREMENT INCOME PLAN
The Company has established a defined benefit retirement income plan (the
"Retirement Income Plan") that is noncontributory. Benefits are determined
regardless of position under a formula applied uniformly to all employees of the
Company (except as otherwise required under the Code's "top-heavy" rules
relating to
23
<PAGE> 26
"key" employees), and depend upon the employee's length of service, and the
employee's highest consecutive five year average earnings up to $160,000 less
certain social security benefits.
Employees are eligible to participate in the plan after attaining age 21
and completing one year of service. The plan currently provides for 100% vesting
of an employee's interest after five years of service, except to the extent
faster vesting is required under the Code's "top-heavy" rules.
The following table illustrates the estimated annual retirement benefit
payable under the Retirement Income Plan at age 65, after reduction for certain
social security benefits, for participants with compensation and credited years
of service shown. The benefits shown assume retirement at age 65 as of December
31, 1997, subject to the maximum annual benefit of $125,000 shown below. This
maximum annual amount is actuarially increased to participants who retire after
age 65.
YEARS OF SERVICE
<TABLE>
<CAPTION>
SALARY 5 10 15 20 25 30
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 9,664 $19,329 $28,994 $38,659 $48,324 $57,989
125,000 12,289 24,579 36,869 49,159 61,449 73,739
150,000 14,914 29,829 44,744 59,659 74,574 89,489
160,000** 15,964 31,929 47,894 63,859 79,824 95,789
200,000 15,964 31,929 47,894 63,859 79,824 95,789
</TABLE>
- ---------------
** As the annual compensation increases, the estimated annual retirement benefit
payable will remain constant due to the $160,000 compensation limit invoked
by the IRS.
Participants will receive credit under the Retirement Income Plan for
employment by Realty. The officers and their salaries covered under these plans
and their years of service for purposes of these plans are as follows:
<TABLE>
<CAPTION>
DEFERRED
ANNUAL YEARS OF RETIREMENT COMPENSATION
NAME SALARY SERVICE(1) INCOME PLAN AGREEMENT
---- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Mr. Carpenter..................... $330,000 26 Yes Yes
Mr. Herrman....................... 175,000 13 Yes No
Mr. Nadal......................... 160,000 7 Yes No
</TABLE>
- ---------------
(1) Includes years of service at Realty.
THRIFT PLAN
The Company has established a thrift plan under which employees may elect
to contribute up to 21% of their annual compensation on a combination
before-and-after tax basis, excluding bonuses. Contributions by the employee are
matched by the Company at a 75% rate with total matching contributions not
exceeding a maximum of 4 1/2% of the contributing employee's annual
compensation. Matching contributions are in the form of cash, which is used by
the trustee to purchase common shares of the Company. Employee contributions are
invested in a fixed income fund, various growth funds, or a combination thereof,
according to the employee's choice. The Plan provides for 20% vesting of
contributions by the Company for each full year of service, increasing to 100%
vesting after five years of service. (See "Summary Compensation Table" above for
the amounts contributed by the Company during 1997 for the benefit of certain of
its officers.)
EMPLOYMENT AGREEMENT
Mr. Carpenter has an employment agreement with the Company for a term of
four years commencing February 1995. The agreement provides for annual base
compensation, subject to any increases in base compensation recommended by the
Compensation Committee and approved by the Board of Directors. Mr. Carpenter and
the other officers of the Company will also receive incentive compensation in
accordance with criteria to be established by the Compensation Committee and
approved by the Board of Directors, which the Company expects will be determined
primarily on the basis of Funds from Operations growth per Common Share and in
some cases on the basis of division or other performance goals. Mr. Carpenter's
24
<PAGE> 27
employment agreement provides for certain severance payments in the event of
death or disability or upon termination by the Company without good cause and
provides for certain payments (twice the sum of current annual salary plus prior
year bonus) in the event that employment is terminated following a change in
control.
CHANGE OF CONTROL AGREEMENTS
The Company has entered into Change of Control Agreements (the "Change of
Control Agreements") with the following executive officers: Mr. Herrman, Mr.
Nadal, Mr. Dewey, Ms. Brown and Ms. Wixted (each, a "Covered Executive" and,
collectively, the "Covered Executives"). The following summary of the material
terms of the Change of Control Agreements is qualified in its entirety by
reference to the full text of the Form of Change of Control Agreement, a copy of
which has been filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, as filed with the Commission.
The Change of Control Agreements were effective as of March 16, 1998 and
expire on December 31, 2000, subject to automatic one-year extensions unless
terminated by either the Company or a Covered Executive; provided, however, that
the Change of Control Agreements may not expire prior to the expiration of 24
months after the occurrence of a "Change of Control." A "Change of Control", for
purposes of the Change of Control Agreements, includes (i) certain acquisitions
by persons not affiliated with the Company of 20% or more of the Company's
outstanding voting securities; (ii) the replacement of at least a majority of
the individuals who were members of the Company's Board on the effective date of
the Change of Control Agreements (the "Incumbent Board"); (iii) a merger,
consolidation or reorganization involving the Company, unless: (a) the Company's
stockholders as constituted immediately prior to such transaction own at least
50% of the outstanding voting securities of the corporation resulting from such
transaction (the "Surviving Corporation") in substantially the same proportion
to their ownership of the Company's voting securities prior to the transaction,
(b) the individuals who comprised the Incumbent Board immediately prior to the
execution of the agreement relating to such a transaction constitute at least a
majority of the board of the Surviving Corporation and (c) other than certain
persons and plans affiliated with the Company and persons who beneficially owned
15% or more of the Company's outstanding voting securities immediately prior to
such transaction, no person owns 15% or more of the outstanding voting
securities of the Surviving Corporation; (iv) a complete liquidation or
dissolution of the Company; and (v) a sale of substantially all of the Company's
assets to any person other than a subsidiary of the Company.
The Change of Control Agreements provide for the payment of certain
benefits to any Covered Executive whose employment with the Company is
terminated within 24 months following a Change of Control. The Change of Control
Agreements provide that, if a Covered Executive's employment with the Company is
terminated within such period for any reason other than for "Cause,"
"Disability," death or by the Covered Executive other than for "Good Reason"
(all terms as defined in the Change of Control Agreement), the Covered Executive
shall be entitled to certain benefits, including the immediate vesting of all
stock options issued under the Company's Share Plan and the payment of a
severance payment equal to twice the sum of (i) the Covered Executive's annual
base salary and (ii) the Covered Executive's annual bonus for the fiscal year
immediately preceding the fiscal year in which the Change of Control occurred.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
GENERAL
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation program. The Committee is
composed entirely of outside directors. The Compensation Committee was appointed
following the closing of the Company's initial public offering on February 18,
1994 and the appointment of the Company's independent directors. Accordingly,
the Compensation Committee did not participate in the determination of
compensation for the Company's officers and managerial employees at the outset,
or in the negotiation of the employment contracts with any of the Company's
officers or in the award of stock options to any such persons in connection with
the Company's initial public offering.
The objective of the Company's executive compensation program is to develop
and maintain reward programs which contribute to the enhancement of shareholder
value, while attracting, motivating and
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<PAGE> 28
retaining key personnel who are essential to the long-term success of the
Company. As discussed in detail below, the Company's executive compensation
program consists of both fixed (base salary) and variable (incentive)
compensation elements. Variable compensation consists of annual cash incentives,
restricted share grants and stock option grants, and may be in the form of short
term and long term arrangements. These elements are designed to operate on an
integrated basis and together comprise total compensation value.
The Compensation Committee believes that competitive base salaries are
necessary to retain and attract talented officers and managerial employees.
Subject to minimal levels specified in employment contracts, the Compensation
Committee intends that the base salaries paid to officers and managerial
employees of the Company will continue to be comparable to base salaries
received by employees occupying positions of similar responsibility in
comparable companies in the same industry. To ensure comparability, the
Compensation Committee has in the past retained, and expects in the future to
retain, the services of one or more independent compensation consultants.
The Committee reviewed executive compensation in light of the Company's
performance during 1997 and compensation data relating to companies that were
considered comparable. In this regard, the Committee considered a variety of
factors, including the achievement of operational and financial goals during
1997.
It is the Compensation Committee's belief that none of the Company's
officers or key employees will be affected by the provisions of Section 162(m)
of the Internal Revenue Code (the "Code"), which limits the deductibility of
certain executive compensation during 1997. Therefore, the Committee has not
adopted a policy as to compliance with the requirements of Section 162(m).
BASE SALARY
Base salary levels for the Company's officers are determined through annual
employment evaluations, submitted to the Committee by the Chief Executive
Officer ("CEO"), along with comparisons of companies in the real estate
industry. Salary information about comparable companies is surveyed by reference
to public disclosures made by companies in the real estate industry. In
addition, the Committee from time to time obtains information about comparable
salary levels from an outside compensation consultant. The base salary level for
the CEO is determined by the Board of Directors based upon an annual evaluation
of the performance of the CEO and recommendation from the Compensation
Committee.
ANNUAL CASH INCENTIVES
The annual cash incentive is designed to provide a short-term (one-year)
incentive to officers and key employees based on a percentage of the
individual's base salary. Incentive awards are based on the achievement of
predetermined corporate and individual performance goals. For the CEO, the
relative weights of the corporate and individual performance measures are 90% to
the Company's goals and 10% to the individual's goals. For the Executive Vice
President, the relative weights are 75% to the Company's goals and 25% to the
individual's goals, and for Vice Presidents and other officers who participate
in the bonus program, the relative weights are 75% Company goals and 25%
individual goals. Specific individual goals for each individual are established
at the beginning of the year (by the Committee in the case of the CEO and by the
CEO in all other cases) and are tied to the functional responsibilities of each
individual. Individual goals may include objective and subjective factors, such
as improving the performance of assets managed by the individual, successful
acquisitions or sales, development of leadership skills and personal training
and education. The Company's goals are based on operating performance, as
measured by a predetermined increase in funds from operations. Other than the
allocation between individual and Company goals, no specific weights are
assigned to the individual goals. In addition, no bonus awards are made if a
minimum level of funds from operations is not met.
In 1997, the Company met its performance objectives and the individual
officers' performance targets. Cash bonuses of $244,000 were awarded to the
officers, including the CEO, for 1997.
