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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12546
PACIFIC GULF PROPERTIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MARYLAND 33-0577520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4220 VON KARMAN, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 223-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
TITLE OF SECURITY NAME OF EACH EXCHANGE ON WHICH REGISTERED
----------------- -----------------------------------------
<S> <C>
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
8.375% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001 AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 24, 1998 was approximately 453,119,000.
On March 24, 1998, the registrant had 19,986,609 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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TABLE OF CONTENTS
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<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Financial and Operating Data....................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10. Directors and Management.................................... 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on form
8-K......................................................... 26
</TABLE>
1
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PART I
ITEM 1. BUSINESS
Pacific Gulf Properties Inc. (together with its consolidated operating
partnerships, PGP Inland Communities, L.P., Terrace Gardens -- PGP L.P., Morning
View Terrace -- PGP L.P., PGP Northern Industrial L.P. and PGP Von Karman
Properties, collectively the "Company") was incorporated in August 1993 in the
State of Maryland and completed its initial public offering on February 18, 1994
(the "Offering"). Prior to February 18, 1994, the Company was a wholly-owned
subsidiary of Santa Anita Realty Enterprises, Inc. ("Realty"). Its executive
offices are located at 4220 Von Karman Drive, Newport Beach, California 92660.
The Company operates as a self-administered and self-managed equity real
estate investment trust (a "REIT") which owns, operates, leases, acquires,
rehabilitates and develops industrial and multifamily properties located in
California and the Pacific Northwest.
The Company's properties are located in California and the Pacific
Northwest, with the largest concentration in Southern California. The Company
focuses on the industrial and multifamily properties in this geographic region
due to management's extensive experience in these property types and markets and
management's belief that these markets present potential for long-term economic
growth. As of December 31, 1997, the Company owned a portfolio of 49 operating
industrial properties, containing an aggregate of 10.7 million leasable square
feet, two industrial properties being rehabilitated containing approximately
639,000 leasable square feet and four industrial properties being developed that
will contain approximately 578,000 leasable square feet (the "Industrial
Properties"). The Company also owns a portfolio of 24 operating multifamily
properties, which includes 17 apartment communities containing 3,383 units,
seven active senior apartment communities containing 1,272 units and one active
senior apartment community being developed that contains 166 apartment units
(the "Multifamily Properties," and collectively with the Industrial Properties,
the "Properties"). As of December 31, 1997, the operating Industrial Properties
and Multifamily Properties then owned by the Company experienced occupancy rates
of 95% and 94%, respectively.
The following table presents information on the composition of the
Company's operating properties based on the net book value at December 31, 1997:
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<CAPTION>
PERCENTAGE OF
REAL
NUMBER OF ESTATE
PROPERTIES ASSETS
---------- -------------
<S> <C> <C>
PROPERTY TYPE
Industrial......................................... 49 69%
Multifamily........................................ 24 31
-- ---
Total...................................... 73 100%
== ===
GEOGRAPHIC LOCATION
California......................................... 62 87%
Pacific Northwest.................................. 11 13
-- ---
Total...................................... 73 100%
== ===
</TABLE>
2
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The tables below set forth certain information relating to the Company's
operating Industrial and Multifamily Properties by location and type as of
December 31, 1997.
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<CAPTION>
PERCENT OF
NUMBER OF LEASABLE INDUSTRIAL GROSS
PROPERTIES SQUARE FEET RENTAL REVENUE(1) OCCUPANCY
---------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
INDUSTRIAL
California
Inland Empire(2)....................... 6 1,989,194 17% 97%
San Diego.............................. 6 1,203,606 17 95
Orange County.......................... 16 2,453,590 22 94
Los Angeles............................ 4 1,326,886 11 94
Northern California.................... 12 2,841,706 21 95
Pacific Northwest
Seattle, WA............................ 5 861,067 12 96
-- ---------- --- --
Total or Weighted Average...... 49 10,676,049 100% 95%
== ========== === ==
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF MULTIFAMILY GROSS
PROPERTIES UNITS RENTAL REVENUE OCCUPANCY
---------- ----- ----------------- ---------
<S> <C> <C> <C> <C>
MULTIFAMILY
California
Inland Empire(2)........................... 13 1,806 36% 93%
Orange County.............................. 3 742 18 96
San Diego.................................. 2 551 12 99
Pacific Northwest
Seattle, WA................................ 6 1,556 34 93
-- ----- --- --
Total or Weighted Average.......... 24 4,655 100% 94%
== ===== === ==
</TABLE>
- ---------------
(1) Based on rental revenues for the fourth quarter of 1997.
(2) Includes the eastern portion of Los Angeles County adjacent to the
Riverside-San Bernardino metropolitan statistical area.
3
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1997 DEVELOPMENTS
ACQUISITIONS
During 1997, the Company acquired approximately $302.6 million of
industrial properties and $38.8 million of multifamily properties. The following
tables set forth information regarding these properties and properties currently
under rehabilitation and development.
As part of its acquisition program, the Company seeks properties whose
financial performance can be enhanced through physical renovation and
rehabilitation. The Company also periodically renovates and rehabilitates the
properties it already owns. Rehabilitation activity generally involves updating
older properties to conform to current market standards and may include the
installation of additional loading facilities, sprinkler upgrades, mezzanine
level upgrades, parking lot upgrades and cosmetic rehabilitation of the
property. The Company capitalizes on senior management's experience with
renovation and rehabilitation projects, as well as third party expertise, to
expedite the renovation and rehabilitation process.
See "Industrial Properties" and "Multifamily Properties" for additional
information regarding these properties as of December 31, 1997.
Operating Industrial Properties
<TABLE>
<CAPTION>
NET BUDGETED TOTAL
DATE RENTABLE ACQUISITION CAPITAL BUDGETED
PROPERTY NAME LOCATION ACQUIRED SQUARE FOOTAGE COST EXPENDITURE COST
- ------------- -------- --------- -------------- ----------- ----------- --------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C>
Norwood Industrial Park......... Sacramento, CA Dec. 1997 168,292 $ 4,716 $ 411 $ 5,127
PGDC-Montebello................. Montebello, CA Dec. 1997 143,391 4,809 160 4,969
PGBP-Cerritos................... Cerritos, CA Dec. 1997 213,755 8,485 285 8,770
PGBP-Irvine..................... Irvine, CA Dec. 1997 170,305 7,020 267 7,287
PGDC-Anaheim.................... Anaheim, CA Dec. 1997 91,200 3,322 119 3,441
Horn Road Industrial............ Sacramento, CA Dec. 1997 221,300 9,527 183 9,710
Bradshaw Business Center........ Sacramento, CA Dec. 1997 114,473 8,724 131 8,855
Fullerton Business Center....... Fullerton, CA Dec. 1997 110,900 5,533 37 5,570
611 Cerritos.................... Anaheim, CA Dec. 1997 129,426 6,139 190 6,329
Commerce Park-Sunnyvale......... Sunnyvale, CA Dec. 1997 129,513 14,346 443 14,789
Commerce Park-Santa Clara....... San Tomas, CA Dec. 1997 188,777 20,973 657 21,630
Commerce Park-Sacramento........ Sacramento, CA Dec. 1997 269,146 15,570 566 16,136
Commerce Park-Anaheim........... Anaheim, CA Dec. 1997 145,745 6,922 254 7,176
Tower Park...................... Anaheim, CA Nov. 1997 211,238 9,584 297 9,881
Acacia.......................... Fullerton, CA Nov. 1997 202,551 9,108 283 9,391
Eden Plaza(1)................... Hayward, CA Oct. 1997 101,084 19,370 1,676 21,046
Eden Industrial(1).............. Hayward, CA Oct. 1997 399,555 (2) (2) (2)
Concord Business Park........... Concord, CA Sep. 1997 141,792 7,647 97 7,744
PGDC-Chino...................... Chino, CA Jul. 1997 302,166 10,691 67 10,758
PGDC-Downey..................... Downey, CA Jul. 1997 289,294 11,595 98 11,693
PGDC-Fontana.................... Fontana, CA Jul. 1997 380,634 14,223 54 14,277
PGDC-Rancho Bernardo............ Rancho Bernardo Jul. 1997 215,502 14,204 83 14,287
PGDC-Fremont.................... Fremont, CA Jul. 1997 344,416 17,019 100 17,119
PGDC-Woodland................... Woodland, CA Feb. 1997 570,000 12,826 -- 12,826
Harbor Business Park............ Santa Ana, CA Jan. 1997 193,136 9,155 141 9,296
Harbor Warner Business Park..... Santa Ana, CA Jan. 1997 127,836 5,556 140 5,696
PGDC-Algona..................... Algona, WA Jan. 1997 200,401 9,492 -- 9,492
--------- -------- ------ --------
Total................... 5,775,828 $266,556 $6,739 $273,295
========= ======== ====== ========
</TABLE>
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(1) Owned by PGP Northern Industrial, L.P., a limited partnership in which the
Company has a minimum 59% equity interest and full management and control.
(2) Included under Eden Plaza.
4
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Operating Multifamily Properties
<TABLE>
<CAPTION>
BUDGETED TOTAL
DATE ACQUISITION CAPITAL BUDGETED
PROPERTY NAME LOCATION ACQUIRED UNITS COST EXPENDITURE COST
- ------------- ------------- --------- ----- ----------- ------------ --------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C>
Tyler Springs.................. Riverside, CA Dec. 1997 273 $13,458 $190 $13,648
Terrace Gardens................ Escondido, CA Jun. 1997 225 10,139 171 10,310(1)
Morning View................... Escondido, CA Jun. 1997 326 15,161 140 15,301(2)
--- ------- ---- -------
Total................ 824 $38,758 $501 $39,259
=== ======= ==== =======
</TABLE>
- ---------------
(1) Owned by Terrace Gardens-PGP L.P., a limited partnership in which the
Company has an ownership interest of approximately 58%, full management and
control, and the right to substantially all of the cash flow.
(2) Owned by Morning View Terrace-PGP L.P., a limited partnership in which the
Company has an ownership interest of approximately 58%, full management and
control, and the right to substantially all of the cash flow.
Rehabilitation Properties
<TABLE>
<CAPTION>
NET
ESTIMATED RENTABLE ESTIMATED TOTAL
DATE COMPLETION SQUARE ACQUISITION DEVELOPMENT ESTIMATED
PROPERTY NAME LOCATION ACQUIRED DATE FOOTAGE COST COSTS COSTS
- ------------- ------------- --------- ---------- -------- ----------- ----------- ---------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
Whse/Distribution.... San Diego, CA Aug. 1997 Feb. 1998 375,919 $17,209 $2,291 $19,500
Whse/Distribution.... Algona, WA May 1997 Jan. 1998 263,155 8,780 1,248 10,028
------- ------- ------ -------
Total...... 639,074 $25,989 $3,539 $29,528
======= ======= ====== =======
</TABLE>
Development Properties
<TABLE>
<CAPTION>
ESTIMATED
NET
ESTIMATED RENTABLE ESTIMATED ESTIMATED
DATE COMPLETION SQUARE ACQUISITION DEVELOPMENT TOTAL
PROPERTY NAME LOCATION ACQUIRED DATE FOOTAGE COST COSTS COSTS
- ------------- -------------------- --------- ---------- --------- ----------- ----------- ---------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
Business Park........ Lake Forest, CA Jul. 1997 Dec. 1998 230,000 $ 6,516 $13,942 $20,458
Whse/Distribution.... Lake Forest, CA May 1997 Sept. 1998 203,500 3,554 8,745 12,299
Whse/Distribution.... San Diego, CA Aug 1997 Dec. 1998 88,000 (1) 3,428 3,428
Whse/Distribution.... City of Industry, CA Aug. 1996 Feb. 1998 56,000 (1) 1,860 1,860
------- ------- ------- -------
Total................ 577,500 $10,070 $27,975 $38,045
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
DATE COMPLETION NUMBER DEVELOPMENT TOTAL
PROPERTY NAME LOCATION ACQUIRED DATE OF UNITS LAND COSTS COSTS
- ------------- ------------- --------- ---------- --------- ------- ----------- ---------
(000'S) (000'S) (000'S)
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MULTIFAMILY PROPERTIES
The Fountains........... Rancho Santa Sep. 1996 Feb. 1998 166 $1,642 $6,758 $8,400
Margarita, CA
</TABLE>
- ---------------
(1) Represents the Company's development of excess portions of properties
previously acquired by the Company.
5
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COMPLETION OF INDUSTRIAL REHABILITATION
In April 1997, the Company completed a $1.7 million rehabilitation of the
former Bullock's Distribution Center, representing the first phase of this
project, consisting of a 327,000 square foot warehouse and distribution facility
located in the City of Industry, California, originally purchased by the Company
in August 1996 for approximately $8.8 million. The project, now renamed Pacific
Gulf Distribution Center, is currently 100% leased and has two major tenants, a
food service distributor occupying 182,000 leasable square feet and a computer
terminal distributor occupying 82,000 leasable square feet.
REDUCTION IN PUBLIC INDEBTEDNESS
In December 1996, the Company completed an exchange offer (the "Exchange
Offer") pursuant to which it exchanged an aggregate of 2,440,002 shares of
Common Stock in exchange for approximately $42.1 million in aggregate principal
amount (58 shares of Common Stock for each $1,000 in principal amount) of its
8.375% Convertible Subordinated Debentures Due 2001 (the "Debentures").
Approximately $12.7 million in principal amount of Debentures remained
outstanding at December 31, 1997. The Debentures are traded on the American
Stock Exchange (the "ASE").
COMMON STOCK OFFERINGS
During 1997, the Company completed the following sales of its Common Stock:
<TABLE>
<CAPTION>
NUMBER OF PRICE TO
DATE OF OFFERING GROSS PROCEEDS(1) COMMON SHARES(1) THE PUBLIC
- ---------------- ----------------- ---------------- ----------
(000'S)
<S> <C> <C> <C>
December 1997.......................... $ 20,000 874,317 $22.875
November 1997.......................... 99,108 4,776,300 20.75
June 1997.............................. 44,800 2,131,700 21.00
January 1997........................... 47,200 2,300,000 20.50
-------- ----------
$211,108 10,082,317
======== ==========
</TABLE>
- ---------------
(1) Includes proceeds and shares from the underwriters' over-allotment
exercised.
CLASS A SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
On December 31, 1996, the Company entered into an agreement to issue
1,351,351 shares of Class A Senior Cumulative Convertible Preferred Stock (the
"Class A Preferred Shares") to Five Arrows Realty Securities L.L.C. ("Five
Arrows") at a price of $18.50 per share. As of December 31, 1997, the Company
has issued 1,351,351 shares of the Class A Preferred Shares.
The holders of the Class A Preferred Shares and the holders of the Common
Stock vote together as a single class. Each Class A Preferred Share is
convertible into one share of Common Stock, subject to adjustment upon certain
events. The annual dividend per share on the Class A Preferred Shares is (i)
$1.70 from the date of issuance until December 31, 1997, and (ii) the greater of
$1.70 or 104% of the then-current dividend on the Common Stock thereafter. The
liquidation preference of the Class A Preferred Shares is $18.50 per share, plus
an amount equal to any accumulated, accrued and unpaid dividends. The Company
may redeem the Class A Preferred Shares beginning on December 31, 2001 for cash
in an amount equal to $18.50 per Class A Preferred Share 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 Shares or an
amount of voting securities that, if converted into Common Stock, would exceed
10% of the outstanding Common Stock, a seat on the Company's Board of Directors.
Mr. James E. Quigley 3rd has served on the Company's Board of Directors as Five
Arrows' representative since January 1997. 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
6
<PAGE> 8
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 Shares, Five Arrows would be granted one additional seat on the Board.
At that time, Five Arrows has 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 Shares or the shares of Common Stock into
which such Class A Preferred Shares have been converted.
CLASS B SENIOR CUMULATIVE CONVERTIBLE 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
Shares (the "Class B Preferred Shares") at a price of $21.25 per share. Since
entering into this agreement, the Company has issued and sold to Five Arrows an
aggregate of 1,411,765 Class B Preferred Shares for an aggregate purchase price
of $30 million. Upon each issuance of Class B Preferred Shares, the Company paid
a transaction fee of $0.75 per share. As part of this transaction, Five Arrows
agreed to waive certain availability fees that were to be charged to the Company
if all of the Class A Preferred Shares were not issued before July 1, 1997.
Additionally, Five Arrows agreed that it would not transfer any Class A
Preferred Shares or Class B Preferred Shares, or any shares of Common Stock into
which such shares of Preferred Stock have been converted, until June 30, 1998.
The terms of the Class B Preferred Shares are substantially similar to those of
the Class A Preferred Shares, except that (i) the liquidation preference of the
Class B Preferred Shares is $21.25 per share (plus accumulated, accrued and
unpaid dividends) and (ii) Five Arrows will not be entitled to designate any
additional representatives to the Company's Board of Directors while it owns
both the Class A Preferred Shares and the Class B Preferred Shares.
DEBT FINANCING ACTIVITIES
Tax-Exempt Projects. The Company has established a pool agreement with the
Federal National Mortgage Associations ("FNMA") to provide 30-year credit
enhancement on the Company's tax-exempt projects. In June 1997, in conjunction
with the Company's admission into the partnerships that own the Terrace Gardens
and Morning View Terrace apartment communities, the partnerships refinanced
their existing tax-exempt bond financing of $19.1 million through the FNMA
facility. The effective interest rate on the bonds, after giving effect to
credit enhancement and other costs, has been fixed at 6.4% for 10 years.
The Company also received from FNMA a forward commitment, expiring December
1, 1998, to provide credit enhancement for the Rancho Santa Margarita property,
that the Company is currently developing. The commitment is subject to the
completion of the project and the property achieving certain lease up and
operating requirements. The effective interest rate on the currently outstanding
bonds in this commitment, after giving effect to credit enhancement and other
costs, has been fixed at 6.4% for 10 years.
Property Refinancings. In October 1997, the Company borrowed $34.0 million
at an interest rate of 7.11% for a term of 10 years. The proceeds of this loan
were used to repay $33.6 million of indebtedness under the Company's Line of
Credit. The loan is secured by five warehouse/distribution centers acquired by
the Company in July 1997.
Credit Facilities. The Company has a $65.0 million secured revolving line
of credit (the "Line of Credit") which matures in July 1998. The Line of Credit
bears interest at a rate of LIBOR plus 1.75%. As of December 31, 1997, the
outstanding balance under the Company's Line of Credit was $17.2 million.
Subsequent to year-end, the Company entered into an agreement with a lender
for a $40 million unsecured bridge loan agreement. The agreement has an
expiration date of April 30, 1998 and bears interest at a rate of LIBOR plus
1.25%.
The Company and its lenders are currently negotiating the terms of a new
unsecured credit facility. Terms being negotiated include an increase in the
maximum loan amount, a decrease in the interest rate spread, extension of the
term of the facility and conversion of the secured facility to an unsecured
facility. There can be no assurance that any such terms will be agreed to by the
lenders.
7
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INDUSTRIAL PROPERTIES
The Company focuses on multi tenant business parks and mid-size
warehouse/distribution facilities. Whenever possible, the Company seeks a
significant market share in its principal sub-markets so that it can accommodate
its tenants as their needs change and have an influence on trends in market
rents. The Company also seeks properties that are well located and offer
convenient access to major distribution points, such as shipping ports, major
airports and major freeways.
Management believes that the Southern California industrial property market
is recovering based upon an increasing level of leasing interest and a limited
supply of new product. As evidence of this, the Company already has observed
recent increases in the prices for industrial properties and tenant requests for
longer term leases. With over 48% of its industrial leasable square footage
subject to leases expiring during the next 24 months, the Company believes it is
in a good position to capitalize on anticipated rental rate increases. Over
1,400 tenants currently occupy the Industrial Properties, and no one tenant
accounts for more than 1.8% of the Company's total rental revenues.
The Company generally offers industrial leases in the one- to five-year
range. Lease terms include, in most cases, annual adjustments based on changes
in the consumer price index. The standard lease also includes some refurbishing
and tenant improvement allowance with the amount varying depending upon the
length of the lease, the size of the space leased and the use. The Company seeks
tenants primarily involved in warehouse, distribution, assembly and light
manufacturing activities.
The following table presents information concerning the Industrial
Properties, including the actual average rent per square foot and percentage of
the leasable square footage occupied by tenants as of December 31, 1997:
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
- ---------- -------------------- ---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SEATTLE, WA
Seattle I................. Seattle, WA 1968 42,240 $0.43 100%
Seattle II................ Seattle, WA 1981 64,077 0.57 100
Seattle III............... Seattle, WA 1981 78,720 0.56 100
PGBP-Tukwila.............. Tukwila, WA 1975-79 475,629 0.57 92
PGDC-Algona............... Algona, WA 1989 200,401 0.34 100
INLAND EMPIRE, CA
Golden West Industrial
Park.................... Rancho Cucamonga, CA 1990 296,821 0.36 93
Etiwanda.................. Ontario, CA 1991 576,327 0.31 100
Crescent Business
Center.................. Rancho Cucamonga, CA 1981 136,066 0.39 100
Riverview Industrial
Park.................... San Bernardino, CA 1980 297,180 0.26 89
PGDC-Chino................ Chino, CA 1988 302,166 0.27 100
PGDC-Fontana.............. Fontana, CA 1988 380,634 0.29 100
SAN DIEGO, CA
Vista..................... Vista, CA 1990 356,800 0.37 94
Bay San Marcos............ San Marcos, CA 1988 121,768 0.43 100
Escondido Business
Center.................. Escondido, CA 1988-92 251,464 0.54 95
San Marcos Commerce
Center.................. San Marcos, CA 1985 72,050 0.44 100
MiraMar Industrial
Park(1)................. San Diego, CA 1981 186,022 0.70 100
PGDC-Rancho Bernardo...... Rancho Bernardo, CA 1990 215,502 0.47 85
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
- ---------- -------------------- ---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ORANGE COUNTY, CA
Garden Grove Industrial
Park.................... Garden Grove, CA 1979 252,184 0.39 100
Pacific Gulf Business
Park.................... Garden Grove, CA 1986 189,526 0.64 91
Bell Ranch Industrial
Park.................... Santa Fe Springs, CA 1981 128,640 0.29 100
La Mirada Business
Center.................. La Mirada, CA 1975 82,010 0.60 84
Pacific Park.............. Aliso Viejo, CA 1988 99,622 0.92 94
North County Business
Park.................... Yorba Linda, CA 1987-89 105,516 0.56 100
Harbor Business Park...... Santa Ana, CA 1974-76 193,136 0.60 97
Harbor Warner Business
Park.................... Santa Ana, CA 1974-76 127,836 0.62 91
Commerce Park-Anaheim..... Anaheim, CA 1972 145,745 0.53 83
Acacia.................... Fullerton, CA 1980 202,551 0.42 96
611 Cerritos.............. Anaheim, CA 1961 129,426 0.41 100
Tower Park................ Anaheim, CA 1986 211,238 0.32 100
Fullerton Business
Center.................. Fullerton, CA 1977 110,900 0.49 97
PGDC-Anaheim.............. Anaheim, CA 1980 91,200 0.35 100
PGBP-Irvine(1)............ Lake Forest, CA 1979 170,305 0.72 85
PGBP-Cerritos(1).......... Anaheim, CA 1985 213,755 0.51 88
LOS ANGELES, CA
Baldwin Industrial Park... Baldwin Park, CA 1986 567,605 0.37 100
City of Industry.......... City of Industry,CA 1973-77 326,596 0.36 81
PGDC-Downey............... Downey, CA 1988 289,294 0.33 100
PGDC-Montebello........... Montebello, CA 1985 143,391 0.37 89
NORTHERN CALIFORNIA
Eden Landing Commerce
Park.................... Hayward, CA 1972-74 193,358 0.67 97
PGDC-Woodland............. Woodland, CA 1986 570,000 0.18 100
PGDC-Fremont.............. Fremont, CA 1980,87 344,416 0.38 100
Concord Business Park..... Concord, CA 1989 141,792 0.61 95
Commerce
Park-Sacramento......... Sacramento, CA 1973 269,146 0.79 92
Commerce Park-Santa
Clara................... Santa Clara, CA 1972 188,777 1.20 97
Commerce Park-Sunnyvale... Sunnyvale, CA 1972 129,513 1.15 99
Bradshaw Business
Center.................. Sacramento, CA 1988 114,473 0.87 79
Horn Road Industrial...... Sacramento, CA 1988 221,300 0.44 83
Norwood Industrial Park... Sacramento, CA 1988 168,292 0.28 83
Eden Plaza(2)............. Hayward, CA 1974 101,084 0.85 87
Eden Industrial(2)........ Hayward, CA 1973 399,555 0.32 100
---------- ---
Sub-Total or Weighted
Average for Industrial
Properties............ 10,676,049 $0.45 95%
========== ===== ===
INDUSTRIAL PROPERTY
REHABILITATION
Warehouse/Distribution.... San Diego, CA Feb. 1998(3) 375,919 N/A N/A
Warehouse/Distribution.... Algona, WA Jan. 1998(3) 263,155 N/A N/A
----------
Sub-Total or Weighted
Average............... 639,074
==========
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
- ---------- -------------------- ---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTY UNDER
DEVELOPMENT
Warehouse/Distribution.... Lake Forest, CA Sept. 1998(3) 203,500 N/A N/A
Business Park............. Lake Forest, CA Dec. 1998(3) 230,000 N/A N/A
Warehouse/Distribution.... City of Industry, CA Feb. 1998(3) 56,000 N/A N/A
Warehouse/Distribution.... San Diego, CA Dec. 1998(3) 88,000 N/A N/A
----------
Sub-Total or Weighted
Average............... 577,500
==========
</TABLE>
- ---------------
(1) Subject to ground lease.
(2) Owned by PGP Northern Industrial, L.P., a limited partnership in which the
Company has an ownership interest of approximately 59%, full management and
control, and the right to substantially all of the cash flow.
(3) Estimated.
The following table shows scheduled lease expirations for all leases for
the Industrial Properties (excluding properties under development) as of
December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE
LEASABLE ANNUAL BASE PERCENTAGE OF ANNUAL
NUMBER OF SQUARE FEET OF RENT OF GROSS LEASABLE BASE RENT
YEAR LEASES EXPIRING EXPIRING LEASES EXPIRING LEASES AREA EXPIRING EXPIRING
---- --------------- --------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
1998................... 646 2,835,000 $16,430,000 30.1% 32.4%
1999................... 406 1,727,000 10,780,000 18.3 21.3
2000................... 226 1,577,000 8,884,000 16.7 17.5
2001................... 86 980,000 4,900,000 10.4 9.7
2002................... 57 1,527,000 5,447,000 16.2 10.7
2003................... 16 444,000 2,226,000 4.7 4.4
2004................... 2 96,000 551,000 1.0 1.1
2005................... 3 51,000 478,000 0.6 1.0
2006................... 1 2,000 16,000 -- --
2007................... 4 192,000 969,000 2.0 1.9
----- --------- ----------- ----- -----
Totals....... 1,447 9,431,000(1) $50,681,000 100.0% 100.0%
===== ========= =========== ===== =====
</TABLE>
- ---------------
(1) As of December 31, 1997, 721,000 square feet of tenants were on
month-to-month leases (which are not included above) and 525,000 square feet
were unoccupied.
MULTIFAMILY PROPERTIES
The Company invests primarily in two types of multifamily apartment
communities: communities for active seniors ages 55 and older, and communities
oriented to family-style living.
The Company focuses on active senior housing for individuals ages 55 and
older, where seniors can be involved in activities, social gatherings and other
types of entertainment with residents of their own age group. The Company offers
no assisted living or related services; the Company's properties are oriented to
those seniors interested in renting versus owning and who are able to care for
themselves. The Company believes that the senior population will continue to
grow and that the market for rental housing for active seniors will be strong.
In addition, management believes that active senior housing typically has lower
operating and management costs due to lower tenant turnover.
10
<PAGE> 12
The Company also owns family-style apartment communities with greater
concentrations of two- and three-bedroom units with rents affordable by
middle-income families. The Company believes that there is a strong demand among
middle-income families for affordable rental housing such as that offered by the
Company.
Each of the Multifamily Properties provides tenants with attractive
amenities, including a swimming pool (except Inn at Laguna Hills) and clubhouse,
and many include jacuzzis, tennis courts, sports courts and saunas. Many offer
additional features such as vaulted ceilings, fireplaces, washers and dryers,
cable television and limited access gates. None of the Multifamily Properties
currently are subject to rent control or rent stabilization regulations. However
certain of these properties are subject to restrictions based upon tax-exempt
loan requirements, such as providing a percentage of units to low income
tenants. There can be no assurances that rent control or rent stabilization
regulations will not be imposed in the future.
While the Company has continued to adhere to the philosophy of focusing on
industrial and multifamily product types, the Company has also experienced
significantly increased competition for the acquisition of family-style
apartment communities, thereby driving prices for such properties to levels at
which the Company is not willing to acquire such properties. The Company does
not anticipate a change in these circumstances for the foreseeable future.
However, given the growing demand for senior rental housing, the Company
continues to see opportunities for the acquisition and development of active
senior rental housing. Consequently, the Company intends to explore the
possibility of divestiture of its family-style apartment communities so as to
redeploy its capital into industrial properties or active senior apartments with
more favorable returns. There can be no assurance that the Company will actually
dispose of such properties, nor can there be any assurance as to the timing of
any such dispositions. Any such decision by the Company will be subject to
numerous factors, including prices offered for the Company's family-style
apartment communities and the availability of suitable alternate investment for
the proceeds of such dispositions.
The following table presents information concerning the Multifamily
Properties, including average gross scheduled rents per unit and percentage of
units occupied as of December 31, 1997:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
YEAR UNIT SIZE RENT
MULTIFAMILY LOCATION COMPLETED UNITS (SQ FT) PER UNIT OCCUPANCY
- ----------- -------- --------- ----- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ORANGE COUNTY, CA
Applewood................... Santa Ana, CA 1972 406 801 $732 97%
Park Place.................. Santa Ana, CA 1990 196 799 665 92
Inn at Laguna Hills(1)...... Laguna Hills, CA 1994 140 500 616 99
INLAND EMPIRE, CA
Daisy 5(2)(3)............... Covina, CA 1977 38 897 731 79
Daisy 7(2)(3)............... Diamond Bar, CA 1978 204 950 808 93
Daisy 12(2)(3).............. San Dimas, CA 1979 102 952 722 92
Daisy 16(2)(3).............. West Covina, CA 1981 250 986 737 93
Daisy 17(2)(3).............. San Dimas, CA 1981 156 962 716 90
Lariat(2)(3)................ San Dimas, CA 1981 30 970 782 97
Daisy 19(3)................. Ontario, CA 1983 125 1019 748 97
Daisy 20(3)................. Ontario, CA 1982 155 1000 678 92
Sunnyside I(1)(3)........... San Dimas, CA 1984 164 495 524 95
Sunnyside II(1)(3).......... Ontario, CA 1983 60 493 486 88
Sunnyside III(1)(3)......... Ontario, CA 1985 84 504 505 85
Raintree(2)................. Ontario, CA 1984 165 846 589 90
Tyler Springs(1)............ Riverside, CA 1987 273 714 481 96
SAN DIEGO, CA
Terrace Gardens(1)(4)....... San Diego, CA 1985 225 780 573 100
Morning View(1)(5).......... San Diego, CA 1986 326 649 582 98
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
AVERAGE AVERAGE
YEAR UNIT SIZE RENT
MULTIFAMILY LOCATION COMPLETED UNITS (SQ FT) PER UNIT OCCUPANCY
- ----------- -------- --------- ----- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
SEATTLE, WA
Fulton's Landing............ Everett, WA 1988 248 745 581 98
Fulton's Crossing........... Everett, WA 1986 256 803 603 93
Lora Lakes.................. Burien, WA 1987 234 907 666 93
Holly Ridge................. Burien, WA 1987 146 946 693 95
Hampton Bay................. Kent, WA 1987 304 884 686 92
Heatherwood(2).............. Federal Way, WA 1985 368 741 588 89
----- ---
Sub-Total or Weighted Average For Multifamily Properties......... 4,655 94%
===== ===
MULTIFAMILY PROPERTIES UNDER
DEVELOPMENT
Rancho Santa Margarita Senior
Community................... Rancho Santa Margarita, CA N/A 166 600 N/A N/A
</TABLE>
- ---------------
(1) Properties serving active senior tenants (individuals 55 and older).
(2) Under rehabilitation.
(3) Owned by PGP Inland Communities, L.P., a limited partnership in which the
Company has a minimum 78% equity interest, full management and control, and
the right to 100% of cash flow until certain net operating income levels are
achieved.
(4) Owned by Terrace Gardens-PGP L.P., a limited partnership in which the
Company has an ownership interest of approximately 58%, full management and
control, and the right to substantially all of the cash flow.
(5) Owned by Morning View Terrace-PGP L.P., a limited partnership in which the
Company has an ownership interest of approximately 58%, full management and
control, and the right to substantially all of the cash flow.
INDEBTEDNESS
The following table presents information on indebtedness encumbering the
Industrial and Multifamily Properties, excluding borrowings outstanding under
the Company's revolving line of credit, as of December 31, 1997:
<TABLE>
<CAPTION>
PROPERTY (IN $000S) MATURITY DATE INTEREST RATE
- -------- ---------- -------------- -------------
<S> <C> <C> <C>
INDUSTRIAL
Baldwin Industrial Park........................ $ 11,650 October 2005 8.150%
Etiwanda....................................... 6,724 May 2000 8.745%
PGBP-Tukwila................................... 11,421 December 2002 Libor + 1.5%(d)
Vista(a)....................................... 7,800 October 2010 8.000%
Golden West(a)................................. 3,800 October 2010 8.000%
Garden Grove Industrial Park(a)................ 5,300 October 2010 8.000%
Horn Road Industrial........................... 2,879 February 2006 7.950%
Various(b)..................................... 34,000 October 2007 7.110%
Eden Plaza/Eden Industrial..................... 12,000 December 2002 7.050%
Bell Ranch Industrial Park(c) 2,475 December 2011 7.750%
Pacific Park(c)................................ 4,425 December 2011 7.750%
North County(c)................................ 4,125 December 2011 7.750%
Bay San Marcos(c).............................. 2,700 December 2011 7.750%
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
PROPERTY (IN $000S) MATURITY DATE INTEREST RATE
- -------- ---------- -------------- -------------
<S> <C> <C> <C>
Escondido(c)................................... 6,300 December 2011 7.750%
Riverview Industrial Park(c)................... 4,475 December 2011 7.750%
Miramar Village(e)............................. 9,000 August 1998 8.000%
Algona II(f)................................... 4,625 September 1998 8.500%
--------
Total Industrial............................ 133,699
--------
MULTIFAMILY
Inn at Laguna.................................. 4,679 August 2024 7.250%
Applewood/Park Place(g)........................ 11,703 March 1999 8.490%
Daisy V........................................ 1,284 September 2025 7.687%(h)
Daisy VII...................................... 8,700 August 2000 8.000%
Daisy XII...................................... 3,661 September 2025 7.687%(h)
Daisy XVI...................................... 8,999 August 2000 8.000%
Daisy XVII..................................... 5,788 August 2000 8.000%
Lariat......................................... 1,184 September 2025 7.687%
Daisy XIX(i)................................... 6,616 December 2026 6.300%
Daisy XX(i).................................... 7,594 December 2026 6.300%
Sunnyside I(i)................................. 5,600 December 2026 6.300%
Sunnyside II(i)................................ 1,807 December 2026 6.300%
Sunnyside III(i)............................... 2,923 December 2026 6.300%
Lora Lakes, Fulton's Landing and Fulton's
Crossing(g)................................. 14,625 March 1998 8.420%
Hampton Bay.................................... 7,751 April 2006 7.300%
Raintree....................................... 6,870 January 2027 6.400%
Tyler Springs.................................. 9,400 December 2016 3.850%(j)
Terrace Gardens................................ 8,044 January 2027 6.385%
Morning View................................... 10,925 January 2027 6.375%
The Fountains(k)............................... 4,800 November 1998 Prime
--------
Total Multifamily........................... 132,953
--------
Total.................................. 266,652
========
</TABLE>
- ---------------
(a) Vista, Golden West and Garden Grove jointly collateralize the $16,900,000
note payable.
(b) PGDC-Fontana, PGDC-Chino, PGDC-Fremont, PGDC-Downey and PGDC-Rancho Bernardo
jointly collateralize the $34,000,000 note payable.
(c) Bell Ranch Industrial Park, Pacific Park, North County, Bay San Marcos,
Escondido Business Center and Riverview Industrial Park jointly
collateralize the $24,500,000 note payable.
(d) The Company entered into an interest rate swap agreement that fixed the
interest rate on $11,500,000 of the principal balance at 7.35% for five
years commencing July 1, 1996.
(e) Construction loan relating to rehabilitation of Miramar Village. The maximum
loan amount under the agreement is $10,238,000.
(f) Construction loan relating to rehabilitation of Algona II. The maximum loan
amount under the agreement is $5,025,000.
(g) Applewood and Park Place jointly collateralize the $11,703,000 note payable;
and Lora Lakes, Fulton's Landing and Fulton's Crossing jointly collateralize
the $14,625,000 note payable.
(h) Interest rate is subject to periodic adjustments beginning March 10, 1996
based on the monthly weighted average 11th District Cost of Funds plus 2.8%.
(i) These tax-exempt mortgage loans (other than Tyler Springs) are financed
tax-exempt bond financing supported by credit enhancement from FNMA. The
collateral properties, which also include Heatherwood and Hollyridge, not
listed above, are subject to restrictions requiring that a specified
13
<PAGE> 15
percentage of the apartment units in such properties be made available to
persons with lower and moderate income. As of December 31, 1997, 316
apartment units, or 7% of the total apartments owned, were required to have
been made available to persons with lower or moderate income pursuant to
these requirements, and the Company has complied with such requirements. In
addition, state and local authorities in some cases impose certain
restrictions on the amount of rent that can be charged.
(j) Interest rate is subject to periodic adjustments based on the Kenny Rate
Index.
(k) Represents construction loan relating to development and construction of the
Fountains multifamily community with a maximum loan amount of $6,400,000.
CORPORATE OFFICES
The Corporate offices are located in Newport Beach, California in
approximately 16,000 square feet of a 26,000 square foot office building, which
is 99% owned by the Company.
PROPERTY MANAGEMENT
Industrial Properties. The Company manages all of its existing Industrial
Properties in California and Pacific Northwest using its network of six regional
offices.
The Company offers industrial leases in the one- to five-year range. Lease
terms include, in most cases, annual adjustments based on changes in the
consumer price index and from one to three months' free rent. The standard lease
also includes some refurbishing and tenant improvement allowance with the amount
varying depending upon the length of the lease, the size of the space leased and
the use. The Company will seek tenants primarily involved in warehouse,
distribution, assembly and light manufacturing activities. Standard lease terms
include a stipulated due date for rent payment, late charges (typically with no
grace period), no offset or withholding provisions, security deposit clause, as
well as many other provisions considered favorable to the landlord.
Multifamily Properties. The Company currently manages all of its
Multifamily Properties in each of its regions. Each of the regions is managed by
a Regional Manager who reports directly to the Vice President of
Operations -- Apartments. Within each region, each of the Multifamily Properties
is operated by a staff of approximately six to seven individuals, including a
manager, assistant manager and/or leasing agents, and a maintenance and
apartment preparation staff. The Company locates prospective tenants for its
Multifamily Properties primarily by advertising in magazines listing available
rentals and by using firms that assist tenants in locating apartments. The
Company also does magazine and direct mail advertising. Policies and procedures
utilized at the property sites, including procedures concerning lease contracts,
on-site marketing, credit collection standards and eviction standards, follow
established federal and state laws.
Individual property lease programs are structured to respond to local
market conditions. The Company attempts to balance rent increases with high
occupancy and low turnover. None of the Multifamily Properties are currently
subject to rent control or rent stabilization regulations. However, certain of
these properties are subject to restrictions based on tax-exempt loan
requirements. Standard lease terms stipulate due dates for rent payments, late
charges, no offset or withholding provisions, security deposits and damage
reimbursement clauses, as well as many other provisions considered favorable to
the property owner. Nonpayment of rent is generally handled at the properties
within 15 days from the beginning of the month, with either commencement of
collection or eviction proceedings occurring within that time period.
EMPLOYEES
At December 31, 1997, the Company employed approximately 169 persons, of
which 145 were onsite or property related and 24 were executive office
employees.
14
<PAGE> 16
COMPETITIVE AND OTHER CONDITIONS
Competition. Within its geographic areas of operation, the Company is
subject to competition from a variety of investors, including insurance
companies, pension funds, corporate and individual real estate developers and
investors and other REITs with investment objectives similar to those of the
Company. Some of these competitors have more substantial financial resources and
longer operating histories than the Company. As an owner of industrial and
apartment real estate properties, the Company competes with other owners of
similar properties in connection with their financing, sale, lease or other
disposition and use.
While the Company has not experienced material competitive pressures
confined to specific geographic regions, it is possible that material adverse
changes in regional economies or in the operations of major regional employers
(such as Boeing in the Pacific Northwest) could have a material adverse effect
on the ability of the Company to lease its Properties and on the rents charged.
Conversely, if any of the regional geographic areas in which the Company owns
Properties experiences economic growth, the Company is likely to experience
increased competition for acquisition and development projects, thereby
increasing the Company's costs of acquisition and development and potentially
reducing the Company's returns therefrom.
Insurance. The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance with respect to its Industrial Properties and
Multifamily Properties, with policy specifications, insured limits and
deductibles customarily carried for similar properties which the Company
believes are adequate and appropriate under the circumstances. These are certain
types of losses, such as those arising from acts of war, which are not generally
insured because they are either uninsurable or not economically insurable.
Presently the Company carries earthquake disaster insurance on its California
properties which comprise 87% of the Company's total portfolio (as a percentage
of real estate assets); however, such insurance may not be available in the
future or may only be available at rates that, in the opinion of the Company,
are prohibitive. In the event that an uninsured disaster or a loss in excess of
insured limits should occur, the Company could suffer a substantial loss,
including loss of anticipated future revenues, while remaining obligated on
related mortgage indebtedness. The Company believes its properties were
constructed in compliance with applicable construction standards in effect at
the time of construction. The Company obtained customary title insurance
insuring fee title to its properties upon their acquisition.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The statements contained in Item 1 of this report that are not historical
facts are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results may differ materially from those
included in the forward-looking statements. These forward-looking statements
involve risks and uncertainties including, but not limited to, the following:
changes in general economic conditions in the markets that could impact demand
for the Company's product, competition and changes in financial markets and
interest rates impacting the Company's ability to meet it financing needs and
obligations.
ITEM 2. PROPERTIES
Information concerning properties owned by the Company is included under
"Item 1. Business."
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any litigation nor is any
litigation threatened against the Company, other than routine litigation arising
in the ordinary course of business.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company has traded on the New York Stock Exchange
("NYSE") since October 29, 1996 under the symbol "PAG". Prior to that date and
since its formation, the Company traded on the American Stock Exchange ("ASE").
The following table sets forth the high and low closing prices for the common
stock on the respective exchange.
<TABLE>
<CAPTION>
CASH
HIGH LOW DISTRIBUTION RECORD DATE DATE PAID
---- --- ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
1995
1st Quarter........... 16 1/4 14 5/8 .39(1) April 14, 1995 May 12, 1995
2nd Quarter........... 16 1/4 14 1/2 .39(1) July 14, 1995 August 15, 1995
3rd Quarter........... 16 5/8 14 5/8 .39(1) October 16, 1995 November 14, 1995
4th Quarter........... 16 3/4 13 .40(2) January 2, 1996 January 10, 1996
1996
1st Quarter........... 18 3/4 15 7/8 .40(2) April 2, 1996 April 12, 1996
2nd Quarter........... 18 3/8 16 1/8 .40(2) July 1, 1996 July 12, 1996
3rd Quarter........... 18 3/4 16 1/2 .40(2) October 2, 1996 October 11, 1996
4th Quarter........... 20 18 1/8 .41(3) January 2, 1997 January 10, 1997
1997
1st Quarter........... $23 3/8 $19 1/4 .41(3) April 1, 1997 April 11, 1997
2nd Quarter........... 22 1/8 20 1/2 .41(3) July 1, 1997 July 11, 1997
3rd Quarter........... 24 5/16 20 7/8 .41(3) October 1, 1997 October 10, 1997
4th Quarter........... 24 5/16 20 3/4 .42 January 1, 1998 January 9, 1998
</TABLE>
- ---------------
(1) 68% of the distributions paid to beneficial owners in 1995 represented a
return of capital ($1.06 per share).
(2) 45% of the distributions paid to beneficial owners in 1996 represented a
return of capital ($.72 per share).
(3) 28.6% of the distributions paid to beneficial owners in 1997 are estimated
to represent a capital gain distribution.
The minimum distribution requirement to maintain REIT status was
approximately $2,300,000 for 1995, $4,758,000 for 1996 and $22,834,000 for 1997.
A regular quarterly distribution of $.42 per share was paid January 9,
1998. The closing price of the common stock on the New York Stock Exchange on
March 24, 1998 was $22.875 per share. As of March 24, 1998, there were
approximately 13,326 beneficial owners of common stock.
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend upon the actual Funds From Operations of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code, applicable
legal restrictions and such other factors as the Board of Directors deems
relevant. Although the Company intends to continue to make quarterly
distributions to its stockholders, no assurances can be given as to the amount
of distributions, if any, made in the future.
The statement on the face of this Annual Report on Form 10-K regarding the
aggregate market value of voting stock of the Company held by non-affiliates of
the Company is based on the assumption that all directors and officers of the
Company were, for purposes of this calculation only (and not for any other
purpose), affiliates of the Company.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table and footnotes set forth selected historical financial
and operating data for the Company from February 18, 1994, the date of the
Company's initial public offering, and for the predecessor multifamily and
industrial operations acquired from Realty prior to that date.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994(A) 1993
---------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Rental income
Industrial properties.......... $ 36,410 $ 20,783 $ 12,193 $ 7,207 $ 1,002
Multifamily properties......... 33,096 29,104 24,898 18,937 15,150
---------- --------- --------- --------- --------
69,506 49,887 37,091 26,144 16,152
---------- --------- --------- --------- --------
Rental property expenses
Industrial properties.......... 8,212 5,308 2,567 1,541 245
Multifamily properties......... 12,754 11,554 10,215 8,835 7,261
---------- --------- --------- --------- --------
20,966 16,862 12,782 10,376 7,506
Depreciation..................... 12,008 8,236 6,081 3,721 2,634
Interest (including amortization
of debenture discount and
financing costs)............... 17,337 18,411 14,066 8,164 6,028
General and administrative....... 3,159 2,974 2,423 1,725 1,538
Reduction in carrying value of
Predecessor's properties....... -- -- -- -- 10,974
Minority interest in earnings
(losses) of partnerships....... 172 -- -- -- (492)
Nonrecurring loss on exchange of
debentures for common stock.... -- 3,596(b) -- -- --
---------- --------- --------- --------- --------
53,642 50,079 35,352 23,986 28,188
---------- --------- --------- --------- --------
Income (loss) before gain on sale
of real estate and
extraordinary item............. 15,864 (192) 1,739 2,158 (12,036)
Gain on sale of real estate.... 5,594 74 6,664 -- --
Extraordinary item............. -- -- -- (2,990) --
---------- --------- --------- --------- --------
Net income (loss)................ 21,458 (118) 8,403 (832) (12,036)
Preferred dividend
requirements................ (855)(f) -- -- -- --
---------- --------- --------- --------- --------
Income available (loss
attributable) to common
shareholders................... $ 20,603 $ (118) $ 8,403 $ (832) $(12,036)
========== ========= ========= ========= ========
Earnings (loss) per share(c)
Basic.......................... $ 1.51 $ (.02) $ 1.74 $ (.07)(d) --
Diluted........................ $ 1.47 $ (.02) $ 1.68 $ (.07)(d) --
Weighted average common shares
outstanding.................... 13,685,693 6,311,963 4,830,723 4,273,337(d) --
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994(A) 1993
---------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Operating properties, net of
accumulated depreciation:
Industrial properties.......... $ 455,045 $170,731 $102,813 $ 79,751 $ 7,323
Multifamily properties......... 206,756 179,965 175,879 113,706 90,375
---------- --------- --------- --------- --------
Total operating properties....... 661,801 350,696 278,692 193,457 97,698
Properties under development,
including land................. 32,107 2,171 -- -- --
---------- --------- --------- --------- --------
Total real estate................ 693,908 352,867 278,692 193,457 97,698
Total assets..................... 712,471 364,640 288,591 202,519 99,984
Senior debt...................... 283,852 197,401 149,847 69,480 88,740
Convertible subordinated
debentures..................... 12,592 14,227(b) 55,659 55,526 --
Total equity..................... 388,840 139,822 71,980 70,860 9,501
PROPERTY DATA (end of period)
Total industrial properties...... 49 21 10 9 3
Industrial leasable area (sq.
ft.)........................... 10,676 4,573 2,902 2,426 185
Industrial -- Occupancy %........ 95% 98% 96% 97% 95%
Total multifamily properties..... 24 22 21 13 10
Total apartment units............ 4,655 4,110 3,945 3,292 2,654
Apartment -- Occupancy %......... 94% 93% 92% 93% 92%
SUPPLEMENTAL DATA
Funds From Operations(e)......... $ 27,017 $ 11,640 $ 7,820 $ 5,879 $ 1,572
Cash Flow Information:
Operating activities........... $ 27,736 $ 8,523 $ 7,138 $ 3,950 $ 1,307
Investing activities........... $(350,597) $(81,918) $ (84,480) $(99,504) $(15,323)
Financing activities........... $ 322,804 $ 72,071 $ 76,674 $ 98,649 $ 13,798
Ratio of Earnings to Fixed
Charges(g)..................... 1.75 -- 1.12 1.26 --
</TABLE>
- ---------------
(a) Includes the combined historical operations of the Company from February 18
through December 31, 1994 and the predecessor multifamily and industrial
operations acquired from Realty prior to February 18, 1994.
(b) Reflects the $3,596,000 nonrecurring loss incurred on the exchange of
$42,069,000 aggregate principal amount of convertible subordinated
debentures into 2,440,002 shares of common stock in December 1996.
(c) Earnings per share data for all periods presented reflects basic and diluted
calculations in accordance with the new standard (Statement No. 128) and has
been restated from the previous accounting standard of primary and fully
diluted earnings per share. (See Part IV -- Financial Statements.)
(d) Per share data for 1994 was based on the weighted average common shares
outstanding for the period February 18, 1994 (the closing date of the
Company's initial public offerings) through December 31, 1994 and the
Company's net loss for that period.
(e) Management considers FFO to be an appropriate measure of the performance of
an equity REIT. The National Association of Real Estate Investment Trusts
("NAREIT") currently defines FFO as net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures. In addition, extraordinary or unusual items, along with
significant non-recurring events that materially distort the comparative
measure of FFO are typically disregarded in its calculation. Prior to March
1995 the NAREIT definition of FFO required
18
<PAGE> 20
the add back of non-real estate depreciation and amortization, such as loan
cost amortization. The Company adopted the new FFO definition prescribed by
NAREIT as of January 1, 1996. The Company believes that in order to
facilitate a clear understanding of the consolidated historical operating
results of the Company, FFO should be examined in conjunction with net
income as presented in the consolidated financial statements and data
included elsewhere in this report. FFO is not defined by generally accepted
accounting principles. FFO should not be considered as an alternative to net
income or as an indication of the Company's operating performance or to net
cash provided by operating activities as a measure of the Company's
liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation.
CALCULATION OF FFO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994(A) 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income available (loss attributable) to
common shareholders..................... $20,603 $ (118) $ 8,403 (832) (12,036)
Depreciation.............................. 12,008 8,236 6,081 3,721 2,634
Gain on sale of real estate............... (5,594) (74) (6,664) -- --
Nonrecurring loss on exchange of
debentures for common stock............. -- 3,596 -- -- --
Reduction in carrying value of
Predecessor's properties................ -- -- -- -- 10,974
Extraordinary item........................ -- -- -- 2,990 --
------- ------- ------- ------ -------
Funds From Operations..................... $27,017 $11,640 $ 7,820 $5,879 $ 1,572
======= ======= ======= ====== =======
</TABLE>
(f) Represents dividends on Class A Preferred Shares and Class B Preferred
Shares outstanding in 1997. (See Part IV -- Financial Statements)
(g) Earnings for the year ended December 31, 1996 were inadequate to cover fixed
charges by approximately $0.2 million as a result primarily of the
nonrecurring loss of $3,596,000 relating to the Company's exchange of
debentures for common stock. The ratio of earnings to fixed charges
excluding this $3.6 million non-cash item is 1.18 to 1.
Prior to completion of the Company's initial public offering in February
1994, the predecessor of the Company operated in a highly leveraged manner.
As a result, although the Company and the predecessor have historically
generated positive net cash flow, the financial statements of the
predecessor show net losses for the periods prior to 1994. Consequently, the
computation of the ratio of earnings to fixed charges for such period
indicate that earnings were inadequate to cover fixed charges by
approximately $1.6 million for the year ended December 31, 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with "Selected
Financial and Operating Data" and the financial statements and notes thereto of
the Company appearing elsewhere in this report. Such financial statements and
information have been prepared to reflect the Company's financial position as of
December 31, 1997, 1996 and 1995 together with the results of its operations and
its cash flows for the years then ended.
Historical results and trends which might appear should not be taken as
indicative of future operations. Management's representation statements
contained in this report that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions in the
19
<PAGE> 21
markets that could impact demand for the Company's properties, competition, and
changes in financial markets and interest rates could impact the Company's
ability to meet its financing needs and obligations.
The comparability of the financial information discussed below is impacted
by the following: the acquisition of 27 operating industrial properties
containing approximately 5,776,000 leasable square feet, the acquisition of
three multifamily properties containing 824 apartment units, and the disposition
of one multifamily property containing 279 apartment units during 1997; the
acquisition of twelve industrial properties containing approximately 2,054,000
leasable square feet, the acquisition of one multifamily property containing 165
apartment units, and the disposition of 14 acres of land and a 55,656 square
foot industrial building located in the Baldwin Industrial Park project during
1996; and the acquisition of twelve multifamily properties containing 1,736
apartment units, the acquisition of one industrial property containing
approximately 476,000 leasable square feet, and the disposition of four
multifamily properties consisting of 1,085 apartment units during 1995.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996.
Industrial rental income increased by $15,627,000 or 75%, from $20,783,000
in 1996 to $36,410,000 in 1997. This increase was primarily attributable to the
acquisition of 27 industrial properties in 1997. Industrial rental income for
the year ended December 31, 1997 included $9,128,000 related to the 27
industrial acquisitions.
Multifamily rental income increased by $3,992,000 or 14%, from $29,104,000
in 1996 to $33,096,000 in 1997. This increase was primarily attributable to an
increase in rental rates and to the acquisition of three multifamily properties
containing 824 apartment units during 1997. Multifamily rental income for the
year ended December 31, 1997 included $2,150,000 related to the three
multifamily acquisitions.
As a result of these changes total revenues increased by $19,619,000 or
39%, from $49,887,000 in 1996 to $69,506,000 in 1997.
Industrial rental property expenses increased by $2,904,000, or 55%, from
$5,308,000 in 1996 to $8,212,000 in 1997. This increase was primarily related to
the Company's acquisitions in 1997. Industrial rental property expenses for the
year ended December 31, 1997 included $1,839,000 related to the 27 industrial
acquisitions.
Multifamily rental property expenses increased by $1,200,000, or 10%, from
$11,554,000 in 1996 to $12,754,000 in 1997. This increase was primarily related
to the Company's acquisitions in 1997. Multifamily rental property expenses for
the year ended December 31, 1997 included $717,000 related to the three
multifamily properties acquired during 1997.
Depreciation increased by $3,772,000 or 46%, from $8,236,000 in 1996 to
$12,008,000 in 1997. The increases relate primarily to the acquisitions
described above and the capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of financing costs) decreased by
$1,074,000, or 6%, from $18,411,000 in 1996 to $17,337,000 in 1997. This
decrease was attributable to a decrease in convertible subordinated debentures
outstanding, (primarily associated with the exchange of $42,069,000 aggregate
principal amount of debentures into 2,440,002 shares of Common Stock). This
decrease was offset by an increase in outstanding borrowings due to new
acquisitions made during 1996 and 1997. Interest resulting from the amortization
of financing costs decreased by $384,000 or 32% from $1,211,000 in 1996 to
$827,000 in 1997. This decrease is attributable to the exchange in subordinated
debentures which converted into shares of Common Stock in December 1996.
General and administrative expenses increased by $185,000, or 6%, from
$2,974,000 in 1996 to $3,159,000 in 1997. This increase was primarily
attributable to personnel increases related to the 1996 and 1997 acquisitions.
20
<PAGE> 22
Minority interests in earnings of partnerships totaled $172,000 and
represents earnings allocated to the minority partners in two partnerships in
which the Company acquired a controlling general partner interest in June 1997
(Terrace Gardens, L.P. and Morning View Terrace L.P.). No earnings were
allocated to the minority interests in the Company's other partnerships.
For the year ended December 31, 1997, the Company had net income of
$20,603,000 compared with a net loss of $118,000 in 1996. The results in each
year were impacted by non-recurring items. In 1996, a $3,596,000 non-recurring
loss on the exchange of debentures was incurred (see Part I, Item 1 "Recent
Developments-Reduction in Public Indebtedness") while in 1997 a $5,594,000 net
gain on sale of real estate was recognized primarily from the sale of a 279 unit
apartment community located in Oregon.
Comparison of the Year Ended December 31, 1996 to the Year Ended December 31,
1995.
Industrial rental income increased by $8,590,000 or 70%, from $12,193,000
in 1995 to $20,783,000 in 1996. This increase was primarily attributable to the
acquisition of twelve industrial parks during 1996 containing approximately
2,054,000 leasable square feet. Industrial rental income for the year ended
December 31, 1996 included $5,647,000 related to the twelve industrial
acquisitions.
Multifamily rental income increased by $4,206,000 or 17%, from $24,898,000
in 1995 to $29,104,000 in 1996. This increase was primarily attributable to the
acquisition of a 165 unit multifamily property in 1996 and the acquisition of
twelve multifamily properties containing 1,736 apartment units in 1995, offset
by the disposition of four multifamily properties containing 1,085 apartment
units during the last quarter of 1995. Multifamily rental income for the year
ended December 31, 1996 increased by $10,558,000 related to the 13 multifamily
acquisitions during 1995 and 1996 and was reduced by the sale of the four
multifamily properties in 1995.
As a result of these changes, total revenues increased by $12,796,000 or
34%, from $37,091,000 in 1995 to $49,887,000 in 1996.
Industrial rental property expenses increased by $2,741,000, or 107%, from
$2,567,000 in 1995 to $5,308,000 in 1996. This increase was primarily related to
the Company's acquisitions described above. Industrial rental property expenses
for the year ended December 31, 1996 included $1,630,000 related to the twelve
industrial acquisitions.
Multifamily rental property expenses increased by $1,339,000, or 13%, from
$10,215,000 in 1995 to $11,554,000 in 1996. This increase was primarily related
to the Company's acquisitions described above, offset by the sale of four
properties in Texas in the prior year. Multifamily rental property expenses for
the year ended December 31, 1996 increased by $4,422,000 related to the 13
multifamily properties acquired during 1996 and 1995 and was reduced by the sale
of the four multifamily properties in 1995.
Depreciation increased by $2,155,000, or 35%, from $6,081,000 in 1995 to
$8,236,000 in 1996. The increases relate primarily to the acquisition of the
thirteen multifamily properties in 1996 and 1995, the twelve industrial
properties acquired in 1996, and the capital improvements made to rehabilitate
existing properties.
Interest expense (including amortization of financing costs) increased by
$4,355,000, or 31%, from $14,066,000 in 1995 to $18,411,000 in 1996. This
increase was attributable to increased borrowings outstanding during 1996, as
compared to 1995, pursuant to new borrowings of $55,517,000 relating to the
acquisition of multifamily properties and one industrial park during the last
half of 1996. Interest resulting from the amortization of financing costs
increased by $212,000 or 21% from $1,009,000 in 1995 to $1,221,000 in 1996. This
increase is attributable primarily to amortization of loan fees associated with
borrowings used to finance acquisitions completed during late 1995 and 1996.
General and administrative expenses increased by $551,000, or 23%, from
$2,423,000 in 1995 to $2,974,000 in 1996. This increase was primarily
attributable to personnel increases related to the 1995 and 1996 acquisitions.
For the year ended December 31, 1996, the Company incurred a net loss of
$118,000 compared with net income of $8,403,000 in 1995. The results in each
year were impacted by non-recurring items. In 1996, a
21
<PAGE> 23
$3,596,000 non-recurring loss was incurred on the exchange of the convertible
subordinated debentures for common stock (see Part I, Item 1) while in 1995 a
$6,664,000 gain on sale of real estate was recognized from the sale of the four
multifamily properties located in Texas.
Comparison of the Year Ended December 31, 1995 to the Year Ended December 31,
1994.
Industrial rental income increased by $4,986,000 or 69%, from $7,207,000 in
1994 to $12,193,000 in 1995. This increase was primarily attributable to the
acquisition of three industrial properties during the last half of 1994
containing approximately 1,011,000 leasable square feet of space and one
industrial acquisition in 1995. Industrial rental income for the year ended
December 31, 1995 included $192,000 related to the 1995 industrial acquisition.
Multifamily rental income increased by $5,961,000 or 31%, from $18,937,000
in 1994 to $24,898,000 in 1995. This increase was primarily attributable to the
acquisition of twelve multifamily properties containing 1,736 apartment units in
1995 offset by the disposition of four multifamily properties containing 1,085
apartment units during the last quarter of 1995. Multifamily rental income for
the year ended December 31, 1995 included $3,990,000 related to the twelve
multifamily acquisitions and $5,987,000 related to the four multifamily
properties sold during the last quarter of 1995.
As a result of these changes, total revenues increased by $10,947,000, or
42% from $26,144,000 in 1994 to $37,091,000 in 1995.
Industrial rental property expenses increased by $1,026,000, or 67%, from
$1,541,000 in 1994 to $2,567,000 in 1995. This increase was primarily
attributable to the acquisition of three industrial parks during the last half
of 1994 and one industrial acquisition in 1995. Industrial rental property
expenses for the year ended December 31, 1995 included $25,000 related to the
1995 industrial acquisition.
Multifamily rental property expenses increased by $1,380,000, or 16%, from
$8,835,000 in 1994 to $10,215,000 in 1995. This increase was primarily
attributable to the acquisition of twelve multifamily properties containing
1,736 apartment units in 1995. Multifamily rental property expenses for the year
ended December 31, 1995 included $1,779,000 related to twelve multifamily
properties acquired during 1995 and included $2,403,000 related to the four
multifamily properties sold during the last quarter of 1995.
Depreciation increased by $2,360,000, or 63%, from $3,721,000 in 1994 to
$6,081,000 in 1995. The increases relate primarily to the acquisition of the
twelve multifamily properties in 1995, the three industrial properties acquired
in late 1994, and the capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of financing costs) increased by
$5,902,000, or 72%, from $8,164,000 in 1994 to $14,066,000 in 1995. This
increase was attributable to increased borrowings outstanding during 1995, as
compared to 1994, pursuant to new borrowings of $55,517,000 relating to the
acquisition of twelve multifamily properties and one industrial park during the
last half of 1995 and $24,850,000 of tax-exempt mortgage indebtedness assumed
with the Company's recent acquisitions. Interest resulting from the amortization
of financing costs increased by $386,000 or 62% from $623,000 in 1994 to
$1,009,000 in 1995. This increase is attributable primarily to the additional
amortization relating to the convertible subordinated debentures issued on
February 18, 1994 and accordingly being outstanding for the entire year in 1995
and amortization of loan fees associated with borrowings used to finance
acquisitions completed during late 1994 and 1995.
General and administrative expenses increased by $698,000, or 40%, from
$1,725,000 in 1994 to $2,423,000 in 1995. This increase was primarily
attributable to personnel increases related to the 1994 and 1995 acquisitions
made during the second half of each year, respectively.
For the year ended December 31, 1995, the Company incurred net income of
$8,403,000 compared with a net loss of $832,000 in 1994. These improved results
are attributable to the foregoing, a $6,664,000 net gain in 1995 from the sale
of four multifamily properties located in Texas (See Part IV -- Financial
Statements) and a $2,990,000 loss from the extinguishment of debt in 1994
relating to the acquisition of certain of the properties from Realty.
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $1,466,000 of cash to meet its
immediate short-term liquidity requirements. Future short-term liquidity
requirements are anticipated to be met through the net cash flow from
operations, existing working capital and, if necessary, funding from the
Company's Line of Credit and unsecured bridge loan agreement.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the foreseeable
future.
Cash provided by operating activities increased from $7,138,000 for the
year ended December 31, 1995 to $8,523,000 for the year ended December 31, 1996
and $27,684,000 for the year ended December 31, 1997. The primary reason for
these increases related to the additional rental income contributed by
properties acquired during 1995, 1996 and 1997.
Cash used in investing activities decreased from $84,480,000 for the year
ended December 31, 1995 to $81,918,000 for the year ended December 31, 1996 and
then increased to $350,597,000 for the year ended December 31, 1997 primarily as
a result of acquisitions and improvements to properties which decreased from
$113,663,000 in 1995 to $87,442,000 in 1996, and then increased to $332,324,000
in 1997, offset by $29,183,000 of proceeds from the sale of the four multifamily
properties located in Texas in 1995, $7,695,000 from the sale of land and an
industrial building to an existing tenant in 1996, and $15,115,000 from the sale
of a multifamily community in Oregon in 1997, respectively.
Cash provided by financing activities decreased from $76,674,000 for the
year ended December 31, 1995 to $72,071,000 for the year ended December 31, 1996
and then increased to $322,804,000 for the year ended December 31, 1997
primarily as a result of reduced borrowing activity associated with acquisitions
in 1996 compared to 1995, the issuance of common stock in 1996 and 1997 and the
issuance of preferred stock in 1997.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its shareholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to shareholders and for payment of other
expenditures. The Company intends to invest amounts accumulated for distribution
in short-term investments.
Line of Credit and Bridge Loan
The Company's Line of Credit has a maximum commitment amount of $65,000,000
and expires in July, 1998. As of December 31, 1997, the Company had borrowed
$17,200,000 under this line.
Subsequent to year-end, the Company entered into an agreement with a lender
for a $40 million unsecured bridge loan. The unsecured bridge loan agreement has
an expiration date of April 30, 1998 and bears interest at a rate of LIBOR plus
1.25%. Proceeds from the unsecured loan agreement will be used for acquisitions
and general corporate purposes.
The Company and its lenders are currently negotiating the terms of a new
unsecured credit facility. Terms being negotiated include an increase in the
maximum loan amount, a decrease in the interest rate spread, extension of the
term of the facility and conversion of the Line of Credit facility to an
unsecured facility. There can be no assurance that any such terms will be agreed
to by the lenders.
Acquisitions
During 1997, the Company invested $332,324,000 in real estate assets.
Proceeds for these investments were generated primarily by: a public offering in
January 1997 which generated gross proceeds, including exercise of the
underwriter's over-allotment option, of approximately $47,200,000; a public
offering of Common Stock in June 1997 which generated gross proceeds, including
exercise of the underwriter's over-allotment, of approximately $44,800,000; a
public offering in November 1997 which generated gross proceeds, including
over-allotment, of approximately $99,108,000; a public offering in December 1997
which generated
23
<PAGE> 25
gross proceeds of approximately $20,000,000; and the issuance of Class A
Preferred Shares and Class B Preferred Shares at various times throughout the
year, which generated gross proceeds of $55,000,000. (See Part I -- Item 1, 1997
Developments.)
Subsequent to year-end, the Company acquired three additional properties
(i) a 140,000 square foot industrial park in Upland, California for $5,100,000,
(ii) a 125,000 square foot multi-tenant industrial park located in Chatsworth,
California for $7,565,000 and (iii) a 300,000 square foot industrial center in
Las Vegas, Nevada for $14,100,000. All of these 1998 industrial acquisitions
were financed with borrowings from the Company's new unsecured bridge loan
agreement.
The Company intends to acquire additional properties and may seek to fund
these acquisitions through proceeds received from a combination of its Line of
Credit, bridge loan, equity offerings or debt financings.
Debt Financings
Tax-exempt Projects. The company has established a pool agreement with the
Federal National Mortgage Association ("FNMA") to provide 30-year credit
enhancement on the Company's tax-exempt projects. In June 1997, in conjunction
with the Company's admission into the partnerships that own the Terrace Gardens
and Morning View Terrace apartment communities, the partnerships refinanced
their existing tax-exempt bond financing of $19,100,000 through the FNMA
facility. The effective interest rate on the bonds, after giving effect to
credit enhancement and other costs, has been fixed at 6.4% for 10 years.
The Company also received from FNMA a forward commitment expiring December
1, 1998, to provide credit enhancement for the Fountains Senior Apartments that
the Company is currently developing. The commitment is subject to the completion
of the project and the property achieving certain lease up and operating
requirements. The effective interest rate on the currently outstanding bonds in
this commitment, after giving effect to credit enhancement and other costs, has
been fixed at 6.4% for 10 years.
Property Refinancings. In October 1997, the Company borrowed $34,000,000
at an interest rate of 7.11% for a term of 10 years. The proceeds of this loan
were used to repay $33,600,000 of indebtedness under the Company's Line of
Credit. The loan is secured by five warehouse/distribution centers acquired by
the Company in July 1997.
Convertible Subordinated Debentures
At December 31, 1997 the Company's outstanding convertible subordinated
debentures total $12,592,000, net of unamortized discount of $102,000.
Conversion of all the outstanding debentures, which are convertible into common
shares at a rate of 53.6986 common shares of Common Stock per $1,000 of
principal amount of debentures, would require the issuance of an additional
681,650 common shares. If the debentures were fully converted, the net income
attributable to each common share would not be diluted. During 1997, $1,743,000
in aggregate principal amount of debentures ($1,635,000 net of discount) were
converted into 93,564 shares of Common Stock.
Shelf Registrations
During 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $250,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase securities of the Company (the "1997 Shelf Registration
Statement"). The 1997 Shelf Registration statement was declared effective April
11, 1997. At December 31, 1997, the Company has $56,126,000 available under the
1997 Shelf Registration Statement.
On February 4, 1998, the Company filed a new shelf registration statement
on Form S-3 covering a maximum aggregate offering price of $300,000,000 of the
Company's Common Stock, Preferred Stock, debt securities and warrants to
purchase such securities. It is anticipated that this filing will be declared
effective in April of 1998.
24
<PAGE> 26
Year 2000 Compliance
The Company has recognized the need to ensure that its systems, equipment
and operations will not be adversely impacted by the change to the calendar year
2000. As such, the Company has taken steps to identify potential areas of risk
and has begun addressing these in its planning, purchasing and daily operations.
The total cost of converting all internal systems, equipment and operations into
the year 2000 has not been fully quantified, but it is not expected to be a
material cost to The Company. The Company does not anticipate any material
adverse impact resulting from the failure of third party service providers and
vendors to prepare for the year 2000. The Company continues to monitor those
risks and is attempting to receive compliance certificates from all third
parties that have a material impact on the Company's operations.
Capital Expenditures
The Company capitalizes the direct and indirect cost of expenditures for
the acquisition or rehabilitation of its multifamily and industrial properties.
The Company also capitalizes the direct cost of capital expenditures that are
considered revenue producing ("Revenue Producing") and other expenditures that
increase the service life of the Company's properties ("Restorations").
Revenue Producing expenditures are improvements which significantly
increase the revenue-producing capability of the asset including tenant
improvements at industrial properties, installation of washers and dryers at
multifamily properties, and other value-added additions.
Rehabilitation expenditures are costs the Company determines are necessary
during the due diligence phase immediately preceding the acquisition of a
property. At newly acquired properties, the Company often finds it necessary to
upgrade the physical appearance of such properties and to complete the
maintenance and repair work that had been deferred by prior owners.
Restorations are nonrevenue-producing capital expenditures which recur on a
regular basis, and have estimated useful lives of more than one year.
Make ready costs incurred after a property's rehabilitation, such as carpet
and appliance replacement, interior painting and window coverings are expensed.
The following table summarizes capital expenditures incurred by the Company
for the years ended December 31, 1997 and 1996 (all amounts are in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Multifamily
Acquisitions.......................................... $ 38,766 $ 6,213
Revenue-Producing..................................... -- 71
Rehabilitation........................................ 2,184 1,895
Restorations.......................................... 173 33
-------- -------
$ 41,123 $ 8,212
======== =======
Industrial
Acquisitions.......................................... $282,655 $75,336
Revenue-Producing..................................... 3,725 1,818
Rehabilitation........................................ 1,718 1,538
Restorations.......................................... 3,103 --
-------- -------
291,201 78,692
-------- -------
$332,324 $86,904
======== =======
</TABLE>
The Company anticipates incurring similar capital expenditures in 1998. The
Company expects such expenditures will be funded from available cash balances,
revolving lines of credit, equity offerings, and proceeds from refinancing.
25
<PAGE> 27
ECONOMIC CONDITIONS
All of the Company's leases on its Multifamily Properties are for a period
of one year or less. Substantially all of the Company's leases on its Industrial
Properties, which have terms generally ranging from one to five years, contain
provisions providing for rental increases based either on fixed increases or on
increases in the Consumer Price Index. Management believes the nature of its
multifamily leases and the provisions contained in its industrial leases that
provide for increases in the tenants' base rent tend to mitigate the adverse
impact of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements for a listing of the financial statements
and supplementary data filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Election of Directors -- Nominees"
and "Officers and Key Employees."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Officers and Key
Employees -- Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report
1. Financial Statements. See Index to Financial Statements.
2. Financial Statement Schedule. See Index to Financial Statements.
3. Exhibits. See Exhibit Index on pages 33 and 34.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K filed December 23, 1997, under item
5 and 7 reporting the sale of 874,317 shares of common stock.
The Company filed a report on Form 8-K filed December 18, 1997, under item
2, 5 and 7 reporting the acquisition of California Commerce Parks
portfolio,Bradshaw Business Center, Horn Road Business Com-
26
<PAGE> 28
plex, Fullerton Business Center, Norwood Industrial Parks and the possible
acquisition of an industrial portfolio.
The Company filed a report on Form 8-K filed November 21, 1997, under item
2, 5 and 7 reporting the issuance of 4,250,000 shares of its common stock (plus
637,500 shares of common stock issuable upon the exercise by the underwriters of
an over-allotment option).
The Company filed a report on Form 8-K filed November 18, 1997, under item
2, 5 and 7 reporting the acquisition of a Eden Plaza/Eden Industrial, the
possible acquisition of a business park portfolio, and a common stock offering
for the issuance of 4,250,000 shares of its common stock.
The Company filed a report on Form 8-K filed October 31, 1997, under item
2, 5 and 7 reporting the probable acquisition of a Eden Plaza/Eden Industrial
and other possible property acquisitions.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
------------------------------------
Glenn L. Carpenter
Chairman of the Board of Directors
President and Chief Executive
Officer
By: /s/ DONALD G. HERRMAN
------------------------------------
Donald G. Herrman
Executive Vice President, Secretary,
and Chief Financial Officer
(Principal
Financial and Accounting Officer)
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ GLENN L. CARPENTER Chairman of the Board of Directors
- -------------------------------------------- President, Chief Executive Officer
Glenn L. Carpenter
(Principal Executive Officer)
/s/ ROYCE B. MCKINLEY Director
- --------------------------------------------
Royce B. McKinley
/s/ CARL C. GREGORY, III Director
- --------------------------------------------
Carl C. Gregory, III
/s/ KEITH W. RENKEN Director
- --------------------------------------------
Keith W. Renken
/s/ ROBERT E. MORGAN Director
- --------------------------------------------
Robert E. Morgan
/s/ PETER L. EPPINGA Director
- --------------------------------------------
Peter L. Eppinga
/s/ JOHN F. KOOKEN Director
- --------------------------------------------
John F. Kooken
/s/ JAMES E. QUIGLEY, 3RD Director
- --------------------------------------------
James E. Quigley, 3rd
</TABLE>
28
<PAGE> 30
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1997...... F-4
Consolidated Statements of Shareholders' Equity for each
of the three years in the period ended December 31,
1997................................................... F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997...... F-6
Notes to Consolidated Financial Statements................ F-7
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III -- Real Estate and Accumulated
Depreciation........................................... F-24
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Pacific Gulf Properties Inc.
We have audited the accompanying consolidated balance sheets of Pacific
Gulf Properties Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index on page F-1. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific Gulf
Properties Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
February 13, 1998
F-2
<PAGE> 32
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Real estate assets
Operating properties
Land................................................... $185,789 $109,611
Buildings.............................................. 515,160 269,929
-------- --------
700,949 379,540
Accumulated depreciation............................... (39,148) (28,844)
-------- --------
661,801 350,696
Properties under development, including land.............. 32,107 2,171
-------- --------
693,908 352,867
Cash and cash equivalents................................... 1,466 1,523
Accounts and other receivable............................... 3,399 2,125
Other assets................................................ 13,698 8,125
-------- --------
$712,471 $364,640
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable............................................... $283,852 $197,401
Accounts payable and accrued liabilities.................... 9,009 5,671
Dividends payable........................................... 8,852 4,001
Convertible subordinated debentures......................... 12,592 14,227
-------- --------
314,305 221,300
Minority interests in consolidated partnerships............. 9,326 3,518
Commitments and contingencies............................... -- --
Shareholders' equity
Preferred shares, $.01 par value; 5,000,000 shares
authorized; 1,351,351 Senior Cumulative Convertible
Class A shares and 1,411,765 Senior Cumulative
Convertible Class B shares issued and outstanding at
December 31, 1997 and no shares outstanding at December
31, 1996............................................... 28 --
Common shares, $.01 par value; 25,000,000 shares
authorized; shares issued and outstanding 19,968,189 at
December 31, 1997 and 9,757,917 at December 31, 1996... 200 98
Excess shares, $.01 par value; 30,000,000 shares
authorized; no shares outstanding...................... -- --
Outstanding restricted stock.............................. (818) (877)
Additional paid-in capital................................ 411,187 157,895
Distributions in excess of earnings....................... (21,757) (17,294)
-------- --------
388,840 139,822
-------- --------
$712,471 $364,640
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 33
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
REVENUES
Rental income
Industrial properties........................... $ 36,410 $ 20,783 $ 12,193
Multifamily properties.......................... 33,096 29,104 24,898
-------- -------- --------
69,506 49,887 37,091
-------- -------- --------
EXPENSES
Rental property expenses
Industrial properties........................... 8,212 5,308 2,567
Multifamily properties.......................... 12,754 11,554 10,215
-------- -------- --------
20,966 16,862 12,782
Depreciation......................................... 12,008 8,236 6,081
Interest (including amortization of debenture
discount and financing costs of $827, $1,211, and
$1,009, respectively).............................. 17,337 18,411 14,066
General and administrative........................... 3,159 2,974 2,423
Minority interests in earnings of consolidated
partnerships....................................... 172 -- --
Nonrecurring loss on exchange of debentures for
common stock....................................... -- 3,596 --
-------- -------- --------
53,642 50,079 35,352
-------- -------- --------
INCOME (LOSS) BEFORE GAIN ON SALE OF REAL ESTATE..... 15,864 (192) 1,739
Gain on sale of real estate.......................... 5,594 74 6,664
-------- -------- --------
NET INCOME (LOSS).................................... 21,458 (118) 8,403
Preferred dividend requirements.................... (855) -- --
-------- -------- --------
INCOME AVAILABLE (LOSS ATTRIBUTABLE) TO COMMON
SHAREHOLDERS....................................... $ 20,603 $ (118) $ 8,403
======== ======== ========
EARNINGS (LOSS) PER SHARE
Basic.............................................. $ 1.51 $ (.02) $ 1.74
======== ======== ========
Diluted............................................ $ 1.47 $ (.02) $ 1.68
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 34
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
COMMON STOCK SERIES A SERIES B OUTSTANDING ADDITIONAL
--------------- --------------- --------------- RESTRICTED PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
------ ------ ------ ------ ------ ------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994................ 4,793 $ 48 -- $-- -- $-- $ -- $ 76,991
Common shares issued........................ -- -- -- -- -- -- -- 988
Issuance of restricted stock................ 64 1 -- -- -- -- (670) --
Dividends on common shares.................. -- -- -- -- -- -- -- --
Net Income.................................. -- -- -- -- -- -- -- --
------ ---- ----- --- ----- --- ----- --------
Balance -- December 31, 1995................ 4,857 49 -- -- -- -- (670) 77,979
Common shares issued........................ 4,880 49 -- -- -- -- -- 79,917
Issuance of restricted stock................ 21 -- -- -- -- -- (208) --
Dividends on common shares.................. -- -- -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- -- -- --
------ ---- ----- --- ----- --- ----- --------
Balance -- December 31, 1996................ 9,758 98 -- -- -- -- (878) 157,896
Common shares issued........................ 10,189 102 -- -- -- -- -- 200,787
Preferred shares issued..................... -- -- 1,351 14 1,412 14 -- 52,504
Issuance of restricted stock................ 21 -- -- -- -- -- 60 --
Dividends on common shares.................. -- -- -- -- -- -- -- --
Dividends on preferred shares............... -- -- -- -- -- -- -- --
Net income.................................. -- -- -- -- -- -- -- --
------ ---- ----- --- ----- --- ----- --------
Balance -- December 31, 1997................ 19,968 $200 1,351 $14 1,412 $14 $(818) $411,187
====== ==== ===== === ===== === ===== ========
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
EARNINGS TOTAL
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance -- December 31, 1994................ $ (6,179) $ 70,860
Common shares issued........................ -- 988
Issuance of restricted stock................ -- (669)
Dividends on common shares.................. (7,602) (7,602)
Net Income.................................. 8,403 8,403
-------- --------
Balance -- December 31, 1995................ (5,378) 71,980
Common shares issued........................ -- 79,966
Issuance of restricted stock................ -- (208)
Dividends on common shares.................. (11,798) (11,798)
Net loss.................................... (118) (118)
-------- --------
Balance -- December 31, 1996................ (17,294) 139,822
Common shares issued........................ -- 200,889
Preferred shares issued..................... -- 52,532
Issuance of restricted stock................ -- 60
Dividends on common shares.................. (25,066) (25,066)
Dividends on preferred shares............... (855) (855)
Net income.................................. 21,458 21,458
-------- --------
Balance -- December 31, 1997................ $(21,757) $388,840
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 35
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ 21,458 $ (118) $ 8,403
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 12,008 8,236 6,081
Amortization of debenture discount and financing
costs............................................... 827 1,211 1,009
Minority interests in earnings of consolidated
partnerships........................................ 172 -- --
Nonrecurring loss on exchange of debentures for common
stock................................................. -- 3,596 --
Gain on sale of real estate........................... (5,594) (74) (6,664)
Compensation recognized related to restricted stock
issued to employees................................. 59 208 83
Net increase in other assets.......................... (4,532) (4,563) (2,553)
Net increase in liabilities........................... 3,338 27 779
--------- ------- --------
Net cash provided by operating activities................ 27,736 8,523 7,138
--------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and improvements to properties.............. (332,324) (87,442) (113,663)
Development expenditures................................. (29,936) (2,171) --
Proceeds from sale of real estate........................ 15,115 7,695 29,183
Purchase of property and equipment, net.................. (3,452) -- --
--------- ------- --------
Net cash used in investing activities.................... (350,597) (81,918) (84,480)
--------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving line of credit................... 158,278 28,075 4,300
Repayment of revolving line of credit.................... (154,764) (29,462) (27,278)
Proceeds from mortgage notes payable..................... 97,921 63,600 112,070
Repayment of mortgage notes payable...................... (19,784) (14,659) (8,725)
Proceeds from construction loans......................... 4,800 -- --
Debentures converted to common shares.................... (1,635) (42,114) --
Issuance of common shares................................ 200,891 76,370 317
Issuance of preferred shares............................. 52,531 -- --
Minority interests contributions......................... 5,636 -- 3,518
Dividends on common shares............................... (20,215) (9,739) (7,528)
Dividends on preferred shares............................ (855) -- --
--------- ------- --------
Net cash provided by financing activities................ 322,804 72,071 76,674
--------- ------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................. (57) (1,324) (668)
--------- ------- --------
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD........... 1,523 2,847 3,515
--------- ------- --------
CASH AND CASH EQUIVALENTS -- END OF PERIOD................. $ 1,466 $ 1,523 $ 2,847
========= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Pacific Gulf Properties Inc. is incorporated in Maryland and operates as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended. Pacific Gulf Properties Inc. commenced operations on February 18,
1994 upon the completion of its initial public offerings and consummation of
certain formation transactions.
Basis of Presentation
The consolidated financial statements include the accounts of Pacific Gulf
Properties Inc., and all subsidiaries and partnerships over which it has control
(the "Company"). The Company's controlled partnerships and subsidiaries include
PGP Inland Communities, L.P., PGP -- Terrace Gardens Holdings Inc.,
PGP -- Morning View Terrace Holdings Inc., PGP Northern Industrial, L.P.,
Pacific Inland Communities LLC and PGP Von Karman Properties Minority interests
represent the ownership interests of outside limited partners in certain of the
partnerships controlled by the Company. All intercompany accounts and
transactions have been eliminated in consolidation.
Real Estate Assets
Real estate assets consist of operating properties and properties under
development. Operating properties are held for investment and stated at cost
less accumulated depreciation. Cost includes the cost of land and completed
buildings and related improvements. Expenditures that increase the service life
of properties are capitalized; the cost of maintenance and repairs is charged to
expense as incurred. Depreciation is generally provided on a straight-line basis
over the estimated useful lives of the buildings and improvements, ranging
primarily from 15 to 40 years. When depreciable property is retired or disposed
of, the related costs and accumulated depreciation are removed from the accounts
and any gain or loss reflected in operations.
Properties under development are stated at cost. The cost of development
includes land and infrastructure costs, direct and indirect construction costs
and carrying costs including interest and taxes, all of which are capitalized as
incurred. Land acquisition and infrastructure costs are allocated to properties
based on relative fair value. Interest and property taxes are capitalized to
properties while development activities are in progress. When a project or
property under development is completed, all related holding and operating costs
are expensed or incurred.
Impairment losses are recorded on long-lived assets used in operations and
properties under development when indicators of impairment are present and the
assets' carrying amount is greater than the sum of the future undiscounted cash
flows, excluding interest, estimated to be generated by those assets. As of
December 31, 1997, no indicators of impairment existed and no impairment losses
have been recorded.
Cash and Cash Equivalents
Certificates of deposit and short-term investments with remaining
maturities of three months or less when acquired are considered cash
equivalents.
Financing Costs
Financing costs are included in other assets and consist of loan fees,
other loan costs and deferred debenture costs. Loan fees and other loan costs
are amortized over the term of the respective loan. Costs relating to the
convertible subordinated debentures offering are amortized over the term of the
debentures using a method that approximates the effective interest method.
Amortization of financing costs is included in interest expense.
F-7
<PAGE> 37
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk are primarily cash investments and accounts
receivable from tenants. Cash is generally invested in investment-grade short-
term instruments and the amount of credit exposure to any one commercial issuer
is limited. Concentration of credit risk with respect to accounts receivable
from tenants is limited. The Company performs credit evaluations of prospective
tenants and security deposits are also obtained.
Fair Value of Financial Instruments
The carrying amounts of the Company's short-term investments and loans
payable approximate their fair values as of December 31, 1997.
The fair value as of December 31, 1997 of the Company's convertible
subordinated debentures, based on the closing price of the debentures on the
last trading day in 1997 on the American Stock Exchange, was $13,329,000.
Dividend Reinvestment Plan
During the years ended December 31, 1997 and 1996, the Company issued 1,225
and 1,900 shares, respectively, under the Company's Dividend Reinvestment Plan.
Rental Income
Rental income from multifamily leases is recognized when due from tenants.
Apartment units are rented under lease agreements with terms of one year or
less.
Rental income from industrial leases is recognized on a straight-line basis
over the related lease term. As a result, deferred rent is created when rental
income is recognized during free rent periods of a lease. The deferred rent is
included in other assets, evaluated for collectibility and amortized over the
lease term.
Interest
Interest incurred (net of interest income) for the years ended December 31,
1997, 1996 and 1995 totaled $19,469,000, $18,626,000 and $14,026,000,
respectively. Interest incurred in 1997, 1996 and 1995 includes $1,100,000,
$4,720,000 and $4,736,000 related to the Company's convertible subordinated
debentures (Note 4).
For the years ended December 31, 1997 and 1996, the Company capitalized
$2,132,000 and $215,000 of interest related to properties under
development.(Note 2).
Interest paid for the years ended December 31, 1997, 1996 and 1995 totaled
$18,932,000, $18,803,000 and $11,785,000, respectively. In December 1996, the
Company exchanged $42,069,000 in principal amount of convertible subordinated
debentures in connection with the Company's tender offer (filed on December 11,
1996 with the Securities and Exchange Commission) to induce early conversion of
its convertible subordinated debentures (Note 4). As a result, $1,282,000 of
interest was paid to the debenture holders upon conversion; had the conversion
not occurred, interest would have been paid to debenture holders in 1997.
Gain on Sale of Real Estate
Gains on sale of real estate are recognized by the Company when title to
the real estate passes to the buyer, an adequate down payment is received, the
collectibility of notes received from buyers is reasonably assured, and all
other conditions necessary for profit recognition have been satisfied.
F-8
<PAGE> 38
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company has elected to be taxed as a REIT. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT status, the Company
is required to distribute annually as dividends at least 95% of its REIT taxable
income, as defined by the Internal Revenue Code, to its shareholders, among
other requirements.
Per Share Data
The Company has adopted and reported earnings per share giving effect to
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 128 ("Statement No. 128")which requires the calculation and
disclosure of basic and diluted earnings per share including a reconciliation of
the weighted average shares utilized in the calculations. All earnings per share
amounts for all periods presented reflect basic and diluted earnings per share
and have been restated from the previous standard of primary and fully diluted
earnings per share. See Note 10 for the disclosure requirements related to the
computations and reconciliations of earnings per share amounts pursuant to
Statement No. 128.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of December 31, 1997 and 1996 and revenues and expenses for each of the three
years in the period ended December 31, 1997. Actual results could differ from
those estimates in the near term.
Recently Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which is
required to be adopted on December 31, 1998. At that time, the Company will be
required to report certain information about its operating segments, its
products and services, the geographic areas in which the Company operates and
its major customers. The Company's current financial statements include
substantial information relating to its two operating segments: industrial and
multifamily. The Company does not believe the additional requirements will have
a significant impact on its disclosures.
Reclassifications
Certain prior year financial statement amounts have been reclassified to
conform to the current year presentation.
F-9
<PAGE> 39
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. REAL ESTATE ASSETS
The Company's real estate assets consist of the following at December 31:
OPERATING PROPERTIES
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INDUSTRIAL
Land.......................................... $130,586,000 $ 62,078,000
Buildings and improvements.................... 344,156,000 121,465,000
------------ ------------
474,742,000 183,543,000
Accumulated depreciation...................... (19,697,000) (12,812,000)
------------ ------------
455,045,000 170,731,000
------------ ------------
MULTIFAMILY
Land.......................................... 55,203,000 47,533,000
Buildings and improvements.................... 171,004,000 148,464,000
------------ ------------
226,207,000 195,997,000
Accumulated depreciation...................... (19,451,000) (16,032,000)
------------ ------------
206,756,000 179,965,000
------------ ------------
TOTAL OPERATING PROPERTIES
Land.......................................... 185,789,000 109,611,000
Buildings and improvements.................... 515,160,000 269,929,000
------------ ------------
700,949,000 379,540,000
Accumulated depreciation...................... (39,148,000) (28,844,000)
------------ ------------
$661,801,000 $350,696,000
============ ============
</TABLE>
OPERATING PROPERTIES
Industrial Properties
At December 31, 1997, the Company owns and operates 49 industrial
properties containing an aggregate of 10,676,000 leasable square feet located in
the states of California and Washington. During 1997, the Company purchased 27
industrial properties located in California and Washington containing an
aggregate of 5,776,000 leasable square feet.
The Company's industrial properties are leased to tenants under operating
leases with terms ranging from 1 to 5 years. The minimum future lease payments
to be received from noncancelable industrial leases for each of the next five
years ending December 31 and thereafter, are as follows:
<TABLE>
<S> <C>
1998.................................................... $16,430,000
1999.................................................... 10,780,000
2000.................................................... 8,884,000
2001.................................................... 4,900,000
2002.................................................... 5,447,000
Thereafter.............................................. 4,240,000
-----------
$50,681,000
===========
</TABLE>
F-10
<PAGE> 40
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Multifamily Properties
At December 31, 1997, the Company owns and operates 24 multifamily
properties containing 4,655 apartment units located in Southern California and
the Pacific Northwest. During 1997, the Company purchased three active senior
multifamily properties containing 824 apartment units located in Southern
California and sold a 279 unit multifamily property in Oregon. (Note 9.)