STOCK OPTIONS AND RESTRICTED SHARES
Stock options are designed to provide long-term (up to ten year) incentives
and rewards tied to the price of the Company's Common Shares. Given the
fluctuations of the stock market, stock price performance and
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<PAGE> 29
financial performance are not always consistent. The Committee believes that
stock options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's annual executive compensation program. The number of options or
shares currently held by an officer is not a factor in determining individual
grants, and the Committee has not established any target level of ownership of
Company stock by the Company's officers. However, accumulation and retention of
shares of Company stock by officers is encouraged.
Stock options may be awarded annually. The Company does not adhere to
firmly established formulas for the issuance of options. During fiscal 1997,
each officer received stock option grants. The Summary Compensation Table shows
the options granted to the named officers for the past three years, including
the CEO. In determining the size of the grants to the CEO and the other named
officers, the Committee assessed relative levels of responsibility and the
long-term incentive practices of other comparable companies.
In accordance with the provisions of PAG's Share Option Plan, the exercise
price of all options granted was equal to the market value of the underlying
Common Shares on the date of grant. Accordingly, the value of these grants to
the officers was dependent solely upon the future growth and share value of the
Company's Common Shares.
The Committee also awards restricted shares as a compensation vehicle and
to retain key individuals. Currently each of the officers hold awards. The
number of restricted shares covered by each award is determined by the Committee
in its discretion and generally reflects the extent of the officer's success in
achieving the Company's goals during the preceding year and the level of the
officer's responsibility. The Summary Compensation Table shows restricted share
awards made to the named officers since 1995, including the CEO.
All awards of restricted shares provide for vesting over three years or
longer, subject to certain events of forfeiture. Since the holder of restricted
shares would generally forfeit them if he or she were to leave PAG prior to
vesting, the Committee believes these awards are a significant factor in the
retention of key employees and support a long-term view among the officers.
The foregoing report is given by the members of the Compensation Committee,
namely:
Robert E. Morgan
Royce B. McKinley
Keith W. Renken
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<PAGE> 30
COMPARATIVE STOCK PERFORMANCE
The line graph below compares the cumulative total shareholder return on
Common Stock of the Company since February 10, 1994, the date of PAG's initial
public offering, with the cumulative total return on the S&P 500 Index and the
NAREIT Equity REIT Total Return Index over the same period. This comparison
assumes that the value of the investment in the Company's Common Shares and in
each index was $100 in February 1994 and that all dividends were reinvested.
PACIFIC GULF PROPERTIES, INC.
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PACIFIC GULF NAREIT EQUITY
(FISCAL YEAR COVERED) PROPERTIES INC. S&P 500 INDEX
<S> <C> <C> <C>
2/9/94 100.00 100.00 100.00
6/30/94 93.40 96.00 97.30
9/30/94 94.30 100.80 95.70
12/31/94 87.20 100.70 94.60
3/31/95 94.60 110.60 95.70
6/30/95 90.90 121.00 102.00
9/30/95 101.80 130.70 107.00
12/31/95 104.50 138.40 111.90
3/31/96 121.90 145.90 114.80
6/30/96 112.70 152.40 119.90
9/30/96 128.30 157.10 128.00
12/31/96 137.20 170.20 152.00
3/31/97 156.30 174.80 152.40
6/30/97 161.10 205.30 161.00
9/30/97 177.10 220.70 178.70
12/31/97 180.20 227.00 180.60
</TABLE>
CERTAIN TRANSACTIONS
In connection with the purchase by Five Arrows of the Class A Preferred
Stock, Five Arrows maintains the contractual right to elect one director to the
Company's Board of Director, and Five Arrows elected James E. Quigley 3rd to
such position in the first quarter of 1997. In May 1997, the Company entered
into an agreement with Five Arrows pursuant to which Five Arrows agreed to
purchase, and the Company agreed to issue, an aggregate of 1,411,765 shares of
Class B Preferred Stock at a price of $21.25 per share, all of which shares were
issued by the Company in 1997. For additional information regarding the Class B
Preferred Stock, see Proposal 4 above and the description of the terms of the
Class B Preferred Stock set forth therein.
28
<PAGE> 31
ANNUAL REPORT
The Annual Report of PAG for the year ended December 31, 1997, including
financial statements audited by Ernst & Young, LLP, independent auditors, and
their report thereon, is being mailed to all shareholders with this Proxy
Statement. The Annual Report does not constitute a part of the proxy
solicitation material. In addition, a copy of PAG's Annual Report on Form 10-K
for the year ended December 31, 1997, as filed with the SEC, will be sent to any
shareholder without charge upon written request to PAG, 4220 Von Karman, Second
Floor, Newport Beach, California 92660.
SHAREHOLDER PROPOSALS
Advance Notice Procedures. Under the Company's Bylaws, no business may be
conducted at the annual meeting unless brought before the meeting by or at the
direction of a majority of the Board or by a stockholder entitled to vote at the
meeting (i) whose proposal was included in the Company's proxy statement
pursuant to Rule 14a-8 under the Securities Exchange Act, as amended, or (ii)
who has delivered notice to the Company (containing certain information
specified in the Bylaws) not less than 75 days nor more than 180 days prior to
the first anniversary of the preceding year's annual meeting.
The Bylaws contain a similar provision with respect to the nominations by
stockholders for election to the Board of Directors. The Bylaws provide that, in
order for a stockholder's nomination to be considered, the stockholder must
notify the Company's Secretary not less than 75 days but not more than 180 days
prior to the anniversary of the preceding year's annual meeting. Any stockholder
nomination must include the following information regarding the nominee: name,
age, business and home address of the nominee, principal occupation for past
five years, number of shares of stock owned, and the nominee's written consent
to be named as nominee in proxy statement and to serve as a director if elected.
Additionally, the notice must include the following information relating to the
nominating stockholder: name and address, name and address of other stockholders
known to support the nomination, and the class of and number of shares of stock
held by such stockholder(s).
A copy of the full text of the Bylaw provisions relating to matters to be
considered at the annual meeting can be obtained by writing to the Company's
Secretary at the address set forth above under "Annual Report."
Proposals for Inclusion in Proxy Statements. Any proposal by a shareholder
of PAG intended to be presented at the 1999 Annual meeting of shareholders and
included in the Company's Proxy Statement must be received by PAG at its
principal executive offices not later than December 17, 1998 for inclusion in
PAG's proxy statement and form of proxy relating to that meeting.
INDEPENDENT AUDITORS
Ernst & Young, LLP served as the Company's independent auditors for the
1997 fiscal year. A representative of Ernst & Young, LLP will be present at the
Annual Meeting to respond to appropriate questions and to make such statements
as they may desire. The Company's Board of Directors will, consistent with past
practice, appoint the independent auditor for 1998 in the third quarter of 1998.
OTHER MATTERS
PAG is not aware of any business or matter other than those indicated above
which may properly be presented at the Annual Meeting. If, however, any other
matter properly comes before the Annual Meeting, the proxy holders will, in
their discretion, vote thereon in accordance with their best judgment.
By Order of the Board of Directors,
DONALD G. HERRMAN
Secretary
April 16, 1998
29
<PAGE> 32
APPENDIX A
AMENDMENT TO THE
PACIFIC GULF PROPERTIES INC.
1993 SHARE OPTION PLAN
This Amendment to the Pacific Gulf Properties Inc. 1993 Share Option Plan
(the "Amendment") is adopted by Pacific Gulf Properties Inc., a Maryland
corporation (the "Company"), effective as of May 13, 1998.
RECITALS
A. The Company's 1993 Share Option Plan (the "Plan") was adopted by the
Board of Directors on October 27, 1993 and approved by the shareholders of the
Company on October 28, 1993.
B. The Plan was amended in 1996 and 1997 by the Board of Directors and each
such amendment was approved by the shareholders of the Company on May 8, 1996
and on May 7, 1997, respectively.
C. Section 5.6 of the Plan provides that the Board may amend the Plan,
subject in certain circumstances to receipt of approval of the shareholders of
the Company.
D. On March 11, 1998, the Board of Directors of the Company unanimously
adopted an Amendment to the Plan to increase the number of shares of Common
Stock reserved for issuance under the Plan from 1,050,000 to 2,300,000, subject
to approval of the shareholders.
E. The Amendment to the Plan was presented to the shareholders for approval
at the 1998 Annual Meeting held on the 13th day of May, 1998.
AMENDMENT
1. Paragraph (a) of Section 1.4 is hereby amended to read in its entirety
as follows:
"(a) Number of Shares. The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to Eligible Employees
under this Plan shall not exceed 2,300,000 shares, and the maximum number
of shares of Common Stock that may be delivered under the provisions of
Article VII shall not exceed 300,000 shares, in each case subject to
adjustments contemplated by Section 5.2. The maximum number of shares
subject to options which may be granted to an Eligible Employee during any
one-year period shall not exceed 100,000, subject to adjustment as
contemplated in Section 5.2."
The undersigned, Donald G. Herrman, Secretary of the Company, hereby
certifies that the Board and the shareholders of the Company adopted the
foregoing Amendment to the Plan on March 11, 1998 and May 13, 1998,
respectively.
Executed at Newport Beach, California this day of May 1998.
PACIFIC GULF PROPERTIES, INC.
Donald G. Herrman
Secretary
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<PAGE> 33
APPENDIX B
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PACIFIC GULF PROPERTIES INC.
Pacific Gulf Properties Inc., a Maryland corporation having its principal
office in Baltimore City, Maryland (which is hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: PACIFIC GULF PROPERTIES INC., a Maryland corporation (the
"Corporation"), desires to amend and restate its Charter currently in effect.
SECOND: The Charter is hereby amended and restated, in full, to read as
follows:
ARTICLE I
THE UNDERSIGNED, Henry D. Kahn, whose address is 36 S. Charles Street,
Baltimore, Maryland 21201, being at least 18 years of age, acting as
incorporator, does hereby form a corporation under the General Laws of the State
of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") shall be:
PACIFIC GULF PROPERTIES INC.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed and the business and
objects to be carried on and promoted by it are to engage in any lawful act or
activity (including, without limitation or obligation, engaging in business as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended, or any successor statute (the "Code")) for which corporations may be
organized under the general laws of the State of Maryland as now or hereafter in
force. For purposes of these Articles, "REIT" means a real estate investment
trust under Sections 856 through 860 of the Code. The Board of Directors may
determine that it is no longer in the best interests of the Corporation to
qualify as a REIT and upon any such determination the Board of Directors may
revoke or otherwise terminate the Corporation's election to be a REIT pursuant
to Section 856(g) of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the Corporation's principal office in the State of Maryland
is c/o CT Corporation System, 32 South Street, Baltimore, Maryland 21202. The
resident agent of the Corporation is CT Corporation System, 32 South Street,
Baltimore, Maryland 21202. The resident agent is a Maryland corporation located
in the State of Maryland.