PROPERTIES UNDER DEVELOPMENT
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Multifamily properties
Land............................................. $ 1,642,000 $1,642,000
Properties under development..................... 5,734,000 529,000
----------- ----------
7,376,000 2,171,000
----------- ----------
Industrial properties
Land............................................. 14,987,000 --
Properties under development..................... 9,744,000 --
----------- ----------
24,731,000 --
----------- ----------
Total Properties under development
Land............................................. 16,629,000 1,642,000
Properties under development..................... 15,478,000 529,000
----------- ----------
$32,107,000 $2,171,000
=========== ==========
</TABLE>
PROPERTIES UNDER DEVELOPMENT
Industrial Properties
In April 1997, the Company completed the rehabilitation of an industrial
property containing approximately 327,000 leasable square feet located in the
City of Industry, California. Rehabilitation costs for this property were
$1,652,000.
In 1997, the Company commenced development of four industrial properties
that will contain approximately 578,000 leasable square feet, and the
rehabilitation of two industrial properties containing approximately 639,000
leasable square feet, all of which are located in Southern California and
Washington. Development and rehabilitation costs for these properties totaled
$1,678,000 and $2,079,000, respectively through December 31, 1997.
Multifamily Properties
In 1996, the Company commenced development of a 166 unit multifamily
property for active seniors located in the master planned community of Rancho
Santa Margarita, California (Fountains Senior Apartments). The cost incurred for
the year ended December 31, 1997 and 1996 totaled $5,205,000 and $2,171,000,
respectively.
F-11
<PAGE> 41
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LOANS PAYABLE
The Company's loans payable at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Mortgage notes:
Conventional mortgage debt............................ $188,449,000 $158,832,000
Tax exempt mortgage debt.............................. 59,778,000 24,850,000
Construction loans...................................... 18,425,000 33,000
Revolving line of credit................................ 17,200,000 13,686,000
------------ ------------
$283,852,000 $197,401,000
============ ============
</TABLE>
Mortgage Notes
At December 31, 1997, the Company's conventional mortgage debt consists of
20 notes which are secured by multifamily and industrial properties, due in
monthly installments and maturing at various dates through September 2025.
Certain of the Company's conventional mortgage note agreements contain cross-
collateralization provisions (see schedule III). Approximately $182,320,000 or
17 conventional mortgage notes bear fixed rates of interest ranging from 7.05%
to 8.75% per annum. The remaining three conventional mortgage notes totaling
$6,129,000 bear a variable rate of interest based on the Federal Home Loan Bank
11th District Rate plus 2.8%. The weighted average interest rate of the
Company's conventional mortgage debt at December 31, 1997 was 7.78%. During the
year ended December 31, 1997, the Federal Home Loan Bank 11th District Rate
ranged from 4.76% to 4.94% and was 4.94% at December 31, 1997.
At December 31, 1997, the Company's tax-exempt mortgage debt consists of
seven notes totaling $59,778,000 that are secured by nine multifamily
properties. The Company's tax-exempt mortgage debt includes five notes
originated as part of refinancings described in the following paragraph. The
weighted average interest rate of the Company's tax-exempt mortgage notes, all
of which bear fixed rates of interest, at December 31, 1997, was 6.27%.
The Company entered into a 30 year refunding agreement for all of its
outstanding tax-exempt mortgage debt that closed in January 1997. As a result of
the agreement, which is backed by credit and liquidity support from guaranteed
mortgage pass-through certificates issued by the Federal National Mortgage
Association ("FNMA"), the Company obtained three new loans from municipalities,
the proceeds of which were funded from new tax-exempt mortgage bond financings
of $24,850,000 maturing in January 2007. Standard & Poor's Rating Group assigned
a rating of AAA to the bonds based on the collateral agreement with FNMA.
Monthly principal and interest payments will be made on the loans to a trustee,
which in turn will pay the bondholders when interest is due. The bonds will be
remarketed periodically and will bear interest at fixed rates scheduled to
increase from 3.75% to 5.20% through 2007. Principal payments will be amortized
based on scheduled amounts over a 30-year period. As part of the refunding
agreement, the Company is required to deposit impounds for property taxes,
property and liability insurance and reserves for capital replacements on a
semiannual basis with the trustee. Unamortized finance costs and fees related to
the refinancing are included in other assets and totaled $1,484,000 and
$1,451,000 at December 31, 1997 and 1996, respectively.
In June 1997, in conjunction with the Company's admission into the
partnerships that own the Terrace Gardens and Morning View Terrace apartment
communities (Note 6), the partnerships refinanced their existing tax-exempt
notes and the related bond financing of $19,100,000 through the FNMA facility.
The effective interest rate on the bonds, after giving effect to credit
enhancement and other costs, has been fixed at 6.4% for 10 years.
F-12
<PAGE> 42
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Construction Loans
At December 31, 1997 the Company has three construction loans, which are
payable to a bank, and are secured by a multifamily property for active seniors
(The Fountains) and two industrial properties under development. The
construction loans bear interest at the bank's prime rate payable monthly and
mature between August and November 1998. Undisbursed funds on the construction
loans at December 31, 1997 total $3,238,000. Upon completion of the properties,
the Company has the option to convert the interest rate on the loans into a
fixed rate of interest upon meeting certain conditions. At December 31, 1997,
the prime rate was 8.5%.
The Company has a forward commitment from FNMA expiring December 1, 1998
related to the Fountains which is under development at December 31, 1997. The
commitment is subject to the property achieving certain lease ups and operating
requirements.
Revolving Line of Credit and Bridge Loan
The revolving line of credit as of December 31, 1997, which is payable to a
bank, is secured by certain of the Company's real estate properties and matures
in July, 1998. Under the terms of this revolving bank line of credit, the
Company may borrow up to $65,000,000 at the London Interbank Offered Rate
(LIBOR) plus 1.75%. For the year ended December 31, 1997, the weighted average
interest rate of the revolving line of credit was 7.7%. At December 31, 1997,
the LIBOR was 5.7%.
The Company's revolving line of credit agreement contains certain debt
covenants. The most significant covenants require the Company to maintain a
minimum tangible net worth, an interest coverage ratio in excess of 1.50
(measured as a four quarter trailing average) and a fixed charge coverage ratio
of not less than 1.35. In addition, the revolving line of credit agreement
contains a provision restricting the payment of dividends not to exceed Funds
Available for Distribution (defined as the National Association of Real Estate
Investment Trusts' Funds from Operations -- Old Definition less an agreed-upon
amount of imputed capital expenditures) measured based on four consecutive
quarters. As of December 31, 1997, the Company was in compliance with all debt
covenants.
Subsequent to December 31, 1997, the Company entered into an unsecured
bridge loan agreement with a bank. The loan, which has a commitment of
$40,000,000, expires on April 30, 1998 and bears an interest rate of LIBOR plus
1.25%.
Interest Rate Swap Agreements
The Company has entered into interest rate swap agreements that effectively
convert certain floating rate mortgage notes to a fixed-rate basis, thus
reducing the impact on future earnings of fluctuations in interest rates. At
December 31, 1997, the Company had interest rate swap agreements on notional
amounts totaling $34,500,000 under which the Company pays fixed rates of
interest and receives floating rates of interest based on an index that is reset
weekly. The swap counterparties are all financial institutions rated AAA by
Standard & Poor's. The rate differences to be paid or received are accrued and
included in interest expense as a yield adjustment and the related payable or
receivable from counterparties is included in accrued liabilities or other
assets.
F-13
<PAGE> 43
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans Payable Maturities
Principal payments due on loans payable as of December 31 are as follows:
<TABLE>
<S> <C>
1998................................................... $ 50,250,000
1999................................................... 11,703,000
2000................................................... 30,211,000
2001................................................... --
2002................................................... 23,421,000
Thereafter............................................. 168,267,000
------------
$283,852,000
============
</TABLE>
4. CONVERTIBLE SUBORDINATED DEBENTURES
At December 31, 1997 and 1996, outstanding convertible subordinated
debentures totaled $12,592,000 and $14,227,000, net of unamortized discount of
$102,000 and $210,000, respectively. The Company's debentures, which were issued
in an aggregate principal amount of $56,551,000, bear interest at 8.375%
annually (payable in semiannual installments due in February and August of each
year), and mature in February 2001. The Company's convertible subordinated
debentures are convertible into common shares at any time prior to maturity at
the original conversion rate of 53.6986 common shares per $1,000 of debenture
principal subject to certain restrictions (including ownership limits and other
adjustments more fully described in the debentures' indenture agreement). In
addition, the debentures are subordinate to all senior indebtedness of the
Company and are redeemable by the Company, at their outstanding principal
amount, at any time after February 15, 1999.
During 1997 and 1996, $1,743,000 and $42,114,000 in aggregate principal
amount of debentures were converted into shares of common stock, including
$42,069,000 exchanged in December 1996 in connection with the Company's tender
offer to induce early conversion of its convertible subordinated debentures.
Pursuant to the Company's offer, the debentures tendered were exchanged at the
rate of 58 shares of common stock for each $1,000 debenture principal or 4.3014
shares in excess of the original conversion rate (the "excess common shares").
As part of the exchange, the Company issued a total of 2,440,002 common shares,
and recognized a nonrecurring loss of $3,596,000 for the year ended December 31,
1996 directly associated with the issuance of 180,956 excess common shares at a
price of $19.875 per share, the market price of the shares on the date of the
exchange.
The debenture discount is amortized to expense producing an effective
interest rate of 8.76%. Costs capitalized upon issuance of the debentures are
included in other assets net of related amortization and conversions. Deferred
debenture costs totaled $3,005,000 upon issuance of which $1,317,000 has been
amortized to expense and $1,386,000 has been charged to additional paid in
capital related to conversions of debentures into common stock through December
31, 1997. At December 31, 1997, unamortized deferred debenture costs included in
other assets totaled $302,000.
At December 31, 1997, the Company was in compliance with the debenture
covenants which impose certain restrictions on the payment of dividends by the
Company in the event of certain defaults, except when the Company is required to
pay such dividends in order to maintain its REIT status.
5. BENEFIT PLANS
1993 Share Option Plan
The Company has a share option plan to provide incentives to attract and
retain officers and employees (the "1993 Share Option Plan"). The 1993 Share
Option Plan provides for grants of stock options to purchase
F-14
<PAGE> 44
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a specified number of shares of Common Stock, awards of restricted common shares
and grants of stock appreciation rights. The total number of shares available
for the 1993 Share Option Plan for such purposes is 1,050,000 common shares
(150,000 of which have been reserved for awards to non-employee directors).
Stock Options
The Stock options listed in the table below primarily vest in equal
installments over a five-year period from the date of the grant and expire ten
years from the original grant date.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1994................... 190,050 $18.25
Granted............................................ 40,500 $15.00
Canceled........................................... (2,850) $18.25
------- -------------
Outstanding at December 31, 1995................... 227,700 $15.00-$18.25
Granted............................................ 13,500 $16.75
------- -------------
Outstanding at December 31, 1996................... 241,200 $15.00-$18.25
Granted............................................ 468,000 $20.75-$23.75
------- -------------
Canceled........................................... (4,000) $18.25
Exercised.......................................... (13,550) $16.25-$21.38
------- -------------
Outstanding at December 31, 1997................... 691,650 $15.00-$23.75
=======
</TABLE>
Pursuant to Statement No. 123, Accounting and Disclosure of Stock-Based
Compensation, issued in October 1995, the Company applies the methodology
prescribed by APB Opinion 25 and related interpretations to account for
outstanding stock options. Accordingly, no compensation cost has been recognized
in the financial statements related to stock options awarded to officers,
directors and employees under the 1993 Share Option Plan. As required by
Statement No. 123, for disclosure purposes only, the Company has measured the
amount of compensation cost which would have been recognized related to stock
options had the fair value of the options at the date of grant been used for
accounting purposes. Based on such calculations, net income and earnings per
share amounts would be approximately the same as the amounts reported by the
Company. The Company estimated the fair value of the stock options at date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of 5.59%; a dividend yield of
7.07%; a volatility factor for the market price of the Company's common stock of
0.126; and a weighted average expected life of 8.7 years for the stock options.
Restricted Stock Awards
The Company awards restricted stock to its employees for compensation
purposes. Compensation expense related to restricted stock awards is measured
based on the market price of the stock on the date of the grant, and is expensed
ratably over the vesting period of each award with the unamortized portion
reflected as outstanding restricted stock in the shareholders' equity section in
the Company's balance sheets.
The restricted stock awards listed in the table below were awarded to
employees based on performance and vest over periods ranging between one to
seven years.
F-15
<PAGE> 45
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF
AWARDS
---------
<S> <C>
Outstanding at December 31, 1995............................ 7,296
Granted..................................................... 21,000
------
Outstanding at December 31, 1996............................ 28,296
Granted..................................................... 20,500
------
Outstanding at December 31, 1997............................ 48,796
======
Vested at December 31, 1997................................. 7,100
======
</TABLE>
In June 1995, the Company issued 56,300 shares of restricted stock to
certain employees to replace substantially all of its liability to those
employees accrued under deferred compensation agreements. The 56,300 shares of
Common Stock issued vest over five to twelve years and the Company's original
obligation to the employees will be satisfied through dividends and targeted
appreciation in the value of the shares. At the time the shares were granted,
the market price of the stock was $15.75 per share.
At December 31, 1997 and 1996, the unamortized amount of outstanding
restricted stock issued to employees which will be charged to compensation
expense in future periods totaled $818,000 and $877,000, respectively.
Thrift Plan
The Company has a thrift plan under which employees may elect to contribute
up to 21% of their annual compensation, excluding bonuses, on a combination
before-and-after tax basis. Contributions by the employee are matched by the
Company at a 75% rate with total matching contributions not exceeding 4 1/2% of
the contributing employee's annual compensation up to a maximum of 6% of
compensation. Matching contributions are in the form of cash, which is used by
the trustee to purchase shares of the Company's common stock. Employee
contributions are invested in a fixed income fund, various growth funds, or a
combination thereof, according to the employee's choice. The thrift 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. Contributions
made by the Company to the thrift plan for the years ended December 31, 1997,
1996 and 1995 totaled $29,000, $58,000 and $50,000 respectively.
Retirement Income Plan
The Company has a defined benefit retirement plan for full time employees
who are at least 21 years of age with one or more years of service. Plan assets
consist of investments in a life insurance group annuity contract. Plan benefits
are based primarily on years of service and qualifying compensation during the
final years of employment. Funding requirements comply with federal requirements
that are imposed by law. The information set forth below relates to the
Company's retirement income plan.
The Company's net periodic pension cost includes amortization of past
service cost over a remaining period of 27 years. Based upon actuarial valuation
dates as of December 31, 1997 and 1996, the present values of accumulated plan
benefits were $833,000 and $570,000 (calculated using a discount rate of 7% in
1997 and 7.5% in 1996), respectively, and the plan's net assets available for
benefits were $704,000 in 1997 and $531,000 in 1996.
F-16
<PAGE> 46
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's net periodic pension cost for the years ended December 31,
1997, 1996, and 1995 are included in the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost............................... $116,000 $101,000 $ 64,000
Interest cost on projected benefit
obligation............................... 65,000 53,000 41,000
Expected return on plan assets............. (41,000) (42,000) (34,000)
Amortization of unrecognized prior service
costs and unrecognized net obligation.... 1,000 6,000 8,000
-------- -------- --------
Net periodic pension cost.................. $141,000 $118,000 $ 79,000
======== ======== ========
</TABLE>
The following table sets forth the funded status of the Company's
retirement income plan and the related amounts recognized in the December 31,
1997 and 1996 consolidated balance sheets:
Actuarial present value of accumulated benefit obligations as of December
31:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Vested.............................................. $ 629,000 $ 499,000
Nonvested........................................... 204,000 71,000
---------- ---------
Accumulated plan benefits........................... 833,000 570,000
Additional amounts related to projected future
compensation levels............................... 765,000 296,000
---------- ---------
Total actuarial projected benefit obligations for
service rendered.................................. 1,598,000 866,000
Plan assets as fair value as of December 31......... 704,000 531,000
---------- ---------
Projected benefit obligations in excess of plan
assets............................................ (894,000) (335,000)
Unrecognized net actuarial (gain) loss from
difference in actual experience from that
assumed........................................... 463,000 37,000
Unrecognized prior service cost..................... 132,000 --
Unrecognized transition obligation being recognized
over 27 years..................................... 167,000 175,000
---------- ---------
$ (132,000) $(123,000)
========== =========
</TABLE>
Assumptions used in determining the status of the Company's retirement
income plan are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate.............................. 7.0% 7.5%
Weighted average rate of increase in compensation levels.... 4.9% 5.0%
Expected long-term rate of return on plan assets............ 7.5% 8.5%
</TABLE>
Deferred Compensation Agreements
Prior to 1995, defined benefit deferred compensation agreements provided
selected management employees with a fixed benefit at retirement. The plan
benefits were based primarily on years of service and qualifying compensation
during the final years of employment. In conjunction with its initial public
offerings, the Company assumed the deferred compensation obligations
attributable to employees who were previously employed by its predecessor.
During 1995, the deferred compensation agreements were substantially replaced
with restricted stock. (See "Restricted Stock Awards.")
F-17
<PAGE> 47
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CONSOLIDATED REAL ESTATE PARTNERSHIPS
The Company's consolidated partnerships include the following:
PGP Inland Communities LP
PGP Inland Communities, L.P., a Delaware limited partnership (the
"Partnership") was formed by the Company in August 1995 for the purpose of
acquiring and operating 11 multifamily properties consisting of 1,368 apartment
units located in Southern California (the "Properties") which were contributed
by unrelated parties. In exchange for contributing the Properties to the
Partnership, the unrelated parties received approximately 225,452 limited
partnership units representing an initial ownership interest of approximately
22%. The Company is the sole general partner in the Partnership and currently
holds an ownership interest of approximately 79%. The terms of the Partnership
agreement provide that all net income (and cash flow) from the Properties are to
be allocated (distributed) to the Company until the Properties have achieved a
threshold net operating income of $6,200,000 for any given year, and
cumulatively for all prior years. The Partnership's results of operations since
1995 have been fully allocated to the Company. As of December 31, 1997, limited
partnership units can be tendered for redemption on a one-for-one basis at the
election of the Company for cash or exchange for shares of common stock. As of
December 31, 1997, 8,690 of these units have been tendered for cash, the cost of
which has been capitalized to real estate assets.
Terrace Gardens -- PGP L.P. and Morning View Terrace -- PGP L.P.
In June 1997, the Company, through its subsidiaries, PGP Terrace Gardens
Holdings Inc. and PGP Morning View Terrace Holdings Inc., acquired a controlling
general partnership interest in two existing limited partnerships ("Terrace
Gardens" and "Morning View") that own two adjacent active seniors apartment
communities located in Escondido, California. The properties contain an
aggregate of 551 apartment units. Following the acquisition, the Company became
the sole general partner of the existing limited partnerships (Terrace
Gardens-PGP L.P. and Morning View Terrace-PGP L.P.) that own and manage the
properties. The existing partners of the partnerships received an aggregate of
approximately 266,000 units of limited partnership interest in such partnerships
valued at $5,596,000. The limited partnership units may be tendered for
redemption to the Company any time beginning, in most cases, two years after the
closing of the transaction. Upon tender, the Company, at its election, may
either issue common shares for the units on a one-for-one basis (subject to
certain adjustments) or pay cash for the units based on the then fair market
value of the Company's common shares. During 1997, approximately 125,000 units
were tendered for cash which was capitalized to the properties. As a result of
the tender, the Company currently holds an ownership interest of approximately
58%. Net income from the partnership is allocated to the minority partner based
on an amount equal to the dividend rate applied to the number of limited
partnership units held and the remaining income is allocated to the Company.
Distributions are made to the extent of cash flow available.
PGP Northern Industrial L.P
On October 20, 1997, the Company acquired a controlling general partner
interest in a newly-formed California limited partnership ("PGP Northern")which
owns two industrial properties ("Eden Plaza/Eden Industrial") containing
approximately 501,000 leasable square feet located in Hayward, California for a
cash contribution of approximately $3,977,000. The previous owners of Eden
Plaza/Eden Industrial became limited partners in PGP Northern and received
143,391 limited partnership units valued at $2,869,000 in exchange for the
contribution of the properties. The limited partnership units may be tendered
for redemption to the Company any time beginning, in most cases, two years after
the closing of the transaction. Upon tender, the Company, at its election, may
either issue common shares for the units on a one-for-one basis (subject to
certain adjustments) or pay cash for the units based on the then fair market
value of the common shares. At December 31, 1997, the Company holds an ownership
interest of approximately 59%. Net income from the
F-18
<PAGE> 48
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
partnership is allocated to the minority partner based on an amount equal to the
dividend rate applied to the number of limited partnership units held and the
remaining income is allocated to the Company. Distributions are made to the
extent of cash flow available.
Condensed unaudited combined financial information for the consolidated
real estate partnerships as of December 31, 1997 and 1996 and for the years
ended December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Real estate assets
Land........................................... $ 31,983,000 $19,827,000
Buildings and improvements..................... 86,453,000 52,471,000
------------ -----------
118,436,000 72,298,000
Accumulated depreciation......................... (3,764,000) (1,791,000)
------------ -----------
114,672,000 70,507,000
Cash and other assets............................ 3,185,000 458,000
------------ -----------
$117,857,000 $70,965,000
============ ===========
Liabilities (primarily tax-exempt mortgage debt
and mortgage notes)............................ $ 86,430,000 $55,748,000
Partners' equity
Company........................................ 22,101,000 11,699,000
Minority interests............................. 9,326,000 3,518,000
------------ -----------
31,427,000 15,217,000
------------ -----------
$117,857,000 $70,965,000
============ ===========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, AUGUST 16, 1995
-------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
----------- ----------- -----------------
<S> <C> <C> <C>
Revenues......................................... $12,999,000 $10,415,000 $3,722,000
Expenses (including depreciation and amortization
of financing costs totaling $2,096,000 in 1997,
$1,485,000 in 1996 and $472,000 in 1995)....... 12,129,000 9,691,000 3,537,000
----------- ----------- ----------
Net income....................................... $ 870,000 $ 724,000 $ 185,000
=========== =========== ==========
Company's share of net income.................... $ 698,000 $ 724,000 $ 185,000
Minority interest in earnings of consolidated
partnerships................................... 172,000 -- --
----------- ----------- ----------
$ 870,000 $ 724,000 $ 185,000
=========== =========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
General Matters
The Company's commitments and contingencies include the usual obligations
of real estate owners and operators in the normal course of business. In the
opinion of management, these matters will not have a material adverse effect on
the Company's consolidated financial statements.
As of December 31, 1997, 7% of the apartment units within the Company's
multifamily portfolio were required to be set aside for residents within certain
income levels and had limitations on the rent that could be charged to such
tenants.
F-19
<PAGE> 49
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ground Lease Commitments
One of the Company's industrial properties is subject to a 57-year ground
lease that expires in July 2035 and is accounted for as an operating lease.
Monthly ground lease payments total $22,000 and are subject to increases based
on the Consumer Price Index each September, with the next adjustment in
September 1998. Ground lease payments during 1997 and 1996 totaled $246,000 and
$53,000, respectively. Additionally, the Company acquired the "PGBP-Irvine" and
"PGBP-Cerritos" industrial properties in December 1997 which are subject to
ground leases which expire in August 2029 and April 2034, respectively. Monthly
ground lease payments total $25,000 and $38,000 and are subject to increases
based on the Consumer Price Index, with the next adjustment in April 1999 and
October 1999 for Irvine and Cerritos, respectively. Ground lease payments during
1997 on the Irvine and Cerritos properties totaled $6,700 and $9,800,
respectively.
The minimum future ground lease payments to be made for each of the next
five years ending December 31, and thereafter, are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 1,021,000
1999.................................................. 1,021,000
2000.................................................. 1,021,000
2001.................................................. 1,021,000
2002.................................................. 1,021,000
Thereafter............................................ 30,200,000
</TABLE>
8. CAPITAL STOCK
Shelf Registrations
During 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $250,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase such securities of the Company (the "1997 Shelf
Registration Statement"). The 1997 Shelf Registration statement was declared
effective April 11, 1997 by the Securities and Exchange Commission. Availability
under the 1997 Shelf Registration Statement at December 31, 1997 was
$56,126,000. Subsequent to December 31, 1997, the Company filed a shelf
registration statement on Form S-3 covering a maximum aggregate price of
$300,000,000 in Common Stock, Preferred Stock, debt securities and warrants to
purchase such securities.
During 1996, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $112 million
covering the proposed issuance of debt, preferred or common stock securities of
the Company (the "1996 Shelf Registration Statement").
1997 Common Stock Offerings
In January 1997, the Company completed a public offering of 2,000,000
shares of common stock (2,300,000 shares after exercise of overallotment option)
under the 1996 Shelf Registration Statement at a price of $20.50 per share. Net
proceeds from the offering totaled approximately $44,399,000 (net of fees and
costs) and were used to acquire two industrial properties and to reduce
outstanding indebtedness on the Company's revolving line of credit.
In June 1997, the Company received net proceeds of approximately
$42,224,000 (net of fees and costs) from the issuance of 2,131,700 shares of
common stock under the 1997 Shelf Registration Statement (including proceeds
from the issuance of 31,700 shares of common stock sold pursuant to the exercise
of the underwriter's overallotment option) at a price of $21.00 per share. The
Company used the proceeds to repay debt and for general corporate purposes.
F-20
<PAGE> 50
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1997, the Company received net proceeds of approximately
$93,372,000 (net of fees and costs) from the issuance of 4,776,300 shares of
common stock under the 1997 Shelf Registration Statement (including proceeds
from the issuance of 526,300 shares of common stock sold pursuant to the
exercise of the underwriter's overallotment option) at a price of $20.75 per
share. The Company used the proceeds to fund the purchase of acquisitions, repay
indebtedness outstanding under the Company's line of credit and general
corporate purposes.
In December 1997, the Company received net proceeds of approximately
$18,899,000 from the issuance of 874,317 shares of common stock under the 1997
Registration Statement at a price of $22.875. The Company used the proceeds to
repay indebtedness outstanding under the Company's revolving line of credit and
for general corporate purposes.
1996 Common Stock Offerings
In May 1996, the Company completed a public offering of 2,015,581 shares of
common stock (2,435,581 shares after exercise of overallotment option) under the
1996 Shelf Registration Statement at a price of $16.375 per share. Proceeds from
the offering totaled approximately $36,600,000 (net of fees and costs) and were
primarily used to purchase nine industrial properties. Concurrent with the
public offering, all of the Company's common stock held by Santa Anita Realty
Enterprises was sold to the public.
Exchange of Debentures for Common Stock
In December 1996, the Company issued 2,440,002 shares of common stock under
the 1996 Shelf Registration Statement in exchange for the debentures tendered
pursuant to the Company's offer to induce early conversion of its convertible
subordinated debentures (Note 4).
Preferred Stock
During 1997, the Company issued 1,351,351 shares of Class A Senior
Cumulative Convertible Preferred Stock (the "Class A Preferred Shares") to an
investor at a price of $18.50 per share pursuant to an agreement entered in
December 1996. The Class A Preferred Shares were issued under the 1996 Shelf
Registration Statement. The net proceeds which totaled approximately $24,224,000
(net of fees and costs) were used to pay off a portion of a mortgage note, to
purchase a portion of an industrial property portfolio, and for general
corporate purposes.
The Class A Preferred Shares are convertible into shares of common stock,
on a one-for-one basis, subject to adjustment upon certain events. The annual
dividend per share on the Class A Preferred Shares is $1.70 from the date of
issuance until December 31, 1997 and thereafter, the greater of $1.70 per share
or 104% of the then current dividend on the Company's common stock. At its
option, the Company may redeem the Class A Preferred Shares beginning December
31, 2001 for cash at a premium of 6% over the initial $18.50 per share
liquidation value, decreasing to zero % by December 31, 2009. The Class A
Preferred Shares, or any shares of common stock into which such Class A
Preferred Shares could be converted, are nontransferable until June 30, 1998.
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 Shares") at a price of $21.25. On July 18, 1997,
the Company, pursuant to this agreement, issued 470,588 shares of Class B
Preferred Shares raising net proceeds of $9,014,000 (net of fees and costs). The
proceeds were used together with funds from other sources to acquire an
industrial portfolio consisting of five industrial properties. On October 23,
1997, the Company, pursuant to this agreement issued 235,294 additional Class B
Preferred Shares raising net proceeds of $4,824,000 (net of fees and costs). The
net proceeds were used for general corporate purposes. On December 23, 1997, the
Company issued the remaining 705,883 Class B Preferred
F-21
<PAGE> 51
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares pursuant to the Five Arrows agreement and received net proceeds of
$14,471,000 (net of fees and costs). The net proceeds were used to purchase a
portion of an industrial property portfolio consisting of four industrial
properties.
The terms of the Class B Preferred Shares are substantially similar to
those of the Class A Preferred Shares, except that (i) the liquidation
preference of the Class B Preferred Shares is $21.25 per share (plus
accumulated, accrued and unpaid dividends) and (ii) Five Arrows will not be
entitled to designate any additional representatives to the Company's Board of
Directors while it owns both the Class A Preferred Shares and the Class B
Preferred Shares.
9. GAIN ON SALE OF REAL ESTATE
In December 1997, the Company sold an apartment property located in Oregon
consisting of 279 apartment units for $15,575,000 and recognized a gain on sale
of $5,705,000.
In April 1997, the Company sold its 7,000 square foot Corporate office in
Newport Beach, California for $850,000 and recognized a loss on the sale of
$111,000. The Company has relocated to a newly acquired 26,000 square foot
facility also located in Newport Beach, California.
In August 1996, the Company sold an undeveloped ten-acre parcel and a
55,656 square foot industrial building to an existing tenant pursuant to
purchase options contained in the existing lease agreements. In connection with
the sale, the Company received consideration totaling $7,695,000 and recognized
a gain of $74,000. The rental income received under the existing lease
agreements in 1996 totaled approximately $691,000.
In November 1995, the Company sold its Texas apartment portfolio to four
entities controlled by the same buyer . The Texas multifamily portfolio
consisted of four properties containing 1,085 apartment units in San Antonio,
Austin and Houston, and represented the Company's entire holdings in the state
of Texas. The Company received consideration totaling $31,125,000: $30,125,000
in cash and four notes receivable totaling $1,000,000. The notes receivable
mature in seven years, bear interest at 9%, require monthly interest-only
payments and are secured by limited partnership interests in the purchasing
entities. The Company recognized a gain utilizing the cost recovery method on
the sale of the Texas apartment portfolio totaling $6,664,000 (net of $1,000,000
deferred gain). The deferred gain is presented as a reduction of the notes and
is included in accounts and other receivables in the Company's balance sheets.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share which have been restated to comply with Statement No.
128:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------- --------------------------------------- -----------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EARNINGS SHARES EARNINGS EARNINGS SHARES EARNINGS EARNINGS
(NUMERATOR) (DENOMINATOR) PER SHARE (NUMERATOR) (DENOMINATOR) PER SHARE (NUMERATOR)
----------- ------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available (loss
attributable) to common
stockholders............ $20,603,000 13,686,000 $1.51 $(118,000) 6,312,000 $(0.02) $8,403,000
===== ======
EFFECT OF DILUTIVE
SECURITIES
Stock options............. 17,000 6,000
Restricted stock.......... 63,000 30,000
Limited partnership
units................... 172,000 363,000 225,000
DILUTED EPS................ $20,775,000 14,129,000 $1.47 $(118,000) 6,573,000 $(0.02) $8,403,000
===== ======
<CAPTION>
1995
-------------------------
WEIGHTED
AVERAGE
SHARES EARNINGS
(DENOMINATOR) PER SHARE
------------- ---------
<S> <C> <C>
BASIC EPS
Income available (loss
attributable) to common
stockholders............ 4,831,000 $1.74
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options............. 1,000
Restricted stock.......... 28,000
Limited partnership
units................... 140,000
DILUTED EPS................ 5,000,000 $1.68
=====
</TABLE>
F-22
<PAGE> 52
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares of Senior Cumulative Convertible Preferred Stock, convertible into
2,763,116 shares of Common Stock were outstanding during 1997 but were not
included in computing diluted earnings per share. Including these shares in the
computation increases earnings per share $.01, and are therefore considered
antidilutive. Convertible subordinated debentures convertible into 682,000,
775,000 and 3,037,000 shares of Common Stock were outstanding during 1997, 1996
and 1995, respectively but were not included in the computation of diluted
earnings per share because the effect would be antidilutive.
11. SELECTED QUARTERLY DATA (UNAUDITED)
The following tables set forth the quarterly results of operations of the
Company for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $14,813,000 $15,919,000 $18,457,000 $20,317,000
Income before gain on sale of real
estate.............................. $ 3,082,000 $ 3,597,000 $ 4,179,000 $ 5,006,000
Gain (loss) on sale of real estate.... -- (111,000) -- $ 5,705,000
Income available to common
shareholders........................ $ 3,082,000 $ 3,371,000 $ 3,904,000 $10,246,000
Earnings per share:
Basic............................... $ .27 $ .27 $ .27 $ .62
Diluted............................. $ .26 $ .26 $ .27 $ .60
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $10,835,000 $11,865,000 $13,443,000 $13,744,000
Nonrecurring loss on exchange of
debentures for common stock......... $ -- $ -- $ -- $(3,596,000)
Income (loss) before gain on sale of
real estate......................... $ 293,000 $ 652,000 $ 1,289,000 $(2,426,000)
Gain on sale of real estate........... -- -- 74,000 $ --
Income (loss) available to common
shareholders........................ $ 293,000 $ 652,000 $ 1,363,000 $(2,426,000)
Earnings (loss) per share:
Basic............................... $ .06 $ .12 $ .18 $ (.32)
Diluted............................. $ .06 $ .12 $ .17 $ (.31)
</TABLE>
F-23
<PAGE> 53
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- -------------
BUILDING LAND AND
AND BUILDING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENT
----------- ------------ -------- ------------ -------------
(IN $000S)
<S> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES
California
Laguna Hills......... $ 4,679 $ 1,798 $ 5,981 $ 436
Santa Ana(c)......... 11,703 6,985 18,581 1,501
Santa Ana(c)......... -- 1,488 5,764 845
Covina............... 1,284 558 1,466 72
Diamond Bar.......... 8,700 3,958 8,048 362
San Dimas............ 3,661 1,695 3,520 132
West Covina.......... 8,999 3,856 9,848 464
San Dimas............ 5,788 2,390 6,123 281
San Dimas............ 1,184 432 1,312 116
Ontario.............. 6,616 2,273 5,626 379
Ontario.............. 7,594 2,654 5,671 428
San Dimas............ 5,600 1,306 5,448 131
Ontario.............. 1,807 322 2,232 98
Ontario.............. 2,923 385 3,223 123
Ontario.............. 6,870 1,749 4,525 94
Escondido............ 8,045 2,064 8,075 103
Escondido............ 10,925 4,108 11,059 301
Riverside............ 9,400 2,394 11,064 --
Washington
Burien(e)............ 14,625 1,419 7,176 33
Burien............... -- 956 4,836 23
Everett(e)........... -- 3,254 7,171 55
Everett(e)........... -- 3,181 6,994 30
Kent................. 7,751 2,635 10,709 392
Federal Way.......... -- 2,876 9,646 974
-------- -------- -------- -------
Total
Multifamily.... 128,154 54,736 164,098 7,373
-------- -------- -------- -------
INDUSTRIAL PROPERTIES
California
Baldwin Park......... 11,650 999 27,878 (113)
Garden Grove......... 5,300 4,230 4,564 392
Ontario.............. 6,724 5,310 10,801 744
Rancho Cucamonga..... 3,800 1,610 8,196 592
Rancho Cucamonga(f).. -- 1,666 3,367 492
Vista................ 7,800 3,465 7,896 476
Garden Grove(f)...... -- 3,905 3,016 451
Santa Fe
Springs(g)......... 2,475 1,725 2,041 66
La Mirada(f)......... -- 1,541 2,057 255
Aliso Viejo(g)....... 4,425 2,760 4,142 118
Yorba Linda(g)....... 4,125 2,713 3,625 243
<CAPTION>
MAXIMUM
LIFE ON WHICH
DEPRECIATION
GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD IN
-------------------------------------------------------------- INCOME
BUILDINGS STATEMENT
AND ACCUMULATED DATE OF DATE IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- -------- ------------ -------- ------------ ------------ -------- -------------
(IN $000S)
<S> <C> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES
California
Laguna Hills......... $ 1,795 $ 6,420 $ 8,215 $ 565 1987 1994 40 Years
Santa Ana(c)......... 6,985 20,082 27,067 6,371 1972 1994 33 Years
Santa Ana(c)......... 1,488 6,609 8,097 643 1990 1994 40 Years
Covina............... 569 1,527 2,096 98 1978-79 1995 40 Years
Diamond Bar.......... 4,034 8,334 12,368 508 1979 1995 40 Years
San Dimas............ 1,727 3,620 5,347 227 1981 1995 40 Years
West Covina.......... 3,930 10,238 14,168 617 1981 1995 40 Years
San Dimas............ 2,436 6,358 8,794 390 1981 1995 40 Years
San Dimas............ 440 1,420 1,860 87 1981 1995 40 Years
Ontario.............. 2,316 5,962 8,278 369 1983 1995 40 Years
Ontario.............. 2,705 6,048 8,753 392 1982 1995 40 Years
San Dimas............ 1,331 5,554 6,885 336 1984 1995 40 Years
Ontario.............. 326 2,326 2,652 142 1983 1995 40 Years
Ontario.............. 391 3,340 3,731 217 1985 1995 40 Years
Ontario.............. 1,749 4,619 6,368 149 1984 1996 40 Years
Escondido............ 2,064 8,178 10,242 152 1985 1997 30 Years
Escondido............ 4,182 11,286 15,468 203 1986 1997 30 Years
Riverside............ 2,394 11,064 13,458 9 1987 1997 30 Years
Washington
Burien(e)............ 1,419 7,209 8,628 1,414 1987 1994 37 Years
Burien............... 956 4,859 5,815 951 1987 1994 37 Years
Everett(e)........... 3,254 7,226 10,480 1,960 1986 1994 29 Years
Everett(e)........... 3,181 7,024 10,205 1,892 1988 1994 29 Years
Kent................. 2,635 11,101 13,736 1,055 1987 1994 40 Years
Federal Way.......... 2,896 10,600 13,496 704 1985, 1986 1995 40 Years
-------- -------- -------- -------
Total
Multifamily.... 55,203 171,004 226,207 19,451
-------- -------- -------- -------
INDUSTRIAL PROPERTIES
California
Baldwin Park......... 8,155 20,609 28,764 8,134 1983, 1985 1994 30 Years
Garden Grove......... 4,230 4,956 9,186 545 1979 1994 40 Years
Ontario.............. 5,310 11,545 16,855 1,193 1991 1994 40 Years
Rancho Cucamonga..... 1,610 8,788 10,398 1,141 1987, 1990 1994 40 Years
Rancho Cucamonga(f).. 1,666 3,859 5,525 358 1981 1994 40 Years
Vista................ 3,465 8,372 11,837 1,152 1990 1994 40 Years
Garden Grove(f)...... 3,905 3,467 7,372 240 1986 1996 40 Years
Santa Fe
Springs(g)......... 1,725 2,107 3,832 87 1981 1996 40 Years
La Mirada(f)......... 1,541 2,312 3,853 158 1975 1996 30 Years
Aliso Viejo(g)....... 2,760 4,260 7,020 188 1988 1996 40 Years
Yorba Linda(g)....... 2,713 3,868 6,581 165 1987-89 1996 40 Years
</TABLE>
F-24
<PAGE> 54
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- -------------
BUILDING LAND AND
AND BUILDING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENT
----------- ------------ -------- ------------ -------------
(IN $000S)
<S> <C> <C> <C> <C>
San Marcos(g)........ 2,700 1,827 2,907 74
Escondido(g)......... 6,300 3,782 6,614 257
Hayward(f)........... -- 2,239 5,107 708
San Marcos(f)........ -- 825 1,838 131
San Bernardino(g).... 4,475 1,147 5,320 250
City of
Industry(d)(f)..... -- 5,774 2,155 4,026
San Diego(f)......... -- -- 7,287 320
Santa Ana(f)......... -- 1,924 7,231 208
Santa Ana(f)......... -- 1,299 4,257 145
Woodland(f).......... -- 1,824 11,002 8
Chino(j)............. 34,000 2,208 8,483 120
Downey(j)............ -- 3,568 8,027 39
Fontana(j)........... -- 2,801 11,422 21
Fremont(j)........... -- 4,985 12,034 24
Rancho Bernardo(j)... -- 4,737 9,467 30
San Diego(k)......... -- 5,518 10,581 1,443
Concord.............. -- 1,593 6,054 15
Anaheim.............. -- 1,589 5,333 40
Sacramento........... -- 2,642 12,928 86
Santa Clara.......... -- 6,279 14,694 11
Sunnyvale............ -- 2,864 11,482 --
Fullerton............ -- 1,967 7,141 --
Anaheim.............. -- 2,509 3,630 --
Anaheim.............. -- 2,069 7,515 7
Fullerton............ -- 1,197 4,336 --
Sacramento........... -- 2,087 6,637 --
Sacramento........... 2,879 2,788 6,739 --
Anaheim.............. -- 946 2,376 --
Irvine............... -- -- 7,020 36
Cerritos............. -- -- 8,485 3
Montebello........... -- 2,338 2,471 --
Sacramento........... -- 1,216 3,500 --
Hayward(h)........... 12,000 2,062 4,617 80
Hayward(h)........... -- 653 1,462 --
Hayward(h)........... -- 653 1,462 10
Hayward(h)........... -- 2,614 5,847 5
Washington
Seattle.............. -- 1,808 4,637 642
Algona(f)............ -- 2,490 7,002 --
Tukwila.............. 11,421 6,684 10,677 1,497
-------- -------- -------- -------
Total
Industrial..... 120,074 123,430 337,360 13,952
-------- -------- -------- -------
Total
Portfolio.. $248,228(k) $178,166 $501,458 $21,325
======== ======== ======== =======
<CAPTION>
MAXIMUM
LIFE ON WHICH
DEPRECIATION
IN
GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
----------------------------------------------------- INCOME
BUILDINGS STATEMENT
AND ACCUMULATED DATE OF DATE IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- -------- ------------ -------- ------------ ------------ -------- -------------
(IN $000S)
<S> <C> <C> <C> <C> <C> <C> <C>
San Marcos(g)........ 1,827 2,981 4,808 146 1988 1996 40 Years
Escondido(g)......... 3,782 6,871 10,653 321 1988-92 1996 40 Years
Hayward(f)........... 2,239 5,815 8,054 381 1972-74 1996 30 Years
San Marcos(f)........ 825 1,969 2,794 104 1985 1996 30 Years
San Bernardino(g).... 1,147 5,570 6,717 235 1980 1996 30 Years
City of
Industry(d)(f)..... 5,774 6,181 11,955 303 n/a 1996 n/a
San Diego(f)......... -- 7,607 7,607 254 1981 1996 30 Years
Santa Ana(f)......... 1,924 7,439 9,363 225 1974, 1976 1997 40 Years
Santa Ana(f)......... 1,299 4,402 5,701 133 1974, 1976 1997 40 Years
Woodland(f).......... 1,824 11,010 12,834 234 n/a 1997 40 Years
Chino(j)............. 2,208 8,603 10,811 124 1988 1997 30 Years
Downey(j)............ 3,568 8,066 11,634 114 1988 1997 30 Years
Fontana(j)........... 2,801 11,443 14,244 161 1989 1997 30 Years
Fremont(j)........... 4,985 12,058 17,043 178 1980 1997 30 Years
Rancho Bernardo(j)... 4,737 9,497 14,234 145 1990 1997 30 Years
San Diego(k)......... 5,518 12,024 17,542 123 1980, 1997 1997 30 Years
Concord.............. 1,593 6,069 7,662 83 1989 1997 30 Years
Anaheim.............. 1,589 5,373 6,962 7 1972 1997 40 Years
Sacramento........... 2,642 13,014 15,656 14 1972 1997 40 Years
Santa Clara.......... 6,279 14,705 20,984 16 1972 1997 40 Years
Sunnyvale............ 2,864 11,482 14,346 12 1972 1979 40 Years
Fullerton............ 1,967 7,141 9,108 40 1980 1997 30 Years
Anaheim.............. 2,509 3,630 6,139 4 1961 1997 40 Years
Anaheim.............. 2,069 7,522 9,591 31 1951 1997 40 Years
Fullerton............ 1,197 4,336 5,533 5 1979 1997 40 Years
Sacramento........... 2,087 6,637 8,724 11 1988, 1989 1997 30 Years
Sacramento........... 2,788 6,739 9,527 11 1988 1997 30 Years
Anaheim.............. 946 2,376 3,322 2 1980 1997 30 Years
Irvine............... -- 7,056 7,056 4 1979 1997 40 Years
Cerritos............. -- 8,488 8,488 7 1985 1997 30 Years
Montebello........... 2,338 2,471 4,809 2 1985 1997 30 Years
Sacramento........... 1,216 3,500 4,716 4 1988 1997 30 Years
Hayward(h)........... 2,062 4,697 6,759 34 1974 1997 40 Years
Hayward(h)........... 653 1,462 2,115 8 1973 1997 40 Years
Hayward(h)........... 653 1,472 2,125 9 1973 1997 40 Years
Hayward(h)........... 2,614 5,852 8,466 37 1973 1997 40 Years
Washington
Seattle.............. 1,808 5,279 7,087 1,741 1968, 1981 1994 24 Years
Algona(f)............ 2,490 7,002 9,492 177 1989 1997 30 Years
Tukwila.............. 6,684 12,174 18,858 896 1975-1979 1995 40 Years
-------- -------- -------- -------
Total
Industrial..... 130,586 344,156 474,742 19,697
-------- -------- -------- -------
Total
Portfolio.. $185,789 $515,160 $700,949(a) $39,148(b)
======== ======== ======== =======
</TABLE>
F-25
<PAGE> 55
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
(a) The changes in total real estate for the years ended December 31, 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period............. $379,540 $300,153 $210,596
Acquisition of Baldwin Park................ -- -- 7,228
Acquisition of PGP Inland portfolio........ -- -- 73,718
Sale of land and building to existing
tenant................................... -- (8,055) --
Sale of Texas multifamily portfolio........ -- -- (24,106)
Acquisitions and improvements.............. 332,324 87,442 32,717
Sale of Oregon multifamily property........ (10,915) -- --
-------- -------- --------
Balance at end of period................... $700,949 $379,540 $300,153
======== ======== ========
</TABLE>
(b) The changes in accumulated depreciation for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period............. $28,844 $21,461 $17,139
Additions -- depreciation expense.......... 11,809 8,236 5,908
Retirements -- Texas multifamily
portfolio................................ -- -- (1,586)
Retirement to existing tenant.............. -- (603) --
Retirement of Oregon multifamily
property................................. (1,505) -- --
Other...................................... -- (250) --
-------- -------- --------
Balance at end of period................... $39,148 $28,844 $21,461
======== ======== ========
</TABLE>
(c) These properties collateralize borrowings under the same mortgage note
payable totaling $11,703,000.
(d) A portion of this property is currently under development.
(e) These properties collateralize borrowings under the same mortgage note
payable totaling $14,625,000.
(f) These properties collateralize borrowings under the Company's revolving
bank line of credit that has an outstanding balance of $17,200,000 as of
December 31, 1997.
(g) These properties collateralize borrowings under the same mortgage note
payable totaling $24,500,000.
(h) These properties collateralize borrowings under the same mortgage note
payable totaling $12,000,000.
(i) These properties collateralize borrowings under the same mortgage note
payable totaling $4,625,000.
(j) These properties collateralize borrowings under the same mortgage note
payable totaling $34,000,000.
(k) Excludes construction loans of $18,425,000.
F-26
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws
4.1 Indenture between the Company and Harris Trust Company of
California, as trustee.*
10.1 Purchase and Sale Agreement between Santa Anita Realty
Enterprises, Inc. and the Company*
10.2 Amended and Restated Employment Agreement between the
Company and Glenn L. Carpenter+
10.3 Amended and Restated Employment Agreement between the
Company and Donald G. Herrman+
10.4 Amended and Restated Employment Agreement between the
Company and Lonnie P. Nadal+
10.5 Employment Agreement between the Company and Robert A.
Dewey+
10.6 1993 Share Option Plan*
10.7 Park Place Acquisition Agreement*
10.8 Management Agreement between Santa Anita Realty Enterprises,
Inc. and the Company*
10.9 Purchase and Sale Agreement and Joint Escrow Instructions
among Golden West Equity Properties, Inc., Golden West
Ontario Associates, Golden West Vista Associates and Pacific
Gulf Properties Inc.*
10.10 Registration Rights Agreement between Santa Anita Realty
Enterprises, Inc. and the Company*
10.11 Amendment Nos. 1 and 2 to the Purchase and Sale Agreement
and Joint Escrow Instructions among Golden West Equity
Properties, Inc., Golden West Ontario Associates, Golden
West Vista Associates and Pacific Gulf Properties Inc.*
10.13 Master Agreement, dated September 30, 1994, between Pacific
Gulf Properties, Inc., PGP Baldwin, Inc., Santa Anita Realty
Enterprises, Inc., Baldwin Associates, Ltd. and Wm. P.
Willman & Associates regarding Baldwin Park Acquisition**
10.14 Closing Agreement, dated October 1, 1994, between Pacific
Gulf Properties Inc. and Santa Anita Realty Enterprises,
Inc. regarding Baldwin Park Acquisition**
10.15 Settlement Agreement and Mutual General Release, effective
as of January 30, 1995, between Pacific Gulf Properties
Inc., PGP Baldwin, Inc., Baldwin Industrial Properties,
Ltd., Baldwin Associates, Ltd., W.T. Grant, et al. regarding
Baldwin Park Acquisition**
10.16 Award of Arbitration dated March 15, 1995 regarding Baldwin
Park Acquisition**
10.17 Stipulation and Order Confirming Arbitration Award dated
March 22, 1995 regarding Baldwin Park Acquisition**
10.18 Term Loan Agreement, dated March 3, 1995, between Pacific
Gulf Properties Inc. and Bank of America National Trust and
Savings Association**
10.19 Term Loan Agreement, dated March 3, 1995, between Pacific
Gulf Properties Inc. and Bank of America National Trust and
Savings Association**
10.20 Term Loan Agreement, dated March 3, 1995, between Pacific
Gulf Properties Inc. and Bank of America National Trust and
Savings Association**
10.21 Exchange Agreement, dated April 15, 1995, between the
Company and Glenn L. Carpenter, regarding Deferred
Compensation Agreement+
10.22 Exchange Agreement, dated April 15, 1995, between the
Company and Donald G. Herrman, regarding Deferred
Compensation Agreement+
10.23 Exchange Agreement, dated April 15, 1995, between the
Company and Lonnie P. Nadal, regarding Deferred Compensation
Agreement+
10.24 Exchange Agreement, dated April 15, 1995, between the
Company and Robert A. Dewey, regarding Deferred Compensation
Agreement+
10.25 Amended and Restated Agreement of Limited Partnership of PGP
Inland Communities, L.P., dated as of August 15, 1995+
</TABLE>
F-27
<PAGE> 57
<TABLE>
<C> <S>
10.26 Master Contribution Agreement, dated as of August 15, 1995, regarding formation of PGP Inland Communities,
L.P.+
10.27 Purchase Agreement and Escrow Instructions, dated September 15, 1995, by and between Capitol Investment
Associates Corp. and Pacific Gulf Properties Trust, regarding sale of Texas apartment portfolio+
10.29 Dividend Reinvestment Plan of the Company dated May 9, 1995***
10.30 Investment Agreement, dated December 31, 1996, between the Company and Five Arrows Realty Securities
L.L.C.++
10.31 Articles Supplementary, dated January 1997, classifying 1,351,351 Shares of Preferred Stock as Class A
Senior Cumulative Convertible Preferred Stock of the Company.++
10.32 Operating Agreement, dated January 1997, between the Company and Five Arrows Realty Securities L.L.C.++
10.33 Amendment to 1993 Share Option Plan+++
10.34 Syndicated Credit Agreement, dated as of August 30, 1996 by and among the Company, Bank of America
National Trust and Savings Association, as Agent for the other Banks party thereto and as a Bank, and the
other Banks party thereto.****
10.35 Investment Agreement, dated May 27, 1997, between Company and Five Arrows Realty Securities L.L.C.++++.
10.36 Articles Supplementary classifying 1,411,765 Shares of Preferred Stock as Class B Senior Cumulative
Convertible Preferred Stock.++++
10.37 Form of Amended and Restated Agreement and Waiver, between the Company and Five Arrows Realty Securities
L.L.C.++++
10.38 Rights Agreement, dated December 11, 1997, between the Company and Harris Trust Company of California, as
Rights Agent.+++++
10.39 Form of Change of Control Agreement.
10.40 Agreement of Limited Partnership of PGP Northern Industrial, L.P.
10.41 Agreement of Limited Partnership of Morning View Terrace-PGP, L.P.
10.42 Agreement of Limited Partnership Terrace Gardens -- PGP, L.P.
21.01 Subsidiaries**
23.01 Consent of Ernst & Young LLP
27.00 Financial Data Schedule
</TABLE>
- ---------------
<TABLE>
<C> <S>
* Incorporated by reference from the Company's registration
statement on Form S-11 (33-69382) declared effective by the
Securities and Exchange Commission on February 10, 1994.
** Incorporated by reference from the Company's Annual Report
on Form 10-K of the Company for the year ended December 31,
1994.
*** Incorporated by reference from the Company's registration
statement on Form S-3 (33-92082) filed on May 9, 1995.
**** Incorporated by reference from the Company's Annual Report
on Form 10-K of the Company for the year ended December 31,
1996.
+ Incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
++ Incorporated by reference from the Company's Current Report
on Form 8-K filed on January 14, 1997.
+++ Incorporated by reference from the Company's Proxy Statement
filed on or about April 5, 1996.
++++ Incorporated by reference form the Company's Current Report
on Form 8-K filed on June 26, 1997.
+++++ Incorporated by reference from the Company's registration
statement on Form 8-A filed on December 17, 1997.
</TABLE>
F-28
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
PACIFIC GULF PROPERTIES INC.
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
PACIFIC GULF PROPERTIES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I MEETING OF STOCKHOLDERS.......................................................... 1
1.01. PLACE................................................................................. 1
1.02. ANNUAL MEETING........................................................................ 1
1.03. MATTERS TO BE CONSIDERED AT ANNUAL MEETING ........................................... 1
1.04. SPECIAL MEETINGS...................................................................... 3
1.05. NOTICE................................................................................ 3
1.06. SCOPE OF NOTICE....................................................................... 3
1.07. QUORUM................................................................................ 3
1.08. VOTING................................................................................ 3
1.09. PROXIES............................................................................... 4
1.10. CONDUCT OF MEETING.................................................................... 4
1.11. TABULATION OF VOTES................................................................... 4
1.12. INFORMAL ACTION BY STOCKHOLDERS....................................................... 4
1.13. VOTING BY BALLOT...................................................................... 5
ARTICLE II DIRECTORS....................................................................... 5
2.01. GENERAL POWERS........................................................................ 5
2.02. NUMBER, TENURE AND QUALIFICATION...................................................... 5
2.03. NOMINATION OF DIRECTORS............................................................... 5
2.04. ANNUAL AND REGULAR MEETINGS........................................................... 7
2.05. SPECIAL MEETINGS...................................................................... 7
2.06. NOTICE................................................................................ 7
2.07. QUORUM................................................................................ 7
2.08. VOTING................................................................................ 7
2.09. CONDUCT OF MEETINGS................................................................... 8
2.10. RESIGNATION........................................................................... 8
2.11. REMOVAL OF DIRECTORS.................................................................. 8
2.12. VACANCIES............................................................................. 8
2.13. INFORMAL ACTION BY DIRECTORS.......................................................... 8
2.14. COMPENSATION.......................................................................... 8
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE III COMMITTEES..................................................................... 9
3.01. NUMBER, TENURE AND QUALIFICATION...................................................... 9
3.02. DELEGATION OF POWER................................................................... 9
3.03. QUORUM AND VOTING .................................................................... 9
3.04. CONDUCT OF MEETING.................................................................... 9
3.05. INFORMAL ACTION BY COMMITTEES......................................................... 9
ARTICLE IV OFFICERS........................................................................ 10
4.02. REMOVAL............................................................................... 10
4.03. VACANCIES............................................................................. 10
4.04. CHAIRMAN OF THE BOARD................................................................. 10
4.05. PRESIDENT............................................................................. 10
4.06. VICE PRESIDENTS....................................................................... 11
4.07. SECRETARY............................................................................. 11
4.09. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS........................................ 11
4.10. SUBORDINATE OFFICERS.................................................................. 12
4.11. SALARIES.............................................................................. 12
ARTICLE V STOCK............................................................................ 12
5.01. CERTIFICATES FOR STOCK................................................................ 12
5.02. TRANSFERS............................................................................. 12
5.03. RECORD DATES AND CLOSING OF TRANSFER BOOKS............................................ 12
5.04. STOCK LEDGER.......................................................................... 13
5.05. CERTIFICATION OF BENEFICIAL OWNER..................................................... 13
5.06. LOST STOCK CERTIFICATES............................................................... 13
ARTICLE VI FINANCE......................................................................... 13
6.01. CHECKS, DRAFTS, ETC................................................................... 13
6.02. ANNUAL STATEMENT OF AFFAIRS........................................................... 14
6.03. FISCAL YEAR........................................................................... 14
6.04. DIVIDENDS............................................................................. 14
6.05. CONTRACTS............................................................................. 14
ARTICLE VII SUNDRY PROVISIONS.............................................................. 14
7.01. BOOKS AND RECORDS..................................................................... 14
7.02. CORPORATE SEAL........................................................................ 14
7.03. BONDS................................................................................. 14
7.04. VOTING UPON SHARES IN OTHER CORPORATIONS.............................................. 15
7.05. MAIL.................................................................................. 15
7.06. EXECUTION OF DOCUMENTS................................................................ 15
7.07. AMENDMENTS............................................................................ 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII INDEMNIFICATION............................................................... 15
8.01. INDEMNIFICATION....................................................................... 15
8.02. PROCEDURE............................................................................. 15
8.03. EXCLUSIVITY, ETC...................................................................... 16
8.04. SEVERABILITY; DEFINITIONS............................................................. 16
</TABLE>
iii
<PAGE> 5
ARTICLE I
MEETING OF STOCKHOLDERS
1.01. PLACE. All meetings of the holders of the issued and outstanding
capital stock of the Corporation (the "Stockholders") shall be held at the
principal executive office of the Corporation or such other place within the
United States as shall be stated in the notice of the meeting.
1.02. ANNUAL MEETING. An annual meeting of the Stockholders for the
election of Directors and the transaction of such other business as properly may
be brought before the meeting shall be held at 10:00 a.m. on the second
Wednesday in May of each year or at such other date and time as may be fixed by
the Board of Directors. If the date fixed for the annual meeting shall be a
legal holiday, such meeting shall be held on the next succeeding business day.
If no annual meeting is held on the date designated, a special meeting in lieu
thereof may be held, and such special meeting shall have, for purposes of these
Bylaws other otherwise, all the force and effect of an annual meeting. Any and
all references hereafter in these Bylaws to an annual meeting or to annual
meetings shall be deemed to refer also to any special meeting(s) in lieu
thereof. Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
1.03. MATTERS TO BE CONSIDERED AT ANNUAL MEETING.
(a) At an annual meeting of Stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting (i) by, or at the direction of, a
majority of the Board of Directors, or (ii) by any holder of record (both as of
the time notice of such proposal is given by the Stockholder as set forth below
and as of the record date for the annual meeting in question) of any shares of
the Corporation's capital stock entitled to vote at such annual meeting who
complies with the procedures set forth in this Section 1.03. For a proposal to
be properly brought before an annual meeting by a Stockholder, other than a
stockholder proposal included in the Corporation's proxy statement pursuant to
Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the Stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation, and such Stockholder or his or her representative must be present
in person at the annual meeting. For the first annual meeting following the
initial public offering of common stock of the Corporation, a Stockholder's
notice shall be timely if delivered to, or mailed and received at, the principal
executive office of the corporation not later them the close of business on the
20th calendar day (or if that day is not a business day for the corporation, on
the next business day) following the date on which notice of the date of the
first annual meeting is mailed or otherwise transmitted to Stockholders. For all
subsequent annual meetings, a Stockholders notice shall be timely if delivered
to, or mailed and received at, the principal executive offices of the
corporation (A) not less than 75 days nor more than 180 days prior to the
anniversary date of the immediately preceding annual meeting of Stockholders or
special meeting in lieu thereof (the "Anniversary Date") or (B) in the event
that the annual meeting of Stockholders is called for a date more than 7
calendar days prior to the Anniversary Date not later than the close of business
on the 20th
1
<PAGE> 6
calendar day (or if that day is not a business day for the Corporation on the
next succeeding business day) following the date on which notice of the date of
such meeting was mailed to Stockholders.
(b) A Stockholder's notice to the Secretary shall set forth as to each
matter the Stockholder proposes to bring before the annual meeting (i) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's stock transfer books, of the
Stockholder proposing such business and of the beneficial owners (if any) of the
stock registered in such Stockholder's name and the name and address of other
Stockholders known by such Stockholder to be supporting such proposal on the
date of such Stockholder's notice, (iii) the class and number of shares of the
Corporation's capital stock which are beneficially owned by the Stockholder and
such beneficial owners (if any) on the date of such Stockholder's notice and by
any other Stockholders known by such Stockholder to be supporting such proposal
on the date of such Stockholder's notice, and (iv) any financial interest of the
Stockholder or of any such beneficial owner in such proposal.
(c) If the Board of Directors, or a designated committee thereof,
determines that any Stockholder proposal was not timely made in accordance with
the terms of this section 1.03, such proposal shall not be presented for action
at the annual meeting in question. If the Board of Directors, or a designated
committee thereof, determines that the information, provided in a Stockholder's
notice does not satisfy the informational requirements of this section in any
material respect, the Secretary of the Corporation shall promptly notify such
Stockholder of the deficiency in the notice. Such Stockholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within the period of time, not to exceed five days from the date such
deficiency notice is given to the Stockholder, determined by the Board of
Directors or such committee. If the deficiency is not cured within such Period,
or if the Board of Directors or such committee determines that the additional
information provided by the Stockholder, together with the information
previously provided, does not satisfy the requirements of this Section 1.03 in
any material respect, then such proposal shall not be presented for action at
the annual meeting in question.
(d) Notwithstanding the procedure set forth in the preceding paragraph,
if neither the Board of Directors nor such committee makes a determination as to
the validity of any Stockholder proposal as set forth above, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the Stockholder proposal was made in accordance with the terms of this
Section 1.03. If the presiding officer determines that a Stockholder proposal
was made in accordance with the terms of this Section 1.03, the presiding
officer shall so declare at the annual meeting. If the presiding officer
determines that a Stockholder proposal was not made in accordance with the
provisions of this Section 1.03, the presiding officer shall so declare at the
annual meeting and such proposal shall not be acted upon at the annual meeting.
(e) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, Directors and
committees of the Board of Directors, but
2
<PAGE> 7
in connection with such reports, no new business shall be acted upon at such
annual meeting except in accordance with the provisions of this Section 1.03.
1.04. SPECIAL MEETINGS. The Chairman of the Board, the President or a
majority of the Board of Directors may call special meetings of the
Stockholders. Special meetings of Stockholders shall also be called by the
Secretary upon the written request of the holders of shares entitled to cast 45%
or more of the votes entitled to be cast at such meeting. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. The date, time, place and record date for any special meeting,
including a special meeting called at the request of Stockholders, shall be
established by the Board of Directors or officer calling the same.
1.05. NOTICE. Not less than 10 nor more than 90 days before the date of
every meeting of Stockholders, written or printed notice of such meeting shall
be given to each Stockholder entitled to vote or entitled to notice by statute,
stating the time and place of the meeting and, in the case of a special meeting
or as otherwise may be required by statute, the purpose or purposes for which
the meeting is called. Notice is given to a Stockholder when it is personally
delivered to him, left at his residence or usual place of business or mailed to
him at his address as it appears in the records of the Corporation.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if he before or after the meeting signs a waiver of the notice
which in filed with the records of stockholder meetings or is present at the
meeting in person or by proxy.
1.06. SCOPE OF NOTICE. No business shall be transacted at a special
meeting of Stockholders except that specifically designated in the notice of the
meeting. Any business of the Corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business as is
required by statute to be stated in such notice.
1.07. QUORUM. At any meeting of Stockholders, the presence in person or
by proxy of Stockholders entitled to cast a majority of the votes shall
constitute a quorum; but this Section shall not affect any requirement under any
statute or the Articles of Incorporation of the Corporation, as amended or
restated (the "Charter"), for the vote necessary for the adoption of any
measure. If, however, a quorum is not present at any meeting of the
Stockholders, the Stockholders present in person or by proxy shall have the
power to adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum is present and the meeting so
adjourned may be reconvened without further notice. At any adjourned meeting at
which a quorum in present, any business may be transacted that might have been
transacted at the meeting as originally notified. The Stockholders present at a
meeting which has been duly called and convened and at which a quorum is present
at the time counted may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Stockholders to leave less than a
quorum.
1.08. VOTING. A majority of the votes cast at a meeting of Stockholders
duly called and at which a quorum is present shall be sufficient to take or
authorize action upon any matter which may properly come before the meeting,
unless more than a majority of the votes cast is specifically required by
statute, the Charter or these Bylaws, and except that a plurality of all the
3
<PAGE> 8
votes cast at a meeting at which a quorum is present is sufficient to elect a
director. Unless otherwise provided by statute, the Charter or these Bylaws,
each outstanding share (a "Share") of capital stock of the Corporation (the
"Stock"), regardless of class, shall be entitled to one vote upon each matter
submitted to a vote at a meeting of Stockholders. Pursuant to Section 3-702 of
the Maryland General Corporation Law, any and all acquisitions of Shares of
Stock are hereby exempted from the provisions of Title 3, Subtitle 7 of the
Maryland General Corporation Law, which relates to voting rights of certain
control shares. Shares of its own Stock directly or indirectly-owned by the
Corporation shall not be voted in any meeting and shall not be counted in
determining the total number of outstanding Shares entitled to vote at any given
time, but Shares of its own voting Stock held by it in a fiduciary capacity may
be voted and shall be counted in determining the total number of outstanding
Shares at any Driven time.
1.09. PROXIES. A Stockholder may vote the shares owned of record by him
or her, either in person or by proxy executed in writing by the Stockholder or
by his or her duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after 11 months from the date of its execution, unless otherwise
provided in the proxy.
10. CONDUCT OF MEETING. The Chairman of the Board or, in the absence of
the Chairman, the President, or, in the absence of the Chairman, President and
Vice Presidents, a presiding officer elected at the meeting, shall preside over
meetings of the Stockholders. The Secretary of the Corporation, or, in the
absence of the Secretary and Assistant Secretaries, the person appointed by the
presiding officer of the meeting shall act as secretary of such meeting.
1.11. TABULATION OF VOTES. At any annual or special meeting of
Stockholders, the presiding officer shall be authorized to appoint a teller for
such meeting (the "Teller"). The Teller may, but need not, be an officer or
employee of the Corporation. The Teller shall be responsible for tabulating or
causing to be tabulated shares voted at the meeting and reviewing or causing to
be reviewed all proxies. In tabulating votes, the Teller shall be entitled to
rely in whole or in part on tabulations and analyses made by personnel of the
corporation, its counsel, its transfer agent, its registrar or such other
organizations that are customarily employed to provide such services. The Teller
shall be authorized to determine the legality and sufficiency of all votes cast
and proxies delivered under the Corporation's Charter, Bylaws and applicable
law. The presiding officer may review all determinations made by the Teller
hereunder, and in doing so the presiding officer shall be entitled to exercise
his or her sole judgment and discretion and he or she shall not be bound by any
determinations made by the Teller.
1.12. INFORMAL ACTION BY STOCKHOLDERS. An action required or permitted
to be taken at a meeting of Stockholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by all the Stockholders
entitled to vote on the subject matter thereof and any other Stockholders
entitled to notice of a meeting of Stockholders (but not to vote thereat) have
waived in writing any rights which they may have to dissent from such action,
and such consents and waivers are filed with the minutes of proceedings of the
Stockholders. Such consents and waivers may be signed by different Stockholders
on separate counterparts.
4
<PAGE> 9
1.13. VOTING BY BALLOT. Voting on any question or in any election may be
via voce unless the presiding officer shall order or any Stockholder shall
demand that voting be by ballot.
ARTICLE II
DIRECTORS
2.01. GENERAL POWERS. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under the authority of the Board of
Directors, except as conferred on or reserved to the Stockholders by statute,
the Charter or these by-laws.
2.02. NUMBER, TENURE AND QUALIFICATION. The number of Directors of the
Corporation shall be that number set forth in the Charter or such other number
as malt be designated from time to time by resolution of a majority of the
entire-Board of Directors; provided, however, that the number of Directors shall
never be more than 11 nor less than the number required by Section 2-402 of the
Maryland General Corporation Law, as amended from time to time, and further
provided that the tenure of office of a Director shall not be affected by any
decrease in the number of Directors. Each Director shall serve for the term set
forth in the Charter and until his or her successor is elected and qualified.
2.03. NOMINATION OF DIRECTORS.
(a) Nominations of candidates for election as Directors of the
Corporation fit any annual meeting of Stockholders may be made (i) by, or at the
direction of, a majority of the Board of Directors or (ii) by any holder of
record (both as of the time notice of such nomination is given by the
Stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of the Corporation's capital stock entitled to vote
at such meeting who complies with the procedures set forth in this Section 2.04.
Any Stockholder who seeks to make such a nomination, or its representative, must
be present in person at the annual meeting. Only persons nominated in accordance
with the procedures set forth in this Section 2.03 shall be eligible for
election as Directors at an annual meeting of Stockholders.
(b) Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 2.03. For the first
annual meeting of the Corporation following the initial public offering of
common stock of the Corporation, notice shall be timely if delivered to, or
mailed and received at, the principal executive office of the corporation not
later than the close of business on
5
<PAGE> 10
the 20th calendar day (or if that day is not a business day for the corporation,
the next business day) following the date on which notice of the first annual
meeting is mailed or otherwise transmitted to Stockholders. For all subsequent
annual meetings of the Corporation, a stockholder's notice shall be timely if
delivered to, or mailed and received at, the principal executive offices of the
Corporation (i) not less than 75 days nor more than 180 days prior to the
Anniversary Date or (ii) in the event that the annual meeting of Stockholders is
called for a date more than 7 calendar days prior to the Anniversary Date, not
later than the close of business on the 20th calendar day (or if that day is not
a business day for, the Corporation, on the next succeeding business day)
following the date on which notice of the date of such meeting was mailed to
Stockholders.
(c) A Stockholder's notice of nomination shall set forth as to each
person the Stockholder proposes to nominate for election as a Director (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person for the past five years; (iii)
the class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such notice; (iv) such
nominee's written consent to be named in the proxy statement as a nominee and to
serve as a Director if elected, and (v) any other information relating to such
person that is required to be disclosed in solicitations of proxies with respect
to nominees for election as may be deemed necessary or desirable by the
Corporation's counsel, in the exercise of his or her discretion. Notice by a
Stockholder shall, in addition to the above-referenced information set forth as
to the Stockholder giving the notice (A) the name and address, as they appear on
the Corporation's stock transfer, books, of such Stockholder and of the
beneficial owners (if any) of the stock registered in such Stockholder's name;
(B) the name and address of other stockholders known by such Stockholder to be
supporting such nominees on the date of such Stockholder's notice; (C) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such Stockholder and such beneficial owners (if any) on the date of
such Stockholder notice; and (D) the class and number of shares of the
Corporation's capital stock which are beneficially owned by any other
Stockholders known by such Stockholder to be supporting such nominees on the
date of such Stockholder notice. At the request of the Board of Directors, any
person nominated by or at the direction of the Board of Directors for election
as a Director at an annual meeting shall furnish to the Secretary of the
Corporation that information which would be required to be set forth in a
stockholder's notice of nomination of such nominee.
(d) No person not nominated by the Board of Directors shall be elected
by the Stockholders as a Director of the corporation unless nominated in
accordance with the procedures set forth in this Section 2.03. If the Board of
Directors, or a designated committee thereof, determines that a nomination made
by any Stockholder was not timely made in accordance with the terms of this
Section, such nomination shall not be considered at the annual meeting in
question. If the Board of Directors, or a designated committee thereof,
determines that the information provided in a Stockholders notice does not
satisfy the informational requirements of, this Section 2.03 in any material
respect, the secretary of the, Corporation shall promptly notify such
Stockholder of the deficiency in the notice. Such Stockholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within the period of time, not to exceed five days from the date such
deficiency notice is given to such Stockholder, determined by the Board of
Directors or such committee. If the deficiency is not cured within such period,
or if the Board of Directors or such committee determines that the additional
information provided by such Stockholder, together with the information
previously provided, does not satisfy the requirements of this Section 2.03 in
any material respect, such nomination shall not be considered at the annual
meeting in question.
(e) Notwithstanding the procedures get forth in the preceding paragraph,
if neither the Board of Directors nor a designated committee thereof makes a
determination as to the validity of
6
<PAGE> 11
any nominations by any Stockholder as set forth above, the presiding officer of
the Stockholders meeting shall determine and declare at the Stockholders meeting
whether a nomination was made in accordance with the terms of this Section 2.03.
If the presiding officer determines that a nomination was not made in accordance
with the terms of this Section 2.03, such nomination shall be disregarded, and
the Board of Directors shall make all Director nominations on behalf of the
Corporation.
2.04. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors may be held immediately after and at the same place as the annual
meeting of Stockholders, or at such other time and place, either within or
without the State of Maryland, as is selected by resolution of the Board of
Directors, and no notice other than this Bylaw or such resolution shall be
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice than such
resolutions.
2.05. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the President or a
majority of the Directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
2.06. NOTICE. Notice of any special meeting to be provided herein shall
be given by written notice delivered personally, telegraphed or telecopied to
each Director at his or her business or residence at least 24 hours, or by mail
at least five days, prior to the meeting. Neither the business to be transacted
at, nor the purpose of, any annual, regular or special meeting of the Board of
Directors need be specified in the notice, unless specifically required by
statute, the Charter or these Bylaws.
2.07. QUORUM. A majority of the Board of Directors then in office shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. If less than a majority of the Board of Directors is present at
said meeting, a majority of the Directors present may adjourn the meeting from
time to time without further notice.
2.08. VOTING. The act of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
applicable statute, the Charter or these Bylaws.
2.09. CONDUCT OF MEETINGS. All meetings of the Board of Directors shall
be called to order and presided over by the Chairman of the Board, or in the
absence of the Chairman of the Board, by the President (if a member of the Board
of Directors) or, in the absence of the Chairman of the Board and the President,
by a member of the Board of Directors selected by the members present. The
Secretary of the Corporation, or in the absence of the Secretary, any, Assistant
Secretary, shall act as secretary at all meetings of the Board of Directors, and
in the absence of the Secretary and Assistant Secretaries, the presiding officer
of the meeting shall designate any person to act as secretary of the meeting.
Members of the Board of Directors may participate in meetings of the Board of
Directors by conference telephone or similar
7
<PAGE> 12
communications equipment by means of which all Directors participating in the
meeting can hear each other at the same time, and participation in a meeting in
accordance herewith shall constitute presence in person at such meeting for all
purposes of these Bylaws.
2.10. RESIGNATION. Any Director may resign from the Board of Directors
or any committee thereof at any time. Such resignation shall be made in writing
and shall take effect at the time specified therein, or if no time be specified,
at the time of the receipt of notice of such resignation by the President or the
Secretary.
2.11. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors may, be removed only in accordance with the provisions of the Charter.
2.12. VACANCIES. The Stockholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
Furthermore any vacancy occurring in the Board of Directors for any cause other
than by reason of an increase in the number of directors may be filled by a
majority vote of the remaining Directors, although such majority is less than a
quorum. Any vacancy occurring in the Board of Directors by reason of an increase
in the number of directors may be filled by a majority vote of the entire Board
of Directors. A Director elected by the Board of Directors to fill a vacancy
shall hold office until the next annual meeting of Stockholders at which the
term of the class of Directors to which such Director is elected expires or
until his or her successor is elected and qualified.
2.13. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to
between at any meeting of the Board of Directors may be taken without a meeting,
if a consent in writing to such action is signed by all of the Directors and
such written consent is filed with the minutes of the Board of Directors.
Consents may be signed by different Directors on separate counterparts.
2.14. COMPENSATION. An annual fee for services and payment for expenses
of attendance at each meeting of the Board of Directors, or of any committee
thereof, may be allowed to any Director by resolution of the Board of Directors.
ARTICLE III
COMMITTEES
3.01. NUMBER, TENURE AND QUALIFICATION. The Board of Directors may
appoint from among its members an Executive Committee and other committees,
composed of two or more Directors, to serve at the pleasure of the Board of
Directors.
3.02. DELEGATION OF POWER. The Board of Directors may delegate to those
committees in the intervals between meetings of the Board of Directors any of
the powers of the Board of Directors to manage the business and affairs of the
Corporation, except those powers which the Board of Directors is specifically
prohibited from delegating pursuant to section 2-411 of the Maryland General
Corporation Law.
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3.03. QUORUM AND VOTING. A majority of the members of any committee
shall constitute a quorum for the transaction of business by such committee, and
the act of a majority of the quorum shall constitute the act of the committee.
3.04. CONDUCT OF MEETING. Each committee shall designate a presiding
officer of Such committee, and if not present at a particular meeting, the
committee shall select a presiding officer for such meeting. Members of any
committee may participate in meetings of such committee by conference telephone
or similar communications equipment by means of which all Directors
participating in the meeting can hear each other at the same time, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting for all purposes of these Bylaws. Each committee shall
keep minutes of its meetings, and report the results of any proceedings at the
next succeeding annual or regular meeting of the Board of Directors.
3.05. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to
be taken at any meeting of a committee of the Board of Directors may, be taken
without a meeting, if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of
proceedings of such committee. Consents may be signed by different matters on
separate counterparts.
ARTICLE IV
OFFICERS
4.01. POWERS AND DUTIES. The Corporation shall have a President, a
Secretary and Treasurer. It may also have a Chairman of the Board. The Board of
Directors shall designate who shall serve as chief executive officer, who shall
have general supervision of the business and affairs of the Corporation, and may
designate a chief operating officer, who shall have supervision of the
operations of the Corporation. In the absence of the Chairman of the Board, or
if there be none, the President shall be the chief executive officer. The same
person may hold both offices. The officers of the Corporation shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of Stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his or her
successor is duly elected and qualified or until his or her death, resignation
or removal in the manner hereinafter provided. Any two or more offices except
President and Vice President may be held by the same person. Election or
appointment of an officer or agent shall not of itself create contract rights
between the corporation and such officer or agent.
4.02. REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. The fact that a person is elected to an office, whether or not for a
specified term, shall not by itself constitute any undertaking or evidence of
any employment obligation of the Corporation to that person.
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4.03. VACANCIES. A vacancy in any office may be filled by the Board of
Directors for the unexpired portion of the term.
4.04. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the Stockholders and of the Board of Directors. Unless the Board
of Directors shall otherwise determine, the Chairman of the Board shall be the
Chief Executive officer and general manager of the Corporation and shall in
general supervise and control all of the business and affairs of the
Corporation. The Chairman of the Board may sign and execute all deeds,
mortgages, bonds, contracts or other obligations or instruments on behalf of the
Corporation, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise signed or
executed. In general, the Chairman of the Board shall perform all duties
incident to the office of Chairman of the Board and such other duties as may be
prescribed by the Board of Directors from time to time.
4.05. PRESIDENT. Unless the Board of Directors shall otherwise
determine, the President shall be the Chief operating officer of the
Corporation. In the absence of the Chairman of the Board, the President shall
preside at all meetings of the Stockholders and of the Board of Directors (if a
member of the Board of Directors). The President may sign any deeds, mortgages,
bonds, contracts or other obligations or instruments on behalf of the
Corporation except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise signed or
executed. In general, the President shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
4.06. VICE PRESIDENTS. The Board of Directors may appoint one or more
Vice Presidents. In the absence of the President or in the event of a vacancy in
such office, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and when so acting shall
have all, the powers of and be subject to all the restrictions upon the
President. Every Vice President shall perform such other duties as from time to
time may be assigned to him or her by the President or the Board of Directors.
4.07. SECRETARY. The Secretary shall (i) keep the minutes of the
proceedings of the Stockholders and Board of Directors in one or more books
provided for that purpose; (ii) see that all notices are dull, given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the corporate records of the Corporation; (iv) unless a transfer
agent is appointed, keep a register of the post office address of each
stockholder that shall be furnished to the Secretary by such Stockholder and
have general charge of the Stock Ledger of the Corporation; (v) when authorized
by the Board of Directors or the President, attest to or witness all documents
requiring the same; (vi) perform all duties as from time to time may be assigned
to him or her by the President or by the Board of Directors; and (vii) perform
all the duties generally incident to the office of Secretary of a corporation.
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4.08. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositaries as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at the regular meetings of the Board
of Directors or whenever they may require it, an account of all his or her
transactions as Treasurer and of the financial condition of the Corporation. The
Board of Directors may engage a custodian to perform some or all of the duties
of the Treasurer, and if a custodian is so engaged then the Treasurer shall be
relieved of the responsibilities set forth herein to the extent delegated to
such custodian and, unless the Board of Directors otherwise determines, shall
have general supervision over the activities of such custodian. The custodian
shall not be an officer of the Corporation.
4.09. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Board of
Directors may appoint one or more Assistant Secretaries or Assistant Treasurers.
The Assistant Secretaries and Assistant Treasurers (i) shall have the power to
perform and shall perform all the duties of the Secretary and the Treasurer,
respectively, in such respective officer's absence and (ii) shall perform such
duties an shall be assigned to him or her by the Secretary or Treasurer,
respectively, or by the President or the Board of Directors.
4.10. SUBORDINATE OFFICERS. The Corporation shall have such subordinate
officers as the Board of Directors may from time to time elect. Each such
officer shall hold office for such period and perform such duties as the Board
of Directors, the President or any designated committee or officer may
prescribe.
4.11. SALARIES. The salaries, if any, of the officers shall be fixed
from time to time by the Board of Directors. No officer shall be prevented from
receiving such salary, if any, by reason of the fact that he or she is also a
Director of the Corporation.
ARTICLE V
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. Each Stockholder is entitled to
certificates which represent and certify the shares of stock he or she holds in
the Corporation. Each stock certificate shall include on its face the name of
the Corporation, the name of the Stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall be
in such form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a
vice-president, and countersigned by the secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an Officer who signed it is still an officer
when it is issued.
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SECTION 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. RECORD DATES AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to Stockholders, including which Stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.07, more than 90 days before the
date on which the action rewiring the determination will be taken; the transfer
or books may not be closed for a period longer than 20 days; and, in the case of
a meeting of Stockholders, the record date or the closing of the transfer books
shall be at least ten days before the date of the meeting.
SECTION 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each Stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.05. CERTIFICATION OF BENEFICIAL OWNER. The Board of Directors
may adopt by resolution a procedure by which a Stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the Stockholder are held for the account of a specified person other
than the Stockholder. The resolution shall set forth the class of Stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the Stockholder who makes the certification.
SECTION 5.06. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of come
court having jurisdiction in the premises.
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ARTICLE VI
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of Stockholders and, within 20 days after the
meetings, placed on file at the Corporation's principal office.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
SECTION 6.05. CONTRACTS. To the extent permitted by applicable law, and
except as otherwise prescribed by the Charter or these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.01. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its Stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the Bylaws shall
be kept at the principal office of the Corporation.
SECTION 7.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the corporation, which shall be in the charge
of the Secretary.
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The Board of Directors say authorize one or more duplicate seals and provide for
the custody thereof. If the Corporation is required to place its corporate seal
to a document, it is sufficient to meet the requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
SECTION 7.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with on or more
sureties and in such amount an may be satisfactory to the Board of Directors.
SECTION 7.04. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 7.05. MAIL. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails, postage
prepaid.
SECTION 7.06. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.07. AMENDMENTS. These Bylaws may be repealed, altered, amended
or rescinded (a) by the stockholders of the Corporation only by vote of not less
than 80% of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for this purpose an
one class) cast at any meeting of Stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission it
included in the notice of such meeting) or (b) by vote of two-thirds of the
Board of Directors at a meeting held in accordance with the provisions of these
Bylaws.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNIFICATION. Unless the Board of Directors otherwise
determines prospectively in the case of any one or more specified individuals,
the Corporation shall indemnify, to the full extent permitted by the Maryland
General Corporation Laws, any person who is or was a Director or officer of the
corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint ventures trust or
other enterprise (an "Indemnified Person"), including the advancement of
expenses under procedures provided under such law.
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SECTION 8.02. PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made Promptly, and
in any event within 60 days, upon the written request of the Indemnified Person.
The right to indemnification and advances hereunder shall be enforceable by the
Indemnified Person in any court of competent jurisdiction, if (i) the
corporation denies such request, in whole or in part, or (ii) no disposition
thereof is made within 60 days. The Indemnified Person's costs and expenses
incurred in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
reimbursed by the Corporation. It shall be a defense to any action for
advancement of expenses that (a) a determination has been made that the facts
then known to those making the determination would preclude indemnification or
(b) the Corporation has not received either (i) an undertaking as required by
law to repay such advances in the event it shall ultimately be determined that
the standard of conduct has not, been met or (ii) a written affirmation by the
Indemnified Person of such Indemnified Person's good faith belief that the
standard of conduct necessary for Indemnification by the Corporation has been
met.
SECTION 8.03. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the charter and these Bylaws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of Stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
Bylaw is in effect. Nothing herein shall prevent the amendment of this Bylaw,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this Bylaw shall not in any way diminish
any rights to indemnification or advance of expenses of such director or officer
or the obligations of the corporation arising hereunder with respect to events
occurring, or claims made, while this Bylaw or any provision hereof is in force.
SECTION 8.04. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this article VIII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
Bylaw" in this Article VIII means this Article VIII in its entirety.
<PAGE> 1
EXHIBIT 10.39
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT made as of March 16, 1998 by and between PACIFIC GULF
PROPERTIES INC., a Maryland corporation (the "COMPANY"), and ______ (the
"EXECUTIVE").
WITNESSETH
WHEREAS, the Board of Directors of the Company (the "BOARD") recognizes
that the possibility of a Change of Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change of Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of Executive
in the event of a threat or occurrence of a Change of Control and to ensure
Executive's continued dedication and efforts in such event without undue concern
for personal financial and employment security; and
WHEREAS, in order to induce Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change of
Control, the Company desires to enter into this Agreement with Executive to
provide Executive with certain benefits in the event Executive's employment is
terminated as a result of, or in connection with, a Change of Control and to
provide Executive with certain other benefits whether or not Executive's
employment is terminated.
AGREEMENT
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date hereof
and shall continue in effect until December 31, 2000; provided, however, that on
December 31, 2000 and on each anniversary thereof, the term of this Agreement
shall automatically be extended for one year unless either the Company or
Executive shall have given written notice to the other prior thereto that the
term of this Agreement shall not be so extended; provided, further, however,
that notwithstanding any such notice by the Company not to extend, the term of
this Agreement shall not expire prior to the expiration of 24 months after the
occurrence of a Change of Control.
2. DEFINITIONS.
2.1. "ACCRUED COMPENSATION" shall mean an amount that shall include
all amounts earned or accrued through the "Termination Date" (as hereinafter
defined) but not paid as of the Termination Date including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation and sick leave pay (to the extent provided by Company policy or
<PAGE> 2
applicable law) and (iv) bonuses and incentive compensation (other than the "Pro
Rata Bonus" (as hereinafter defined)).
2.2. "BASE AMOUNT" shall mean the greater of (a) Executive's annual
base salary, plus any auto allowance, at the rate in effect immediately prior to
the Change of Control and (b) Executive's annual base salary, plus any auto
allowance, at the rate in effect on the Termination Date, and shall include all
amounts of Executive's base salary that are deferred under any other agreement
or arrangement with the Company.
2.3. "BONUS AMOUNT" shall mean Executive's annual bonus for the
fiscal year immediately preceding the fiscal year in which a Change of Control
has occurred.
2.4. "CAUSE"
(a) For purposes of this Agreement, except as set forth in
Section 2.4(b) below, a termination of employment is for "CAUSE" if
Executive has been convicted of a felony involving moral turpitude
or the termination is evidenced by a resolution adopted in good
faith by two-thirds of the Board that Executive (i) intentionally
and continually failed substantially to perform his reasonably
assigned duties with the Company (other than a failure resulting
from Executive's death or incapacity due to physical or mental
illness or from Executive's assignment of duties that would
constitute "Good Reason" as hereinafter defined) which failure
continued for a period of at least thirty (30) days after a written
notice of demand for substantial performance has been delivered to
Executive specifying the manner in which Executive has failed
substantially to perform; or (ii) intentionally engaged in conduct
that is demonstrably and materially injurious to the Company;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (ii) above until (x) there
shall have been delivered to Executive written notice setting forth
that Executive was guilty of the conduct set forth in clause (ii)
and specifying the particulars thereof in detail and (y) Executive
shall have been provided an opportunity to be heard in person by the
Board (with the assistance of Executive's counsel if Executive so
desires). Neither an act nor a failure to act, on Executive's part,
shall be considered "intentional" unless Executive has acted or
failed to act with a lack of good faith and with a lack of
reasonable belief that Executive's action or failure to act was in
the best interest of the Company. Notwithstanding anything contained
in this Agreement to the contrary, no failure to perform by
Executive after a Notice of Termination is given by Executive shall
constitute Cause for purposes of this Agreement.
(b) In the event a written employment agreement is in place
between Executive and the Company, the definition of "Cause" set
forth in such employment agreement shall apply for all purposes of
this Agreement in lieu of the provisions of Section 2.4(a).
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2.5. "CHANGE OF CONTROL" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of
any voting securities (the "VOTING SECURITIES") of the Company by
any "PERSON" (as the term person is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "1934 ACT")), immediately after which such Person has
"BENEFICIAL OWNERSHIP" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of twenty percent (20%) or more of the combined
voting power of the Company's then outstanding Voting Securities;
provided, however, that in determining whether a Change of Control
has occurred, Voting Securities that are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an
acquisition that would cause a Change of Control. A "NON-CONTROL
ACQUISITION" shall mean an acquisition of Voting Securities of the
Company by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (x) the Company or (y) any corporation or
other Person of which a majority of its voting power or its equity
securities or equity interests is owned directly or indirectly by
the Company (a "SUBSIDIARY"), (ii) the Company or any Subsidiary or
(iii) any Person as a result of a "Non-Control Transaction" (as
hereinafter defined).
(b) The individuals who, as of the date hereof, are members of
the Board (the "INCUMBENT BOARD"), cease for any reason to
constitute at least a majority of the Board; provided, however, that
if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at least
two-thirds (2/3) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the
Incumbent Board if such individual initially became a director on
the Board as a result of either an actual or threatened "ELECTION
CONTEST" (as described in Rule 14a-11 promulgated under the 1934
Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "PROXY
CONTEST") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless, after giving effect to such merger,
consolidation or reorganization, all of the following criteria
are met:
(A) the stockholders of the Company, as
constituted immediately prior to such merger,
consolidation or reorganization, own, directly or
indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding
Voting Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"SURVIVING CORPORATION") in substantially the same
proportion as their ownership of the Voting Securities
of the
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Company immediately prior to such merger, consolidation
or reorganization;
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least a majority of the
members of the board of directors of the entity whose
Voting Securities are held directly by the former
stockholders of the Company in satisfaction of the
criterion set forth in Section 2(c)(i)(A) above; and
(C) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust
forming a part thereof) maintained by the Company, the
Surviving Corporation or any Subsidiary, or any Person
who, immediately prior to such merger, consolidation or
reorganization, had Beneficial Ownership of fifteen
percent (15%) or more of the then outstanding Voting
Securities of the Company) owns, directly or indirectly,
fifteen percent (15%) or more of the combined voting
power of the Surviving Corporation's then outstanding
Voting Securities.