ARTICLE V
STOCK
A. Classes and Number of Shares. The total number of shares of stock of all
classes which the Corporation shall have authority to issue is 110,000,000
shares, of which (i) 100,000,000 shares are shares of Common Stock, par value
$.01 per share ("Common Stock") and (ii) 10,000,000 shares are shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"). The aggregate par
value of all authorized shares of stock having par value is $1,100,000.
B. Ability to Reclassify. The Board of Directors may classify and
reclassify any unissued shares of any class of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of
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redemption of such shares of stock. Subject to the terms and conditions of any
outstanding capital stock, the power of the Board of Directors to classify and
reclassify any of the shares of capital stock shall include, without limitation,
subject to the provisions of the charter, authority to classify or reclassify
any shares of such stock into a class or classes of stock that have a priority
as to distributions and upon liquidation and to divide and classify shares of
any class into one or more series of such class by determining, fixing or
altering one or more of the following:
(1) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided, however, that,
unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by the
Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such class
or series may be increased by the Board of Directors in connection with any
such classification or reclassification and any shares of a class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of
the authorized capital stock and be subject to classification and
reclassification as provided in this subparagraph.
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or
series of stock and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board of Directors shall
determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and different redemption dates and whether
or not there shall be any sinking fund or purchase account in respect
thereof and, if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a parity with
such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of such
dividends or making of distributions on, or the acquisitions of, or the use
of moneys for purchase or redemption of, any stock of the Corporation, or
upon any other action of the Corporation, including action under this
subparagraph and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such class
or series, not inconsistent with law and the Charter of the corporation.
C. Voting Rights.
(1) Common. Except as required by law, each share of Common Stock
shall have one vote and, except as otherwise provided in respect of any
class of Preferred Stock, the exclusive voting power for all purposes shall
be vested in the holders of the Common Stock.
(2) Preferred. The Preferred Stock shall have no voting rights and
shall have no rights to receive notice of any meetings, except as required
by law or as expressly provided in Article XIV of this Charter or by the
Board of Directors establishing the preferences, rights, restrictions and
qualifications of such other class or series of Preferred Stock.
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<PAGE> 35
D. Terms of Common Stock. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. Each share of Common Stock
shall be equal to every other share of Common Stock.
(1) Dividend Rights. Subject to the provisions of law and any
preferences of any class of Preferred Stock, dividends, including dividends
payable in shares of another class of the Corporation's stock, may be paid
on the Common Stock of the Corporation at such time and in such amounts as
the Board of Directors may deem advisable.
(2) Liquidation Rights. The holders of the Common Stock shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the holders of any
class of Preferred Stock having a preference on distribution in
liquidation, dissolution or winding up of the Corporation shall be
entitled, together with the holders of any other class of Preferred Stock
not having a preference on distributions in the liquidation, dissolution or
winding up of the Corporation, to share ratably in the remaining net assets
of the Corporation.
(3) Restrictions on Transfer. The Common Stock shall be governed by
the restrictions on ownership and transfer set forth in subsection F of
this Article V.
E. Issuance and Terms of Certain Preferred Stock.
(1) Class A Preferred Stock. The terms of the "Class A Senior
Cumulative Convertible Preferred Stock" (the "Class A Preferred Stock"),
including the preferences, conversion or other rights, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption, are as set forth in the description of the Class A Preferred
Stock contained in Article XIV of this Charter. All of the shares
previously classified as "Class B Senior Cumulative Convertible Preferred
Stock" are reclassified as additional shares of Class A Preferred Stock and
shall have such terms, including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as set forth in the
description of the Class A Preferred Stock contained in Article XIV of this
Charter. The right of holders of Class B Preferred Stock to the dividends
through the date of such reclassification shall not be impaired by such
reclassification
(2) Class C Preferred Stock. The terms of the "Class C Junior
Participating Cumulative Preferred Stock" (the "Class C Preferred Stock"),
including the preferences, conversion or other rights, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption, are as set forth in the description of the Class C Preferred
Stock contained in Article XIV of this Charter.
F. Restrictions on Ownership and Transfer to Preserve Tax Benefit.
(1) Definitions.
For the purposes of this Article V and of Article VI, the following
terms shall have the following meanings:
"AGGREGATE OWNERSHIP LIMIT" shall mean, except as otherwise provided
pursuant to subsection F(11) of this Article V, 9.8% in value of the
aggregate of the outstanding shares of Capital Stock. The value of the
outstanding shares of Capital Stock shall be determined by the Board of
Directors of the Corporation in good faith, which determination shall be
conclusive for all purposes hereof.
"BENEFICIAL OWNERSHIP" shall mean ownership of Capital Stock by a
Person directly, beneficially or as a result of being treated as an actual
or constructive owner of such Capital Stock through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Owned" and
"Beneficially Owning" shall have the correlative meanings.
"BENEFICIARY" shall mean one or more beneficiaries of the Trust as
determined pursuant to paragraph F(3)(f) of this Article V.
"CAPITAL STOCK" shall mean shares of stock that are Common Stock or
Preferred Stock.
"COMMON STOCK OWNERSHIP LIMIT" shall mean, except as otherwise
provided pursuant to subsection F(11) of this Article V, 9.8% (in value, or
in number of shares, whichever is more restrictive) of the
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<PAGE> 36
outstanding Common Stock. The value of the outstanding Common Stock shall
be determined by the Board of Directors of the Corporation in good faith,
which determination shall be conclusive for all purposes hereof.
"CONSTRUCTIVE OWNERSHIP" shall mean ownership of Capital Stock by a
Person who is or would be treated as an owner of such Capital Stock either
actually or constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructively Own," "Constructively Owning" and "Constructively Owned"
shall have the correlative meanings.
"INITIAL PUBLIC OFFERING" shall mean the sale of Common Stock pursuant
to the Corporation's first effective registration statement for such Common
Stock filed under the Securities Act of 1933, as amended.
"IRS" means the United States Internal Revenue Service.
"MARKET PRICE" shall mean the last reported sales price of the Common
Stock or Preferred Stock reported on the NYSE on the trading day
immediately preceding the relevant date, or if the Common Stock or
Preferred Stock is not then traded on the NYSE, the last reported sales
price of the Common Stock or Preferred Stock on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over which the Common Stock or Preferred Stock may be traded, or if the
Common Stock or Preferred Stock is not then traded over any exchange or
quotation system, then the market price of the Common Stock or Preferred
Stock on the relevant date as determined in good faith by the Board of
Directors of the Corporation.
"NYSE" shall mean the New York Stock Exchange.
"OWNERSHIP LIMIT" shall mean the Common Stock Ownership Limit or the
Aggregate Ownership Limit, whichever is more restrictive.
"PERSON" shall mean an individual, corporation, partnership, estate,
limited liability company, unincorporated organization, joint venture,
state or a political subdivision thereof, governmental agency, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be issued
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, but does not include an Underwriter that
participates in an offering of the Common Stock, Preferred Stock, or any
convertible securities of the Corporation for purposes of determining
whether the Underwriter, but not any other Person, during the 90-day period
following such offering, has violated the Ownership Limit and provided that
the ownership of Common Stock, Preferred Stock and/or convertible
securities by such Underwriter would not result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code, or would
otherwise result in the Corporation failing to qualify as a REIT.
"PURPORTED BENEFICIAL TRANSFEREE," shall mean, with respect to any
purported Transfer or other event that results in a transfer of Common
Stock or Preferred Stock to the Trust pursuant to subsection F(3) of this
Article V, the purported beneficial transferee or owner for whom the
Purported Record Transferee would have acquired or owned shares of Common
Stock or Preferred Stock, if such Transfer or other event had been
permitted under subsection F(2) of this Article V.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any
purported Transfer or other event that results in a transfer of Common
Stock or Preferred Stock to the Trust pursuant to subsection F(3) of this
Article V, the record holder of the Common Stock or Preferred Stock if such
Transfer or other event had been permitted under subsection F(2) of this
Article V.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Common Stock or Preferred Stock, including (i) the
granting of any option or entering into any agreement for the sale,
transfer or other disposition of Common Stock or Preferred Stock or (ii)
the sale, transfer, assignment or other disposition of any securities (or
rights convertible into or exchangeable for Common Stock or Preferred
Stock), whether voluntary or involuntary, whether of record or beneficially
(including
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<PAGE> 37
but not limited to transfers of interests in other entities that result in
changes in Beneficial Ownership of Common Stock or Preferred Stock),
whether by operation of law or otherwise and whether the result of a
transaction entered into through the facilities of the NYSE or such other
stock exchange on which the Common Stock or Preferred Stock is then listed.
"TRUST" shall mean the trust created pursuant to subsection F(3) of
this Article V.
"TRUSTEE" shall mean any trustee for the Trust appointed by the
Corporation as provided in paragraph F(3)(a) of this Article V.
"UNDERWRITER" shall mean a securities firm or other similar entity in
its capacity as a party to an underwriting agreement with the Corporation
entered into with the intent of such firm or other entity of acquiring
securities of the Corporation for resale.
(2) Restriction on Ownership and Transfer
(a) Except as provided in subsection F(9) of this Article V, from
and after the date of the Initial Public Offering, no Person shall
Beneficially Own or Constructively Own Capital Stock in excess of the
Ownership Limit.
(b) From and after the date of the Initial Public Offering, any
Transfer or other event that, if effective, would result in Common Stock
and Preferred Stock being beneficially owned by fewer than 100 Persons
shall, to the maximum extent possible under law, be null and void ab
initio, and the intended transferee or other purported owner of such
Common Stock or Preferred Stock, which, if recognized, would cause the
100 shareholder requirement of Code Section 856(a)(5) to be violated,
shall acquire, possess and retain no rights to or economic interest
whatsoever in such Common Stock or Preferred Stock to the extent such
recognition would cause this requirement to be violated.