A merger, consolidation or reorganization meeting all of
the criteria set forth in clauses (A) through (C) of
this Section 2.5(c)(i) is herein referred to as a
"NON-CONTROL TRANSACTION;"
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change of Control shall not be
deemed to occur solely because any Person (the "SUBJECT PERSON")
acquired Beneficial Ownership of more than the permitted amount of
the outstanding Voting Securities as a result of the acquisition of
by the Company of its own Voting Securities which, by reducing the
number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided,
however, that if a Change of Control would occur (but for the
operation of this sentence) as a result of the acquisition by the
Company of its own Voting Securities, and after such share
acquisition by the Company the Subject Person becomes the Beneficial
Owner of any additional Voting Securities of the Company that
increases the percentage of the then outstanding Voting Securities
of the Company Beneficially Owned by the Subject Person, then a
Change of Control shall be deemed to have occurred.
(d) Notwithstanding anything contained in this Agreement to
the contrary, if Executive's employment is terminated prior to a
Change of Control and Executive reasonably demonstrates that such
termination (i) was at the request of a
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<PAGE> 5
third party who has indicated an intention or taken steps reasonably
calculated to effect a Change of Control and who effectuates a Change
of Control (a "THIRD PARTY") or (ii) otherwise occurred in connection
with, or in anticipation of, a Change of Control that actually
occurs, then for all purposes of this Agreement, the date of a Change
of Control with respect to Executive shall mean the date immediately
prior to the date of such termination of Executive's employment.
2.6. "COMPANY" shall mean Pacific Gulf Properties Inc., a Maryland
corporation, and shall also include the Company's "Successors and Assigns" (as
hereinafter defined).
2.7. "DISABILITY"
(a) Except as set forth in Section 2.7(b) below, "DISABILITY"
shall mean a physical or mental infirmity that impairs Executive's
ability to substantially perform his duties with the Company for a
period of 180 consecutive days and Executive has not returned to his
full time employment prior to the Termination Date as stated in the
"Notice of Termination" (as hereinafter defined).
(b) In the event a written employment agreement is in place
between Executive and the Company, the definition of "Disability"
set forth in such employment agreement shall apply for all purposes
of this Agreement in lieu of the provisions of Section 2.7(a).
2.8. "GOOD REASON"
(a) Subject to Section 2.8(b), "GOOD REASON" shall mean the
occurrence after a Change of Control of any of the events or
conditions described in subsections (i) through (viii) hereof:
(i) a change in Executive's status, position or
responsibilities (including reporting responsibilities) that,
in Executive's reasonable judgment, represents a substantial
adverse change from his status, position or responsibilities
as in effect at any time within 90 days preceding the date of
a Change of Control or at any time thereafter; the assignment
to Executive of any duties or responsibilities that, in
Executive's reasonable judgment, are inconsistent with his
status, title, position or responsibilities as in effect at
any time within 90 days preceding the date of a Change of
Control or at any time thereafter; or any removal of Executive
from or failure to reappoint or reelect Executive to any of
such offices or positions held prior to the Change of Control,
except in connection with the termination of Executive's
employment for Disability, Cause, as a result of his death or
by Executive other than for Good Reason;
(ii) a reduction in Executive's base salary or any
failure to pay Executive any compensation or benefits to which
Executive is entitled within five days of notice from
Executive of such non-payment;
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<PAGE> 6
(iii) the Company's requiring Executive to be based at
any place outside a 30-mile radius from Newport Beach,
California, except for reasonably required travel on the
Company's business that is not materially greater than such
travel requirements prior to the Change of Control;
(iv) the failure by the Company to provide Executive
with compensation and benefits, in the aggregate, at least
equal (in terms of benefit levels and/or reward opportunities)
to those provided for under each other employee benefit plan,
program and practice in which Executive was participating at
any time within ninety (90) days preceding the date of a
Change of Control or at any time thereafter;
(v) the insolvency or the filing (by any party,
including the Company) of a petition for bankruptcy of the
Company, which petition is not dismissed within sixty (60)
days;
(vi) any material breach by the Company of any provision
of this Agreement;
(vii) any purported termination of Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to Executive, from any Successors and
Assigns to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof.
(b) Any event or condition described in Section 2.8(a) that
occurs prior to a Change of Control but that Executive reasonably
demonstrates (i) was at the request of a Third Party, or (ii)
otherwise arose in connection with, or in anticipation of, a Change
of Control that actually occurs, shall constitute Good Reason for
purposes of this Agreement notwithstanding that it occurred prior to
the Change of Control.
(c) Executive's right to terminate his employment pursuant to
this Section 2.8 shall not be affected by his incapacity due to a
Disability.
2.9. "NOTICE OF TERMINATION" shall mean a written notice of
termination, following a Change of Control, from the Company of Executive's
employment, which notice indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
2.10. "PRO RATA BONUS" shall mean an amount equal to the Bonus
Amount multiplied by a fraction, the numerator of which is the number of days in
the Company's fiscal year in which Executive's employment terminates through the
Termination Date and the denominator of which is 365.
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<PAGE> 7
2.11. "SUCCESSORS AND ASSIGNS" shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the
Company, whether by operation of law or otherwise, and any affiliate of such
Successors and Assigns.
2.12. "TERMINATION DATE" shall mean (a) in the case of Executive's
death, his date of death, (b) in the case of Good Reason, the last day of his
employment and (c) in all other cases, the date specified in the Notice of
Termination; provided, however, that if Executive's employment is terminated by
the Company due to Disability, the date specified in the Notice of Termination
shall be the 30th day after receipt of the Notice of Termination by Executive,
provided that Executive shall not have returned to the full-time performance of
his duties within 30 days after such receipt.
2.13 "THIRD PARTY" shall have the meaning set forth in Section
2.5(d).
3. TERMINATION OF EMPLOYMENT. If, during the term of this Agreement,
Executive's employment with the Company shall be terminated within twenty-four
months (24) following a Change of Control, Executive shall be entitled to the
following compensation and benefits:
(a) If Executive's employment with the Company shall be terminated
(i) by the Company for Cause or Disability, (ii) by reason of Executive's
death or (iii) by Executive other than for Good Reason, the Company shall
pay to Executive the Accrued Compensation and, if such termination is
other than by the Company for Cause, the Pro Rata Bonus; provided,
however, if an employment agreement is in existence between the Company
and/or any of its affiliates and Executive on the Termination Date, the
Company and/or its affiliates, as the case may be, shall pay to Executive
any amounts owed to Executive pursuant to such employment agreement. Any
such termination of Executive's employment contemplated under this Section
3(a) shall be without prejudice to any and all retirement benefits of
Executive vested as of the Termination Date under all retirement plans of
the Company, and the Company shall honor and pay all such vested benefits
in accordance with the terms of such retirement plans.
(b) If Executive's employment with the Company shall be terminated
for any reason other than as specified in Section 3(a), Executive shall be
entitled to the following:
(i) the Company shall pay Executive all Accrued
Compensation and a Pro Rata Bonus;
(ii) the Company shall pay Executive as severance pay in a
single payment an amount in cash equal to the product of two
multiplied by the sum of (A) the Base Amount plus (B) the Bonus
Amount;
(iii) for a number of months equal to 24 (the "CONTINUATION
PERIOD"), the Company shall at its expense continue on behalf of
Executive and Executive's dependents and beneficiaries the medical,
dental and hospitalization benefits provided (A) to Executive at any
time during the 90-day period prior to the Change of Control or at
any time thereafter or (B) to other similarly situated executives
who continue in the employ of the Company during the Continuation
Period. The
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<PAGE> 8
coverage and benefits (including deductibles and costs) provided in
this Section 3(b)(iii) during the Continuation Period shall be no
less favorable to Executive and Executive's dependents and
beneficiaries than the most favorable of such coverages and benefits
during any of the periods referred to in clauses (A) and (B) above.
The Company's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's benefit plans, in
which case the Company may reduce the coverage of any benefits it is
required to provide Executive hereunder as long as the aggregate
coverages and benefits of the combined benefit plans is no less
favorable to Executive than the coverages and benefits required to be
provided hereunder. This Section 3(b)(iii) shall not be interpreted
so as to limit any benefits to which Executive, Executive's
dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices following
Executive's termination of employment, including without limitation,
retiree medical and life insurance benefits;
(iv) all theretofore unvested stock options, restricted
options, restricted stock and other awards issued to Executive
pursuant to the Company's share option plan and any and all other
stock option or incentive plans shall immediately vest;
(v) all theretofore unvested employer contributions in
Executive's account pursuant to the Company's plan maintained under
Section 401(k) of the Code shall immediately vest, or the Company
shall pay to Executive in cash the financial equivalent thereof on
an after-tax basis; and
(vi) the Company shall honor and pay any and all retirement
benefits of Executive vested as of the Termination Date under all
retirement plans of the Company in accordance with the terms of such
retirement plans.
(c) The amounts provided for in Sections 3(a) and 3(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after
Executive's Termination Date (or earlier, if required by applicable law).
(d) Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to Executive in any subsequent
employment except as provided in Section 3(b)(iii).
(e) The severance pay and benefits provided for in this Section 3
shall be reduced by the amount of any other severance or termination pay
to which Executive may be entitled under any agreement with the Company or
any of its affiliates.
(f) Executive's entitlement to any other compensation or benefits or
any indemnification shall be determined in accordance with the Company's
employee benefit plans and other applicable programs, policies and
practices or any indemnification agreement then in effect.
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<PAGE> 9
4. NOTICE OF TERMINATION. Following a Change of Control, any purported
termination of Executive's employment by the Company shall be communicated by
Notice of Termination to Executive. For purposes of this Agreement, no such
purported termination shall be effective without such Notice of Termination.
5. EXCISE TAX GROSS-UP.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined (pursuant to Section 5(b) below)
or finally determined (as defined in Section 5(c)(iii) below) that any
payment, distribution, transfer, benefit or other event with respect to
the Company or its predecessors, successors, direct or indirect
subsidiaries or affiliates (or any predecessor, successor or affiliate of
any of them, and including any benefit plan of any of them), to or for the
benefit of Executive or Executive's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event
occurs pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 5) (each a "PAYMENT" and collectively the "PAYMENTS") is or was
subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and any successor provision or any
comparable provision of state or local income tax law (collectively,
"SECTION 4999"), or any interest, penalty or addition to tax is or was
incurred by Executive with respect to such excise tax (such excise tax,
together with any such interest, penalty or addition to tax, hereinafter
collectively referred to as the "EXCISE TAX"), then, within 10 days after
such determination or final determination, as the case may be, the Company
shall pay to Executive an additional cash payment (hereinafter referred to
as the "GROSS-UP PAYMENT") in an amount such that after payment by
Executive of all taxes, interest, penalties and additions to tax imposed
with respect to the Gross-Up Payment (including, without limitation, any
income and excise taxes imposed upon the Gross-Up Payment), Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon such Payment or Payments. This provision is intended to put Executive
in the same position as Executive would have been had no Excise Tax been
imposed upon or incurred as a result of any Payment.
(b) Except as provided in Section 5(c) below, the determination that
a Payment is subject to an Excise Tax shall be made in writing by a
certified public accounting firm selected by Executive ("EXECUTIVE'S
ACCOUNTANT"). Such determination shall include the amount of the Gross-Up
Payment and detailed computations thereof, including any assumptions used
in such computations (the written determination of Executive's Accountant,
hereinafter, the "EXECUTIVE'S DETERMINATION"). Executive's Determination
shall be reviewed on behalf of the Company by a certified public
accounting firm selected by the Company (the "COMPANY'S ACCOUNTANT"). The
Company shall notify Executive within 10 business days after receipt of
Executive's Determination of any disagreement or dispute therewith, and
failure to so notify within that period shall be considered an agreement
by the Company with Executive's Determination, and any agreement by the
Company with Executive's Determination shall obligate the Company to make
payment as provided in Section 5(a) above within 10 days from the
expiration of such 10 business-day period. In the event of an objection by
the Company to Executive's Determination, any
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<PAGE> 10
amount not in dispute shall be paid within 10 days following the 10
business-day period referred to herein, and with respect to the amount in
dispute Executive's Accountant and the Company's Accountant shall jointly
select a third nationally recognized certified public accounting firm to
resolve the dispute and the decision of such third firm shall be final,
binding and conclusive upon Executive and the Company. In such a case, the
third accounting firm's findings shall be deemed the binding determination
with respect to the amount in dispute, obligating the Company to make any
payment as a result thereof within 10 days following the receipt of such
third accounting firm's determination. All fees and expenses of each of
the accounting firms referred to in this Section 5 shall be borne solely
by the Company.
(c) (i) Executive shall notify the Company in writing of any claim
by the Internal Revenue Service (or any successor thereof) or any state or
local taxing authority (individually or collectively, the "TAXING
AUTHORITY") that, if successful, would require the payment by the Company
of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 30 days after Executive receives written
notice of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid; provided,
however, that failure by Executive to give such notice within such 30-day
period shall not result in a waiver or forfeiture of any of Executive's
rights under this Section 5 except to the extent of actual damages
suffered by the Company as a result of such failure. Executive shall not
pay such claim prior to the expiration of the 15-day period following the
date on which Executive gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such 15-day
period that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive that may ultimately be required under this section before
assuming responsibility for the claim), Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim;
(B) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Company that is reasonably acceptable to
Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
(D) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company
shall bear and pay directly all attorneys fees, costs and
expenses (including additional interest, penalties and
additions to tax) incurred in connection with such contest and
shall indemnify and hold harmless Executive, on an after-tax
basis, for all
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<PAGE> 11
taxes (including, without limitation, income and excise
taxes), interest, penalties and additions to tax imposed in
relation to such claim and in relation to the payment of such
costs and expenses or indemnification. Without limitation on
the foregoing provisions of this Section 5, and to the extent
its actions do not unreasonably interfere with or prejudice
Executive's disputes with the Taxing Authority as to other
issues, the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the Taxing
Authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax, interest or
penalties claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided,
however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance an
amount equal to such payment to Executive, on an interest-free
basis, and shall indemnify and hold harmless Executive, on an
after-tax basis, from all taxes (including, without
limitation, income and excise taxes), interest, penalties and
additions to tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and, provided, further, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties
or additions to tax for the taxable year of Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount; and, provided,
further, that any settlement of any claim shall be reasonably
acceptable to Executive and the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and Executive
shall be entitled to settle or contest, as the case may be,
any other issue.
(ii) If, after receipt by Executive of an amount advanced by
the Company pursuant to Section 5(c)(i), Executive receives any
refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 5) promptly pay
to the Company an amount equal to such refund (together with any
interest paid or credited thereon after taxes applicable thereto),
net of any taxes (including without limitation any income or excise
taxes), interest, penalties or additions to tax and any other costs
incurred by Executive in connection with such advance, after giving
effect to such repayment. If, after the receipt by Executive of an
amount advanced by the Company pursuant to Section 5(c)(i), it is
finally determined that Executive is not entitled to any refund with
respect to such claim, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall be
treated as a Gross-Up Payment and shall offset, to the extent
thereof, the amount of any Gross-Up Payment otherwise required to be
paid.
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(iii) For purposes of this Section 5, whether the Excise Tax
is applicable to a Payment shall be deemed to be "finally
determined" upon the earliest of: (A) the expiration of the 15-day
period referred to in Section 5(c)(i) above if the Company has not
notified Executive that it intends to contest the underlying claim,
(B) the expiration of any period following which no right of appeal
exists, (C) the date upon which a closing agreement or similar
agreement with respect to the claim is executed by Executive and the
Taxing Authority (which agreement may be executed only in compliance
with this Section 5), (D) the receipt by Executive of notice from
the Company that it no longer seeks to pursue a contest (which
notice shall be deemed received if the Company does not, within 15
days following receipt of a written inquiry from Executive,
affirmatively indicate in writing to Executive that the Company
intends to continue to pursue such contest).
(d) As a result of uncertainty in the application of Section 4999
that may exist at the time of any determination that a Gross-Up Payment is
due, it may be possible that in making the calculations required to be
made hereunder, the parties or their accountants shall determine that a
Gross-Up Payment need not be made (or shall make no determination with
respect to a Gross-Up Payment) that properly should be made
("UNDERPAYMENT"), or that a Gross-Up Payment not properly needed to be
made should be made ("OVERPAYMENT"). The determination of any Underpayment
shall be made using the procedures set forth in Section 5(b) above and
shall be paid to Executive as an additional Gross-Up Payment. The Company
shall be entitled to use procedures similar to those available to
Executive in Section 5(b) to determine the amount of any Overpayment
(provided that the Company shall bear all costs of the accountants as
provided in Section 5(b)). In the event of a determination that an
Overpayment was made, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal
rate provided for in Section 1274(d) of the Code; provided, however, that
the amount to be repaid by Executive to the Company shall be subject to
reduction to the extent necessary to put Executive in the same after-tax
position as if such Overpayment were never made.
6. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the Company, its Successors and Assigns, and the
Company shall require any Successors and Assigns to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
personal representative.
7. FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by
Executive as they become due as a result of (a) Executive seeking to obtain or
enforce any right or benefit provided by this Agreement (including, but not
limited to, any such fees and expenses incurred in connection with a dispute
hereunder) and (b) Executive's hearing before the Board as contemplated in
Section 2.4 of this Agreement; provided, however, that the circumstances set
forth in clause (a) (other than as a
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result of Executive's termination of employment under circumstances described in
Section 2.5(d)) occurred on or after a Change of Control.
8. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, by overnight courier or by facsimile, addressed to the
respective addresses and facsimile numbers last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
9. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
Executive may qualify, nor shall anything herein limit or reduce such rights as
Executive may have under any other agreements with the Company (except for any
severance or termination agreement). Amounts that are vested benefits or that
Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
10. NO GUARANTEED EMPLOYMENT. Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the Company is "at
will" and may be terminated by either Executive or the Company at any time.
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right that
the Company may have against Executive or others.
12. MUTUAL NON-DISPARAGEMENT. The Company, its affiliates and subsidiaries
agree and the Company shall use its best efforts to cause their respective
executive officers and directors to agree, that they will not make or publish
any statement critical of Executive, or in any way adversely affecting or
otherwise maligning Executive's reputation. Executive agrees that Executive will
not make or publish any statement critical of the Company, its affiliates and
their respective executive officers and directors, or in any way adversely
affecting or otherwise maligning the business or reputation of any member of the
Company, its affiliates and subsidiaries and their respective officers,
directors and employees.
13. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or
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otherwise, express or implied, with respect to the subject matter hereof have
been made by either party that are not expressly set forth in this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Orange County in the State of California.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT; CONSTRUCTION. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof. Neither party hereto nor its
respective counsel shall be deemed the drafter of this Agreement, and this
Agreement shall be construed in accordance with its fair meaning and not
strictly for or against either party.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and Executive has executed this Agreement as of
the day and year first above written.
THE COMPANY
PACIFIC GULF PROPERTIES INC.
By:
----------------------------------
Glenn L. Carpenter
Chief Executive Officer
EXECUTIVE
-------------------------------------
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<PAGE> 1
EXHIBIT 10.40
AGREEMENT OF LIMITED PARTNERSHIP
OF
PGP NORTHERN INDUSTRIAL, L.P.
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINED TERMS............................................ 1
ARTICLE 2 ORGANIZATIONAL MATTERS................................... 13
Section 2.1 Organization....................................... 13
Section 2.2 Name............................................... 13
Section 2.3 Registered Office and Agent; Principal
Office............................................. 13
Section 2.4 Power of Attorney.................................. 14
Section 2.5 Term............................................... 15
ARTICLE 3 PURPOSE.................................................. 15
Section 3.1 Purpose and Business............................... 15
Section 3.2 Powers............................................. 16
Section 3.3 Technical Revisions................................ 16
ARTICLE 4 CAPITAL CONTRIBUTIONS.................................... 16
Section 4.1 Initial Capital Contributions of the
Partners........................................... 16
Section 4.2 Additional Capital Contributions by the
General Partner.................................... 18
Section 4.3 Issuances of Additional Partnership
Interests.......................................... 18
Section 4.4 Preemptive Rights.................................. 20
ARTICLE 5 DISTRIBUTIONS............................................ 21
Section 5.1 Requirement and Characterization of
Distributions...................................... 21
Section 5.2 General Partner Election........................... 22
Section 5.3 Amounts Withheld................................... 22
Section 5.4 Distributions Upon Liquidation..................... 22
Section 5.5 Other Assets Present............................... 22
Section 5.6 Seismic Costs...................................... 23
ARTICLE 6 ALLOCATIONS.............................................. 23
Section 6.1 Allocations of Net Income and Net Loss............. 23
Section 6.2 Other Allocations.................................. 25
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS.................... 25
Section 7.1 Management......................................... 25
Section 7.2 Limitations on General Partner..................... 29
Section 7.3 Certificate of Limited Partnership................. 30
Section 7.4 Management Fee and Reimbursement of the
General Partner.................................... 31
Section 7.5 Outside Activities of the General
Partner........................................... 33
Section 7.6 Contracts with Affiliates.......................... 33
Section 7.7 Indemnification.................................... 34
Section 7.8 Liability of the General Partner................... 36
Section 7.9 Other Matters Concerning the General
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<PAGE> 3
Page
Partner........................................... 37
Section 7.10 Title to Partnership Assets........................ 38
Section 7.11 Reliance by Third Parties.......................... 38
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............... 39
Section 8.1 Limitation of Liability............................ 39
Section 8.2 Management of Business............................. 39
Section 8.3 Outside Activities of Limited Partners............. 39
Section 8.4 Return of Capital.................................. 40
Section 8.5 Rights of Limited Partners Relating to
the Partnership.................................... 40
Section 8.6 No Redemption Right................................ 41
Section 8.7 Representations and Warranties..................... 41
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS................... 43
Section 9.1 Records and Accounting............................. 43
Section 9.2 Fiscal Year........................................ 43
Section 9.3 Reports............................................ 43
ARTICLE 10 TAX MATTERS.............................................. 44
Section 10.1 Preparation of Tax Returns......................... 44
Section 10.2 Tax Elections...................................... 44
Section 10.3 Tax Matters Partner................................ 45
Section 10.4 Organizational Expenses............................ 46
Section 10.5 Withholding........................................ 46
ARTICLE 11 TRANSFERS AND WITHDRAWALS................................ 47
Section 11.1 Transfer........................................... 47
Section 11.2 Transfer of the General Partner's
Partner Interest and Limited Partner
Interest........................................... 48
Section 11.3 Limited Partners' Rights to Transfer............... 48
Section 11.4 Substituted Limited Partners....................... 50
Section 11.5 Assignees.......................................... 51
Section 11.6 General Provisions................................. 51
Section 11.7 No Exchange........................................ 52
ARTICLE 12 ADMISSION OF PARTNERS.................................... 52
Section 12.1 Admission of Successor General Partner............. 52
Section 12.2 Admission of Additional Limited
Partners.......................................... 53
Section 12.3 Amendment of Agreement and Certificate
of Limited Partnership............................. 53
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION................. 54
Section 13.1 Dissolution........................................ 54
Section 13.2 Winding Up......................................... 55
Section 13.3 Compliance with Timing Requirements of
Regulations........................................ 57
Section 13.4 Deemed Distribution and Re-contribution............ 57
Section 13.5 Rights of Limited Partners......................... 57
Section 13.6 Notice of Dissolution.............................. 58
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Page
Section 13.7 Termination of Partnership and
Cancellation of Certificate of Limited
Partnership........................................ 58
Section 13.8 Reasonable Time for Winding-Up..................... 58
Section 13.9 Waiver of Partition................................ 58
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............. 58
Section 14.1 Amendments......................................... 58
Section 14.2 Meetings of the Partners........................... 60
ARTICLE 15 GENERAL PROVISIONS....................................... 61
Section 15.1 No Assurances...................................... 61
Section 15.2 Addresses and Notices.............................. 62
Section 15.3 Titles and Captions................................ 62
Section 15.4 Pronouns and Plurals............................... 62
Section 15.5 Further Action..................................... 62
Section 15.6 Binding Effect..................................... 62
Section 15.7 Creditors.......................................... 62
Section 15.8 Waiver............................................. 63
Section 15.9 Counterparts....................................... 63
Section 15.10 Applicable Law..................................... 63
Section 15.11 Invalidity of Provisions........................... 63
Section 15.12 Entire Agreement................................... 63
Section 15.13 No Rights as Shareholders.......................... 63
Section 15.14 Venue.............................................. 64
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<PAGE> 5
AGREEMENT OF LIMITED PARTNERSHIP
OF
PGP NORTHERN INDUSTRIAL, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF PGP NORTHERN INDUSTRIAL, L.P.
(this "Agreement"), dated as of October 20, 1997, is entered into by and between
Pacific Gulf Properties Inc., a Maryland corporation, as the sole general
partner (the "General Partner"), and Eden Plaza Associates, LLC, a California
limited liability company ("Eden"), as the initial "Original Limited Partner"
(as hereafter defined).
WHEREAS, the General Partner and Eden desire to form a Delaware limited
partnership (the "Partnership") pursuant to this Agreement of Limited
Partnership and the "Act" (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Section 1.1 "Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
Section 1.2 "Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.3 hereof and who is shown
as such on the books and records of the Partnership.
Section 1.3 "Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each Partnership taxable year: (i)
increased by any amounts which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
<PAGE> 6
Section 1.4 "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership taxable year.
Section 1.5 "Adjusted Property" means any property, the Carrying Value of
which has been adjusted pursuant to Exhibit "B" hereof.
Section 1.6 "Affiliate" means, with respect to any Person: (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person; (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
Section 1.7 "Agreed Value" means: (i) in the case of any Contributed
Property set forth on Exhibit "D" and as of the time of its contribution to the
Partnership, the Agreed Value of such property as set forth in Exhibit "D"; (ii)
in the case of any Contributed Property not set forth in Exhibit "D" and as of
the time of its contribution to the Partnership, the 704(c) Value of such
property, reduced by any liabilities either assumed by the Partnership upon such
contribution or to which such property is subject when contributed; and (iii) in
the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
Section 1.8 "Agreement" means this Agreement of Limited Partnership, as it
may be amended, supplemented or restated from time to time.
Section 1.9 "Assignee" means a Person to whom one or more Limited
Partnership Units have been transferred in a manner permitted under this
Agreement, but who has not become a Substituted Limited Partner, and who has the
rights set forth in Section 11.5.
Section 1.10 "Available Cash" means, with respect to any period for which
such calculation is being made, (i) the sum of:
(a) the Partnership's gross revenues for such period from all
sources related to the operation of the Partnership assets (excluding the
proceeds of the sale or financing of Partnership assets); and
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<PAGE> 7
(b) the amount of any reduction during such period in the reserves
of the Partnership referred to in clause (ii)(d) below (including, without
limitation, reductions resulting from the General Partner's determination that
such amounts are no longer necessary);
(ii) less the sum of:
(a) all payments made by the Partnership during such period on
Partnership debts;
(b) all costs and expenses of operating the Partnership and owning,
operating, maintaining, repairing, improving, acquiring and selling Partnership
assets paid during such period;
(c) to the extent not already including in clause (ii)(b) above, any
management fee paid during such period pursuant to Section 7.4; and
(d) the amount of any reserves and other cash or similar balances
(including, but not limited to, reserves for working capital, reserves, debt
service, property taxes, insurance and capital improvements reserves) set aside
during such period which the General Partner determines to be necessary or
appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
Additionally, if and after the Partnership acquires Non- Original Limited
Partner Related Assets, or becomes obligated, indebted or liable for or on
account of Non-Original Limited Partner Related Assets or the ownership or
operation thereof, and so long as the General Partner has not consummated the
transactions and made the election described in Sections 4.3B and 5.2,
respectively, of this Agreement, then for purposes of determining distributions
of Available Cash to the Original Limited Partners and their heirs, successors
and assigns under the terms of this Agreement, Available Cash shall be
calculated separately with respect to Original Limited Partner Related Assets
and the ownership and operation thereof, together with the operation and
existence of the Partnership insofar as such concerns the Original Limited
Partner Related Assets, and shall not include any revenues, expenses, assets, or
liabilities of the Partnership relating to the Non-Original Limited Partner
Related Assets, the ownership or operation thereof, or the operation or
existence of the Partnership with respect thereto. (Without limiting the
foregoing, Available Cash shall not take into account any items referred to in
Paragraph 1.10(ii) which were
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not incurred or otherwise attributable to the Original Limited
Partner Related Assets.)
Section 1.11 "Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit "B" and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
Section 1.12 "Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Los Angeles, California are authorized or
required by law to close.
Section 1.13 "Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit "B" hereof.
Section 1.14 "Capital Contribution" means, with respect to any Partner,
any cash, cash equivalents or the Agreed Value of Contributed Property which
such Partner contributes or is deemed to contribute to the Partnership pursuant
to Article 4 hereof.
Section 1.15 "Carrying Value" means: (i) with respect to a Contributed
Property or Adjusted Property, the 704(c) Value of such property, reduced (but
not below zero) by all Depreciation with respect to such property charged to the
Partners' Capital Accounts following the contribution of or adjustment with
respect to such property; and (ii) with respect to any other Partnership
property, the adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Exhibit "B" hereof, and to reflect
changes, additions or other adjustments to the Carrying Value for dispositions
and acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
Section 1.16 "Certificate" means a Certificate of Limited Partnership
relating to the Partnership filed in the office of the Delaware Secretary of
State, as amended from time to time in accordance with the terms hereof and the
Act.
Section 1.17 "Cigna Debt" shall have the meaning given thereto in the
Master Contribution Agreement.
Section 1.18 "Closing" shall have the meaning given thereto in the Master
Contribution Agreement.
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<PAGE> 9
Section 1.19 "Code" means the Internal Revenue Code of 1986, as amended
and in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provisions of future
law.
Section 1.20 "Consent" means the consent or approval of a proposed action
by a Partner given in accordance with Section 14.2 hereof.
Section 1.21 "Contributed Property" means each property or other asset, in
such form as may be permitted by the Act (but excluding cash), contributed or
deemed contributed to the Partnership (including deemed contributions to the
Partnership on termination pursuant to Section 708 of the Code). Once the
Carrying Value of a Contributed Property is adjusted pursuant to Exhibit "B"
hereof, such property shall no longer constitute a Contributed Property for
purposes of Exhibit "B" hereof, but shall be deemed an Adjusted Property for
such purposes.
Section 1.22 "Current Year Deficit" means with respect to any calendar
year, the amount, if any, by which the aggregate cash dividend paid to the
common shareholders of the General Partner on account of one share of common
stock of the General Partner for such calendar year exceeds the aggregate cash
distributed to the Limited Partners pursuant to Sections 5.1A(1) and 5.1A(2) on
account of one Limited Partnership Unit for such calendar year. A Current Year
Deficit for any calendar year shall not carry forward or be used in calculating
the Current Year Deficit for any subsequent calendar year.
Section 1.23 "Depreciation" means, for each taxable year, an amount equal
to the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
Section 1.24 "Eden" shall mean Eden Plaza Associates, LLC, a California
limited liability company.
Section 1.25 "Effective Date" shall mean the date of the Closing.
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<PAGE> 10
Section 1.26 "Equity Affiliate" means any Subsidiary of the General
Partner, and any entity in which the General Partner has a direct or indirect
equity interest.
Section 1.27 "Excess Distributions" means distributions to a Limited
Partner for all periods in excess of allocations of Net Income to the Limited
Partner for all periods pursuant to Sections 6.1B(2), (3) and (4) .
Section 1.28 "Exchange Rights Agreement" means that certain Exchange
Rights Agreement entered into concurrently herewith by and between the
Partnership, the General Partner, and Eden concurrently herewith.
Section 1.29 "General Partner" shall mean Pacific Gulf Properties Inc., a
Maryland corporation, or any successor general partner of the Partnership in
compliance with this Agreement.
Section 1.30 "General Partner Interest" means a Partnership Interest held
by the General Partner, in its capacity as general partner.
Section 1.31 "General Partner Security Rights" has the meaning set forth
in Section 4.3B.
Section 1.32 "Incapacity" or "Incapacitated" means: (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up the partnership; (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when: (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect; (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner; (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors; (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above; (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any
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<PAGE> 11
substantial part of the Partner's properties; (f) any proceeding seeking
liquidation, reorganization or other relief of or against such Partner under any
bankruptcy, insolvency or other similar law now or hereafter in effect which has
not been dismissed within one hundred twenty (120) days after the commencement
thereof; (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator which has not been vacated or stayed within
ninety (90) days of such appointment; or (h) an appointment referred to in
clause (g) which has been stayed is not vacated within ninety (90) days after
the expiration of any such stay.
Section 1.33 "Indemnitee" means any Person made a party to a proceeding by
reason of (i) his status as the General Partner, an Affiliate of the General
Partner, or as a director, officer, employee, partner, agent or representative
of the General Partner or an Affiliate of the General Partner, or (ii) his or
its liabilities pursuant to a loan guarantee or otherwise for or as a result of
any indebtedness or obligation of the Partnership or any Subsidiary of the
Partnership (including, without limitation, any indebtedness or obligation which
the Partnership or any Subsidiary of the Partnership has assumed or taken assets
subject to).
Section 1.34 "IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
Section 1.35 "Limited Partner" means any Person named as a Limited Partner
on Exhibit "A" attached hereto, as such Exhibit may be amended from time to
time, or any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner of the Partnership.
Section 1.36 "Limited Partner Interest" means a Partnership Interest of a
Limited Partner in the Partnership. A Limited Partner Interest may be expressed
as a number of Limited Partnership Units.
Section 1.37 "Limited Partner Percentage Interest" means, as to a Limited
Partner, its interest in the Partnership relative to all other Limited Partners,
as determined by dividing the Limited Partnership Units owned by such Limited
Partner by the total number of Limited Partnership Units then outstanding and as
specified in Exhibit "A" attached hereto, as such Exhibit may be amended from
time to time.
Section 1.38 "Limited Partnership Unit" means a fractional, undivided
share of the Limited Partnership Interests of all Limited Partners issued
pursuant to Article 4 hereof. The number of Limited Partnership Units
outstanding and the Limited Partner Percentage Interest represented by such
Limited Partnership Units are set forth in Exhibit "A" attached hereto, as such
Exhibit may be amended from time to time. The ownership of Limited Partnership
Units shall be evidenced by such form of
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<PAGE> 12
certificate for units as the General Partner adopts from time to time unless the
General Partner determines that the Limited Partnership Units shall be
uncertificated securities. If the General Partner elects to evidence the Limited
Partnership Units with a certificate, such certificate may be imprinted with a
legend setting forth such restrictions placed on the units as specified in this
Agreement and such restrictions will be binding upon all holders of the
certificate along with the terms and conditions set forth in this Agreement.
Section 1.39 "Liquidating Event" has the meaning set forth in Section
13.1.
Section 1.40 "Liquidator" has the meaning set forth in Section 13.2.
Section 1.41 "Management Agreement" means a Property Management Agreement
between the Partnership and the General Partner or an Affiliate of the General
Partner substantially in the form of Exhibit "E" attached hereto.
Section 1.42 "Master Contribution Agreement" means that certain Master
Contribution Agreement, as amended, by and between the General Partner and Eden
providing for the formation of this Partnership and the contributions of cash by
the General Partner and the Original Properties by Eden.
Section 1.43 "Net Income" means, for any taxable period, the excess, if
any, of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
Additionally, if and after the Partnership acquires Non- Original Limited
Partner Related Assets, or becomes obligated, indebted or liable for or on
account of Non-Original Limited Partner Related Assets or the ownership or
operation thereof, and so long as the General Partner has not consummated the
transactions and made the election described in Sections 4.3B and 5.2,
respectively, of this Agreement, then for purposes of determining allocations of
Net Income to the Original Limited Partners and their heirs, successors and
assigns under this Agreement, Net Income shall be calculated separately with
respect to Original Limited Partner Related Assets and the ownership and
operation thereof, together with the operation and existence of the Partnership
insofar as such concerns the Original Limited Partner Related Assets and the
ownership and operation thereof, and shall not include any revenues, expenses,
assets, or liabilities of the Partnership relating to the Non-Original Limited
Partner Related Assets, the ownership or operation thereof, or the operation or
existence of the Partnership with respect thereto.
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Section 1.44 "Net Loss" means, for any taxable period, the excess, if any,
of the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
Additionally, if and after the Partnership acquires Non- Original Limited
Partner Related Assets, or becomes obligated, indebted or liable for or on
account of Non-Original Limited Partner Related Assets or the ownership or
operation thereof, and so long as the General Partner has not consummated the
transactions and made the election described in Sections 4.3B and 5.2,
respectively, of this Agreement, then for purposes of determining allocations of
Net Loss to the Original Limited Partners and their heirs, successors and
assigns under this Agreement, Net Loss shall be calculated separately with
respect to Original Limited Partner Related Assets and the ownership and
operation thereof, together with the operation and existence of the Partnership
insofar as such concerns the Original Limited Partner Related Assets and the
ownership and operation thereof, and shall not include any revenues, expenses,
assets, or liabilities of the Partnership relating to the Non-Original Limited
Partner Related Assets, the ownership or operation thereof, or the operation or
existence of the Partnership with respect thereto.
Section 1.45 "No Exchange Period" shall have the meaning given thereto in
the Exchange Rights Agreement.
Section 1.46 "Non-Original Limited Partner Related Assets" means all of
the real properties and all other assets and property of the Partnership other
than such as constitute "Original Limited Partner Related Assets" (as defined
below).
Section 1.47 "Nonrecourse Built-in-Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a Nonrecourse
Liability, the amount of any taxable gain that would be allocated to the
Partners pursuant to Section 2.B of Exhibit "C" if such properties were disposed
of in a taxable transaction in full satisfaction of such liabilities and for no
other consideration.
Section 1.48 "Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
Section 1.49 "Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
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<PAGE> 14
Section 1.50 "No Sale Period" means the period from the date hereof to the
date which is four (4) years after the Effective Date.
Section 1.51 "Original Limited Partners" means the parties listed on
Exhibit "A" as attached hereto at the time of the initial execution and delivery
of this Agreement, without regard to any subsequent changes to said Exhibit, and
with respect to any such parties which are partnerships or limited liability
companies, the partners or members, directly or indirectly, of such partnerships
or limited liability companies (or the partners or members thereof) if and when
the Limited Partnership Units received by such partnerships or limited liability
companies under the Master Contribution Agreement are distributed by such
partnerships or limited liability companies to such partners or members and the
provisions of Section 11.3, below, have been satisfied.
Section 1.52 "Original Limited Partner Related Assets" means all of the
real properties and all other assets and property contributed, assigned,
transferred or conveyed to the Partnership in connection with the transactions
contemplated by the Master Contribution Agreement, together with all other
assets and properties acquired, owned, or used by the Partnership in any way
relating thereto, as well as all replacements thereof and substitutions
therefor.
Section 1.53 "Original Property" or "Original Properties" means the
"Property" or "Properties" (as defined in the Master Contribution Agreement),
together with all other assets and properties contributed to the Partnership by
Eden pursuant to the terms and provisions of the Master Contribution Agreement.
Section 1.54 "Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and all Limited Partners collectively.
Section 1.55 "Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
Section 1.56 "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
Section 1.57 "Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
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Section 1.58 "Partnership" means the limited partnership formed under this
Agreement and any successor thereto.
Section 1.59 "Partnership Interest" means an ownership interest in the
Partnership representing a Capital Contribution by either a Limited Partner or
the General Partner, and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement.
Section 1.60 "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in a Partnership Minimum Gain, for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
Section 1.61 "Partnership Record Date" means the record date established
by the General Partner for the distribution of Available Cash pursuant to
Article 5 hereof with respect to a calendar quarter, which record date shall be
the same as the record date established by the General Partner for the making of
dividend distributions to its shareholders on account of their common stock
holdings in the General Partner with respect to the same calendar quarter.
Section 1.62 "Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
Section 1.63 "Person" means an individual or a corporation, partnership,
trust, limited liability company, unincorporated organization, association or
other entity.
Section 1.64 "Plan" means any plan or arrangement, whether or not approved
by shareholders or partners, and whether formal or informal, utilized by the
General Partner to provide incentives, benefits or other compensation to its
employees, consultants or advisors, or the employees, consultants or advisors of
any Equity Affiliate.
Section 1.65 "Recapture Income" means any gain recognized by the
Partnership upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or asset.
Section 1.66 "Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
Section 1.67 "REIT" means a real estate investment trust under Section 856
of the Code.
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Section 1.68 "REIT Share" shall mean a share of common stock of the
General Partner, par value $.01 per share.
Section 1.69 "Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit "C" to eliminate
Book-Tax Disparities.
Section 1.70 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.71 "704(c) Value" of any Contributed Property means the value of
such property as set forth in Exhibit "D", or if no value is set forth in
Exhibit "D", the fair market value of such property or other consideration at
the time of contribution, as determined by the General Partner using such
reasonable method of valuation as it may adopt. Subject to Exhibit "B" hereof,
the General Partner shall, in its sole and absolute discretion, use such method
as it deems reasonable and appropriate to allocate the aggregate of the 704(c)
Values of Contributed Properties in a single or integrated transaction among the
separate properties on a basis proportional to their respective fair market
values.
Section 1.72 "Seismic Costs" means all costs and expenses paid or incurred
by the Partnership or the General Partner on or after the Closing to repair,
retrofit or upgrading the Original Properties to cause the Original Properties
to be in compliance with all federal, state, county and city statutes, laws,
ordinances, orders, rules and regulations related to seismic safety and
compliance as such statutes, laws, ordinances, orders, rules and regulations
existed as of the Closing; provided, however, that the total amount of all
Seismic Costs shall not exceed $200,000.
Section 1.73 "Subscription Documents" means those certain subscription
documents executed and delivered by a partner or member of an Original Limited
Partner which is itself a partnership or limited liability company concurrently
with such partner or member being admitted as an additional Original Limited
Partner pursuant to Section 11.3.
Section 1.74 "Subsidiary" means, with respect to any Person, any
corporation, partnership or other entity of which a majority of (i) the voting
power of the voting equity securities, or (ii) the outstanding equity interests,
is owned, directly or indirectly, by such Person.
Section 1.75 "Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
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Section 1.76 "Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit "B" hereof) as
of such date, over (ii) the Carrying Value of such property (prior to any
adjustment to be made pursuant to Exhibit "B" hereof) as of such date.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership shall be PGP Northern Industrial, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purpose of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time, and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be c/o Pacific Gulf Properties Inc.,
4220 Von Karman, Second Floor, Newport Beach, California 92660-2002, or such
other place as the General Partner may from time to time designate by notice to
the Limited Partners. The Partnership may maintain offices at such other place
or places within or outside the State of Delaware as the General Partner deems
advisable.
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Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices: (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the Certificate
and all amendments or restatement thereof) that the General Partner or the
Liquidator deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in the State
of Delaware and in all other jurisdictions in which the Partnership may or plans
to conduct business or own property; (b) all instruments that the General
Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms; (c)
all conveyances and other instruments or documents that the General Partner or
the Liquidator deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to, or other events described in, Article 11, 12 or 13
hereof or the Capital Contribution of any Partner; (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interest; and (f) any and all
financing statements, continuation statements and other documents necessary or
desirable to create, perfect, continue or validate the security interest granted
by a Limited Partner pursuant to Section 10.5 of this Agreement or to exercise
or enforce the Partnership's rights with respect to such security interest; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this agreement or appropriate or
necessary, in the sole discretion of the General Partner or any Liquidator, to
effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except
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in accordance with Article 14 hereof or as may be otherwise expressly provided
for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's Assignee's Limited
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney in accordance with the provisions of this Agreement. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
Section 2.5 Term
The term of the Partnership shall commence on the Effective Date and shall
continue until December 31, 2097, unless the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the Partnership
is: (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act; provided, however, that such business
shall be limited to and conducted in such a manner as to permit the General
Partner at all times to be classified as a REIT, unless the General Partner
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or to own interests in any
entity engaged in any of the foregoing; and (iii) to do
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anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting the General Partner's right, in its sole
discretion, to cease qualifying as a REIT, the Partners acknowledge the General
Partner's current status as a REIT inures to the benefit of all of the Partners
and not solely the General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership; provided, however, that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion: (i) could
adversely affect the ability of the General Partner to continue to qualify as a
REIT; (ii) could subject the General Partner to any additional taxes under
Section 857 or Section 4981 of the Code; or (iii) could violate any law or
regulation of any governmental body or agency having jurisdiction over the
General Partner or its securities, unless such action (or inaction) shall have
been specifically consented to by the General Partner in writing.
Section 3.3 Technical Revisions
The Limited Partners agree to, and the General Partner is hereby
authorized to make, any modifications or amendments to this Agreement that may
be necessary for the General Partner to maintain its status as a real estate
investment trust or in order for it to avoid a penalty or tax; provided,
however, that such modification or amendment does not materially alter or affect
adversely any Limited Partner's rights, duties, or obligations under this
Agreement.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Initial Capital Contributions of the Partners
A. (1) Concurrently with the Closing, the General Partner shall
contribute to the Partnership cash up to, but not exceeding, a maximum of
$4,000,000, as described and in accordance with the terms, provisions, and
conditions of the Master Contribution Agreement as necessary for the purposes
of paying down and/or restructuring the Cigna Debt.
(2) Concurrently with the Closing, the General Partner shall pay or
credit Eden with the "Commissions" and "Qualifying Eden Closing Costs" (pursuant
to and as defined in the Master Contribution Agreement). The Commissions and
Qualifying Eden
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Closing Costs paid or credited to Eden by the General Partner shall constitute
Capital Contributions by the General Partner.
(3) Concurrently with the Closing, the General Partner shall
contribute to (or pay on behalf of) the Partnership or the General Partner the
cash necessary to pay the transaction costs, closing costs and prorations to be
paid by the Partnership or the General Partner or which are designated as
Partnership or General Partner expenses pursuant to the Master Contribution
Agreement. The amounts so contributed or paid by the General Partner shall
constitute Capital Contributions by the General Partner.
B. Concurrently with the Closing, Eden shall transfer, assign, convey, and
deliver all right, title, and interest in and to the real properties,
improvements, and other assets relating to the Original Properties as described
and in accordance with the terms, provisions, and conditions of the Master
Contribution Agreement. As stated therein, the Original Properties shall be
subject to debt in an amount no less than $12,000,000 (including holdbacks as
described therein) at the Closing, $12,000,000 of which shall be guaranteed by
Eden, but without recourse to the partners or members of Eden; provided,
however, that nothing contained herein shall preclude amortization of such debt
in accordance with the applicable loan documents. The Agreed Value of the
Original Properties is set forth on Exhibit "D". The Capital Contribution of the
Original Limited Partners to the Partnership shall be equal to the Agreed Value
of the Original Properties. The number of Limited Partnership Units issued to
the Original Limited Partners on account of such Capital Contribution shall be
equal to the Agreed Value of the Original Properties divided by the "PGP Share
Price" (as defined in the Master Contribution Agreement).
C. In consideration of their initial Capital Contributions, the Limited
Partners shall receive Limited Partnership Units in the amounts set forth on
Exhibit "A", and such amounts shall represent the initial Limited Partner
Percentage Interests shown on said Exhibit. The Limited Partner Percentage
Interests shall be adjusted in Exhibit "A" from time to time by the General
Partner to the extent necessary to reflect accurately redemptions, additional
Capital Contributions, the issuance of additional Limited Partnership Units
(pursuant to any merger or otherwise), or similar or other events having an
effect on any Limited Partner's Limited Partner Percentage Interest. Except as
provided hereinabove and as expressly provided in Sections 4.3 and 10.5, the
Partners shall have no obligation whatsoever to make any additional or further
Capital Contributions, loans, or advances of any kind to the Partnership, or to
in any way finance the operation of the Partnership or any of the debt or
obligations of the Partnership.
D. Except as provided in Section 13.3 of this Agreement and as otherwise
expressly provided herein, the Capital Contribution of each Partner will be
returned to that Partner
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only in the manner and to the extent provided in Article 5 and Article 13
hereof, and no Partner may withdraw from the Partnership or otherwise have any
right to demand or receive the return of its Capital Contribution to the
Partnership, except as specifically provided herein. Under circumstances
requiring a return of any Capital Contribution, no Partner shall have the right
to receive property other than cash, except as specifically provided herein. No
Partner shall be entitled to interest on any Capital Contribution or Capital
Account. The General Partner shall not be liable for the return of any portion
of the Capital Contribution of any Limited Partner, and the return of such
Capital Contributions shall remain solely from Partnership assets.
E. No Limited Partner shall have any further personal liability to
contribute money to, or in respect of, the liabilities or the obligations of the
Partnership, nor shall any Limited Partner be personally liable for any
obligations of the Partnership, except as otherwise provided in this Agreement
or in the Act. No Limited Partner shall be required to make any contributions to
the capital of the Partnership other than as expressly provided in this
Agreement.
Section 4.2 Additional Capital Contributions by the General Partner
From time to time at or following the Closing, the General Partner may,
but shall not be obligated to, contribute additional capital to the Partnership
to pay for any and all costs and expenses of (a) operating the Partnership;
financing, refinancing and paying off or down Partnership debt (subject to the
limitations in Section 7.2 hereof; and (c) owning, operating, maintaining,
repairing, improving, acquiring and selling both Original and Non-Original
Limited Partner Related Assets, including but not limited to Seismic Costs and
any other Capital Contributions made to correct or repair any items of seismic
compliance, deferred maintenance and capital improvements to the Original
Properties.
Section 4.3 Issuances of Additional Partnership Interests
A. The General Partner is hereby authorized to cause the Partnership from
time to time to issue to the Partners (including the General Partner) or other
Persons additional Limited Partnership Units or other Partnership Interests in
one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including, rights, powers and duties senior to the
Limited Partners (including the Original Limited Partners and their heirs,
successors and assigns), except that, notwithstanding the foregoing, with
respect to the Original Limited Partners Related Assets, any such additional
Limited Partnership Units or Partnership Interests shall, if at all, only carry
or give to their holders rights to
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receive distributions (as to amount, timing, and priority) junior to the rights
of the Original Limited Partners as set forth in this Agreement with respect to
the Original Limited Partners Related Assets unless and until (and not before)
the General Partner has made the election provided for in Section 5.2 of this
Agreement. Following the making of such election, the rights as to distributions
pertaining to such additional Limited Partnership Units or Partnership Interests
may be equal or junior to those of the Original Limited Partners and their
heirs, successors and assigns. Subject to the foregoing, the rights, privileges,
benefits, burdens, and restrictions relating to any such additional Limited
Partnership Units or Partnership Interests shall be determined by the General
Partner in its sole and absolute discretion (but without creating different
priorities as between the Limited Partner Interests and the General Partner
Interests received by the General Partner and the Original Limited Partners in
connection with the contributions provided for under the Master Contribution
Agreement), subject to Delaware law, including, without limitation: (i) the
allocations of items of Partnership income, gain, loss, deduction and credit to
each such class or series of Partnership Interests; (ii) the right of each such
class or series of Partnership Interests to share in Partnership distributions;
and (iii) the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that no such additional
Limited Partnership Units or other Partnership Interests shall be issued to the
General Partner, as the General Partner, or a Limited Partner, or to an
Affiliate of either the General Partner or a Limited Partner, unless the
additional Partnership Interests are issued for a fair economic consideration
determined at the time of or within ninety (90) days prior to the issuance, or
unless the issuance of such additional Partnership Interests is otherwise
permitted under the terms and provisions of this Agreement. A determination by
an independent investment banker or financial advisor that the consideration
paid or proposed to be paid by the General Partner in this regard is a fair
economic consideration, or is otherwise fair from a financial point of view, to
the Partnership shall be conclusive and binding upon all parties hereto for all
purposes, and shall constitute a conclusive, non-rebuttable presumption that the
consideration so paid represented fair, good faith, and proper action by the
General Partner with the Partnership as concerns the General Partner's dealings
and transactions with the Partnership in relation to such issuance.
B. If the General Partner makes the election provided for in Section 5.2
of this Agreement, then thereafter the General Partner shall be authorized at
any time, in its sole discretion, and without the need for any vote, consent or
approval from, or consultation with, any Limited Partner, and further without
the need for any appraisal, valuation, or any other analysis or evaluation of
any property, assets, rights, debts, liabilities, obligations, claims, title,
encumbrances, or any other matters of any sort from any person, to contribute,
assign, convey, and
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transfer all, but not less than all, of the General Partner's rights, title,
claims, interests, debts, duties, liabilities, and obligations, in, to, and
relating to all, but not less than all, of the General Partner's assets,
properties, debts, liabilities, and obligations (excluding the General Partner's
rights, title, claims, interests, debts, duties, liabilities, and obligations
in, to, and relating to its interest in the Partnership, and also excluding same
as such relates to any other entity in which the General Partner has an interest
but which does not own a direct or indirect interest in real property) to the
Partnership. In exchange therefor, the Partnership shall immediately issue to
the General Partner (A) that number of Limited Partnership Units equal to the
number of the outstanding shares of common stock of the General Partner at the
time of such contribution by the General Partner to the Partnership, and (B)
options, warrants, and other rights to acquire additional Limited Partnership
Units in the Partnership and other securities of the Partnership on a
unit-for-unit basis equivalent to, and on the same terms and conditions as, all
options, warrants, and other rights and securities issued and then outstanding
("General Partner Security Rights") with regard to any shares of capital stock
or other securities of any kind of the General Partner then or thereafter
issued. After consolidation of the General Partner's affairs into the
Partnership as described in this Section, upon the exercise by any holder of any
General Partner Security Rights and the General Partner's issuance of its
securities to the exercising party with respect thereto, or the issuance of any
other securities of the General Partner, the General Partner promptly shall
contribute to the Partnership any consideration received upon such exercise (net
of all costs, fees, expenses, and commissions relating thereto), and the
Partnership shall thereupon issue to the General Partner an equivalent number of
Limited Partnership Units (in the case of issuances by the General Partner of
shares of its common stock) or an equivalent number of other interests in the
Partnership which have parallel and comparable rights and privileges to the
rights and privileges of the securities issued by the General Partner (in the
case of issuances by the General Partners other than shares of its common
stock.)
Section 4.4 Preemptive Rights
Only the General Partner shall have the right to make the additional
Capital Contributions described in Section 4.2. Except as provided in Section
4.2 hereof, no Person shall have any preemptive, preferential or other similar
right with respect to: (i) the making of additional Capital Contributions or
loans to the Partnership; or (ii) the issuance or sale of any Limited
Partnership Units or other Partnership Interests.
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ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
A. Subject to Section 5.6, on or before ninety (90) days after the end of
each calendar quarter the General Partner shall distribute to the Partners who
are partners on the Partnership Record Date for such calendar quarter an amount
equal to 100% of the Available Cash for such calendar quarter in the following
order of priority:
(1) First, to the Limited Partners pro rata in accordance with their
respective Limited Partner Percentage Interests, until such time as the
distribution made pursuant to this Section 5.1A(1) on account of each Limited
Partnership Unit held by a Limited Partner for the calendar quarter in which the
distributions are made equals the cash dividend paid to the common shareholders
of the General Partner on account of one share of common stock of the General
Partner for such calendar quarter;
(2) Second, if there then exists a Current Year Deficit, to the
Limited Partners pro rata in accordance with their respective Limited Partner
Percentage Interests until such time as the distribution made pursuant to this
Section 5.1A(2) eliminates the Current Year Deficit; provided, however, that if
Available Cash is not sufficient to eliminate the Current Year Deficit for the
calendar year on account of which the distributions are made, any remaining
Current Year Deficit shall not be carried forward and shall be disregarded in
determining distributions to be made pursuant to this Section 5.1A in subsequent
quarters; and
(3) Thereafter, to the General Partner.
B. Distributions made pursuant to this Section 5.1 shall be made in the
foregoing order of priority, with all Available Cash being distributed at the
highest level of priority until that level of priority is completely satisfied
before any Available Cash is distributed at a lower level of priority, and
distributions at a lower level of priority not being made or being only
partially made if Available Cash is insufficient therefor.
C. Anything contained herein to the contrary notwithstanding, the
quarterly distribution of Available Cash made on account of each Limited
Partnership Unit for the calendar quarter which contains the Effective Date
shall not exceed the dividend paid to common shareholders of the General Partner
on account of a share of common stock of the General Partner for the calendar
quarter which contains the Effective Date, multiplied by
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a fraction (x) the numerator of which is the number of days from and including
the Effective Date to and including the last day of such calendar quarter, and
(y) the denominator of which is the total number of days in such calendar
quarter.
Section 5.2 General Partner Election
The General Partner may elect, at any time, in its sole and absolute
discretion, to have all future calculations of Available Cash based upon all
Partnership assets without distinction between Original and Non-Original Limited
Partner Related Assets, and to have all future distributions to Limited Partners
made pursuant to the following terms in lieu of the terms of Section 5.1 (an
election under this Section, once made, shall be irrevocable):
A. First, the General Partner shall make distributions or payments
to the Limited Partners regardless of the availability or amount of Available
Cash, in an amount, on account of each Limited Partnership Unit held by a
Limited Partner for the calendar quarter in which the distributions are made,
equal to the cash dividend paid to the common shareholders of the General
Partner on account of one share of common stock of the General Partner for such
calendar quarter; and
B. Thereafter, to the General Partner.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Sections 5.1 or 5.2 for all
purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation
Proceeds from a Liquidating Event, if any, and any other cash received or
reductions in reserves made after commencement of the liquidation of the
Partnership shall be distributed to the Partners in accordance with Section
13.2.
Section 5.5 Other Assets Present
Notwithstanding the foregoing, if and after the Partnership acquires
Non-Original Limited Partner Related Assets, or becomes obligated, indebted or
liable for or on account of Non-Original Limited Partner Related Assets or the
ownership or operation thereof, and so long as the General Partner has not
consummated the transactions and made the election described in Sections 4.3B
and 5.2, respectively, of this Agreement, then distributions of Available Cash
to the General Partner and the Original Limited Partners (and the Original
Limited Partners' heirs, successors
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and assigns) under the terms of the foregoing shall be calculated and made only
with respect to Original Limited Partner Related Assets and the ownership and
operation thereof, together with the operation and existence of the Partnership
insofar as such concerns the Original Limited Partner Related Assets.
Distributions under the terms of the foregoing shall not include any revenues,
expenses, assets, or liabilities of the Partnership relating to the Non-Original
Limited Partner Related Assets, the ownership or operation thereof, or the
operation or existence of the Partnership with respect thereto, all of which
shall be as separately determined by the General Partner in its sole and
absolute discretion.
Section 5.6 Seismic Costs
Anything contained herein to the contrary notwithstanding, from the
amounts otherwise distributable to the Original Limited Partners pursuant to
Sections 5.1A(1), 5.1A(2) and 5.2A, the General Partner shall instead pay or
establish a reserve to pay (or to reimburse the General Partner to the extent
the General Partner has paid) the Seismic Costs. The amount so reserved or paid
(or reimbursed to the General Partner) in each calendar quarter shall equal the
greater of either (a) $25,000; or (b) the amount which, when added to all
amounts previously reserved or paid (or reimbursed to the General Partner)
equals the total amount of all Seismic Costs incurred by the Partnership and the
General Partner to the date of such quarterly distribution. The Seismic Costs
shall be incurred and paid (or reimbursed to the General Partner) in such order
as the General Partner may determine in its sole and absolute discretion. No
amounts shall be distributed to the Limited Partners pursuant to Sections
5.1A(1), 5.1A(2) or 5.2A unless and until the full amount set forth in the
second sentence of this Section 5.6 has been reserved or paid (or reimbursed to
the General Partner)in full. Nevertheless, all amounts on account of Seismic
Costs which would otherwise have been distributed to the Limited Partners but
for the provisions of this Section 5.6 shall be treated as having been
distributed to the Limited Partners pursuant to Sections 5.1A(1), 5.1A(2) or 5.2
for all purposes under this Agreement. When all Seismic Costs have been paid (or
reimbursed to the General Partner) in full, any funds remaining in such Seismic
Costs reserve shall be distributed to the Original Limited Partners pro rata in
accordance with their respective Limited Partner Percentage Interests.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations of Net Income and Net Loss
For purposes of maintaining the Capital Accounts and in determining the
rights of the General and Limited Partners among
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themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Exhibit "B" hereof) shall be allocated among the
General and Limited Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Loss for a particular period shall be allocated as follows:
(1) First, to the General and Limited Partners in proportion to and
to the extent of their positive Capital Account balances, if any.
(2) Second, to the Limited Partners, in proportion to and to the
extent of, their respective aggregate Excess Distributions, until the amount
allocated under this Section 6.1A(2) for the current fiscal year and all prior
fiscal years equals the Excess Distributions of all Limited Partners.
(3) Third, to the General Partner.
B. Net Income for a particular period shall be allocated as follows:
(1) First, to the Partners that have previously been allocated Net
Loss pursuant to Section 6.1A in amounts and among such Partners in the reverse
order (and in the corresponding amounts) of all Net Loss previously allocated to
them until the amount of Net Income allocated pursuant to this Section 6.1B(1)
equals the aggregate amount of all Net Loss theretofore allocated pursuant to
Section 6.1A.
(2) Second, if applicable, to the Limited Partners in proportion to
their respective Limited Partner Percentage Interests until the aggregate Net
Income allocated pursuant to this Section 6.1B(2) for the current taxable period
and all previous taxable periods equals the aggregate amount of Available Cash
distributed to the Limited Partners pursuant to Section 5.1A(1).
(3) Third, if applicable, to the Limited Partners in proportion to
their respective Limited Partner Percentage Interests until the aggregate Net
Income allocated pursuant to this Section 6.1B(3) for the current taxable period
and all previous taxable periods equals the aggregate amount of Available Cash
distributed to the Limited Partners pursuant to Section 5.1A(2).
(4) Fourth, if applicable, to the Limited Partners in proportion to
their respective Limited Partner Percentage Interests until the aggregate Net
income allocated pursuant to this Section 6.1B(4) for the current taxable period
and all previous taxable periods equals the aggregate amount of Available Cash
distributed to the Partners pursuant to Section 5.2A; and
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(5) Fifth, to the General Partner.
Section 6.2 Other Allocations
A. For purposes of Regulations Section 1.752, the Partners agree that
$12,000,000 of the Partnership debt secured by the Original Properties at the
Closing shall be allocated to Eden as a result of Eden's guaranty of $12,000,000
of such debt, which guaranty is nonrecourse to the partners and members of Eden;
provided, however, that nothing contained herein shall preclude amortization of
such debt in accordance with the applicable loan documents.
B. Any gain allocated to the General Partner and the Original Limited
Partners upon the sale or other taxable disposition of any Partnership asset
shall, to the extent possible, after taking into account other required
allocations of gain pursuant to Exhibit "C", be characterized as Recapture
Income in the same proportions and to the same extent as such Partners have been
allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.
C. If and after the Partnership acquires Non-Original Limited Partner
Related Assets, or becomes obligated, indebted or liable for or on account of
Non-Original Limited Partner Related Assets or the ownership or operation
thereof, and so long as the General Partner has not consummated the transactions
and made the election described in Sections 4.3B and 5.2, respectively, of this
Agreement, then allocations of Net Income, Net Loss, and any other items to the
Original Limited Partners and their heirs, successors and assigns under this
Agreement shall be calculated separately with respect to Original Limited
Partner Related Assets and the ownership and operation thereof, together with
the operation and existence of the Partnership insofar as such concerns the
Original Limited Partner Related Assets and the ownership and operation thereof.
Such allocations and calculations shall not include any revenues, expenses,
assets, or liabilities of the Partnership relating to the Non-Original Limited
Partner Related Assets, the ownership or operation thereof, or the operation or
existence of the Partnership with respect thereto, all of which shall be as
separately determined by the General Partner in its sole and absolute
discretion.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the
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General Partner, and no Limited Partner shall have any right to participate in
or exercise control or management power over the business and affairs of the
Partnership. The General Partner may not be removed by the Limited Partners with
or without cause. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, shall have full power and authority to do all things deemed necessary
or desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effectuate the purposes set forth
in Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in such
amounts as will permit the General Partner (so long as the General Partner
qualifies as a REIT) to avoid the payment of any federal income tax (including,
for this purpose, any excise tax pursuant to Section 4981 of the Code) and to
make distributions to its shareholders in amounts sufficient to permit the
General Partner to maintain REIT status), the assumption or guarantee of, or
other contracting for, indebtedness and other liabilities, the issuance of
evidence of indebtedness (including the securing of the same by deed, mortgage,
deed of trust or other lien or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or into
another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has an equity
investment, and the making of capital contributions to its Subsidiaries, the
holding of any
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real, personal and mixed property of the Partnership in the name of the
Partnership or in the name of a nominee or trustee and the creation, by grant or
otherwise, of easements or servitudes;
(5) the management, operation, leasing, collection of rents,
marketing, landscaping, repair, alteration, renovation, rehabilitation,
demolition or improvement of the Original Properties or any other real property
or improvements owned by the Partnership or any Subsidiary of the Partnership
and the performance of any and other acts necessary or appropriate to the
operation of such properties, including, without limitation, applications for
rezoning or objections to rezoning of such properties;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers useful or
necessary to the conduct of the Partnership's operations or the implementation
of the General Partner's powers under this Agreement, including, without
limitation, the execution and delivery of leases on behalf of or in the name of
the Partnership, contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the Partnership's assets;
(7) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other instruments,
and the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(8) the holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring
(whether or not any of the foregoing are also employed by, consultants to,
independent contractors for, or otherwise do business with the General Partner
or its Affiliates in related or unrelated matters);
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate (whether or
not such is done as part of a group, combined or other policy or policies under
which the Partnership and the General Partner (or its Affiliates) are also
insured, so
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long as the General Partner fairly allocates the expense thereof among the
covered parties);
(12) the formation of, or acquisition of an interest in, and the
contribution of some or all of property (or any part thereof or interest
therein) to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);
(13) the control of any and all matters affecting the rights and
obligations of the Partnership, including the settlement, compromise, submission
to arbitration or any other form of dispute resolution, or abandonment of, any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law and consistent with
the terms of this Agreement, including in each and all of the foregoing
instances any such matter or thing in which the General Partner or its
Affiliates have a direct interest;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as the
General Partner may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or an interest jointly with any such Subsidiary or other
Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
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which the Partnership does not have an interest pursuant to contractual or other
arrangements with such Person;
(19) the making, execution and delivery of any and all deeds, leases,
notes, mortgages, deeds of trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or legal instruments or
agreements in writing necessary or appropriate, in the judgment of the General
Partner, for the accomplishment of any of the powers of the General Partner
enumerated in this Agreement; and
(20) the issuance of additional Limited Partnership Units or
Partnership Interests, as appropriate, in connection with Capital Contributions
by Additional Limited Partners and additional Capital Contributions by Partners
pursuant to Article 4 hereof.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the fullest extent permitted
under the Act or other applicable law, rule or regulation. The execution,
delivery or performance by the General Partner or the Partnership of any
agreement authorized or permitted under this Agreement shall not constitute a
breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
hereof.
Section 7.2 Limitations on General Partner
Anything contained herein to the contrary notwithstanding, without the
prior Consent of all Original Limited Partners, the General Partner shall not
cause the Partnership to do any of the
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following during the No Sale Period unless and until (on a property-by-property
basis if applicable) such is accomplished in a manner which is fully tax
deferred to, and does not produce any income tax liability for, an Original
Limited Partner as a result thereof:
A. sell, transfer or otherwise dispose of any of the Original Properties;
B. pay down the Cigna Debt or, if the Cigna Debt is refinanced, any
refinanced debt, or change any of the terms of the Cigna Debt or refinanced debt
such that the debt is less than $12,000,000, not secured by the Original
Properties, or not guaranteed by Eden (other than as contemplated by the Master
Contribution Agreement or as required by the loan documents or any other
agreement ancillary thereto), nor take any other action which would result in a
reduction of the allocation of debt to the Original Limited Partners for
purposes of computing such parties' basis for income tax purposes; provided,
however, that nothing contained herein shall preclude amortization of such debt
in accordance with the applicable loan documents;
C. fail to use reasonable, good faith and diligent efforts to avoid a
foreclosure of the Cigna Debt or, if the Cigna Debt is refinanced, any
refinanced debt, or a bankruptcy filing by or against the Partnership;
D. elect to dissolve the Partnership.
Section 7.3 Certificate of Limited Partnership
The General Partner has filed the Certificate with the Secretary of State
of Delaware as required by the Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and any other state,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.
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Section 7.4 Management Fee and Reimbursement of the General Partner
A. The General Partner and/or its Affiliates shall have the right, but not
the obligation, in the sole discretion of the General Partner, to perform all or
any of the property management services on account of the property owned or
managed by the Partnership. If the General Partner elects to so perform, or to
have an Affiliate so perform, the property management services, then the General
Partner or its Affiliate shall be reimbursed by the Partnership for the expenses
it incurs in providing such services in amounts determined by the General
Partner, in its good faith discretion, to be comparable to amounts which would
be reimbursable on account of expenses to reputable unrelated third party
property management companies which have substantial experience in performing
property management services for properties of the type owned or managed by the
Partnership for institutional owners with portfolios under management which are
substantially similar in size, nature, and condition of property owned or
managed by the Partnership. In addition, if the General Partner elects to so
perform, or to have an Affiliate so perform, the property management services
described herein, it is agreed that a management fee of four percent (4%) of
gross income shall be paid by the Partnership to the General Partner or its
Affiliates for the property management services as contemplated hereunder. The
reimbursements and fees payable to the General Partner or its Affiliates under
this Section shall be paid no less frequently than monthly. Except as provided
in this Section 7.4A and elsewhere in this Agreement (including the provisions
of Articles 5 and 6 regarding distributions, payments, and allocations to which
it may be entitled), the General Partner shall not be compensated for its
services as general partner of the Partnership. In furtherance of this Section,
the General Partner may cause the Partnership to enter into one or more property
management agreements with the General Partner or an Affiliate of the General
Partner, substantially in the form of the Management Agreement.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
costs and expenses that it incurs relating to the ownership and operation of, or
for the benefit of, the Original Properties, the Partnership or any of its other
assets or related to the administration of the Partnership and the Limited
Partnership Units. After consummation of the transactions and election described
in, respectively, Sections 4.3B and 5.2 of this Agreement as a result of which
the assets of the General Partner are conveyed to the Partnership, such
reimbursement shall include reimbursement to the General Partner for all general
and administrative costs, fees, and expenses incurred by the General Partner due
to its status as a public company, a qualified real estate investment trust, or
otherwise, and any and all other expenses incurred by the General Partner for
any matter, reason or thing whatsoever. Any reimbursement
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under this Section shall be in addition to any reimbursement made as a result of
indemnification pursuant to Section 7.7 hereof.
C. It is also acknowledged and agreed that, after consummation of the
transactions and election described in, respectively, Sections 4.3B and 5.2 of
this Agreement as a result of which the assets of the General Partner are
conveyed to the Partnership, the General Partner will directly or indirectly
incur costs and expenses, and may issue stock or other securities, or both, to
persons employed or not employed, or retained or not retained, directly by the
Partnership. Such costs, expenses, and issuances may include, but not be limited
to, payment of general and administrative expenses by the General Partner,
including compensation and bonuses to its officers and directors, and the award
of stock grants and options to purchase securities of the General Partner. In
light of the foregoing, it is agreed that, after consummation of the
transactions and election described in, respectively, Section 4.3B and 5.2 of
this Agreement, appropriate actions shall be taken by the Partnership, as
determined by the General Partner, in its sole discretion, to either (i)
reimburse the General Partner an appropriate portion of any such cost, expense,
or issuance, or (ii) adjust the General Partner's Interest in the Partnership so
as to prevent dilution of the General Partner's Interest.
D. Without limiting the generality of Section 7.4C above, it is agreed
that if, at any time or from time to time after consummation of the transactions
and election described in, respectively, Sections 4.3B and 5.2 of this
Agreement, options to purchase REIT Shares or any other securities granted to
employees, consultants or advisors of the General Partner or any Equity
Affiliate under any Plan or otherwise as compensation or incentive are
exercised, or REIT Shares or any other securities are granted or awarded to
employees, consultants or advisors of the General Partner or any Equity
Affiliate under any Plan or otherwise as compensation or incentive, then the
Partnership promptly shall issue to the General Partner Limited Partnership
Units or other interests in the Partnership with comparable rights, benefits,
and privileges in an amount equal to the REIT Shares or other securities granted
and/or issued, as the case may be. If Limited Partnership Units or other
interests in the Partnership are issued to the General Partner as a result of
the exercise of options to purchase REIT Shares or other securities, then
concurrently with the issuance of the Limited Partnership Units or other
interests to the General Partner, the General Partner shall pay to the
Partnership the cash consideration received by the General Partner on account of
such exercise.
E. After consummation of the transactions and elections described in
Sections 4.3B and 5.2 of this Agreement, in the event that the General Partner
shall elect to purchase from its shareholders REIT Shares for the purpose of
delivering such REIT Shares to satisfy an obligation under any dividend
reinvestment program adopted by the General Partner, any employee stock
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purchase plan adopted by the Company, or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by the
General Partner for such REIT Shares and any other expenses incurred by the
General Partner in connection with such purchase shall be considered expenses of
the Partnership and shall be reimbursed to the General Partner, subject to the
conditions that: (i) if such REIT Shares subsequently are to be sold by the
General Partner, the General Partner shall pay to the Partnership any proceeds
received by the General Partner for such REIT Shares (provided that a transfer
of REIT Shares for Limited Partnership Units pursuant to the Exchange Rights
Agreement would not be considered a sale for such purposes); and (ii) if such
REIT Shares are not re-transferred by the General Partner within 30 days after
the purchase thereof, the General Partner shall cause the Partnership to cancel
a number of Limited Partnership Units held by the General Partner equal to the
number of such REIT Shares (adjusted for stock dividends, stock splits,
reorganizations, reclassifications, mergers, and the like with regard to the
REIT Shares prior to such cancellation of Limited Partnership Units).
Section 7.5 Outside Activities of the General Partner
The General Partner and its Affiliates shall be permitted to purchase,
own, operate, manage and otherwise deal with and profit from any property, real,
personal or mixed, not owned by the Partnership for their own account and
benefit, whether or not competitive with the business and affairs of the
Partnership, and neither the Partnership, any Limited Partner, or any other
Person shall have any right, claim, interest or cause of action therein or as a
result thereof. Without limiting the generality of the above, nothing in this
Agreement shall obligate the General Partner or its Affiliates to first offer
the Partnership an opportunity to invest in any investment which has been
offered to or found by the General Partner or its Affiliates, whether or not
such investment is of a nature that may be invested in by the Partnership or
would compete directly or indirectly with the business of the Partnership. The
Limited Partners hereby acknowledge that the General Partner currently owns a
variety of real estate investments and may in the future acquire additional real
estate investments that may be competitive with the business of the Partnership.
Section 7.6 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
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B. Subject to the restrictions contained in Section 7.2 hereof, the
Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with this
Agreement and applicable law as the General Partner, in its sole and absolute
discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase or otherwise acquire any property from, the Partnership,
directly or indirectly, except pursuant to transactions that are determined by
the General Partner in good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the Partnership,
Subsidiaries of the Partnership or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiaries of the Partnership. Any or all of the foregoing may be
jointly established with the General Partner or its Affiliates, provided that in
such case the allocation of expense shall be shared among the parties on whose
behalf such plans exist as determined by the General Partner in good faith to be
fair and reasonable.
Section 7.7 Indemnification
A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership or the General Partner in its
capacity as general partner of the Partnership as set forth in this Agreement,
in which such Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, whether or not suit or other legal proceedings are
commenced, unless it is established by a court of competent jurisdiction, and
all appeals relating thereto have been fully completed or the applicable appeal
periods have expired, that: (i) the act or omission of the Indemnitee was
material to the matter giving rise to the proceedings and either was committed
in intentional bad faith or was the result of active and deliberate dishonesty;
(ii) the Indemnitee actually received an improper and unpermitted personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the Indemnitee knew, or was reckless in not knowing, that the act or
omission was unlawful. Without limitation, the
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foregoing indemnity shall extend to any liability of any Indemnitee pursuant to
a loan guaranty, recourse obligation, general partner liability, or otherwise
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct as set forth in this Section
7.7A. The termination of any proceeding by conviction of an Indemnitee, or an
entry of an order of probation against an Indemnitee prior to judgment, in each
case after all appeals relating thereto have been fully completed or the
applicable appeal periods have expired, creates a rebuttable presumption that
such Indemnitee acted in a manner contrary to that specified in this Section
7.7A with respect to the subject matter of such proceeding. Any indemnification
pursuant to this Section 7.7 shall be made only out of the assets of the
Partnership, and neither the General Partner nor any Limited Partner shall have
any obligation to contribute to the capital of the Partnership, or otherwise
provide funds, to enable the Partnership to fund its obligations under this
Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitees are indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
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beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of this Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the Indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators, and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.7, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or any act
or omission of the General partner undertaken in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the shareholders of the General Partner
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (except as otherwise provided herein)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
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C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order: (i) to protect the ability of the General Partner to
continue to qualify as a REIT; or (ii) to avoid the
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General Partner incurring any taxes under Section 857 or Section 4981 of the
Code, is expressly authorized under this Agreement and is deemed approved by all
of the Limited Partners.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is being held in
the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, engage or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that: (i)
at the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed
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and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement, except
as expressly provided in this Agreement (including Section 10.5 hereof) or under
the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such)
shall take part in the operation, management or control (within the meaning of
the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
A. Subject to the terms and provisions hereof, it is agreed that any
Partner (General and/or Limited) and any Affiliate of any Partner (including any
officer, director, employee, agent, or representative of any Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights, claims, or interests by virtue of this Agreement
or any relationships, duties or obligations hereunder (including, but not
limited to, any fiduciary or similar duties created by this Agreement, under the
Act, or otherwise existing at law or in equity) in any business ventures or
investments of any General Partner or Limited Partner, or any Affiliate of any
of the foregoing. None of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to
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the Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person could be taken by such Person.
B. It is further agreed that none of the Partners, General or Limited, or
any of their Affiliates, have any duty, obligation, or liability to present to
the Partnership any business or investment opportunity which may arise in the
course of activity for or on behalf of the Partnership, or otherwise, for
investment by the Partnership or any of the Partners (even if within the line
and scope of the business and affairs of the Partnership), and instead any
Partner, General or Limited, and any Affiliate may pursue such opportunity for
such Partner's or Affiliate's own benefit and account, without any
participation, right, or claim therein by the Partnership or any other Partner,
and without notification or disclosure to the Partnership or any other Partner.
Section 8.4 Return of Capital
No Limited Partner shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. Except
to the extent provided by Exhibit "C" hereof or as otherwise expressly provided
in this Agreement, no Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee, either as to the return of Capital
Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly balance
sheet, income statement, and related financial statements prepared by the
Partnership;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
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(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner to the extent the foregoing is
materially different from information contained in financial statements or other
reports provided to Limited Partners.
(6) to obtain quarterly and annual balance sheets and income
statements regularly prepared by the Partnership in order to verify the
correctness of distributions of cash, if any, to the Limited Partner in
accordance with the terms and provisions of this Agreement.
B. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, desirable or necessary any information that: (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information,
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business; or (ii) the Partnership is required by law or by agreement with an
unaffiliated third party to keep confidential. If the General Partner desires to
disclose any information of the type described in the preceding paragraphs (i)
or (ii) to a Limited Partner, the General Partner may require, as a condition to
such disclosure, that the Limited Partner agree in writing that such information
will be held in strictest confidence and no distribution of such information
will be made.
Section 8.6 No Redemption Right
No Limited Partner (other than the General Partner) shall have the right
to require the Partnership to redeem all or a portion of the Limited Partnership
Units held by such Limited Partner.
Section 8.7 Representations and Warranties
Each Limited Partner represents and warrants to the General Partner and
the Partnership that:
A. He, she or it has received and reviewed that certain Prospectus of the
General Partner dated May 27, 1997, that certain Prospectus Supplement dated
June 5, 1997, and that certain Registration Statement, filed March 19, 1997, as
amended
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and filed April 10, 1997, of which the Prospectus and Prospectus Supplement are
a part, filed with the Securities and Exchange Commission under the Act and has
had access to such additional financial and other information, including without
limitation the General Partner's most current Form 10-Q and Form 10-K, the
General Partners' 1996 Annual Report to Shareholders' and the General Partners'
Notice of 1997 Annual Meeting of Shareholders and accompanying Proxy Statement,
and has been afforded the opportunity to ask questions of representatives of the
General Partner, and to receive answers to those questions, as they have deemed
necessary.
B. He, she or it acknowledges that the Limited Partnership Units are being
acquired in a transaction not involving any public offering within the meaning
of the Securities Act and that the Limited Partnership Units have not been
registered under the Securities Act and agrees not to offer, sell, transfer or
otherwise dispose of the Limited Partnership Units (except for such transfer as
described in subsection D, below) in the absence of registration under the
Securities Act unless such Limited Partner delivers to the Partnership and the
General Partner an opinion of a lawyer reasonably satisfactory to the
Partnership and the General Partner, in form and substance satisfactory to the
Partnership and the General Partner, to the effect that the proposed sale,
transfer or other disposition may be effected without registration under the
Securities Act and under applicable state securities or blue sky laws.
C. He, she or it is either (a) an "accredited investor" within the meaning
of Rule 501(a) of Regulation D under the Securities Act, or (b) a person who
either alone or with his, her or its purchaser representative (as defined in
Rule 501(h) of Regulation D under the Securities Act) has such knowledge and
experience in financial and business matters that he, she or it is capable of
evaluating the merits and risks of an investment in the Limited Partnership
Units or any other security acquired hereunder. He, she or it has such knowledge
and experience in financial and business matters as to be capable of evaluating
alone, or together with his, her or its purchaser representative or personal
advisor the merits and risks of an investment in the Limited Partnership Units
or any other security delivered hereunder and protecting his, her or its own
interests in connection with the investment and has obtained, in his, her or its
judgment, alone, or together with his, her or its purchaser representative or
personal advisor sufficient information from the General Partner to evaluate the
merits and risks of an investment in the Limited Partnership Units or any other
security delivered hereunder. He, she or it acknowledges that he, she or it has
the financial ability to bear the economic risk of his, her or its investment in
the Limited Partnership Units, has adequate means for providing for his, her or
its current needs and personal contingencies and has no need for liquidity with
respect to the investment in the Limited Partnership Units. If other than an
individual, it has not been organized solely for
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the purpose of acquiring the Limited Partnership Units or other security
acquired under this Agreement.
D. Although Eden may elect to transfer the Limited Partnership Units to
its constituent entities, and those constituent entities may, in turn, elect to
transfer the Limited Partnership Units to their respective constituent entities,
they are not acquiring any Limited Partnership Units with a view to the
distribution of the Limited Partnership Units or any present intention of
offering or selling any of the Limited Partnership Units in a transaction that
would violate the Securities Act or the securities laws of any State or any
other applicable jurisdiction.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business. Any records maintained by or on
behalf of the Partnership in the regular course of its business may be kept on,
or be in the form of, punch cards, magnetic tape, photographs, micrographics or
any other information storage device, provided that the records so maintained
are convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with generally accepted
accounting principles, or such other basis as the General Partner determines to
be necessary or appropriate.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each Partnership Year an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner in its
discretion (such selection may include any such accountants who also perform
accounting or auditing work for the General Partner and its Affiliates).
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B. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each calendar quarter (except the last calendar
quarter of each year), a report containing unaudited financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
C. All accounting and other professional fees associated with the
preparation, compilation, review, audit, and any other matters relating to the
Partnership's records, financial statements and reports, tax returns, and any
other Partnership items described in the preceding paragraphs shall be at the
expense of the Partnership, not the General Partner.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by the Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that if requested by a transferee of a
Partnership Interest, the General Partner shall file an election on behalf of
the Partnership pursuant to Section 754 of the Code to adjust the basis of the
Partnership property in the case of a transfer of a Partnership Interest made in
accordance with the provisions of this Agreement. The General Partner intends to
elect the so-called "traditional method" of making Section 704(c) allocations
pursuant to Regulations Section 1.704-3 with respect to property contributed as
of the date hereof. The General Partner shall have the right to seek to revoke
any tax election it makes (including, without limitation, the election under
Section 754 of the Code) upon the General Partner's determination, in its sole
and absolute discretion, that such revocation is in the best interest of the
Partners.
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Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; provided,
however, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner: (i) who (within the time period prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner; or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" ( as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court or the District Court of the
United States for the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken account
of by a Partner for tax purposes, or an item affected by such item; and
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(6) to take any other action of behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
C. The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
D. The tax matters partner shall receive no special compensation for its
services as such. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne or reimbursed by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, including
an accounting firm which also renders services to the General Partner and its
Affiliates.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code and
similar state and local income tax laws, if any. Any amount paid on behalf of or
with respect to a Limited Partner shall constitute a loan by the Partnership to
such Limited Partner, which loan shall be repaid by such Limited Partner within
fifteen (15) days after notice from the General Partner that such payment must
be made, unless: (i) the Partnership withholds such payment from a distribution
which would otherwise be made to the Limited Partner; or (ii) the General
Partner determines, in its sole and absolute discretion, that such payment may
be satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner hereby unconditionally
and irrevocably grants to the Partnership a
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security interest in such Limited Partner's Partnership Interest to secure such
Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.5. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.5 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall at its own expense take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer" when used in this Article 11 with respect to a
Limited Partnership Unit shall be deemed to refer to a transaction by which the
General Partner purports to assign all or any part of its General Partner
Interest to another Person or by which a Limited Partner purports to assign all
or any part of its Limited Partner Interest to another Person, and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange
or any other disposition by law or otherwise. The term "transfer" when used in
this Article 11 does not include any acquisition of Partnership Interests or
Limited Partnership Units by the General Partner from any Limited Partner, nor
does it include any grant of a security interest or any related action involving
levy, execution, or the like contemplated under Section 10.5 of this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part
(including any interest therein), except in accordance with the terms and
conditions set forth in this Article 11. Any
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transfer or purported transfer of a Partnership Interest not made in accordance
with this Article 11 shall be null and void ab initio, and the Partnership shall
have no duty or obligation to recognize the transferee as a partner or holder of
any interest whatsoever in the Partnership, and the transferee shall have no
rights, interests or claims in or against the Partnership or any Partner.
Section 11.2 Transfer of the General Partner's Partner Interest and
Limited Partner Interest
The General Partner may transfer any of its General Partner Interest or
withdraw as General Partner, or transfer any of its Limited Partner Interest,
without consent or approval from any Limited Partners. Such transfer includes
transfer to an entity which is wholly-owned by the General Partner and is a
Qualified REIT Subsidiary under Section 856(d) of the Code.
Section 11.3 Limited Partners' Rights to Transfer
A. Subject to the provisions of Sections 11.3C, 11.3D, 11.3E, 11.3F and
11.4, a Limited Partner (other than the General Partner) may transfer, with or
without the consent of the General Partner, all or any portion of its
Partnership Interest, or any of such Limited Partner's economic rights as a
Limited Partner. In addition, those Original Limited Partners which are
themselves partnerships or limited liability companies shall have the right to
transfer, assign, and convey their Limited Partnership Units to their
constituent partners or members, provided that such constituent partners or
members shall first have executed and delivered the Subscription Documents and a
written agreement to be bound by the terms, provisions, and conditions of this
Agreement, the Exchange Rights Agreement, and the Master Contribution Agreement,
and that at the time of such transfer, assignment, and conveyance to such
constituent partners, the representations and warranties made by such
constituent partners or members in the aforementioned Subscription Documents and
the related agreement are true and correct in all material respects.
B. If a Limited Partner is subject to Incapacity, the partners, executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner if,
in the opinion of legal counsel to the Partnership or the General Partner, such
transfer would require filing of a registration statement under the Securities
Act of
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1933 or would otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Limited Partnership Units.
D. No transfer by a Limited Partner of its Limited Partnership Units may
be made to any Person if: (i) in the opinion of legal counsel for the
Partnership or the General Partner, it would result in the Partnership being
treated as an association taxable as a corporation; (ii) such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code; (iii) such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (iv) such transfer would,
in the opinion of legal counsel for the Partnership or the General Partner,
cause any portion of the assets of the Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations Section
2510.2-101; (v) such transfer would subject the Partnership to be regulated
under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
the Employee Retirement Income Security Act of 1974, each as amended; or (vi) in
the opinion of legal counsel for the Partnership or the General Partner, it
would adversely affect the ability of the General Partner to continue to qualify
as a REIT or subject the General Partner to any additional taxes under Section
857 or Section 4981 of the Code.
E. No transfer of any Limited Partnership Unit may be made to a lender to
the Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion. Without limiting the restriction of the
foregoing sentence, if any such consent is given, a condition to such consent
shall be that the lender enter into an arrangement with the Partnership or the
General Partner to exchange or redeem at a price agreeable to the lender, the
General Partner, and the transferring Partner (each in their respective
discretion) all Limited Partnership Units in which a security interest is held
immediately prior to the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
F. The Limited Partners acknowledge that each certificate or instrument
representing Limited Partnership Units shall bear the following legend and any
other legend required under any applicable state securities law:
"NEITHER THE LIMITED PARTNERSHIP UNITS IN THE PARTNERSHIP REPRESENTED BY
THIS CERTIFICATE OR
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INSTRUMENT NOR ANY PART THEREOF OR INTEREST THEREIN HAS BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT') AND NEITHER MAY
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, IN WHOLE OR IN PART, UNLESS SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF
THE AGREEMENT OF LIMITED PARTNERSHIP OF PGP NORTHERN INDUSTRIAL, L.P., AS
AMENDED FROM TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE
PARTNERSHIP); AND, IN ALL EVENTS, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE LIMITED PARTNERSHIP UNITS
REPRESENTED BY THIS CERTIFICATE (OR ANY SECURITY ISSUED ON ACCOUNT HEREOF
OR WITH RESPECT HERETO) MAY BE MADE UNLESS THE PARTNERSHIP HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION BOTH MUST
BE ACCEPTABLE TO THE PARTNERSHIP IN ITS SOLE DISCRETION) FOR THE HOLDER
THAT, BECAUSE OF THE AVAILABILITY OF AN EXEMPTION, NO SUCH REGISTRATION,
QUALIFICATION OR OTHER COMPLIANCE IS REQUIRED UNDER THE ACT, APPLICABLE
BLUE SKY OR STATE SECURITIES LAWS, OR OTHERWISE."
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner. Notwithstanding
the foregoing, in the event of transfers of Limited Partnership Units by
Original Limited Partners in accordance with the second sentence of Section
11.3A, the transferees shall be admitted as Substituted Limited Partners, and
the General Partner hereby consents to such.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit "A" to reflect the name, address, number of Limited
Partnership Units, and Limited Partner Percentage Interest of such Substituted
Limited Partner.
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Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee as a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Limited Partnership Units assigned to such transferee, but shall not be
deemed to be a holder of Limited Partnership Units for any other purpose under
this Agreement, and shall not be entitled to vote such Limited Partnership Units
for any other purpose under this Agreement, and shall not be entitled to vote
such Limited Partnership Units in any matter presented to the Limited Partners
for a vote (such Limited Partnership Units being deemed to have been voted on
such matters in the same proportion as all other Limited Partnership Units held
by Limited Partners are voted). In the event any such transferee desires to make
a further assignment of any such Limited Partnership Units, such transferee
shall be subject to all of the provisions of this Article 11 to the same extent
and in the same manner as any Limited Partner desiring to make an assignment of
Limited Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all such Limited Partner's Limited Partnership
Units in accordance with this Article 11 or pursuant to any agreement consented
to by the Partnership pursuant to which the Limited Partner's interests in the
Partnership are conveyed and the Limited Partner's withdrawal is provided for.
B. Any Limited Partner who shall transfer all of its Limited Partnership
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Limited Partnership
Units as Substitute Limited Partners. Similarly, any Limited Partner who shall
transfer all of its Limited Partnership Units pursuant to any agreement of the
type referred to in the preceding paragraph shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. Without limiting the restriction of Section 11.6C, if any Partnership
Interest is transferred or assigned during any quarterly segment of the
Partnership's fiscal year in compliance with the provisions of this Article 11
on any day other than the first day of a Partnership Year, then Net Income, Net
Losses,
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each item thereof and all other items attributable to such interest for such
Partnership Year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method. Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
assignment occurs shall be allocated to the transferee Partner, and none of such
items for the calendar month in which a redemption occurs shall be allocated to
a redeeming Partner. All distributions of Available Cash attributable to such
Limited Partnership Unit with respect to which the Partnership Record Date is
before the date of such transfer, assignment, or redemption shall be made to the
transferor Partner, all distributions of Available Cash thereafter attributable
to such Limited Partnership Unit shall be made to the transferee Partner.
Section 11.7 No Exchange
Notwithstanding anything in this Section 11 to the contrary, each of the
Limited Partners hereby agrees that, during the No Exchange Period, it shall be
prohibited from tendering its Limited Partnership Units for exchange or
redemption under the Exchange Rights Agreement.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. The admission of any such transferee shall not cause a dissolution of
the Partnership and such transferee shall carry on the business of the
Partnership in accordance with the forms and provisions of this Agreement. In
each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership Year, all items attributable to the
General Partner Interest for such Partnership Year shall be allocated between
the transferring General Partner and such successor as provided in Section
11.6.D hereof.