(c) Notwithstanding any other provisions contained in this Article
V, from and after the date of the Initial Public Offering, no Person
shall Beneficially Own or Constructively Own Capital Stock to the extent
such Beneficial or Constructive Ownership would result in the
Corporation being "closely held" within the meaning of Section 856(h) of
the Code, or would otherwise result in the Corporation failing to
qualify as a REIT (including but not limited to ownership that would
result in the Corporation owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the
Code if the income derived by the Corporation (either directly or
indirectly through one or more entities) from such tenant would cause
the Corporation to fail to satisfy any of the gross income requirements
of Section 856(c) of the Code).
(3) Consequences of Violative Ownership.
(a) If at any time after the date of the Initial Public Offering
there is a purported Transfer or other event (whether or not such
Transfer or other event is the result of a transaction entered into
through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system) that, if effective,
would result in any Person Beneficially or Constructively Owning Capital
Stock in violation of paragraphs F(2)(i) or (iii) above, then the Common
Stock or Preferred Stock purportedly being Transferred (or in the case
of an event other than a Transfer, the Common Stock or Preferred Stock
that would be Beneficially Owned or Constructively Owned) and which
would cause one or more of such restrictions on ownership or transfer to
be violated (rounded up to the nearest whole share) shall be
automatically transferred to the Trustee in his capacity as a Trustee of
a Trust for the exclusive benefit of the Beneficiary. Such transfer to
the Trust shall occur without any action by the Corporation, the
Trustee, the Purported Beneficial Owner or the Purported Record Owner
and shall be effective as of the close of business on the business day
prior to the date of such Transfer or other event. The Trustee shall be
appointed by the Corporation and shall be a Person unaffiliated with the
Corporation, any Purported Beneficial Transferee and any Purported
Record Transferee. Each Beneficiary shall be designated by the
Corporation as provided in paragraph F(3)(f) of this Article V.
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(b) Common Stock or Preferred Stock held by the Trustee shall be
issued and outstanding Common Stock or Preferred Stock, as the case may
be, of the Corporation. The Purported Beneficial Transferee or Purported
Record Transferee shall have no rights in the shares of Capital Stock
held by the Trustee. The Purported Beneficial Transferee or Purported
Record Transferee shall not benefit economically from ownership of any
shares held in trust by the Trustee, shall have no rights to dividends
and shall not possess any rights to vote or other rights attributable to
the shares of Capital Stock held in the Trust.
(c) The Trustee shall have all voting rights and rights to
dividends with respect to Capital Stock held in the Trust, which rights
shall be exercised for the exclusive benefit of the Beneficiary. Any
dividend or distribution paid prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee shall
be paid to the Trustee upon demand, and any dividend or distribution
declared but unpaid shall be paid when due to the Trustee with respect
to such Capital Stock. Any dividends or distributions so paid over to
the Trustee shall be held in trust for the Beneficiary. The Purported
Record Transferee and Purported Beneficial Transferee shall have no
voting rights with respect to the Capital Stock held in the Trust and,
subject to Maryland law, effective as of the date the Capital Stock has
been transferred to the Trustee, the Trustee shall have the authority
(at the Trustee's sole discretion) (i) to rescind as void any vote cast
by a Purported Record Transferee with respect to such Capital Stock
prior to the discovery by the Corporation that the Capital Stock has
been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action based upon such vote, then the
Trustee shall not have the authority to rescind and recast such vote.
Notwithstanding the provisions of this Article V, until the Corporation
has received notification that the Capital Stock has been transferred
into a Trust, the Corporation shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists
of stockholders entitled to vote at meetings, determining the validity
and authority of proxies and otherwise conducting votes of stockholders.
(d) Within 20 days of receiving notice from the Corporation that
shares of Capital Stock have been transferred to the Trust, the Trustee
of the Trust shall sell (through the facilities of a stock exchange if
appropriate) the shares of Capital Stock held in the Trust to a person,
designated by the Trustee, whose ownership of the shares of Capital
Stock will not violate the ownership limitations set forth in subsection
F(2). Upon such sale, the interest of the Beneficiary in the shares of
Capital Stock sold shall terminate and the Trustee shall distribute the
net proceeds of the sale to the Purported Record Transferee and to the
Beneficiary as provided in this subsection F(3)(d). The Purported Record
Transferee shall receive the lesser of (i) the price paid by the
Purported Record Transferee for the shares of Capital Stock in the
transaction that resulted in such transfer to the Trust (or, if the
event which resulted in the transfer to the Trust did not involve a
purchase of such shares of Capital Stock at Market Price, the Market
Price of such shares of Capital Stock on the day of the event which
resulted in the transfer of such shares of Capital Stock to the Trust)
and (ii) the price per share received by the Trustee (net of any
commissions and other expenses of sale) from the sale or other
disposition of the shares of Capital Stock held in the Trust. Any net
sales proceeds in excess of the amount payable to the Purported Record
Transferee shall be immediately paid to the Beneficiary together with
any dividends or other distribution thereon received by the Trustee. If,
prior to the discovery by the Corporation that shares of such Capital
Stock have been transferred to the Trustee, such shares of Capital Stock
are sold by a Purported Record Transferee then (x) such shares of
Capital Stock shall be deemed to have been sold on behalf of the Trust
and (y) to the extent that the Purported Record Transferee received an
amount for such shares of Capital Stock that exceeds the amount that
such Purported Record Transferee was entitled to receive pursuant to
this subsection F(3)(d), such excess shall be paid to the Trustee upon
demand. Each Purported Record Transferee, Purported Beneficial
Transferee and Beneficiary waives any and all claims that it may have
against the Trustee and the Trust arising out of the disposition of any
shares of Capital Stock transferred to the Trust, except for claims
arising out of the gross negligence or willful misconduct arising out of
the enforcement of this Section F.
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(e) Capital Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price paid by the
Purported Record Transferee for the shares of Capital Stock in the
transaction that resulted in such transfer to the Trust (or, if the
event which resulted in the transfer to the Trust did not involve a
purchase of such shares of Capital Stock at Market Price, the Market
Price of such shares of Capital Stock on the day of the event which
resulted in the transfer of such shares of Capital Stock to the Trust)
and (ii) the Market Price on the date the Corporation, or its designee,
accepts such offer. The Corporation shall have the right to accept such
offer until the Trustee has sold the shares of Capital Stock held in the
Trust pursuant to subsection F(3)(d). Upon such a sale to the
Corporation, the interest of the Beneficiary in the shares of Capital
Stock sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Purported Record Transferee and any
dividends or other distributions held by the Trustee with respect to
such Capital Stock shall thereupon be paid to the Beneficiary.
(f) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Beneficiary of
the interest in the Trust (and the relative percentage interests in the
Trust of each such organization) such that (i) the shares of Capital
Stock held in the Trust would not violate the restrictions set forth in
subsection F(2) in the hands of such Beneficiary and (ii) each
Beneficiary is an organization described in Sections 170(b)(1)(A),
170(c)(2) or 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under Section 170(b)(1)(A)
of the Code.
(g) No delay or failure on the part of the Corporation, the Board
of Directors or the Trustee, in exercising any right under the Charter
shall operate as a waiver of any right of the Corporation, the Board of
Directors or the Trustee, as the case may be, except to the extent
specifically waived in writing.
(h) If the transfer to the Trust describe in paragraph F(3)(a) of
this Article V would not be effective for any reason to prevent the
violation of paragraphs F(2)(a) and (c) of this Article V, then the
Transfer of that number of shares of Capital Stock that otherwise would
cause any Person to violate paragraphs F(2)(a) and (c) of this Article V
shall be void ab initio, and the intended transferee shall acquire no
rights in such shares of Capital Stock.
(4) Remedies for Breach. If the Board of Directors or its designees
shall at any time determine in good faith that a Transfer or other event
has taken place in violation of subsection F(2) of this Article V or that a
Person intends to acquire, has attempted to acquire or may acquire
Beneficial or Constructive Ownership of any shares of the Corporation in
violation of subsection F(2) of this Article V, the Board of Directors or
its designees shall take such action as it deems advisable to refuse to
give effect to or to prevent such Transfer or other event, including, but
not limited to, causing the Corporation to redeem such shares upon the
terms and conditions specified by the Board of Directors in its sole
discretion, refusing to give effect to such Transfer or other event on the
books of the Corporation or instituting proceedings to enjoin such Transfer
or other event; provided, however, that any Transfer (or, in the case of
events other than a Transfer, Beneficial Ownership or Constructive
Ownership) in violation of paragraphs F(2)(a) and (c) of this Article V
shall automatically result in the transfer to the Trust described in
subsection F(3) irrespective of any action (or inaction) by the Board of
Directors.
(5) Notice of Restricted Transfer. Any Person who acquires or attempts
or intends to acquire Common Stock or Preferred Stock or other securities
in violation of subsection F(2) of this Article V, or any Person who is a
Purported Record Owner or Purported Beneficial Owner of Capital Stock
transferred to the Trust pursuant to subsection F(3) of this Article V,
shall immediately give written notice to the Corporation of such event or,
in the case of a proposed or intended transaction, give at least 15 days
prior written notice, and shall provide to the Corporation such other
information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted Transfer or other event on
the Corporation's status as a REIT.
(6) Owners Required To Provide Information. From and after the date of
the Initial Public Offering, each Person who is a Beneficial Owner of
Common Stock or Preferred Stock and each Person
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(including the stockholder of record) who is holding Common Stock or
Preferred Stock for a Beneficial Owner of Common Stock or Preferred Stock
shall provide to the Corporation such information that the Corporation may
request, in good faith, in order to determine the Corporation's status as a
REIT.
(7) Remedies Not Limited. Nothing contained in this Article V (but
subject to section G of this Article V) shall limit the authority of the
Board of Directors to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders
by preservation of the Corporation's status as a REIT.