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Section 12.2 Admission of Additional Limited Partners
A. Except as otherwise provided elsewhere in this Agreement, after the
admission of Eden to the Partnership as the initial Original Limited Partner on
the date hereof, a Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
of the Partners and Assignees, including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment to this Agreement (including an amendment of Exhibit "A") and, if
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required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs be wound up, only upon the first to occur of any of the following
("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless within ninety (90) days after such
event of withdrawal a majority in interest in capital and profits of the
remaining Partners agree in writing to continue the business of the Partnership
and to the appointment, effective as of the date of withdrawal of a successor
General Partner;
C. an election to dissolve the Partnership made by the General Partner, in
its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties of
the Partnership; provided, however, that the sale of one or more, but less than
all, of the Original Properties shall not be a Liquidating Event so long as the
Partnership retains at least one of the Original Properties; or
F. a final and non-appealable judgment is entered by a court of competent
jurisdiction ruling that the General Partner is bankrupt or insolvent, or a
final and non-appealable order for relief is entered by a court with appropriate
jurisdiction against the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in effect, unless prior
to the entry of such order or judgment all of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
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Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
common stock in the General Partner) shall be applied and distributed in the
following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
reasonable provision for payment thereof);
(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner and its Affiliates (whether by payment or
the reasonable provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the reasonable
provision for payment thereof); and
(4) The balance, if any, to the General Partner and Limited Partners
in accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any special compensation for
any services performed pursuant to this Article 13.
B. Notwithstanding the foregoing, if and after the Partnership acquires
Non-Original Limited Partner Related Assets, or becomes obligated, indebted or
liable for or on account of Non-Original Limited Partner Related Assets or the
ownership or operation thereof, and so long as the General Partner has not
consummated the transactions and made the election described in Sections 4.3B
and 5.2, respectively, of this Agreement, then distributions under the terms of
Section 13.2A shall be calculated and made only with respect to Original Limited
Partner
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Related Assets and the ownership and operation thereof, together with the
operation and existence of the Partnership insofar as such concerns the Original
Limited Partner Related Assets. Distributions under the terms of Section 13.2A
shall not include any revenues, expenses, assets, or liabilities of the
Partnership relating to the Non-Original Limited Partner Related Assets, the
ownership or operation thereof, or the operation or existence of the Partnership
with respect thereto, all of which shall be as separately determined by the
General Partner in its sole and absolute discretion.
C. Anything contained herein to the contrary notwithstanding, pursuant to
the Exchange Rights Agreement all Limited Partnership Units then held by any
Limited Partner (other than Limited Partnership Units held by the General
Partner) will be mandatorily exchanged or redeemed prior to any distribution, or
the determination of any entitlement to any distribution, pursuant to Section
13.2A. As a result of such mandatory exchange or redemption of Limited
Partnership Units, no Limited Partner (other than the General Partner in its
capacity as a Limited Partner) will receive, nor shall he, she or it be entitled
to receive, any distribution upon a Liquidating Event.
D. Notwithstanding the provisions of Section 13.2A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners and their Affiliates
as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in
common and in accordance with the provisions of Section 13.2A hereof, undivided
interests in such Partnership assets as the Liquidator deems not suitable for
liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidator, such distributions in kind are in the best
interest of the Partners, and shall be subject to such conditions relating to
the disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of such
properties at such time. The Liquidator shall determine the fair market value of
any property distributed in kind using such reasonable method of valuation as it
may adopt.
E. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made pursuant to this Article 13 may be:
(1) distributed to one or more trust(s) established for the benefit
of the creditors and the General Partner and Limited Partners for the purposes
of liquidating Partnership
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assets, collecting amounts owed to the Partnership, and paying any contingent,
conditional or unmatured liabilities or obligations of the Partnership or the
General Partner arising out of or in connection with the Partnership. The assets
of any such trust(s) shall be distributed to the creditors and General Partner
and Limited Partners from time to time, in the reasonable direction of the
Liquidator, in the same manner and proportions as the amount distributed to such
trust(s) by the Partnership would otherwise have been distributed to the
creditors and General Partner and Limited Partners pursuant to this Agreement;
and
(2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld or escrowed amounts shall be distributed to the creditors and
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2A as soon as practicable.
Section 13.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
(provided, however, in no event shall the Partnership be liquidated prior to the
date which would be the Settlement Date within the meaning of the Exchange
Rights Agreement for Partners who tender an Exchange Notice (within the meaning
of the Exchange Rights Agreement) on or before the fifth (5th) day after the
date of receipt of the notice of liquidation by the Partnership.
Section 13.4 Deemed Distribution and Re-contribution
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right, power or claim to demand or receive
property other than cash from the Partnership. Except as otherwise provided in
this Agreement, no Limited Partner shall have priority over any other Partner as
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to the return of its Capital Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, a certificate of cancellation shall be filed,
the Partnership shall be terminated, and all qualifications of the Partnership
as a foreign limited partnership in jurisdictions other than the State of
Delaware shall be canceled and such other actions as may be necessary to
terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty-five
percent (25%) or more of the Limited Partner Percentage Interests. Following
such proposal, the General Partner shall submit any proposed amendment to the
Limited Partners. The General Partner shall seek the written vote of the
Partners on the proposed amendment or shall call a meeting to vote thereon and
to transact any other business that it may deem appropriate. For purposes of
obtaining a written vote, the General Partner may require a response within a
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reasonable specified time, but not less than fifteen (15) days, and failure to
respond in such time period shall constitute a vote which is consistent with the
General Partner's recommendation with respect to the proposal. Except as
provided in Section 13.1C, 14.1B, 14.1C, or 14.1D, a proposed amendment shall be
adopted and be effective as an amendment hereto if it is approved by the General
Partner and it receives the Consent of Partners holding a majority of the
Limited Partner Percentage Interests of all Limited Partners; provided, however,
that, except as otherwise provided in Sections 4.3A and 5.2 hereof, any
amendment which materially and adversely alters the right of a Limited Partner
(including an Original Limited Partner) to receive distributions of Available
Cash or allocations of Net Income, Net Loss or any other items in the amounts,
in the priorities or at the times described in this Agreement shall require the
consent of such Limited Partner in order to become effective.
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent or approval of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of other holders of any additional Partnership Interests issued
pursuant to Section 4.3, or otherwise pursuant to the terms of this Agreement;
(4) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement, or make any
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement;
(5) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; and
(6) the purposes set forth in Section 3.3.
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The General Partner shall provide notice to the Limited Partners when any
action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without Consent of each Partner adversely affected if such
amendment would: (i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.3
and Section 14.1.B(3) hereof); (iv) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1; or (v) amend this Section
14.1.C.
D. Notwithstanding Section 14.1.A and 14.1.B hereof, the General Partner
shall not amend Sections 7.4, 7.5, 14.1A, 14.1C or 14.2 without Consent of
Limited Partners holding a majority of the Limited Partner Percentage Interests
of the Limited Partners, excluding Limited Partner Interests held by the General
Partner; and, to the extent that any such amendment would affect the amount,
priority, or timing of distributions to any of the Original Limited Partners or
their heirs, successors and assigns under this Agreement, the General Partner
shall not amend Sections 7.4, 7.5, 14.1A, 14.1C, or 14.2 without Consent of
Original Limited Partners holding a majority of the Limited Partner Percentage
Interests of the Original Limited Partners (in each case including their heirs,
successors and assigns), unless the transactions and election described in,
respectively, Sections 4.3B and 5.2 of this Agreement have occurred and been
made, in which case the special Consent of the Original Limited Partners as
herein provided shall not be required.
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty-five percent
(25%) or more of the Limited Partner Percentage Interests. The request shall
state the nature of the business to be transacted. Notice of any such meeting
shall be given to all Partners not less than seven (7) days nor more than thirty
(30) days prior to the date of such meeting. Partners may vote in person or by
proxy at such meeting. Whenever the vote or consent of the Partners is permitted
or required under this Agreement, such vote or consent may be given at a meeting
of the Partners or may be given in accordance with the procedures prescribed in
Sections 14.1A or 14.2B hereof. Except as otherwise expressly provided in this
Agreement, whenever the Consent of the Limited Partners is required the Consent
of holders of a majority of the Limited Partner Percentage Interests held by
Limited Partners (including
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Limited Partnership Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by Limited Partners holding a majority of the Limited
Partner Percentage Interests (or such other percentage as is expressly required
by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of Limited
Partners holding a majority of the Limited Partner Percentage Interests (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the General Partner and may be
held at the same time, and as part of, meetings of the shareholders of the
General Partner. Anything contained herein to the contrary notwithstanding, all
meetings of the Partners shall be held within the State of California at such
location as may be designated by the General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 No Assurances. Eden acknowledges and agrees that it is
solely responsible for its tax planning and the structuring of this Agreement to
accommodate such tax planning, and that neither the Partnership nor the General
Partner makes any representation or provides any assurance to Eden that the
provisions of this Agreement affecting or impacting Eden's tax planning,
structuring or liability will be respected or upheld by any agency or authority
or achieve the result desired by the
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Limited Partners. Therefore, notwithstanding the provisions of this Agreement,
and without limiting the generality of the foregoing, Eden acknowledges and
agrees that neither the Partnership nor the General Partner makes any
representation or provides any assurance that the allocation provided in section
6.2 will be respected or upheld by any agency or authority or achieve the result
desired by the Limited Partners, or that the Cigna Debt or any refinanced debt
terms or allocation will be respected or upheld by any agency or authority or
achieve the result desired by the Limited Partners.
Section 15.2 Addresses and Notices
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit "A" or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.3 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.4 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.5 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain form taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.6 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.7 Creditors
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Other than as expressly set forth herein with respect to the Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.8 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any covenant, duty, agreement or condition.
Section 15.9 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.10 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.11 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of other
remaining provisions contained herein shall not be affected thereby.
Section 15.12 Entire Agreement
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
Section 15.13 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Limited Partnership Units any rights whatsoever as
shareholders of the General Partner, including, without limitation, any right to
receive dividends or other distributions made to shareholders of the General
Partner or to vote or to consent or to receive notice as shareholders in respect
of any meeting of shareholders for the election of directors of the General
Partner or any other matter. Nothing contained in this Section shall be deemed a
waiver or
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relinquishment of any parties rights under the Exchange Rights Agreement.
Section 15.14 Venue
Any action initiated by any party under this Agreement shall be brought
and prosecuted in the State of California which the parties acknowledge and
agree is a convenient forum in which to
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litigate such action, and the parties waive any right to commence or transfer
such action in or to any other state.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first above written.
GENERAL PARTNER:
PACIFIC GULF PROPERTIES INC., a Maryland
corporation
By:__________________________________________
Glenn L. Carpenter, President and Chief
Executive Officer
By:__________________________________________
Donald G. Herrman, Executive Vice
President, Chief Financial Officer and
Secretary
EDEN:
EDEN PLAZA ASSOCIATES, LLC, a California
limited liability company
By: ________________________________________
Elbert P. Bressie, Managing Member
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EXHIBIT A
Partners Contributions and Partnership Interests
<TABLE>
<CAPTION>
Limited
Limited Partner
Name and Address Cash Agreed Value of Total Partnership Percentage
of Partner Contribution Contributed Property Contribution Units Interest
- ---------------- ------------ -------------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
General Partner
Pacific Gulf $4,300,000** N/A $ 4,300,000** N/A N/A
Properties Inc.
4220 Von Karman, Second Floor
Newport Beach, California 92660
Attn: Don Herrman
Limited Partners
Eden Plaza N/A $2,857,062.21* $2,857,062.21 143,391 100%
Associates, LLC
520 Third Street, Suite 555
San Francisco, California 94107
Attn: Elbert Bressie
</TABLE>
* SEE NOTE ON EXHIBIT D
** ESTIMATE SUBJECT TO CHANGE
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<PAGE> 71
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1B of the
Agreement and Exhibit "C" hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1A of the Agreement and Exhibit "C"
hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal tax purposes determined in accordance
with Section 703(a) of the Code (for this purpose all items of income, gain,
loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code which may be made by the Partnership, provided that the amounts of any
adjustments to the adjusted bases of the assets of the Partnership made pursuant
to Section 734 of the Code as a result of the distribution of property by the
Partnership to a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts) shall be reflected
in the Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
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<PAGE> 72
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(4) In lieu of depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall
be taken into account as gain or loss from the disposition of such asset.
(6) Any items specifically allocated under Section 1 of Exhibit "C"
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Limited
Partnership Unit shall succeed to a pro rata portion of the Capital Account of
the transferor; provided, however, that if the transfer causes a termination of
the Partnership under Section 708(b)(1)(B) of the Code, the Partnership's
properties shall be deemed solely for federal income tax purposes, to have been
contributed to the successor Partnership. The Capital Accounts of such successor
Partnership shall be maintained in accordance with the principles of this
Exhibit "B".
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D.(2), the Carrying Value of
all Partnership assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D.(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c) immediately prior to
the liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if the General Partner determines that such
adjustments are necessary or appropriate to reflect economic interests of the
Partners in the Partnership.
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<PAGE> 73
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit "B", the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it may adopt,
or in the case of a liquidating distribution pursuant to Article 13 of the
Agreement, shall be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for individual properties).
E. The provisions of this Agreement (including this Exhibit "B" and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
where appropriate, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
make any adjustments that are necessary or appropriate to maintain equality
between Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes; and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv)
conventions for the
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<PAGE> 74
determination of cost recovery, depreciation and amortization deductions, as it
determines in its sole discretion are necessary or appropriate to execute the
provisions of this Agreement, to comply with federal and state tax laws, and are
in the best interest of the Partners.
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions or
on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
4. Non-Original Limited Partner Related Assets
Notwithstanding the foregoing, if and after the Partnership acquires
Non-Original Limited Partner Related Assets, or becomes obligated, indebted or
liable for or on account of Non-Original Limited Partner Related Assets or the
ownership or operation thereof, and so long as the General Partner has not
consummated the transactions and made the election described in Sections 4.3B
and 5.2, respectively, of this Agreement, then allocations provided for in this
Exhibit "B" shall be calculated separately with respect to Original Limited
Partner Related Assets and the ownership and operation thereof, together with
the operation and existence of the Partnership insofar as such concerns the
Original Limited Partner Related Assets and the ownership and operation thereof.
Such allocations and calculations shall not include any revenues, expenses,
assets, or liabilities of the Partnership relating to the Non-Original Limited
Partner Related Assets, the ownership or operation thereof, or the operation or
existence of the Partnership with respect thereto, all of which shall be
separately determined by the General Partner in its sole and absolute
discretion.
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<PAGE> 75
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit "C",
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this Exhibit "C", if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704- 2(f)(6). This
Section 1.A is intended to comply with the minimum gain chargeback requirements
in Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.A, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of Partner Minimum Gain during such Partnership taxable
year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of
Section 6.1 of this Agreement or any other provisions of this Exhibit "C"
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain charge- back requirement in such Section of the
Regulations and shall be interpreted consistently therewith. Solely for purposes
of this Section 1.B, each Partner's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to Section 6.1 of the
Agreement or this Exhibit with respect to such
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<PAGE> 76
Partnership taxable year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
and after giving effect to the allocations required under Sections 1.A and 1.B
hereof such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain for the Partnership taxable
year) shall be specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its Adjusted
Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the General Partner. If the General Partner
determines in its good faith discretion that the Partnership's Nonrecourse
Deductions must be allocated in a different ratio to satisfy the safe harbor
requirements of the Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the Limited Partners, to
revise the prescribed ratio to the numerically closest ratio for such
Partnership taxable year which satisfy such requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonre-course Deductions
for any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. Curative Allocations. The allocations set forth in Section 1.A through
1.F of this Exhibit "C" (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations under Section 704(b) of the Code.
The Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accord-
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ingly, the General Partner is hereby authorized to divide other allocations of
income, gain, deduction and loss among the Partners so as to prevent the
Regulatory Allocations from distorting the manner in which Partnership
distributions will be divided among the Partners. In general, the Partners
anticipate that this will be accomplished by specially allocating other items of
income, gain, loss and deduction among the Partners so that the net amount of
the Regulatory Allocations and such special allocations to each person is zero.
However, the General Partner will have discretion to accomplish this result in
any reasonable manner; provided, however, that no allocation pursuant to this
Section 1.G shall cause the Partnership to fail to comply with the requirements
of Regulations Sections 1.7041(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit "C".
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such
items attributable thereto shall be allocated
among the Partners, consistent with the
principles of Section 704(c) of the Code and
the Regulations thereunder, to take into
account the variation between the 704(c)
Value of such property and its adjusted basis
at the time of contribution; and
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit "C".
(2) (a) In the case of an Adjusted Property, such items
shall
(1) first, be allocated among the Partners in a manner
consistent with the principals of Section 704(c) of the
Code and the Regulations thereunder to take into account
the Unrealized Gain or Unrealized Loss attribut-
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able to such property and the allocations
thereof pursuant to Exhibit "B"; and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in
a manner consistent with Section 2.B(1) of this Exhibit
"C"; and
(b) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit "C".
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of this Exhibit
"C".
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.
3. No Withdrawal
No Partner shall be entitled to withdrawal any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
4. Non-Original Limited Partner Related Assets
Notwithstanding the foregoing, if and after the Partnership acquires
Non-Original Limited Partner Related Assets, or becomes obligated, indebted or
liable for or on account of Non-Original Limited Partner Related Assets or the
ownership or operation thereof, and so long as the General Partner has not
consummated the transactions and made the election described in Sections 4.3B
and 5.2, respectively, of this Agreement, then allocations provided for in this
Exhibit "C" shall be calculated separately with respect to Original Limited
Partner Related Assets and the ownership and operation thereof, together with
the operation and existence of the Partnership insofar as such concerns the
Original Limited Partner Related Assets and the ownership and operation thereof.
Such allocations and calculations shall not
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include any revenues, expenses, assets, or liabilities of the Partnership
relating to the Non-Original Limited Partner Related Assets, the ownership or
operation thereof, or the operation or existence of the Partnership with respect
thereto, all of which shall be separately determined by the General Partner in
its sole and absolute discretion.
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<PAGE> 80
EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
<TABLE>
<CAPTION>
Underlying Property 704(c) Value Agreed Value
- ------------------- ------------ ------------
<S> <C> <C>
Eden Plaza, $18,498,185.50 $2,857,062.21
Eden Rock #5,
Eden Rock #9,
Eden Rock #10.
</TABLE>
[*704(c) VALUE IS THE AGREED VALUE PLUS THE AMOUNT OF THE CIGNA
DEBT AT CLOSING PRIOR TO ANY REDUCTION]
[**THE AGREED VALUE OF THE ORIGINAL PROPERTIES SHALL BE THE "EDEN
CAPITAL CONTRIBUTION" AS DEFINED IN THE MASTER CONTRIBUTION AGREEMENT]
<PAGE> 81
EXHIBIT E
PROPERTY MANAGEMENT AGREEMENT
THIS PROPERTY MANAGEMENT AGREEMENT (this "AGREEMENT") is made and entered
into as of ______________, by and between PGP SOUTHERN INDUSTRIAL, L.P., a
Delaware limited partnership ("OWNER") and Pacific Gulf Properties Inc., a
Maryland corporation ("MANAGER") with reference to the following.
RECITALS
A. The Owner is the owner of an industrial park located on the land
identified in Exhibit A attached hereto (the "PROJECT"). Manager is the sole
general partner of Owner.
B. Manager is experienced in managing and operating properties similar to
the Project, and Manager possesses the personnel, skills and experience
necessary for the efficient management and operation of the Project.
C. Owner desires to engage Manager to manage and operate the Project, and
Manager desires to render such management services to Owner, upon and subject to
the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, Owner and Manager agree as follows:
1. ENGAGEMENT OF MANAGER.
1.1 Exclusive Manager. Owner engages Manager as, and Manager agrees
to serve as, the sole and exclusive manager of the Project, with the authority
to direct, supervise and manage the operation of the Project, for the period of
time and upon the terms and conditions hereinafter set forth.
1.2 Employment of Personnel. Manager shall investigate, hire, train,
pay, supervise and discharge the personnel reasonably necessary to be employed
in order to properly maintain and operate the Project. All salaries, wages and
other compensation of personnel employed by Manager hereunder, including
so-called fringe benefits, medical health insurance, pension plans, social
security taxes, Worker's Compensation insurance and the like (collectively, the
"PERSONNEL COMPENSATION"), shall be payable by Manager from, and reimbursable to
Manager out of, gross revenues generated from the operation of the Project,
including, without limitation, all rent and/or lease payments, security,
cleaning, and other deposits, common area maintenance charges, taxes, insurance,
casualty
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<PAGE> 82
and/or condemnation loss proceeds and other income due to Owner from each
Project ("PROJECT REVENUES"). Personnel Compensation shall not reduce the
"MANAGEMENT FEE" (defined below).
2. DUTIES OF MANAGER.
2.1 Performance of Duties. During the term of this Agreement,
Manager agrees, for and in consideration of the compensation set forth herein,
to supervise and direct the management and operation of the Project on behalf of
Owner and for the account of Owner in an efficient and satisfactory manner as an
industrial park. Manager shall at all times maintain an organization, systems
and personnel sufficient to enable it to carry out all its duties, obligations
and functions under this Agreement. Manager will perform its duties under this
Agreement in accordance with all laws, codes and regulations applicable to the
Project.
2.2 Service Contracts. Manager shall make or renew in Owner's name
as agent of Owner and at Owner's expense, contracts and/or leases for water,
electricity, gas, telephone, vermin extermination, landscape, trash removal and
other services deemed by Manager or Owner to be necessary or advisable for the
operation of the Project. In entering into any contracts or leases herein
contemplated, Manager shall include as a condition thereof the right to
terminate on thirty (30) calendar days' prior written notice with or without
cause, unless Manager obtains the prior written consent of Owner.
2.3 Leasing. Manager shall be responsible for coordinating the
leasing activities of the Project. Manager is hereby authorized to contract, in
Owner's name as agent of Owner and at Owner's expense, with such brokers and
leasing agents as Manager deems necessary or appropriate to facilitate the
leasing activities of the Project. Manager is hereby authorized to prepare,
execute, deliver and renew all leases, lease amendments and lease renewals and
extensions, and to terminate tenancies, evict tenants and recover possession of
rented space within the Project, prosecute legal actions in the name of Owner in
connection with the foregoing, settle, compromise and/or release such actions or
reinstate such tenancies, as Manager deems necessary or appropriate, all on
Owner's behalf and as agent of Owner and at Owner's expense. References of all
prospective tenants shall be investigated carefully by Manager, and Manager
shall use reasonable efforts to ensure that space in the Projects is rented to
desirable and financially responsible tenants.
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<PAGE> 83
2.4 Payment of Expenses. Manager shall establish and maintain on
behalf of Owner at a bank or banks as Manager may, from time to time, determine,
an account for the Project (an "Account"). Manager shall collect all Project
Revenue, and deposit all such income in the Account for the Project. From the
Account, Manager shall make such disbursements to pay Project operating
expenses, including, without limitation, Personnel Compensation, as are
necessary, in Manager's reasonable judgment, to manage, operate and maintain the
Project as provided in this Agreement. All items specified herein to be at
Owner's expense shall be considered operating expenses of the Project.
2.5 Funding Of Account. Owner agrees to deposit moneys into the
Account in the amount and to the extent that Project Revenues are insufficient
to pay any operating expenses, including Personnel Compensation, hereunder.
Manager shall notify Owner in writing as to the amount of any such
insufficiency.
3. INSURANCE. The Manager shall obtain, upon Owner's request and approval,
at Owner's cost and expense, such insurance as may be required by Owner in
connection with the Project, including, without limitation, comprehensive
general public liability, contractual liability and such other insurance as
Owner deems necessary or desirable. Owner shall designate Manager as an
additional named insured on each such insurance policy.
4. MANAGER'S COMPENSATION.
4.1 Management Fee. In consideration of the management services to
be rendered by Manager pursuant to Article 2 of this Agreement, Manager shall
receive as compensation a monthly sum equal to four percent (4%) of all Project
Revenues from the Project collected during each month during the term of this
Agreement (the "MANAGEMENT FEE").
4.2 Payment of Management Fee. The Management Fee shall be paid on
the first day of each calendar month during the term of this Agreement, based
upon the Project Revenues from the Project collected for the preceding calendar
month. If the term of this Agreement begins on a date other than the first day
of a month or ends on a date other than the last day of a month, the Management
Fee shall be prorated based on the number of days in such month.
4.3 Other Compensation. Manager shall be separately compensated for
any services other than the usual and customary services performed in its
capacity as the manager of the Project; provided that Manager shall not perform
any extraordinary services without obtaining the prior written approval of
Owner.
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<PAGE> 84
5. BOOKS, RECORDS AND STATEMENTS.
5.1 Maintenance and Access of Records. Manager agrees to maintain
adequate accounting records (which records shall be and remain the property of
Owner) in connection with all matters contemplated by this Agreement in
accordance with the provisions of this Agreement.
5.2 Operating Budget. Within thirty (30) calendar days after the
execution of this Agreement, Manager shall prepare and submit to Owner for its
approval a proposed operating budget setting forth in reasonable detail the
estimated income and operating expenses of the Project, by month, for the
remainder of the then calendar year for which this Agreement is in effect. On or
before thirty (30) calendar days before each subsequent calendar year during the
term of this Agreement, Manager shall prepare and submit to Owner for its
approval a proposed operating budget setting forth in reasonable detail the
estimated income and operating expenses of the Project, by month, for the
succeeding calendar year.
Owner will consider the proposed budgets and then will consult with the
Manager in the ensuing period prior to the commencement of the forthcoming
calendar year in order to agree on an "APPROVED OPERATING BUDGET." The parties
will use reasonable efforts to agree upon an Approved Operating Budget for the
forthcoming calendar year on or before December 15th of the then current
calendar year. If the parties are unable to reach such agreement, the Approved
Operating Budget for the forthcoming calendar year will be established by Owner.
Manager agrees to employ reasonable efforts to ensure that the actual
costs of maintaining and operating the Project shall not exceed the Approved
Operating Budget, either in total or in any one accounting category. In the
event it appears to Manager that the actual costs of maintaining and operating
the Project shall exceed the Approved Operating Budget, Manager shall submit a
revised budget proposal for Owner's approval as provided above. Upon approval,
such revised budget shall become the Approved Operating Budget. In all events,
Owner shall pay all actual costs of maintaining and operating the Project.
5.3 Capital Expenditure Budget. Within thirty (30) calendar days
after the execution of this Agreement, Manager shall prepare and submit to Owner
for its approval a proposed capital expenditure budget setting forth in
reasonable detail the estimated capital expenditures of the Project, by month,
for the remainder of the then calendar year for which this Agreement is in
effect. On or before thirty (30) calendar days before each subsequent calendar
year during the term of this Agreement, Manager shall prepare and submit to
Owner for its approval a proposed capital expenditure budget setting forth in
reasonable detail the estimated capital expenditures of the Project, by month,
for the succeeding calendar year.
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<PAGE> 85
Owner will consider the proposed budgets and then will consult with
Manager in the ensuing period prior to the commencement of the forthcoming
calendar year in order to agree on an "APPROVED CAPITAL BUDGET." The parties
will use reasonable efforts to agree upon an Approved Capital Budget for the
succeeding calendar year on or before December 15th of the then current calendar
year. If the parties are unable to reach such agreement, the Approved Capital
Budget for the forthcoming calendar year will be established by Owner.
6. TERM.
6.1 Initial Term. The term of this Agreement shall commence as of
the date first set forth above and shall continue for an initial term ending on
__________. Unless written notice to terminate is given by either party to the
other at least thirty (30) days prior to the end of the initial term, this
Agreement shall be automatically renewed for another _________ year term, upon
and subject to the terms and conditions set forth in this Agreement.
6.2 Termination. This Agreement may be terminated for "cause" at any
time by Owner upon thirty (30) days prior written notice to Manager setting
forth in detail the "cause" for such termination. The term "cause" shall mean
(i) any material breach of this Agreement by Manager, (ii) any willful
misconduct, intentional misrepresentation or gross negligence of Manager related
to, or in connection with, the management and operation of the Project, (iii)
the commencement of a case under Title 11 U.S.C., or under any similar
insolvency proceeding under applicable state or federal law, involving Manager
as debtor, (iv) Owner's transfer or sale of the Property to an independent third
party, (v) the occurrence of a total destruction of the Project, and (vi) the
taking of the Project by condemnation, eminent domain, or by agreement in lieu
thereof.
7. INDEMNIFICATION AND HOLD HARMLESS. Neither Manager nor any employee of
Manager shall be liable, responsible or accountable in damages or otherwise to
Owner for any acts performed by it in good faith and within the scope of this
Agreement if any such act or failure to act is not attributable to Manager's or
such employee's gross negligence or willful misconduct. Owner shall indemnify,
defend and hold Manager (and each employee thereof) harmless for any loss,
damage, liability, cost or expense (including reasonable attorneys' fees)
arising out of any act or failure to act by Manager (or any employee thereof) if
such act or failure to act is in good faith, is within the scope of this
Agreement, and is not attributable to Manager's or such employee's gross
negligence or willful misconduct.
-5-
<PAGE> 86
8. MISCELLANEOUS.
8.1 Applicable Law. This Agreement shall be construed
in accordance with the laws of the State of California.
8.2 Severability. Each provision of this Agreement is intended to be
severable. If any term or provision of this Agreement shall be determined by a
court of competent jurisdiction to be illegal or invalid for any reason
whatsoever, that provision shall be severed from this Agreement and shall not
affect the validity of the remainder of this Agreement.
8.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
IN WITNESS OF THE FOREGOING, Owner and Manager have caused their duly
authorized representatives to execute this Agreement as of the date first above
written.
OWNER:
PGP NORTHERN INDUSTRIAL, L.P.,
a Delaware limited partnership
By: Pacific Gulf Properties Inc.,
a Maryland corporation,
its General Partner
By: _________________________
Name: _________________________
Title: ________________________
By: _________________________
Name: _________________________
Title: ________________________
MANAGER:
PACIFIC GULF PROPERTIES INC.,
a Maryland corporation
By: ______________________________
Name: ______________________________
Title:______________________________
By: ______________________________
Name:_______________________________
Title: _____________________________
-6-
<PAGE> 87
EXHIBIT A
LEGAL DESCRIPTION
THE LAND REFERRED TO IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF ALAMEDA,
CITY OF HAYWARD, DESCRIBED AS FOLLOWS:
PARCEL 1:
PARCEL 1, PARCEL MAP 1288, FILED SEPTEMBER 25, 1973, BOOK 80 OF PARCEL MAPS,
PAGE 27, ALAMEDA COUNTY RECORDS.
ASSESSOR'S PARCEL NO. 461-0015-028
PARCEL 2:
PARCEL 1, PARCEL MAP 939, FILED JULY 13, 1972, BOOK 76 OF PARCEL MAPS, PAGE 10,
ALAMEDA COUNTY RECORDS.
EXCEPTING THEREFROM THAT PORTION DESCRIBED IN THE DEED TO EDEN ROCK CO. NO. 3,
A JOINT VENTURE, RECORDED JULY 31, 1978, REEL 5508, IMAGE 378, SERIES NO.
78-145175, OFFICIAL RECORDS.
ASSESSOR'S PARCEL NO. 461-0015-020-2
PARCEL 3:
PARCEL 2, PARCEL MAP NO. 939, FILED JULY 13, 1972, IN BOOK 76 OF PARCEL MAPS,
PAGE 10, ALAMEDA COUNTY RECORDS.
TOGETHER WITH:
ALL THAT CERTAIN REAL PROPERTY BEING A PORTION OF PARCEL 1 AS SHOWN ON "PARCEL
MAP NO. 939" WHICH MAP IS FILED IN BOOK 76 OF PARCEL MAPS AT PAGE 10, ALAMEDA
COUNTY RECORDS, SAID REAL PROPERTY BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE CORNER COMMON TO PARCELS 1 AND 2 ON THE NORTHWESTERLY LINE OF
CORPORATE PLACE, AS SHOWN ON THE ABOVE MENTIONED PARCEL MAP, THENCE FROM SAID
POINT OF BEGINNING ALONG SAID NORTHERLY LINE SOUTH 76 DEGREES 38'05" WEST 8.22
FEET; THENCE LEAVING THE LAST SAID LINE AND RUNNING ALONG A LINE PARALLEL TO AND
7.806 FEET SOUTHWESTERLY AT RIGHT ANGLES, FROM THE DIVIDING LINE BETWEEN SAID
PARCELS 1 AND 2 NORTH 31 DEGREES 37'51" WEST 205.78 FEET; THENCE LEAVING SAID
PARALLEL LINE NORTH 58 DEGREES 22'09" EAST 7.806 FEET TO SAID DIVIDING LINE;
THENCE ALONG THE LAST SAID LINE SOUTH 31 DEGREES 37'51" EAST 208.356 FEET TO THE
POINT OF BEGINNING.
SAID REAL PROPERTY IS THE SAME AS "LOT LINE ADJUSTMENT NO. 77-4" APPROVED BY THE
CITY OF HAYWARD PLANNING COMMISSION ON SEPTEMBER 22, 1977.
ASSESSOR'S PARCEL NO. 461-0015-021-01
-7-
<PAGE> 88
PARCEL 4:
PARCEL ONE OF AMENDED PARCEL MAP 1035 FILED SEPTEMBER 5, 1975 IN BOOK 80 OF
PARCEL MAPS ON PAGE 15, ALAMEDA COUNTY RECORDS.
ASSESSOR'S PARCEL NO. 461-0085-018-03 (PORTION).
PARCEL 5:
PORTION OF INVESTMENT BOULEVARD, AS SAID BOULEVARD WAS ESTABLISHED BY THE GRANT
OF EASEMENT FROM EDEN LANDING CORPORATION, A CALIFORNIA CORPORATION, TO THE CITY
OF HAYWARD, A MUNICIPAL CORPORATION, DATED JUNE 20, 1967, AND RECORDED JULY 24,
1967 IN REEL 2005 OF OFFICIAL RECORDS OF ALAMEDA COUNTY AT IMAGE 500 (AZ-71982),
DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTHERLY RIGHT OF WAY LINE OF INVESTMENT
BOULEVARD WITH THE EASTERLY RIGHT OF WAY LINE OF EDEN LANDING ROAD AS SHOWN ON
PARCEL MAP NO. 1035 FILED IN BOOK 79 OF PARCEL MAPS, PAGE 28, IN THE OFFICE OF
THE ALAMEDA COUNTY RECORDER; THENCE ALONG SAID NORTHERLY RIGHT OF WAY LINE OF
INVESTMENT BOULEVARD THE FOLLOWING THREE COURSES: 1) SOUTH 81 DEGREES 53'26"
EAST 40.130 FEET; 2) SOUTH 48 DEGREES 12'02" EAST 61.294 FEET; 3) SOUTH
08 DEGREES 06'34" WEST 40.000 FEET; THENCE LEAVING SAID NORTHERLY RIGHT OF WAY
LINE NORTH 81 DEGREES 53'26" WEST 67.124 FEET TO A TANGENT CURVE TO THE RIGHT;
THENCE ALONG SAID TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 24.000 FEET
THROUGH A CENTRAL ANGLE OF 89 DEGREES 59'35" AN ARC DISTANCE OF 37.696 FEET;
THENCE NORTH 08 DEGREES 06'09" EAST 50.003 FEET TO THE POINT OF BEGINNING.
ASSESSOR'S PARCEL NO. 416-0085-018-03
-8-
<PAGE> 1
Exhibit 10.41
AGREEMENT OF LIMITED PARTNERSHIP
OF
MORNING VIEW TERRACE - PGP, L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1
DEFINED TERMS.............................................................. 1
ARTICLE 2
ORGANIZATIONAL MATTERS..................................................... 9
SECTION 2.1 ORGANIZATION............................................. 9
SECTION 2.2 NAME..................................................... 9
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE............ 9
SECTION 2.4 POWER OF ATTORNEY........................................ 9
SECTION 2.5 TERM..................................................... 10
ARTICLE 3
PURPOSE.................................................................... 11
SECTION 3.1 PURPOSE AND BUSINESS..................................... 11
SECTION 3.2 POWERS................................................... 11
ARTICLE 4
CAPITAL.................................................................... 11
SECTION 4.1 CAPITAL OF THE PARTNERS.................................. 11
SECTION 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS............ 12
SECTION 4.3 PREEMPTIVE RIGHTS........................................ 12
SECTION 4.4 GENERAL PARTNER LOANS.................................... 13
ARTICLE 5
DISTRIBUTIONS.............................................................. 13
SECTION 5.1 AMOUNT AND PRIORITY OF QUARTERLY DISTRIBUTIONS.......... 13
SECTION 5.2 FIRST DISTRIBUTION....................................... 13
SECTION 5.3 AMOUNTS WITHHELD......................................... 14
SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION........................... 14
ARTICLE 6
ALLOCATIONS................................................................ 14
SECTION 6.1 ALLOCATIONS OF NET INCOME AND NET LOSS................... 14
SECTION 6.2 OTHER ALLOCATIONS........................................ 15
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS...................................... 16
SECTION 7.1 MANAGEMENT............................................... 16
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP....................... 19
SECTION 7.3 NO PROPERTY TRANSFER PERIOD.............................. 19
SECTION 7.4 NO PAY DOWN PERIOD....................................... 19
SECTION 7.5 NO DISSOLUTION ACTION.................................... 20
SECTION 7.6 NO TAX TERMINATION OR DISSOLUTION........................ 20
SECTION 7.7 MANAGEMENT FEE AND REIMBURSEMENT OF THE GENERAL PARTNER.. 20
SECTION 7.8 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER................ 21
SECTION 7.9 CONTRACTS WITH AFFILIATES................................ 21
SECTION 7.10 INDEMNIFICATION......................................... 21
SECTION 7.11 LIABILITY OF THE GENERAL PARTNER........................ 23
SECTION 7.12 OTHER MATTERS CONCERNING THE GENERAL PARTNER............ 24
SECTION 7.13 TITLE TO PARTNERSHIP ASSETS............................. 24
SECTION 7.14 RELIANCE BY THIRD PARTIES............................... 24
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................................. 25
SECTION 8.1 LIMITATION OF LIABILITY.................................. 25
SECTION 8.2 MANAGEMENT OF BUSINESS................................... 25
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS................... 25
SECTION 8.4 RETURN OF CAPITAL........................................ 26
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP... 26
SECTION 8.6 NO REDEMPTION RIGHT...................................... 27
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS..................................... 27
SECTION 9.1 RECORDS AND ACCOUNTING................................... 27
SECTION 9.2 FISCAL YEAR.............................................. 27
SECTION 9.3 REPORTS.................................................. 27
ARTICLE 10
TAX MATTERS................................................................ 28
SECTION 10.1 PREPARATION OF TAX RETURNS.............................. 28
SECTION 10.2 TAX ELECTIONS........................................... 28
SECTION 10.3 TAX MATTERS PARTNER..................................... 28
SECTION 10.4 ORGANIZATIONAL EXPENSES................................. 29
SECTION 10.5 WITHHOLDING............................................. 29
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 11
TRANSFERS AND WITHDRAWALS.................................................. 30
SECTION 11.1 TRANSFER................................................ 30
SECTION 11.2 TRANSFER OF THE GENERAL PARTNER'S PARTNER INTEREST AND
LIMITED PARTNER INTEREST................................ 31
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.................... 31
SECTION 11.4 SUBSTITUTED LIMITED PARTNERS............................ 32
SECTION 11.5 ASSIGNEES............................................... 32
SECTION 11.6 GENERAL PROVISIONS...................................... 32
SECTION 11.7 NO EXCHANGE............................................. 33
ARTICLE 12
ADMISSION OF PARTNERS...................................................... 34
SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER.................. 34
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS................ 34
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP............................................. 35
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION................................... 35
SECTION 13.1 DISSOLUTION............................................. 35
SECTION 13.2 WINDING UP.............................................. 35
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS...... 37
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION.................. 37
SECTION 13.5 RIGHTS OF LIMITED PARTNERS.............................. 37
SECTION 13.6 NOTICE OF DISSOLUTION................................... 37
SECTION 13.7 TERMINATION OF PARTNERSHIP AND CANCELLATION OF
CERTIFICATE OF LIMITED PARTNERSHIP...................... 38
SECTION 13.8 REASONABLE TIME FOR WINDING-UP.......................... 38
SECTION 13.9 WAIVER OF PARTITION..................................... 38
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............................... 38
SECTION 14.1 AMENDMENTS.............................................. 38
SECTION 14.2 MEETINGS OF THE PARTNERS................................ 39
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 15
GENERAL PROVISIONS......................................................... 40
SECTION 15.1 ADDRESSES AND NOTICES................................... 40
SECTION 15.2 TITLES AND CAPTIONS..................................... 40
SECTION 15.3 PRONOUNS AND PLURALS.................................... 40
SECTION 15.4 FURTHER ACTION.......................................... 41
SECTION 15.5 BINDING EFFECT.......................................... 41
SECTION 15.6 CREDITORS............................................... 41
SECTION 15.7 WAIVER.................................................. 41
SECTION 15.8 COUNTERPARTS............................................ 41
SECTION 15.9 APPLICABLE LAW.......................................... 41
SECTION 15.10 INVALIDITY OF PROVISIONS.............................. 41
SECTION 15.11 ENTIRE AGREEMENT...................................... 41
SECTION 15.12 NO RIGHTS AS SHAREHOLDERS............................. 42
EXHIBIT A PARTNERS CAPITAL AND PARTNERSHIP INTERESTS
EXHIBIT B CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C SPECIAL ALLOCATION RULES
EXHIBIT D VALUE OF EXISTING PROPERTY
EXHIBIT E TRANSACTION DOCUMENTS
</TABLE>
- iv -
<PAGE> 6
AGREEMENT OF LIMITED PARTNERSHIP
OF
MORNING VIEW TERRACE - PGP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF MORNING VIEW TERRACE - PGP, L.P.
(this "Agreement"), dated June 12, 1997 (the "Effective Date"), is entered into
by and among PGP Morning View Terrace Holdings Inc., a Delaware corporation, as
the general partner (the "General Partner"), and the Persons (as defined below)
whose names are set forth on Exhibit A as attached hereto (as it may be amended
from time to time), collectively as the limited partners (the "Limited
Partners").
WHEREAS, the Limited Partners formed that certain general partnership
known as Morning View Terrace, a California general partnership (the "California
General Partnership"), pursuant to that certain General Partnership Agreement of
Morning View Terrace dated November 6, 1984, as amended (the "Prior Agreement");
WHEREAS, the General Partner was admitted to the California General
Partnership as a general partner through an amendment to the Prior Agreement;
WHEREAS, the General Partner and the Limited Partners have entered into an
Agreement and Plan of Conversion of even date herewith whereby the California
General Partnership is being converted (the "Conversion") to a Delaware Limited
Partnership (the "Partnership");
WHEREAS, as a part of the Conversion, the General Partner and the Limited
Partners desire to amend and restate the Prior Agreement under the laws of the
State of Delaware; and
WHEREAS, upon admission to the California General Partnership, the General
Partner made certain capital contributions.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto amend and restate the Partnership Agreement,
and do hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Added Net Value" means an amount computed by dividing (i) the positive
difference, if any, of Available Cash for the period from and including the
Effective Date to and including the Date over $1,930,500, multiplied by 50%, by
(ii) .083.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on the
books and records of the Partnership.
1
<PAGE> 7
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership taxable year (i) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership taxable year.
"Adjusted Property" means any property, the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof. The parties hereto agree that as a
result of the admission of the General Partner just prior to Conversion, the
Carrying Value of the Existing Property shall have been adjusted in accordance
with Exhibit B hereof, and as of the Effective Date, the Existing Property is
included in the definition of Adjusted Property.
"Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
"Agreed Value" means (i) in the case of the Existing Property, the Net
Value; (ii) in the case of any other property and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, Partnership gross revenues less (i) operation and
maintenance expenses (including, but not limited to, reserves for property taxes
and insurance), (ii) debt service on Partnership debt, and (iii) management fees
and expenses.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's
2
<PAGE> 8
Capital Account balance as maintained pursuant to Exhibit B and the hypothetical
balance of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California are authorized or required by
law to close.
"California General Partnership" means Morning View Terrace, a California
general partnership.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital " means, with respect to the Limited Partners, the Agreed Value
of the Existing Property, with respect to the General Partner, the cash
contributed to the Partnership, and with respect to the Additional Limited
Partners, the cash, cash equivalents or the Agreed Value of property which such
Partner contributes or is deemed to contribute to the Partnership, pursuant to
Section 4.1 hereof.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the date hereof with respect to such Property; and
(ii) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereof, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Certificate" means a Certificate of Limited Partnership relating to the
Partnership to be filed with the execution and delivery hereof, or as soon
thereafter as is practicable in the office of the Delaware Secretary of State,
as amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provisions of future law.
"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash), contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership as a result of the termination thereof pursuant to Section 708 of
the Code and the regulations thereunder to the extent the property was
Contributed Property prior to the Section 708 termination). Once the Carrying
Value of Contributed Party is adjusted pursuant to Exhibit B hereof, such
property shall no longer constitute Contributed Property for purposes of Exhibit
B hereof, but shall be deemed an Adjusted Property for such purposes.
"Conversion" means the process of converting the California General
Partnership to the Partnership pursuant to Section 17-217 of the Act and Article
9 of the California Uniform Partnership Act of 1994 (being Section 16901 et seq.
of the California Corporations Code).
3
<PAGE> 9
"Date" means the date which is eighteen (18) months after the Effective
Date.
"Depreciation" means, for each taxable year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Effective Date" means the effective date set forth in the Certificate of
Conversion filed with the Delaware Secretary of State.
"Excess Distributions" means distributions to a Limited Partner for all
periods in excess of allocations of Net Income to the Limited Partner for all
periods pursuant to Section 6.1A(3).
"Excess Transfer" means the sale or transfer or conversion of at least
eighty percent (80%), in the aggregate, of the Partnership Units received by the
Original Limited Partners and/or their respective successors and assigns in
transactions not constituting transfers permitted under this Agreement. For
purposes of the foregoing, a pledge, encumbrance or hypothecation of a
Partnership Unit or an interest therein shall not constitute a sale, transfer or
conversion.
"Exchange Rights Agreement" means that certain Exchange Rights Agreement,
dated as of June 12, 1997, by and among PGP, the Partnership and all of the
Limited Partners.