(8) Ambiguity. In the case of an ambiguity in the application of any
of the provisions of section F of this Article V, including any definition
contained in subsection F(1), the Board of Directors shall have the power
to determine the application of the provisions of this section F with
respect to any situation based on the facts known to it (subject, however,
to the provisions of section G of this Article V). In the event section F
requires an action by the Board of Directors and this Charter fails to
provide specific guidance with respect to such action, the Board of
Directors shall have the power to determine the action to be taken so long
as such action is not contrary to the provisions of section F. Absent a
decision to the contrary by the Board of Directors (which the Board may
make in its sole and absolute discretion), if a Person would have (but for
the remedies set forth in subsections F(2) and F(3)) acquired Beneficial or
Constructive Ownership of Capital Stock in violation of subsection F(2),
such remedies (as applicable) shall apply first to the shares that, but for
such remedies, would have caused such violation and would have been
actually owned by the Purported Beneficial Owner, second to shares that,
but for such remedies, would have caused such violation but which would not
have been actually owned by the Purported Beneficial Owner, pro rata among
the Persons who actually attempted to acquire such shares based upon the
relative value of what would have been the Purported Beneficial Owner's
Beneficial Ownership or Constructive Ownership interest in the shares such
Person attempted to acquire, third to other shares that are actually owned
by the Purported Beneficial Owner, and fourth to shares that are actually
owned by such other Persons whose ownership of shares is attributed to the
Purported Beneficial Owner, pro rata among such Persons based upon the
relative value of the Purported Beneficial Owner's Beneficial Ownership or
Constructive Ownership interest in the shares so owned.
(9) Exceptions.
(a) Subject to paragraph F(2)(c) of this Article V, the Board of
Directors, in its sole and absolute discretion, may exempt a Person from
the Ownership Limit if the Board of Directors obtains such
representations and undertakings from such Person as it determines in
its sole and absolute discretion are reasonably necessary to ascertain
that no individual's Beneficial or Constructive Ownership of Common
Stock or Preferred Stock will violate the Ownership Limit or that any
such violation will not cause the Corporation to fail to qualify as a
REIT under the Code, and such Person agrees that any violation of such
representations or undertakings (or other action which is contrary to
the restrictions contained in subsection F(2) of this Article V and not
exempted by the Board of Directors) or attempted violation will result
in such Common Stock or Preferred Stock being transferred to the Trust
in accordance with subsection F(3) of this Article V.
(b) [Reserved]
(c) Prior to granting any exemption pursuant to paragraph F(9)(a)
of this Article V, the Board of Directors may require a ruling from the
IRS or an opinion of counsel, in either case in the form and substance
satisfactory to the Board of Directors in its sole discretion as it may
deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT; provided, however, that obtaining a
favorable ruling or opinion shall not be required for the Board of
Directors to grant an exception hereunder.
(10) Legend. Each certificate for Common Stock shall bear the
following legend:
"The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The
Board of Directors is authorized to determine the preferences,
limitations and relative rights of the Preferred Stock before the
issuance of any Preferred Stock. The Corporation will furnish, without
charge, to any stockholder making a written
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request therefor, a copy of the Corporation's Charter and a written
statement of the designations, and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption applicable to
each class of stock. Requests for such written statement may be directed
to Pacific Gulf Properties Inc. at its principal executive offices,
Attention: Secretary.
"The shares of Common Stock represented by this certificate are
subject to restrictions on ownership and transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended. No Person may
Beneficially Own or Constructively Own Common Stock in excess of 9.8%
(in value or in number of shares, whichever is more restrictive) of the
outstanding Common Stock of the Corporation, and no Person may
Beneficially Own or Constructively Own Capital Stock (including Common
Stock and Preferred Stock) having a value in excess of 9.8% of the value
of the aggregate of the outstanding shares of Capital Stock of the
Corporation, with certain further restrictions and exceptions set forth
in the Corporation's Charter. Capital Stock that may be acquired upon
conversion of convertible securities of the Corporation held, directly
or constructively, by an investor, but not Capital Stock issuable with
respect to convertible securities held by others, is deemed to be owned
by the investor and outstanding prior to conversion for purposes of
determining the percentage of Capital Stock held by that investor. Any
Person who attempts to Beneficially Own or Constructively Own Capital
Stock in excess of the above limitations must immediately notify the
Corporation. All capitalized terms in this legend have the meanings
defined in the Corporation's Charter. Transfers or other events in
violation of the restrictions described above shall be null and void ab
initio, the purported transferee or purported owner shall acquire or
retain no rights to, or economic interests in, any Common Stock held in
violation of these restrictions, and the shares that are subject to the
purported transfer or other event are transferred automatically to a
trust for the benefit of one or more charitable organizations. The
Corporation may redeem such shares upon the terms and conditions
specified by the Board of Directors in its sole discretion if the Board
of Directors determines that a Transfer or other event would violate the
restrictions described above."
Shares of Preferred Stock shall bear a corresponding legend.
(11) The Board of Directors may from time to time increase or decrease
the Common Stock Ownership Limit and the Aggregate Stock Ownership Limit;
provided, however, that:
(a) Any decrease may be made only prospectively as to subsequent
holders or, with respect to existing holders, subsequent Transfers
(other than a decrease in such limits as a result of a retroactive
change in existing law, in which case such decrease shall be effective
immediately);
(b) Subject to subsection F(9), neither ownership limitation may be
increased if, after giving effect to such increase, five Persons could
Beneficially Own or Constructively Own, in the aggregate, more than
50.0% in value of the shares of Capital Stock then outstanding; and
(c) Prior to the modification of either of the ownership
limitations, the Board of Directors of the Corporation may require such
opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the
Corporation's status as REIT.
(12) Severability. If any provision or item of this Article V or any
application of any such provision or item is determined to be invalid by
any federal or state court having jurisdiction, the validity of the
remaining provisions and items shall not be affected and other applications
of such provision or item shall be affected only to the extent necessary to
comply with the determination of such court.
G. Settlement. Nothing in this Article V shall preclude the settlement of
any transaction entered into through facilities of the NYSE or such other stock
exchange on which the Corporation's Common Stock or Preferred Stock may be
listed. The shares that are the subject of such transaction shall continue to be
subject to the terms of this Article V after such settlement.
H. Issuance of Rights to Purchase Securities and Other Property. Subject to
the rights of the holders of any series of Preferred Stock, the Board of
Directors is hereby authorized to create and to authorize and direct the
issuance (on either a pro rata or a non-pro rata basis) by the Corporation of
rights, options and warrants
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for the purchase of shares of Capital Stock, other securities of the
Corporation, or shares or other securities of any successor in interest of the
Corporation (a "Successor"), at such times, in such amounts, to such persons,
for such consideration (if any), with such form and content (including without
limitation the consideration for which any shares of Capital Stock, other
securities of the Corporation, or shares or other securities of any Successor
are to be issued) and upon such terms and conditions as it may, from time to
time, determine, subject only to the restrictions, limitations, conditions and
requirements imposed by the Maryland General Corporation Law, other applicable
laws and the Corporation's Charter.
I. Preemptive Rights. Except as may be provided by the Board of Directors
in authorizing the issuance of shares of Preferred Stock and as set forth in
Articles Supplementary creating such Preferred Stock, no holder of shares of
stock of the Corporation shall, as such holder, have any preemptive right to
purchase or subscribe for any additional shares of stock of the Corporation or
any other security of the Corporation which it may issue or sell.
J. Authorized Shares of Common and Preferred Stock. The authorized number
of shares of Common Stock and Preferred Stock may, without a class or series
vote, be increased or decreased from time to time by the affirmative vote of the
holders of a majority of the combined voting power of the then-outstanding
shares of Capital Stock of the Corporation that pursuant to the Charter are
entitled to vote generally in the election of directors of the Corporation,
voting together as a single class.
ARTICLE VI
DIRECTORS
A. Number. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
directors of the Corporation shall be three, which number may be increased or
decreased pursuant to the Bylaws of the Corporation; provided, however, that the
number of directors shall never be less than three or greater than eleven.
B. Classification. The directors of the Corporation, other than those who
may be elected by the holders of any series of Preferred Stock, shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, with the initial term of
office of the Class I directors to expire at the 1995 annual meeting of
stockholders, the initial term of office of the Class II directors to expire at
the 1996 annual meeting of stockholders and the initial term of office of the
Class III directors to expire at the 1997 annual meeting of stockholders,
provided that the directors in office on September 30, 1993 shall consist of one
Class I director, one Class II director and one Class III director. Members of
each class shall hold office until their successors are elected and qualified.
At each succeeding annual meeting of stockholders of the Corporation, the
successors of the class of directors whose term expires at that meeting shall be
elected by a plurality vote of all votes cast at such meeting to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
C. Written Ballot. Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
D. Removal. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, any director
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of 66-2/3% of the then outstanding shares of
stock entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
E. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other causes shall be filled by a majority vote of the
stockholders or directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then remaining. A
director so chosen by the remaining directors shall hold office until the next
annual meeting of stockholders, at which time the stockholders shall elect a
director to hold office for the balance of the term then remaining. No decrease
in the number of directors constituting the Board of Directors shall affect the
tenure of the office of any director.
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F. Stock Issuances. The Board of Directors is hereby empowered to authorize
the issuance from time to time of shares of its stock of any class, whether now
or hereafter authorized, or securities convertible into shares of its stock of
any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and without
any action by the stockholders.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right at any time and from time to time to
make any amendment to its Charter, now or hereafter authorized by law, including
any amendment altering the terms or contract rights, as expressly set forth in
its Charter, or any shares of outstanding stock. Any amendment to the
Corporation's Charter shall be valid only if such amendment shall have been
approved by the affirmative vote of the holders of a majority of the outstanding
Voting Stock, voting together as a single class. All rights and powers conferred
by the Corporation's Charter on stockholders, directors and officers are granted
subject to this reservation.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
Bylaws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such bylaws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. No amendment of the Charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment on repeal.
ARTICLE IX
LIMITATION OF LIABILITY
To the fullest extent permitted by Maryland statutory or decisional law, as
amended or interpreted, no director or officer of the Corporation shall be
personally, liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.
ARTICLE X
CERTAIN TRANSACTIONS
With respect to any proposed merger, acquisition, business combination or
other transaction or proposal, a director of the Corporation, in determining
what is in the best interests of the Corporation, shall consider the interests
of the Stockholders of the Corporation and, in his or her discretion, may
consider (i) the interests of the Corporation's employees, suppliers, creditors
and customers, (ii) the economy of the nation, (iii) community and societal
interests and (iv) the long-term as well as short-term interests of the
Corporation and its Stockholders, including the possibility that these interests
may be best served by the continued independence of the Corporation. Pursuant to
this provision, the Board of Directors may consider numerous judgmental or
subjective factors affecting a proposal, including certain nonfinancial matters,
and on the basis of these considerations may oppose a business combination or
other transaction which, as an exclusively financial matter, might be attractive
to some, or a majority, of the Corporation's stockholders.
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ARTICLE XI
BUSINESS COMBINATIONS
The Corporation hereby expressly elects not to be governed by the provision
of Title 3, Subtitle 6 of the Maryland General Corporation Law.
ARTICLE XII
RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS
In carrying on its business, or for the purpose of attaining or furthering
any of its objects, the Corporation shall have all of the rights, powers and
privileges granted to corporations by the laws of the State of Maryland, as well
as the power to do any and all acts and things that a natural person or
partnership could do as now or hereafter authorized by law, either alone or in
partnership or conjunction with others.
Any director or officer individually, or any firm of which any director or
officer may be a member, or any corporation or association of which any director
or officer may be a director or officer or in which any director or officer may
be interested as the holder of any amount of its capital stock or otherwise, may
be a party to, or may be pecuniarily or otherwise interested in, any contract or
transaction of the Corporation, and, in the absence of fraud, no contract or
other transaction shall be thereby affected or invalidated; provided, however,
that (a) such fact shall have been disclosed or shall have been known to the
Board of Directors or the committee thereof that approved such contract or
transaction and such contract or transaction shall have been, approved or
ratified by the affirmative vote of a majority of the disinterested directors,
or (b) such fact shall been disclosed or shall have been known to the
stockholders entitled to vote, and such contract or transaction shall have been
approved or ratified by a majority of the votes cast by the stockholders
entitled to vote, other than the votes of shares owned of record or beneficially
by the interested director or corporation, firm or other entity, or (c) the
contract or transaction is fair and reasonable to the Corporation. Any director
of the Corporation who is also a director or officer of, or interested in, such
other corporation or association, or who, or the firm of which he or she is a
member, is so interested, may be counted in determining the existence of a
quorum at any meeting of the Board of Directors of the Corporation which shall
authorize any such contract or transaction, with like force and effect as if he
or she were not such director or officer of such other corporation or
association or were not so interested or were not a member of a firm so
interested.
Except as otherwise provided in the Corporation's Charter or the Bylaws of
the Corporation, as amended from time to time, the business of the Corporation
shall be managed by its Board of Directors. The Board of Directors shall have
and may exercise all the rights, powers and privileges of the Corporation except
only for those that are by law, these Articles of Incorporation or the Bylaws of
the Corporation, conferred upon or reserved to the stockholders. Additionally,
the Board of Directors is hereby specifically authorized and empowered from time
to time in its discretion:
To borrow and raise money, without limit and upon any terms, for any
corporate purposes; and, subject to applicable law, to authorize the
creation, issuance, assumption, or guaranty of bonds, debentures, notes or
other evidences of indebtedness for money so borrowed, to include therein
such provisions as to redeemability, convertibility or otherwise, as the
Board of Directors, in its sole discretion, determines, and to secure the
payment of principal, interest or sinking fund in respect thereof by
mortgage upon, or the pledge of, or the conveyance or assignment in trust
of, all or any part of the properties, assets, and goodwill of the
Corporation then owned or thereafter acquired;
To make, alter, amend, change, add to or repeal the Bylaws of the
Corporation in accordance with the terms of the Bylaws adopted by the Board
of Directors pursuant to Section 2-109 of the Maryland General Corporation
Law; and
To the extent permitted by law, to declare and pay dividends or other
distributions to the stockholders from time to tine out of the earnings,
earned surplus, paid-in surplus or capital of the Corporation,
notwithstanding that such declaration may result in the reduction of the
capital of the Corporation. In connection with any dividends or other
distributions upon the Common Stock, the Corporation need not reserve any
amount from such dividend or other distributions to satisfy any
preferential rights of any stockholder.
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Notwithstanding any provision of law requiring the authorization of any
action by a greater proportion than a majority of the total number of shares of
all classes of capital stock or of the total number of shares of any class of
capital stock, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total of shares of all
classes outstanding and entitled to vote thereon, except as otherwise provided
in the Charter.
ARTICLE XIII
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE XIV
PREFERRED STOCK
A. Class A Preferred Stock.
(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
class so designated shall be 2,763,113 (the "Preferred Shares").
(2) Preferred Shares -- Dividend Rights.
(a) General. Subject to Section 9, and in addition to any other
dividends provided for herein, the Corporation shall pay in cash, when,
as and if declared by the Board, out of funds legally available therefor
as provided by the M.G.C.L. (the "Legally Available Funds"), dividends
at the quarterly rate equal to the Applicable Dividend Rate (as defined
below) per issued and outstanding Preferred Share, per quarter. Such
dividends shall be cumulative and payable (if declared) quarterly on
each February 15, May 15, August 15 and November 15, with respect to the
prior quarter, commencing 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 $19.905, 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.
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<PAGE> 46
(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.
(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.
(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.
(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 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
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<PAGE> 47
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,
(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.
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<PAGE> 48
(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 (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
B-16
<PAGE> 49
to the Secretary of the Corporation for placement among the minutes of
proceedings of the stockholders of the Corporation.
(l) Approval by the Corporation. The Corporation acting through a
majority of its Directors shall have the right to approve the nomination
of any Section 4(c)(i) Director or Section 4(c)(ii) Director, such
approval not to be unreasonably withheld; provided, however, that such
right shall not apply to any of John D. McGurk, James E. Quigley 3rd,
Matthew W. Kaplan, and D. Pike Aloian.
(m) Restrictions. So long as Preferred Shares of the Corporation
are outstanding, without the consent of the holders of at least the
majority of the Preferred Shares at the time outstanding, given in
person or by proxy, at a meeting called for that purpose at which the
holders of the Preferred Shares shall vote separately as a class, or by
the unanimous consent in writing of all of the holders of the Preferred
Shares (in addition to any other vote or consent of stockholders
required by law or by the Charter), the Corporation may not (i) effect
or validate the amendment, alteration or repeal of any provision of the
Charter of the Corporation which would adversely effect the rights of
the holders of the Preferred Shares as such, (ii) 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, (iii) 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, (iv) other than the 2,763,113 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 (v) effect or validate the
amendment, alteration or repeal of any provision of the Charter of the
Corporation or ByLaws 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.
(5) Preferred Shares -- 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 the manner herein provided shall be
conclusively presumed to have been given on the date mailed whether or
not the holder receives such notice.
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<PAGE> 50
(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) $19.905 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
$19.905:
<TABLE>
<CAPTION>
REDEMPTION OCCURS
ON OR AFTER BUT PRIOR TO % PREMIUM
- ----------------- ------------ ---------
<S> <C> <C>
April 1, 2002 December 31, 2002 6.0
December 31, 2002 December 31, 2003 5.0
December 31, 2003 December 31, 2004 4.0
December 31, 2004 December 31, 2005 3.0
December 31, 2005 December 31, 2006 2.5
December 31, 2006 December 31, 2007 2.0
December 31, 2007 December 31, 2008 1.5
December 31, 2008 December 31, 2009 1.0
December 31, 2009 0.0
</TABLE>
and (ii) the number of Preferred Shares to be redeemed as provided in
the Redemption Notice (the "Redemption Price").
(e) Dividends. No Preferred Share is entitled to any dividends
accruing thereon after the date on which the payments provided by and in
accordance with Section 5(d) are paid or made available for payment to
the holder thereof. On such date all rights of the holder of such
Preferred Share shall cease, and such Preferred Share shall not be
deemed to be outstanding.
(6) Preferred Shares -- Liquidation Rights.
(a) Liquidation Payment. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, then out of the assets of the Corporation before any
distribution or payment to the holders of shares of capital stock of the
Corporation ranking junior to the Preferred Shares (as to dividends or
upon liquidation, dissolution or winding up), the holders of the
Preferred Shares shall be entitled to be paid $19.905 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.
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<PAGE> 51
(7) Preferred Shares -- Conversion.
(a) Conversion Rights. Subject to and upon compliance with the
provisions of this Section 7, a holder of Preferred Shares shall have
the right, at such holder's option, at any time to convert all or a
portion of such shares into the number of fully paid and non-assessable
shares of Common Stock obtained by dividing the number of Preferred
Shares being converted by the Conversion Ratio (as defined below and as
in effect at the time and on the date provided for in this Section
7(b)(iv)) by surrendering such Preferred Shares to be converted. Such
surrender shall be made in the manner provided in Section 7, paragraph
(b); provided, however, that the right to convert any Preferred Shares
called for redemption pursuant to Section 5 shall terminate at the close
of business on the Final Conversion Date, unless the Corporation shall
default in making payment of any cash payable upon such redemption under
Section 5 hereof. The "Conversion Ratio" with respect to any Preferred
Shares will initially be equal to 1, subject to adjustment as described
below.
(b) Manner of Conversion.
(i) In order to exercise the conversion right, the holder of
each Preferred Share to be converted shall surrender to the
Corporation the certificate representing such share, duly endorsed or
assigned to the Corporation or in blank, accompanied by written
notice to the Corporation that the holder thereof elects to convert
such Preferred Shares. Unless the shares of Common Stock issuable on
conversion are to be issued in the same name as the name in which
such Preferred Shares are registered, each Preferred Share
surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by
the holder or such holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such taxes have
been paid).
(ii) As promptly as practicable after the surrender of
certificates of Preferred Shares as aforesaid, the Corporation shall
issue and shall deliver at such office to such holder, or on such
holder's written order, a certificate or certificates for the number
of full shares of Common Stock issuable upon the conversion of such
Preferred Shares in accordance with the 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.
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(d) Adjustment of Conversion Ratio. The Conversion Ratio shall be
adjusted from time to time as follows:
(i) If the Corporation shall, while any Preferred Shares are
outstanding, (A) pay a dividend or make a distribution with respect
to its capital stock in shares of its Common Stock, (B) subdivide its
outstanding Common Stock into a greater number of shares, (C) combine
its outstanding Common Stock into a smaller number of shares or (D)
issue any shares of capital stock by reclassification of its Common
Stock, the Conversion Ratio in effect at the opening of business on
the day next following the date fixed for the determination of
shareholders entitled to receive such dividend or distribution or at
the opening of business on the day following the day on which such
subdivision, combination or reclassification becomes effective, as
the case may be, shall be adjusted so that the holder of any
Preferred Shares thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock that such
holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Preferred
Shares been converted immediately prior to the record date in the
case of a dividend or distribution or the effective date in the case
of a subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the day next following the record
date (except as provided in paragraph (h) below) in the case of a
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
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entitled to receive had such Preferred Shares been converted
immediately prior to such distribution or related record date, as the
case may be.
(iv) Distribution of Cash. In case the Corporation shall pay or
make a dividend or other distribution on its Common Stock exclusively
in cash (excluding Regular Quarterly Dividends), each holder of
Preferred Shares shall receive concurrently with the receipt by
holders of the Common Stock the kind and amount of any such
distribution that it would have owned or been entitled to receive had
such Preferred Shares been converted immediately prior to such
distribution or related record date, as the case may be.
(v) No adjustment in the Conversion Ratio shall be required
unless such adjustment would require a cumulative increase or
decrease of at least 1%; provided, however, that any adjustments that
by reason of this subparagraph (v) are not required to be made shall
be carried forward and taken into account in any subsequent
adjustment until made. Notwithstanding any other provisions of this
Section 7, the Corporation shall not be required to make any
adjustment of the Conversion Ratio for (x) the issuance of any shares
of Common Stock pursuant to any plan providing for the reinvestment
of dividends or interest payable on securities of the Corporation and
the investment of additional optional amounts in shares of Common
Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and
the investment of additional optional amounts in shares of Common
Stock under such plan, (y) the issuance of contingent rights issued
pursuant to a stockholders' rights plan adopted by the Corporation
pursuant to which the acquisition by any third party of a specified
percentage of Common Stock triggers the exercisability of such rights
to purchase Common Stock, for so long as no event has occurred
triggering such rights to exercise, and (z) the issuance of Common
Stock or options to purchase Common Stock pursuant to an employee
benefit plan. All calculations under this Section 7 shall be made to
the nearest cent (with $.005 being rounded upward) or to the nearest
one-tenth of a share (with .05 of a share being rounded upward), as
the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Ratio, in
addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase stock or
securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its shareholders
shall not be taxable, or if that is not possible, to diminish any
income taxes that are otherwise payable because of such event.
(e) Adjustment of Conversion Ratio Upon Certain Transactions. If
the Corporation shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all shares of Common Stock, sale
of all or substantially all of the Corporation's assets or
recapitalization of the Common Stock and excluding any transaction as to
which subparagraph (d)(i) of this Section 7 applies) (each of the
foregoing being referred to herein as a "Transaction"), in each case as
a result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or
any combination thereof), each Preferred Share that is not converted
into the right to receive stock, securities or other property in
connection with such Transaction shall thereafter be convertible into
the kind and amount of shares of stock, securities and other property
(including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of shares of
Common Stock into which one Preferred Share was convertible immediately
prior to such Transaction, assuming such holder of Common Stock (i) is
not a person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such
sale or transfer was made, as the case may be (a "Constituent Person"),
or an affiliate of a Constituent 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
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of the Corporation held immediately prior to such Transaction by other
than a Constituent Person or an affiliate thereof and in respect of
which such rights of election shall not have been exercised
("Non-electing Share"), then for the purpose of this paragraph (e) the
kind and amount of stock, securities and other property (including cash)
receivable upon such Transaction by each Non-electing Share shall be
deemed to be the kind and amount so receivable per share by a plurality
of the Non-electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to
the occurrence of any Transaction until the Corporation has entered into
an agreement with the successor or purchasing entity, as the case may
be, for the benefit of the holders of the Preferred Shares that will
contain provisions enabling the holders of the Preferred Shares that
remain outstanding after such Transaction to convert into the
consideration received by holders of Common Stock at the Conversion
Ratio in effect immediately prior to such Transaction. The provisions of
this paragraph (e) shall similarly apply to successive Transactions.
(f) Notice of Certain Events. If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than the Regular Quarterly
Dividend); or
(ii) the Corporation shall authorize the granting to all holders
of the Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common Stock
(other than any event to which subparagraph (d)(i) of this Section 7
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any shareholders of the Corporation
is required, or a statutory share exchange, or self tender offer by
the Corporation for all or substantially all of its outstanding
shares of Common Stock or the sale or transfer of all or
substantially all of the assets of the Corporation as an entity
(other than the Corporation's current exchange offer with respect to
its outstanding 8.375% Convertible Subordinated Debentures due 2001);
or
(iv) there shall occur the involuntary or voluntary liquidation,
dissolution or winding up of the Corporation, then the Corporation
shall cause to be mailed to the holders of Preferred Shares, at the
address as shown on the stock records of the Corporation, as promptly
as possible, but at least 15 Business Days prior to the applicable
date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution
or rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to
such dividend, distribution or rights or warrants are to be
determined or (B) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer,
liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, statutory share exchange,
sale, transfer, 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
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shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Stock
issuable upon such conversion before (giving effect to such adjustment
and (B) paying to Such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 7.
(i) No Duplication of Adjustments. There shall be no adjustment of
the Conversion Ratio in case of the issuance of any stock of the
Corporation in a reorganization, acquisition or other similar
transaction except as specifically set forth in this Section 7. If any
action or transaction would require adjustment of the Conversion Ratio
pursuant to more than one paragraph of this Section 7, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value.
(j) Other Adjustments to Conversion Ratio. If the Corporation shall
take any action affecting the Common Stock, other than action described
in this Section 7, that would materially adversely affect the conversion
rights of the holders of the Preferred Shares or the value of such
conversion rights, the Conversion Ratio for the Preferred Shares may be
adjusted, to the extent permitted by law, in such manner, if any, and at
such time, as the Board of Directors, in its sole discretion, may
determine to be equitable in the circumstances.
(k) Reservation, Validity, Listing and Securities Law Compliance
With Respect to Shares of Common Stock.
(i) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock for the purpose
of effecting conversion of the Preferred Shares, the full number of
shares of Common Stock deliverable upon the conversion of all
outstanding Preferred Shares not therefore converted. Before taking
any action which would cause an adjustment in the Conversion Ratio
such that Common Stock issuable upon the conversion of Preferred
Shares 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.
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(m) Certain Defined Terms. The following definitions shall apply to
terms used in this Section 7:
(1) Current Market Price. For the purpose of any computation
under this Section 7, the Current Market Price per share of Common
Stock on any date in question shall be deemed to be the average of
the daily closing prices for the five consecutive Trading Days
preceding such date in question; provided, however, that if another
event occurs that would require an adjustment pursuant to subsection
(f) through (j), inclusive, the Board may make such adjustments to
the closing prices during such five Trading Day period as it deems
appropriate to effectuate the intent of the adjustments in this
Section 7, in which case any such determination by the Board shall be
set forth in a resolution of the Board and shall be conclusive.
(2) "Trading Day" shall mean a day on which Preferred Shares are
traded on the national Preferred Shares exchange or quotation system
used to determine the Closing Price.
(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
$19.905. Notwithstanding the foregoing, if the Securities and Exchange
Commission or its staff (collectively, the "SEC"), by written
communication to the Corporation, indicates that the provisions of the
first sentence of this Section 8(a) would preclude the Corporation from
treating the Preferred Shares as equity on its financial statements,
then those events constituting either a Change of Control Event or Put
Event for which the SEC objects to the holder of Preferred Shares having
a cash redemption right shall, instead, be covered by the Conversion
Ratio revision alternative set forth in the second sentence of this
Section 8(a).
(b) Within 15 days following the Company becoming aware that an
event has occurred that has resulted in any Change of Control or Put
Event, the Corporation shall mail a notice to each holder of Preferred
Shares, at such holder's address appearing in the records of the
Corporation, stating (i) that a Change of Control or Put Event, as
applicable, has occurred and that such holder has the right to require
the Corporation to redeem such holder's Preferred Shares in cash, (ii)
the date of redemption (which shall be a Business Day, no earlier than
30 days and no later than 60 days from the date such notice is mailed,
or such later date as may be necessary to comply with the requirements
of applicable law including the Exchange Act), (iii) the redemption
price for the redemption, and (iv) the instructions determined by the
Corporation, consistent with this subsection, that a holder must follow
in order to have its Preferred Shares redeemed.
(c) On the Put Date, the Corporation will, to the extent lawful,
accept for payment Preferred Shares or portions thereof tendered
pursuant to the Put Offer and pay an amount equal to the Put Payment in
respect of all Preferred Shares or portions thereof so tendered. The
Corporation shall promptly mail to each holder of Preferred Shares to be
redeemed the Put Payment for such Preferred Shares.
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(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.
(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 F 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.
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(10) Miscellaneous.
(a) Exchange or Market Transactions. Nothing in Section 9 or this
Section 10 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. The shares that are
the subject of such transaction shall continue to be subject to the
terms of Article V after such settlement.
(b) Severability. If any provision of Section 9 or this Section 10
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.
B. Class C Preferred Stock.
(1) Designation and Amount. The shares of such class of Preferred
Stock shall be designated as "Class C Junior Participating Cumulative
Preferred Stock" and the number of shares constituting such class so
designated shall be 300,000 (the "Class C Preferred Stock"). Such number of
shares may be increased or decreased by resolution of the Board of
Directors and as otherwise provided hereunder; provided, however, that no
decrease shall reduce the number of shares of Class C Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Class C Preferred Stock.
(2) Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Class C Preferred Stock with respect to dividends, the
holders of shares of Class C Preferred Stock, in preference to the
holders of shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Class C Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $.25 per share ($1.00 per
annum) or (ii) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Class C Preferred
Stock. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such event the amount to which
the holder of each share of Class C Preferred Stock was entitled
immediately prior to such event
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under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Class C Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock);
provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $.25 per share ($1.00 per annum) on
the Class C Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Class C Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which event dividends on
such shares shall begin to accrue from the date of issue of such shares,
or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of
Class C Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events
such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
cumulate but shall not bear interest. Dividends paid on the shares of
Class C Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Class C Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Class C Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Class C Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series C
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in the Charter, in any
other Articles Supplementary creating a series of Preferred Stock or any
similar stock or by law, the holders of shares of Class C Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders
of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Class C Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
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(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Class C Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not authorized or declared, on
shares of Class C Preferred Stock outstanding shall have been paid in
full, the Corporation shall not, directly or indirectly:
(i) authorize, declare or pay dividends on, or make any other
distributions with respect to any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding
up) to the Class C Preferred Stock;
(ii) authorize, declare or pay dividends on, or make any other
distributions with respect to any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding
up) with the Class C Preferred Stock, except dividends paid ratably
on the Class C Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Class C Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Class C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Class C Preferred Stock, or any shares of stock ranking
on a parity with the Class C Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration, directly
or indirectly, any shares of stock of the Corporation unless the
Corporation could, under paragraph (a) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
(5) Reacquired Shares. Any shares of Class C Preferred Stock purchased
or otherwise acquired by the Corporation in any manner 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 reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth
herein, in the Charter, in any other Articles Supplementary creating a
series of Preferred Stock or any similar stock or as otherwise required by
law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
to: (i) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Class C
Preferred Stock unless, prior thereto, the holders of shares of Class C
Preferred Stock shall have received the greater of (A) $100.00 per share
($1.00 per one one-hundredth of a share), plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment, or (B) an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock; or (ii) the holders of shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the
Class C Preferred Stock, except distributions made ratably on the Class C
Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassifica-
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tion or otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in each
such event the aggregate amount to which each holder of a share of Class C
Preferred Stock was entitled immediately prior to such event under the
proviso in clause (i) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(7) Consolidation, Merger or Other. In the event the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property or otherwise changed,
then in any such event each share of Class C Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such event the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Class C Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event, and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(8) No Redemption. The shares of Class C Preferred Stock shall not be
redeemable.
(9) Rank. The Class C Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series
or classes of the Corporation's Preferred Stock whether issued before or
after the issuance of the Class C Preferred Stock.
(10) Amendment. The Charter shall not be amended in any manner that
would materially alter or change the powers, preferences or special rights
of the Class C Preferred Stock, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Class C Preferred Stock, voting
together as a single class.
THIRD: The foregoing Amendment and Restatement of the Charter of the
Corporation (the "Restated Articles") as hereinabove set forth have been duly
authorized and approved by a majority of the Board of Directors and approved by
the stockholders of the Corporation as required by the Maryland General
Corporation Law.
FOURTH: The current address of the principal office of the Corporation in
the State of Maryland is as set forth in Article IV of the foregoing Restated
Articles.
FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article IV of the foregoing Restated Articles.
SIXTH: The number of directors of the Corporation is eight, and the names
of those currently serving as directors are: Glenn L. Carpenter, Keith W.
Renken, Royce B. McKinley, James E. Quigley, 3rd, Carl C. Gregory, III, Peter L.
Eppinga, John F. Kooken and Robert E. Morgan.
SEVENTH: (a) Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Charter of the Corporation, the Board of
Directors divided and classified 1,351,351 shares of the Preferred Stock of the
Corporation into a class designated Class A Senior Cumulative Convertible
Preferred Stock (the "Class A Preferred Stock") and provided for the issuance of
such Class A Preferred Stock. The terms of the Class A Preferred Stock,
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, were set forth in Articles Supplementary filed with
the Maryland State Department of Assessments and Taxation ("SDAT") on April 3,
1997. Pursuant to the foregoing Restated Articles, the Corporation has amended
certain terms and conditions of the Class A Preferred Stock. Therefore, after
the foregoing Restated Articles
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<PAGE> 62
become effective, the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Class A Preferred Stock shall be as set forth in
the description of the Class A Preferred Stock contained in Article XIV of the
foregoing Restated Articles and the Articles Supplementary specifically
referenced above shall be of no further force and effect.
(b) Pursuant to the authority expressly vested in the Board of Directors of
the Corporation by the Charter of the Corporation, the Board of Directors
divided and classified 1,411,765 shares of the Preferred Stock of the
Corporation into a class designated Class B Senior Cumulative Convertible
Preferred Stock (the "Class B Preferred Stock") and provided for the issuance of
such Class B Preferred Stock. The terms of the Class B Preferred Stock,
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, were set forth in Articles Supplementary filed with
SDAT on October 21, 1997. Pursuant to the foregoing Restated Articles and
effective upon the filing of these Restated Articles with SDAT, the Corporation
hereby reclassifies each share of Class B Preferred Stock as one (1) additional
share of Class A Preferred Stock; the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of such Class A Preferred Stock as set forth
in the description of the Class A Preferred Stock contained in Article XIV of
the foregoing Restated Articles. Therefore, after the foregoing Restated
Articles become effective, the Articles Supplementary specifically referenced
above shall be of no further force and effect.
(c) Pursuant to the authority expressly vested in the Board of Directors of
the Corporation by the Charter of the Corporation, the Board of Directors
divided and classified 300,000 shares of the Preferred Stock of the Corporation
into a class designated Class C Junior Participating Cumulative Preferred Stock
(the "Class C Preferred Stock") and provided for the issuance of such class C
Preferred Stock. The terms of the Class C Preferred Stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption, were set forth in Articles Supplementary filed with SDAT on December
24, 1997. The foregoing Restated Articles include (and restate without
amendment) the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Class C Preferred Stock in the description of
the Class C Preferred Stock contained in Article XIV. Therefore, after the
foregoing Restated Articles become effective, the above-referenced Articles
Supplementary shall be of no further force and effect.
EIGHTH: (a) Immediately before these Articles of Amendment and Restatement
become effective, the total number of shares of stock of all classes which the
Corporation has authority to issue is Sixty Million (60,000,000) shares of
capital stock, having an aggregate par value of Six Hundred Thousand Dollars
($600,000), of which (i) Twenty-Five Million (25,000,000) shares are Common
Stock, par value $.01 per share, (ii) Thirty Million (30,000,000) shares are
Excess Stock, par value $.01 per share and (iii) Five Million (5,000,000) shares
are Preferred Stock, par value $.01 per share.
(b) As amended by these Articles of Amendment and Restatement, the total
number of shares of stock of all classes which the Corporation has authority to
issue is One Hundred and Ten Million (110,000,000) shares of capital stock,
having an aggregate par value of One Million One Hundred Thousand Dollars
($1,100,000), of which (i) One Hundred Million (100,000,000) shares are Common
Stock, par value $.01 per share and (ii) Ten Million (10,000,000) shares are
Preferred Stock, par value $.01 per share.
(c) Before the Articles of Amendment and Restatement become effective, the
aggregate par value of all shares of stock of all classes of the Corporation is
Six Hundred Thousand Dollars ($600,000.00). After the Articles of Amendment and
Restatement become effective, the aggregate par value of all shares of stock of
all classes of the Corporation shall be One Million One Hundred Thousand Dollars
($1,100,000).
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<PAGE> 63
IN WITNESS WHEREOF. Pacific Gulf Properties Inc. has caused these presents
to be signed in its name and on its behalf by its President and Chief Executive
Officer and witnessed by is Assistant Secretary on May , 1998.
WITNESS:
- ------------------------------------ ------------------------------------
Cindy Smith Glenn L. Carpenter
Assistant Secretary President and Chief Executive
Officer
The undersigned, President of Pacific Gulf Properties Inc., who executed on
behalf of the Corporation the foregoing Articles of Amendment and Restatement of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment and Restatement
to be the corporate act of said corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under penalties of perjury.
------------------------------------
Glenn L. Carpenter
President and Chief Executive
Officer
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<PAGE> 64
PROXY PROXY
PACIFIC GULF PROPERTIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
1998 ANNUAL MEETING OF SHAREHOLDERS -- MAY 13, 1998
Glenn L. Carpenter and Donald G. Herrman, and each of them, are hereby
appointed proxies, with full power of substitution, and are hereby authorized to
represent and vote all shares of common stock of the undersigned at the Annual
Meeting of Shareholders of Pacific Gulf Properties Inc. to be held at the
Sheraton Hotel -- Newport Beach, 4545 MacArthur Boulevard, Newport Beach,
California, on May 13, 1998, and at any postponements or adjournments thereof,
in the manner indicated below, and in their discretion on any other matter which
may properly come before the Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN. THE
COMPANY HAS PROPOSED EACH OF THE MATTERS TO BE ACTED UPON. IN THE ABSENCE OF
INSTRUCTIONS, THE PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE LISTED
DIRECTOR NOMINEES AND "FOR" EACH OF PROPOSAL NOS. 2-5 AND IN THE DISCRETION OF
THE PERSONS HEREBY APPOINTED AS PROXIES WITH RESPECT TO ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS
THEREOF.
SHAREHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED WITHIN
THE UNITED STATES.
(Continued and to be signed on reverse side.)
- ----------------------------------------------------------------------------
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<PAGE> 65
PACIFIC GULF PROPERTIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Election of the two Class I Directors and one Class II Director:
(Instructions: to withhold authority to vote for any one or more nominee(s),
write the name(s) of such nominee(s) in the space provided below.)
Nominees: Glenn L. Carpenter, Keith W. Renken and Carl C. Gregory, III
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
_________________________________________________________________________
2. Approval of amendment to the 1993 Share Option Plan (page 9).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of increase in authorized Common Shares (page 13).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approval of increase in authorized Preferred Stock, amendment of the terms
of the Class A Preferred Stock and reclassification of Series B Preferred
Stock (page 14).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Approval of revision to ownership limit provision of the Company's Charter
(page 18).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends a vote "FOR" each of the listed director
nominees and "FOR" each of Proposals 2-5.
The undersigned hereby revokes any proxy
heretofore given to vote at the Annual
Meeting and acknowledges receipt of the
Notice of Annual Meeting of Shareholders
and Proxy Statement dated April 16,
1998, and the Company's 1997 Annual
Report to Shareholders.
________________________________________
Signature(s)
_________________________________, 1998
Please sign exactly as the name or
names appear hereon. A proxy executed by
a corporation should be signed in its
name by its authorized officers.
Executors, administrators and trustees
should so indicate when signing.
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FOLD AND DETACH HERE