"Existing Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash) held by the Partnership on the
date hereof.
"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
4
<PAGE> 10
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnification Agreement" means that certain indemnification agreement,
dated June 12, 1997, by and among PGP, the Delaware Limited Partnership, Terrace
Gardens - PGP, L.P., and Pacific Inland Communities, LLC..
"Indemnitee" means any Person made a party to a proceeding or against whom
a claim is made by reason of (i) his status as the General Partner, or as a
director, officer, employee, partner, agent, representative or Affiliate of the
General Partner, or (ii) his or its liabilities pursuant to a loan guarantee or
otherwise for or as a result of any indebtedness or obligation of the
Partnership or any Subsidiary of the Partnership (including, without limitation,
the Tax Exempt Debt prior to and subsequent to any refunding thereof and any
indebtedness or obligation which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to). Notwithstanding the
foregoing, no Original Limited Partner shall be treated as an Indemnitee in
connection with the Tax Exempt Debt (as it may be refunded from time to time) or
in respect of the Indemnification Agreement.
"Limited Partner" means any Person named as a Limited Partner in Exhibit A
attached hereto, as such Exhibit may be amended from time to time, or any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner of the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Master Reimbursement Agreement" means the Master Reimbursement Agreement,
dated as of December 1, 1996 and amended and restated as of June 1, 1997, by and
among the Federal National Mortgage Association, Pacific Inland Communities,
LLC, Terrace Gardens - PGP, L.P. and the Partnership.
"Negative Capital Account Balance" means, as to any Original Limited
Partner, the aggregate negative capital account balance of such partner in the
Partnership immediately prior to the date of admission of the General Partner
(the "Admission Date") as a general partner of the Partnership (as reflected on
the books of the Partnership at that time, and without taking into account any
revaluation of property of the Partnership which may occur as a result of, or as
required by, Regulations Section 1.704-1(b)(2)(iv)(f)), and with respect to any
Original Limited Partner which is itself a partnership on the Effective Date,
the aggregate negative capital account balances of all the partners of such
Original Limited Partner immediately prior to the Admission Date (as reflected
on the books of the Partnership at that time, and without taking into account
any revaluation of property of the Partnership which may occur as a result of,
or as required by, applicable Regulations (including, without limitation,
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Regulations Section 1.704-1(b)(2)(iv)(f)); provided, however, that the Negative
Capital Account Balance in each case shall be deemed to be reduced by the amount
(determined at the time of reference) of the Original Limited Partner's share of
Non-Recourse Liabilities of the Partnership.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
"Net Value" is equal to $3,844,972.
"No Exchange Period" means a period expiring two (2) years after the date
of the Exchange Rights Agreement.
"Nonrecourse Built-in-Gain" means, with respect to any Existing Property
or Adjusted Property that is subject to a mortgage or negative pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Partners pursuant to Section 2.B of Exhibit C if such properties were
disposed of in a taxable transaction in full satisfaction of such liabilities
and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Original Limited Partner" means each person listed on Exhibit A as
attached hereto at the time of initial execution of this Agreement (excluding
the General Partner) without regard to any subsequent changes to such Exhibit,
and with regard to any such persons which are themselves partnerships, the
partners of such partnerships if and when the Partnership Units held by such
partnerships hereunder are distributed by such partnerships to such partners.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be
determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
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"Partnership" means the limited partnership formed under the Act by
conversion of the California General Partnership, and pursuant to the Prior
Agreement, as amended and restated, pursuant to this Agreement and any successor
thereto.
"Partnership Interest" means an ownership interest in the Partnership by
either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
held by a Limited Partner may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall be no later than ten (10) days prior to any date of
distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Limited Partners issued pursuant to Sections 4.1 and 4.2. The
number of Partnership Units outstanding and the Percentage Interest in the
Partnership represented by such Partnership Units are set forth in Exhibit A
attached hereto, as such Exhibit may be amended from time to time. The ownership
of Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities. If the
General Partner elects to evidence the Partnership Units with a certificate,
such certificate may be imprinted with a legend setting forth such restrictions
placed on the units as specified in this Agreement and the Exchange Rights
Agreement and such restrictions will be binding upon all holders of the
certificate along with the terms and conditions set forth in this Agreement and
the Exchange Rights Agreement.
"Partnership Year" means the fiscal year of the Partnership, which shall
be the calendar year.
"Percentage Interest" means, as to a Limited Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Limited Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit A may be amended from
time to time.
"Person" means an individual or a corporation, partnership, trust, limited
liability company, unincorporated organization, association or other entity.
"PGP" means Pacific Gulf Properties Inc., a Maryland corporation and an
Affiliate of the General Partner.
"Project" means the Morning View Terrace Apartments located in the City of
Escondido, County of San Diego, California, including all real and personal
property, now or hereafter existing, necessary or desirable for the proper
ownership, management and operation of the apartment complex.
"Property" means Existing Property, Contributed Property and Adjusted
Property.
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"Recapture Income" means any gain recognized by the Partnership upon the
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT Share" shall mean a share of common stock of PGP, par value $.01 per
share.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property, or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Restructuring Agreement" means that certain Restructuring Agreement,
dated as of May 23, 1997, by and among PGP, the General Partner, the California
General Partnership and all of the Limited Partners.
"704(c) Value" of any Existing Property means the value of such property
as set forth in Exhibit D, or if no value is set forth in Exhibit D, the fair
market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt. The 704(c) Value of any property deemed
contributed by the Partnership to a new partnership for federal income tax
purposes upon termination of the Partnership thereof pursuant to Section 708 of
the Code shall not change by virtue of such termination. Subject to Exhibit B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values in a single or integrated transaction among the separate
properties on a basis proportional to their respective fair market values.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Tax Exempt Debt" means the existing tax exempt financing encumbering the
Property, namely the outstanding principal balance of the City of Escondido,
California, Variable Rate Demand Multifamily Housing Revenue Bonds, Series 1985B
(Morning View Terrace Project), and any successor or refunding debt with respect
thereto.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B hereof) as of such date;
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B hereof) as of such date.
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"Value" means, with respect to a REIT Share, the average of the daily
market price on the New York Stock Exchange for the ten (10) consecutive trading
days immediately preceding the Effective Date. The market price for each such
trading day shall be the closing price on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. The Partners hereby amend and restate the Prior Agreement in its
entirety as of the date hereof. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership shall be Morning View Terrace - PGP, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purpose of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware, 19805. The principal office of the
Partnership shall be c/o PGP Morning View Terrace Holdings Inc., 363 San Miguel
Drive, Suite 100, Newport Beach, California, 92660-7805, or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices:(a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments or restatement thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the
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Partnership may or plans to conduct business or own property; (b) all
instruments that the General Partner deems appropriate or necessary to reflect
any amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the Partnership pursuant
to the terms of this Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission, withdrawal, removal
or substitution of any Partner pursuant to, or other events described in,
Article 11, 12 or 13 hereof or the Capital of any Partner; (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of a Partnership Interest; and (f) any and all
financing statements, continuation statements and other documents necessary or
desirable to create, perfect, continue or validate the security interest granted
by a Limited Partner pursuant to Section 10.5 of this Agreement or to exercise
or enforce the Partnership's rights with respect to such security interest; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any Liquidator, to
effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's Assignee's Partnership
Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney in accordance with the provisions of this Agreement. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
Section 2.5 Term
The term of the Partnership commenced on November 6, 1984 and shall
continue until December 31, 2095, unless, the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
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ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act with regard to the Project only;
provided, however, that such business shall be limited to and conducted in such
a manner as to permit PGP at all times to be classified as a REIT, unless PGP
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or to own interests in any
entity engaged in any of the foregoing; and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting PGP's right, in its sole discretion, to cease qualifying as a REIT, the
Partners acknowledge PGP's current status as a REIT inures to the benefit of all
of the Partners and not solely to PGP and the General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership; provided, however, that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of PGP to continue to qualify as a REIT; (ii) could
subject PGP to any additional taxes under Section 857 or Section 4981 of the
Code; or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over PGP, the General Partner or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner in writing.
ARTICLE 4
CAPITAL
Section 4.1 Capital of the Partners
A. The General Partner has made, and will make, in a timely manner, a cash
contribution equal to the Transaction Expenses and Deferred Maintenance, as both
terms are defined in the Restructuring Agreement. By execution and delivery of
this Agreement, the Partners hereby acknowledge and agree that the aggregate
Capital of the Limited Partners equals the Net Value. The Capital of the Limited
Partners is allocated initially among each of the Limited Partners as set forth
in Exhibit A. The Limited Partners shall own Partnership Units in the amounts
set forth for such Limited Partner in Exhibit A. The number of Partnership Units
received by each Limited Partner was calculated by dividing the respective
Partner's Capital by the Value of a REIT Share. The Limited Partners shall have
a Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest was determined by dividing the respective Limited Partner's
Partnership Units by the aggregate number of Partnership Units issued to all
Limited Partners. The Percentage Interests shall be adjusted from time to time
by the General Partner to the extent determined by the General Partner to be
necessary to reflect accurately redemptions, additional capital, the issuance of
additional Partnership Units (pursuant to any merger or otherwise), or similar
events having an effect on any Limited Partner's Percentage Interest. At the
Date, any Added Net Value shall be ascertained, and if
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Added Net Value exists, the Limited Partners shall be credited with such Added
Net Value in their Capital Accounts and be deemed to own, pro rata in accordance
with the Partnership Units owned just prior to the Date, that additional number
of Partnership Units computed by dividing the Added Net Value by the Value
(determined using the Date in lieu of the Effective Date); provided, however,
that if Short Morning View Ltd. shall have been dissolved and liquidated prior
to the Date, the partners of Short Morning View Ltd. as of the date of
liquidation thereof shall be deemed to own the additional number of Partnership
Units that the partners of Short Morning View Ltd. would have been distributed
to each of them upon liquidation of Short Morning View Ltd. had Short Morning
View Ltd. been deemed to have owned the additional Partnership Units provided
for herein on the date of such liquidation. Except as provided in Sections 10.5,
and 13.3, the Partners shall have no obligation whatsoever to make any
additional capital contributions or loans, or advances of any kind to the
Partnership, or to in any way finance the operation of the Partnership or any of
the debt or obligations of the Partnership.
B. Except as provided in Section 13.3 of this Agreement and as otherwise
expressly provided herein, the Capital of each Partner will be returned to that
Partner only in the manner and to the extent provided in Article 5 and Article
13 hereof, and no Partner may withdraw from the Partnership or otherwise have
any right to demand or receive the return of its Capital in the Partnership,
except as specifically provided herein. Under circumstances requiring a return
of any Capital, no Partner shall have the right to receive property other than
cash, except as specifically provided herein. No Partner shall be entitled to
interest on any Capital or Capital Account. The General Partner shall not be
liable for the return of any portion of the Capital of any Limited Partner, and
the return of such Capital shall remain solely from Partnership assets.
C. No Limited Partner shall have any further personal liability to
contribute money to, or in respect of, the liabilities or the obligations of the
Partnership, nor shall any Limited Partner be personally liable for any
obligations of the Partnership, except as otherwise provided in this Agreement
or in the Act. No Limited Partner shall be required to make any contributions to
the capital of the Partnership other than as expressly provided in this
Agreement.
Section 4.2 Issuances of Additional Partnership Interests
Upon the consent of a majority in interest of the Limited Partners, the
General Partner is hereby authorized to cause the Partnership from time to time
to issue to the Partners (including the General Partner) or other Persons
additional Partnership Units or other Partnership Interests in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including, rights, powers and duties senior to the Limited
Partners (including the Original Limited Partners), except that, notwithstanding
the foregoing, none of such additional Partnership Units or Partnership
Interests shall carry or give to their holders rights to receive distributions
(as to amount, timing, and priority) senior to the rights of the Original
Limited Partners as set forth in this Agreement.
Section 4.3 Preemptive Rights
No Person shall have any preemptive, preferential or other similar right
with respect to (i) additional capital contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
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Section 4.4 General Partner Loans
The General Partner and its Affiliates shall have the right, but not the
obligation, to make loans and advances to the Partnership, and shall be treated
as a third party lender to the Partnership (with all attendant rights,
privileges, and remedies) to the extent that it does so. Loans and advances, if
any, funded by the General Partner or its Affiliates shall be on commercially
competitive terms, comparable to similar loans and advances made by unrelated
third party institutional lenders; and, if institutional lenders would not
regularly make such loans or advances, then terms for a comparable loan or
advance described by any unrelated third party loan broker upon request by the
General Partner shall be conclusively presumed to be commercially competitive
and comparable to similar loans and advances made by unrelated third parties for
purposes of this Agreement.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Amount and Priority of Quarterly Distributions
Except as provided in Sections 5.2 and 5.4 hereof, the General Partner
shall cause to be distributed within 60 days of the end of each calendar
quarter, beginning with the calendar quarter ending March 31, 1998, an amount
equal to 100% of Available Cash generated by the Partnership during such
calendar quarter to those Partners who are Partners on the Partnership Record
Date for such calendar quarter, as follows:
A. First, to the Limited Partners who are Partners on the Partnership
Record Date, an amount (the "Quarterly Distribution Amount") equal
to the lesser of (i) 100% of such Available Cash, or (ii) an amount
determined by multiplying the total number of Partnership Units held
by such Limited Partners by the amount of the dividend per share
paid to common stock shareholders of PGP with respect to such
calendar quarter. As among such Limited Partners, the Quarterly
Distribution Amount shall be distributed pro rata in accordance with
their respective Partnership Interests; and
B. The balance to the General Partner.
Section 5.2 First Distribution
The General Partner shall cause to be distributed not later than February
28, 1998 an amount equal to 100% of Available Cash generated by the Partnership
from and including the Effective Date to and including December 31, 1997, to
those Partners who are Partners on the Partnership Record Date for the calendar
quarter ending December 31, 1997, as follows:
A. First, to the Limited Partners who are Partners on the Partnership
Record Date, an amount (the "First Distribution Amount") equal to
the lesser of (i) 100% of such Available Cash, or (ii) an amount
which is the sum of the following: (A) an amount determined by
multiplying the number of total Partnership Units held by such
Limited Partners by the amount of the dividend per share paid to
common stock shareholders of PGP with respect to the calendar
quarter ended September 30, 1997 and multiplying that product by a
fraction (x) the numerator of which is the number of days from and
including the Effective Date to and including September 30, 1997,
and (y) the denominator of which is 92, and (B) an amount determined
by multiplying the total number of Partnership Units held by such
Limited Partners by the amount of the dividend per share paid to
common stock shareholders of PGP with respect to the
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calendar quarter ended December 31, 1997. As among such Limited
Partners, the First Distribution Amount shall be distributed pro
rata in accordance with their respective Partnership Interests; and
B. The balance to the General Partner.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Sections 5.1 or 5.2 for all
purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations of Net Income and Net Loss
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Loss for a particular period shall be allocated as follows:
(1) First, to the General and Limited Partners in proportion to and
to the extent of their positive Capital Account balances, if any.
(2) Second, to the Limited Partners in proportion to and to the
extent of their respective Negative Capital Account Balances, until the
amount allocated under this Section 6.1A(2) for the current fiscal year
and all prior fiscal years equals the Negative Capital Account Balances of
all Limited Partners.
(3) Third, to the Limited Partners, in proportion to and to the
extent of, their respective aggregate Excess Distributions, until the
amount allocated under this Section 6.1A(3) for the current fiscal year
and all prior fiscal years equals the Excess Distributions of all Limited
Partners.
(4) Fourth, to the Limited Partners, in proportion to their
respective Percentage Interests until the amount allocated under this
Section 6.1(A)(4) for the current fiscal year and all prior fiscal years
equals the principal paid on the Tax Exempt Debt of the Partnership for
all periods up to an amount equal to $800,000.
(5) Fifth, to the General Partner.
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B. Net Income for a particular period shall be allocated as follows:
(1) First, to the Partners that have previously been allocated Net
Loss pursuant to Section 6.1A in amounts and among such Partners in the
reverse order (and in the corresponding amounts) of all Net Loss
previously allocated to them until the amount of Net Income allocated
pursuant to this Section 6.1B(1) equals the aggregate amount of all Net
Loss theretofore allocated pursuant to Section 6.1A.
(2) Second, if applicable, to the Limited Partners in proportion to
their respective Partnership Interests until the aggregate Net Income
allocated pursuant to this Section 6.1B(2) for the current taxable period
and all previous taxable periods equals the aggregate amount of Available
Cash distributed to the Limited Partners pursuant to Section 5.1A and 5.2.
(3) Third, to the General Partner.
Section 6.2 Other Allocations
A. For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain; and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Limited Partners in accordance with
their respective Percentage Interests.
B. Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to Exhibit C, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
C. Notwithstanding the provisions of Sections 6.1A and 6.1B, to the extent
that the Partnership is treated for income tax purposes as having sold all or a
portion of the Existing Property in connection with the Conversion, any gain
recognized as a result of such sale shall be allocated to the Partners to whom
the consideration deemed to have been received by the Partnership in respect of
such sale, and by reason of the receipt of which the gain is recognized, is
deemed distributed (in proportion to their respective Partnership Interests
immediately prior to such distribution).
D. Notwithstanding the provisions of Sections 6.1A and 6.1B, to the extent
that interest income is imputed or otherwise deemed to have been paid to the
Limited Partners as the result of the receipt of additional Partnership Units in
accordance with the provisions of Section 4.1A, for the year in which such
interest income is imputed to or otherwise deemed to have been paid to the
Limited Partners, and for each subsequent fiscal year, corresponding items of
interest expense deemed paid or incurred by the Partnership and attributable to
the issuance of such additional Partnership Units shall first be allocated to
the Limited Partners (in proportion to the amount of imputed interest income)
until the amount of interest expense so allocated equals the amount of such
interest income.
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation (but in all cases subject to the terms of this Agreement):
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, money to be used to pay off a portion of
the existing debt encumbering the Partnership's assets) and making prepayments
on loans and borrowing money to permit the Partnership to make distributions to
its Partners in such amounts as will permit PGP (so long as PGP qualifies as a
REIT) to avoid the payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders in amounts sufficient to permit PGP to
maintain REIT status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidence of indebtedness
(including the securing of the same by deed, mortgage, deed of trust or other
lien or encumbrance on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or into
another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has an equity
investment, and the making of capital contributions to its Subsidiaries, the
holding of any real, personal and mixed property of the Partnership in the name
of the Partnership or in the name of a nominee or trustee and the creation, by
grant or otherwise, of easements or servitudes;
(5) the management, operation, leasing, collection of rents,
marketing, landscaping, repair, alteration, renovation, rehabilitation,
demolition or improvement of the Property
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or any other assets owned by the Partnership or any Subsidiary of the
Partnership and the performance of any and all other acts necessary or
appropriate to the operation of the Property or other assets including, without
limitation, applications for rezoning or objections to rezoning of the Property
or other assets;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers useful or
necessary to the conduct of the Partnership's operations or the implementation
of the General Partner's powers under this Agreement, including, without
limitation, the execution and delivery of leases on behalf of or in the name of
the Partnership, contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the Partnership's assets;
(7) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other instruments,
and the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring
(whether or not any of the foregoing are also employed by, consultants to,
independent contractors for, or otherwise do business with the General Partner
or its Affiliates in related or unrelated matters);
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate (whether or
not such is done as part of a group, combined or other policy or policies under
which the Partnership and the General Partner (or its Affiliates) are also
insured, so long as the General Partner fairly allocates the expense thereof
among the covered parties);
(12) the formation of, or acquisition of an interest in, and the
contribution of some or all of property (or any part thereof or interest
therein) to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);
(13) the control of any and all matters affecting the rights and
obligations of the Partnership, including the settlement, compromise, submission
to arbitration or any other form of dispute resolution, or abandonment of, any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law and consistent with
the terms of this Agreement, including in each and all of the foregoing
instances any such matter or thing in which the General Partner or its
Affiliates have a direct interest;
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(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as the
General Partner may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the Partnership
does not have an interest pursuant to contractual or other arrangements with
such Person;
(19) the making, execution and delivery of any and all deeds, leases,
notes, mortgages, deeds of trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or legal instruments or
agreements in writing necessary or appropriate, in the judgment of the General
Partner, for the accomplishment of any of the powers of the General Partner
enumerated in this Agreement; and
(20) the issuance of additional Partnership Units or Partnership
Interests, as appropriate, in connection with capital contributions by
Additional Limited Partners and additional capital contributions by Partners
pursuant to Article 4 hereof.
B. Except as otherwise expressly provided in this Agreement, each of the
Limited Partners agrees that the General Partner is authorized to execute,
deliver and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, to the fullest extent permitted under the Act or other
applicable law, rule or regulation. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
hereof.
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E. The General Partner, on behalf of the Partnership, may hire, employ or
otherwise contract with any Affiliate of the General Partner to manage the
Property, and the Limited Partners do hereby waive any conflict which may exist
because of the Affiliate relationship.
F. Without any further act, approval or vote of the Partners and
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, the Partnership and Partners on behalf of the
Partnership, hereby authorize, approve and ratify the Partnership's, and the
General Partner's on behalf of the Partnership, execution, delivery and
performance of the Transaction Documents described in Exhibit E attached hereto
and all other documents deemed necessary or required by the General Partner. The
General Partner is hereby authorized to enter into the Transaction Documents on
behalf of the Partnership, but such authorization shall not be deemed a
restriction on the power of the General Partner to enter into other agreements
on behalf of the Partnership.
Section 7.2 Certificate of Limited Partnership
The General Partner shall file the Certificate with the Secretary of State
of Delaware as required by the Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and any other state,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.
Section 7.3 No Property Transfer Period. The General Partner covenants and
agrees not to cause the Partnership to sell, transfer or otherwise dispose of
any of the Existing Property which is real property, or any interest therein,
directly or indirectly, whether as a result of a Terminating Capital Transaction
or otherwise (collectively referred to as a "Property Transfer"), nor distribute
to the Original Limited Partners or their successors and assigns any property if
such distribution would trigger tax liability under Section 737 of the Code, for
a period of five (5) years after the Effective Date, in either case unless and
until either (i) during said five-year period there has been an Excess Transfer,
or (ii) the Property Transfer occurs in a manner which, upon such transfer, is
fully tax free to, and as such does not produce any income taxation upon, the
Original Limited Partners or their successors and assigns.
Section 7.4 No Pay Down Period. During a period of five (5) years after
the Effective Date, the General Partner shall not cause the Partnership to pay
down any of the Tax Exempt Debt (other than as required by the debt instrument
or any other agreement ancillary thereof) nor take any other action which would
result in a reduction of the allocation of debt to the Original Limited Partners
or their successors or assigns for purposes of computing such parties' basis for
income tax purposes, unless either (i) simultaneously with such pay down the
Partnership refinances the full amount paid down with other debt, and such
refinanced debt shall not result in a reduction of the allocation of debt to the
Original Limited Partners or their successors or assigns for purposes of
computing such parties' basis for income tax purposes, or (ii) during said
five-year period there has been an Excess Transfer.
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Section 7.5 No Dissolution Action. Without limiting the provisions of
Section 7.4, for the five-year period immediately following the Effective Date,
the General Partner will not cause the Partnership to take any action which
results in dissolution of the Partnership.
Section 7.6 No Tax Termination or Dissolution. The General Partner hereby
covenants and agrees that for the five-year period immediately following the
Effective Date, the General Partner will not make a disposition of its general
partner interest in the Partnership (i) which would cause a termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code when the fair market
value of the property deemed contributed to the successor partnership as a
result of such termination is less than the liabilities to which such property
is then subject, or (ii) which in the opinion of legal counsel for the
Partnership or the General Partner would result in the Partnership being treated
as an association taxable as a corporation.
Section 7.7 Management Fee and Reimbursement of the General Partner
A. The General Partner and/or its Affiliates shall have the right, but not
the obligation, in the sole discretion of the General Partner, to perform all or
any of the property management services on account of the property owned or
managed by the Partnership. If the General Partner elects to so perform, or to
have an Affiliate so perform, the property management services, then the General
Partner or its Affiliate shall be reimbursed expenses and otherwise compensated
therefor by the Partnership in amounts determined by the General Partner, in its
good faith discretion, to be comparable to amounts which would be charged by
reputable unrelated third party property management companies which have
substantial experience in performing property management services for properties
of the type owned or managed by the Partnership for institutional owners with
portfolios under management which are substantially similar in size, nature, and
condition of property owned or managed by the Partnership. It is agreed that a
management fee of four percent (4%) of gross income may be charged by the
General Partner or its Affiliates for property management services as
contemplated hereunder, and such shall be deemed conclusively to satisfy the
foregoing requirements. The reimbursements and fees payable to the General
Partner or its Affiliates shall be paid no less frequently than monthly. Except
as provided in this Section 7.7A and elsewhere in this Agreement (including the
provisions of Articles 5 and 6 regarding distributions, payments, and
allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs relating to the ownership and operation of, or for the
benefit of, the Existing Property, the Partnership or any of its assets. The
General Partner shall also be reimbursed for all expenses it incurs relating to
(i) the ownership and operation of the Existing Property and other assets or
properties owned by the Partnership, (ii) the reorganization or restructuring
thereof, and (iii) the management of Partnership Units. Any reimbursement in
this paragraph (B) shall be in addition to any reimbursement made as a result of
indemnification pursuant to Section 7.10 hereof.
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Section 7.8 Outside Activities of the General Partner
The General Partner and its Affiliates shall be permitted to purchase,
own, operate, manage and otherwise deal with and profit from any property, real,
personal or mixed, not owned by the Partnership for their own account and
benefit, whether or not competitive with the business and affairs of the
Partnership, and neither the Partnership, any Limited Partner, or any other
Person shall have any right, claim, interest or cause of action therein or as a
result thereof. Without limiting the generality of the above, nothing in this
Agreement shall obligate the General Partner or its Affiliates to first offer
the Partnership an opportunity to invest in any investment which has been
offered to or found by the General Partner or its Affiliates, whether or not
such investment is of a nature that may be invested in by the Partnership or
would compete directly or indirectly with the business of the Partnership. The
Limited Partners hereby acknowledge that the PGP and its Affiliates currently
own a variety of real estate investments and may in the future acquire
additional real estate investments that may be competitive with the business of
the Partnership.
Section 7.9 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the Partnership,
Subsidiaries of the Partnership or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiaries of the Partnership.
E. Any or all of the foregoing may be jointly established with the General
Partner or its Affiliates, provided that in such case the allocation of expense
shall be shared among the parties on whose behalf such plans exist as determined
by the General Partner in good faith to be fair and reasonable.
Section 7.10 Indemnification
A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the
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Partnership or the General Partner in its capacity as general partner of the
Partnership as set forth in this Agreement, in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, whether or
not suit or other legal proceedings are commenced, unless it is established by a
court of competent jurisdiction and all appeals relating thereto have been fully
completed or the applicable appeal periods have expired that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceedings and either was committed in intentional bad faith or was the result
of active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper and unpermitted personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee knew, or was
reckless in not knowing, that the act or omission was unlawful. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee pursuant to a loan guaranty, recourse obligation, general partner
liability, or otherwise for any indebtedness of the Partnership (including
without limitation the Tax Exempt Debt and guarantee of PGP in favor of Fannie
Mae in its capacity as credit-enhancer for the Tax Exempt Debt) or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.10 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
as set forth in this Section 7.10A. The termination of any proceeding by
conviction of an Indemnitee, or an entry of an order of probation against an
Indemnitee prior to judgment, in each case after all appeals relating thereto
have been fully completed or the applicable appeal periods have expired, creates
a rebuttable presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.10A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.10 shall be made only
out of the assets of the Partnership (including those assets required to be
contributed by the Limited Partners to restore deficits in their respective
Capital Accounts in accordance with the terms hereof), and, except as otherwise
may be required herein, neither the General Partner nor any Limited Partner
shall have any obligation to contribute to the capital of the Partnership, or
otherwise provide funds, to enable the Partnership to fund its obligations under
this Section 7.10.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this Section 7.10 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.10, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.10; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the
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performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement, except to the extent the Partners are required to restore negative
balances in their Capital Account; provided, however, that nothing in this
Section 7.10(F) shall restrict or otherwise limit personal liability arising by
application of the Indemnification Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.10 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.10 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.10 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.10, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.11 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or any act
or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the shareholders of the General Partner
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (except as otherwise provided herein)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.11 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.11 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
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Section 7.12 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of PGP to continue to qualify as a
REIT; or (ii) to avoid PGP incurring any taxes under Section 857 or Section 4981
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.
Section 7.13 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is being held in
the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.14 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally
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and beneficially. Each Limited Partner hereby waives any and all defenses or
other remedies which may be available against such Person to contest, engage or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such)
shall take part in the operation, management or control (within the meaning of
the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to the terms and provisions hereof, it is agreed that any Partner
(General and/or Limited) and any Affiliate of any Partner (including any
officer, director, employee, agent, or representative of any Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights, claims, or interests by virtue of this Agreement
or any relationships, duties or obligations hereunder (including, but not
limited to, any fiduciary or similar duties created by this Agreement, under the
Act, or otherwise existing at law or in equity) in any business ventures or
investments of any General Partner or Limited Partner, or any Affiliate of any
of the foregoing. None of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if
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presented to the Partnership, any Limited Partner or such other Person could be
taken by such Person.
It is further agreed that none of the Partners, General or Limited, or any
of their Affiliates, have any duty, obligation, or liability to present to the
Partnership any business or investment opportunity which may arise in the course
of activity for or on behalf of the Partnership, or otherwise, for investment by
the Partnership or any of the Partners (even if within the line and scope of the
business and affairs of the Partnership), and instead any Partner, General or
Limited, and any Affiliate may pursue such opportunity for such Partner's or
Affiliate's own benefit and account, without any participation, right, or claim
therein by the Partnership or any other Partner, and without notification or
disclosure to the Partnership or any other Partner.
Section 8.4 Return of Capital
No Limited Partner shall be entitled to the withdrawal or return of its
Capital, except to the extent of distributions made pursuant to this Agreement
or upon termination of the Partnership as provided herein. Except to the extent
provided by Exhibit C hereof or as otherwise expressly provided in this
Agreement, no Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee, either as to the return of Capital or as to
profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly balance
sheet, income statement, and related financial statements prepared by the
Partnership;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner to the extent the foregoing is
materially different from information contained in financial statements or other
reports provided to Limited Partners.
The request by a Limited Partner of quarterly and annual balance sheets
and income statements regularly prepared by the Partnership in order to verify
the correctness of distributions of cash, if any, to the Limited Partner in
accordance with the terms and provisions of this Agreement
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shall be considered a purpose reasonably related to the Limited Partner's
interest as a limited partner in the Partnership.
B. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, desirable or necessary any information that: (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information,
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business; or (ii) the Partnership is required by law or by agreement with an
unaffiliated third party to keep confidential.
If the General Partner desires to disclose any information of the type
described in the preceding paragraphs (i) or (ii) to a Limited Partner, the
General Partner may require, as a condition to such disclosure, that the Limited
Partner agree in writing that such information will be held in strictest
confidence and no distribution of such information will be made.
Section 8.6 No Redemption Right
No Limited Partner (other than the General Partner) shall have the right
to require the Partnership to redeem all or a portion of the Partnership Units
held by such Limited Partner.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Sections 8.5A
and 9.3 hereof. Any records maintained by or on behalf of the Partnership in the
regular course of its business may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or such other basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each Partnership Year an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner in its
discretion (such selection may include any
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such accountants who also perform accounting or auditing work for the General
Partner and its Affiliates).
The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each calendar quarter (except the last calendar
quarter of each year), a report containing unaudited financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate. All accounting and other professional fees
associated with the preparation, compilation, review, audit, and any other
matters relating to the Partnership's records, financial statements and reports,
tax returns, and any other Partnership items described in the preceding
paragraphs shall be at the expense of the Partnership, not the General Partner.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by the Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that if requested by a transferee of a
Partnership Interest, the General Partner shall file an election on behalf of
the Partnership pursuant to Section 754 of the Code to adjust the basis of the
Partnership property in the case of a transfer of a Partnership Interest made in
accordance with the provisions of this Agreement. The General Partner shall have
the right to seek to revoke any tax election it makes (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination, in its sole and absolute discretion, that such
revocation is in the best interest of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number and
profit interest of each of the Limited Partners and the Assignees to the extent
the General Partner has such information.
B. The tax matters partner is authorized, but not required
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement
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the tax matters partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any Partner (i)
who (within the time period prescribed pursuant to the Code and Regulations)
files a statement with the IRS providing that the tax matters partner shall not
have the authority to enter into a settlement agreement on behalf of such
Partner; or (ii) who is a "notice partner" (as defined in Section 6231(a)(8) of
the Code) or a member of a "notice group" ( as defined in Section 6223(b)(2) of
the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court or the District Court of the
United States for the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken account
of by a Partner for tax purposes, or an item affected by such item; and
(6) to take any other action of behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.10 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no special compensation for its
services as such. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne or reimbursed by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, including
an accounting firm which also renders services to the General Partner and its
Affiliates.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including,
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without limitation, any taxes required to be withheld or paid by the Partnership
pursuant to Sections 1441, 1442, 1445, or 1446 of the Code and any provision of
state or local income tax law. Any amount paid on behalf of or with respect to a
Limited Partner shall constitute a loan by the Partnership to such Limited
Partner, which loan shall be repaid by such Limited Partner within fifteen (15)
days after notice from the General Partner that such payment must be made unless
(i) the Partnership withholds such payment from a distribution which would
otherwise be made to the Limited Partner; or (ii) the General Partner
determines, in its sole and absolute discretion, that such payment may be
satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner hereby unconditionally
and irrevocably grants to the Partnership a security interest in such Limited
Partner's Partnership Interest to secure such Limited Partner's obligation to
pay to the Partnership any amounts required to be paid pursuant to this Section
10.5. In the event that a Limited Partner fails to pay any amounts owed to the
Partnership pursuant to this Section 10.5 when due, the General Partner may, in
its sole and absolute discretion, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner.
Without limitation, in such event the General Partner shall have the right to
receive distributions that would otherwise be distributable to such defaulting
Limited Partner until such time as such loan, together with all interest
thereon, has been paid in full, and any such distributions so received by the
General Partner shall be treated as having been distributed to the defaulting
Limited Partner and immediately paid by the defaulting Limited Partner to the
General Partner in repayment of such loan. Any amounts payable by a Limited
Partner hereunder shall bear interest at the lesser of (A) the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points, or (B) the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due (i.e., fifteen (15) days
after demand) until such amount is paid in full. Each Limited Partner shall at
its own expense take such actions as the Partnership or the General Partner
shall request in order to perfect or enforce the security interest created
hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer" when used in this Article 11 with respect to a
Partnership Unit shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any acquisition of Partnership Interests by the
General Partner from any Limited Partner of any Partnership Units, nor does it
include any grant of a security interest or any related action involving levy,
execution, or the like contemplated under Section 10.5 of this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part
(including any interest therein), except in accordance with the terms and
conditions set forth in this Article 11. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article 11 shall be null
and void ab initio, and the Partnership shall have no duty or obligation to
recognize the transferee as a partner or holder of any interest whatsoever in
the Partnership, and the transferee shall have no rights, interests or claims in
or against the Partnership or any Partner.
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Section 11.2 Transfer of the General Partner's Partner Interest and
Limited Partner Interest
Subject to the provisions of Section 7.5 and 7.6, the General Partner may
transfer any of its General Partner Interest or withdraw as General Partner, or
transfer any of its Limited Partner Interest, without consent or approval from
any Limited Partners. Such transfer includes transfer to PGP or to an entity
which is wholly-owned by PGP and is a Qualified REIT Subsidiary under Section
856(i) of the Code.
Section 11.3 Limited Partners' Rights to Transfer
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and 11.4,
a Limited Partner (other than the General Partner) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
In addition, those Original Limited Partners which are themselves partnerships
shall have the right to transfer, assign, and convey their Partnership Units to
their constituent partners, provided that such constituent partners shall first
have executed and delivered a written agreement to be bound by the terms,
provisions, and conditions of the Exchange Rights Agreement and the
Restructuring Agreement, and that at the time of such transfer, assignment, and
conveyance to such constituent partners, the representations and warranties made
by such constituent partners in any subscription or other documents are true and
correct in all material respects.
B. If a Limited Partner is subject to Incapacity, the partners, executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner or
its Partnership Units if, in the opinion of legal counsel to the Partnership or
the General Partner, such transfer would require filing of a registration
statement under the Securities Act of 1933 or would otherwise violate any
federal or state securities laws or regulations applicable to the Partnership or
the Partnership Units.
D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if: (i) in the opinion of legal counsel for the Partnership or the
General Partner, it would result in the Partnership being treated as an
association taxable as a corporation; (ii) such transfer is effectuated through
an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code; (iii) such
transfer would cause the Partnership to become, with respect to any employee
benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(c) of the Code); (iv) such transfer would, in the opinion of legal counsel
for the Partnership or the General Partner, cause any portion of the assets of
the Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 2510.2-101; (v) such transfer would
subject the Partnership to be regulated under the Investment Company Act of
1940, the Investment Advisors Act of 1940 or the Employee Retirement Income
Security Act of 1974, each as amended; or (vi) in the opinion of legal counsel
for the Partnership or the General Partner, it would adversely affect the
ability of PGP to continue to qualify as a REIT or subject PGP to any additional
taxes under Section 857 or Section 4981 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender
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to the Partnership whose loan, immediately prior to such transfer, constitutes a
Nonrecourse Liability, without the consent of the General Partner, in its sole
and absolute discretion; provided that as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership or the
General Partner to exchange or redeem at a price agreeable to the lender, the
General Partner, and the transferring Partner (each in their respective
discretion) any Partnership Units in which a security interest is held
immediately prior to the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner. Notwithstanding
the foregoing, in the event of transfers of Partnership Units by Original
Limited Partners in accordance with the second sentence of Section 11.3A, the
transferees shall be admitted as Substituted Limited Partners, and the General
Partner hereby consents to such.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address, number of Partnership Units,
and Percentage Interest of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee of a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Partnership Units assigned to such transferee, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units for any other purpose under
this Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matters in the same proportion as all
other Partnership Units held by Limited Partners are voted). In the event any
such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all of the provisions of this Article
11 to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all such Limited Partner's Partnership Units
in accordance with this Article 11 or pursuant to any agreement consented to by
the Partnership pursuant to which the Limited Partner's interests in the
Partnership are conveyed and the Limited Partner's withdrawal is provided for.
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B. Any Limited Partner who shall transfer all of its Partnership Units in
a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to any agreement of the type referred to
in the preceding paragraph shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or assignment occurs shall be
allocated to the transferee Partner, and none of such items for the calendar
month in which a redemption occurs shall be allocated to a redeeming Partner.
All distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, or redemption shall be made to the transferor Partner, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
Section 11.7 No Exchange
Notwithstanding anything in this Section 11 to the contrary, each of the
Limited Partners hereby agrees that, except as set forth below, from the date
hereof until two (2) years following the Effective Date (the "No Exchange
Period"), without the prior written consent of the General Partner (which may be
granted or withheld in its sole and absolute discretion), it shall be prohibited
from transferring any Partnership Units; provided, however, that where a Limited
Partner is a natural person and such Limited Partner dies (or, in the case of
Partnership Units owned as community property by the Limited Partner and its
spouse, then where either the Limited Partner or its spouse dies) prior to the
expiration of the No Exchange Period, the No Exchange Period shall, as to such
Limited Partner only, expire on the later of (i) one (1) year from the Effective
Date or (ii) the death of such Limited Partner (or such Limited Partner's
spouse, as the case may be); provided, further, however, that the foregoing
shall not apply to the Short Family Trust as an owner of Partnership Units in
its capacity as an Original Limited Partner, but shall apply to the Short Family
Trust as an owner of Partnership Units in its capacity as a partner (or former
partner) of Short Morning View Ltd.
Notwithstanding anything in this Section 11.7 to the contrary, each of the
Limited Partners hereby agree that, without the prior written consent of the
General Partner (which may be granted in its sole and absolute discretion), each
Limited Partner shall be prohibited from transferring any Partnership Units
following the occurrence of a Liquidating Event.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. The admission of any such transferee shall not cause a dissolution of
the Partnership and such transferee shall carry on the business of the
Partnership in accordance with the forms and provisions of this Agreement. In
each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership Year, all items attributable to the
General Partner Interest for such Partnership Year shall be allocated between
the transferring General Partner and such successor as provided in Section
11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
A. Except as otherwise provided elsewhere in this Agreement, after the
admission to the Partnership of the initial Limited Partners on the date hereof,
a Person who makes a capital contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
of the Partners and Assignees, including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.
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Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment to this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs be wound up, only upon the first to occur of any of the following
("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of voluntary bankruptcy), unless within ninety (90) days
after such event of withdrawal a majority in interest in capital and profits of
the remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner;
C. on or before December 31, 2095, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties of
the Partnership; or
So long as Fannie Mae (as defined in the Master Reimbursement Agreement)
continues to provide a Facility (as defined in the Master Reimbursement
Agreement), no dissolution shall occur under paragraph (C) above or as a result
of the filing by the General Partner of a voluntary petition in bankruptcy
without the consent of Fannie Mae.
Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership
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<PAGE> 41
property shall be liquidated as promptly as is consistent with obtaining the
fair value thereof, and the proceeds therefrom (which may, to the extent
determined by the General Partner, include shares of common stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
reasonable provision for payment thereof);
(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the reasonable
provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the reasonable
provision for payment thereof); and
(4) The balance, if any, to the General Partner and Limited Partners
in accordance with their positive Capital Account balances, after giving effect
to all contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation
for any services performed pursuant to this Article 13.
B. Notwithstanding any provision herein to the contrary, if the Project is
sold, all Partnership Units held by the Limited Partners (other than PGP or any
Affiliate) shall be mandatorily converted to REIT Shares and shall be
automatically deemed tendered for acquisition by PGP pursuant to Section 4 of
the Exchange Rights Agreement (regardless of whether the Limited Partner was a
signatory to the Exchange Rights Agreement); provided, however, that the
foregoing provision shall not apply in the event the Property is sold for less
than its Carrying Value or is otherwise sold for a loss for either book or tax
purposes.
C. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
D. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to one or more trust(s) established for the benefit
of the creditors and the General Partner and Limited Partners for the purposes
of liquidating Partnership assets, collecting amounts owed to the Partnership,
and paying any contingent, conditional or unmatured liabilities or obligations
of the Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust(s) shall be distributed to the
creditors and General
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<PAGE> 42
Partner and Limited Partners from time to time, in the reasonable direction of
the Liquidator, in the same manner and proportions as the amount distributed to
such trust(s) by the Partnership would otherwise have been distributed to the
creditors and General Partner and Limited Partners pursuant to this Agreement;
and
(2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld or escrowed amounts shall be distributed to the creditors and
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.
Section 13.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
(provided, however, in no event shall the Partnership be liquidated prior to the
date which would be the Settlement Date within the meaning of the Exchange
Rights Agreement for Partners who tender an Exchange Notice (within the meaning
of the Exchange Rights Agreement) on or before the fifth (5th) day after the
date of receipt of the notice of liquidation by the Partnership). If any Partner
has a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall make a
contribution to the capital of the Partnership equal to such deficit, and such
deficit shall be considered a debt owed to the Partnership. The Partners intend
that the deficit restoration contributions be used to repay obligations of the
Partnership, including, without limitation, the Tax Exempt Debt and obligations
under the Indemnification Agreement.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's labilities shall not be paid
or discharged, and the Partnership's affairs shall not be wound up.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its capital
contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its capital contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
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<PAGE> 43
Section 13.7 Termination of Partnership and Cancellation of Certificate of
Limited Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, a certificate of cancellation shall be filed,
the Partnership shall be terminated, a certificate of cancellation shall be
filed, and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty-five
percent (25%) or more of the Partnership Interests. Following such proposal, the
General Partner shall submit any proposed amendment to the Limited Partners. The
General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than fifteen (15) days, and failure to respond in such time period
shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
13.1C, 14.1B, 14.1C, or 14.1D, a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the General Partner and it
receives the Consent of Partners holding a majority of the Percentage Interests
of all Partners; provided, however, that, except as otherwise provided in
Section 4.2 hereof, any amendment which materially and adversely alters the
right of a Limited Partner (including an Original Limited Partner) to receive
distributions of Available Cash or allocations of Net Income, Net Loss or any
other items in the amounts, in the priorities or at the times described in this
Agreement shall require the consent of such Limited Partner (including Original
Limited Partner) in order to become effective.
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent or approval of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
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<PAGE> 44
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of other holders of any additional Partnership Interests issued
pursuant to Section 4.2, or otherwise pursuant to the terms of this Agreement;
(4) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement, or make any
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement;
(5) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; and
(6) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal
court or agency or contained in federal or state law necessary to maintain the
REIT status of PGP.
The General Partner shall provide notice to the Limited Partners when any
action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof); (iv) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1; or (v) amend this Section
14.1.C.
D. Notwithstanding Section 14.1.A and 14.1.B hereof, the General Partner
shall not amend Sections 7.5, 7.6, 14.1A, 14.1C or 14.2 without Consent of
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners, excluding Limited Partner Interests held by the General Partner; and,
to the extent that any such amendment would affect the amount, priority, or
timing of distributions to any of the Original Limited Partners or their
successors and assigns under this Agreement, the General Partner shall not amend
Sections 7.5, 7.6, 14.1A, 14.1C, or 14.2 without Consent of Original Limited
Partners holding a majority of the percentage interest of the Original Limited
Partners (in each case including their successors and assigns).
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty-five percent
(25%) or more of the Partnership Interests. The request shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or consent of the Partners is permitted or required
under this Agreement, such vote or consent may be given at a meeting of the
Partners or may be given in accordance with the procedures prescribed in
Sections
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<PAGE> 45
14.1A or 14.2B hereof. Except as otherwise expressly provided in this Agreement,
the Consent of holders of a majority of the Percentage Interests held by Limited
Partners (including Limited Partnership Interests held by the General Partner)
shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by majority of the Percentage Interests of the Limited
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Limited Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date hereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the General Partner and may be
held at the same time, and as part of, meetings of the shareholders of the
General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notices
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
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Section 15.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain form taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
Other than as expressly set forth herein with respect to the Indemnities,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of other
remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.
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Section 15.12 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as shareholders of
PGP or the General Partner, including, without limitation, any right to receive
dividends or other distributions made to shareholders of PGP or the General
Partner or to vote or to consent or to receive notice as shareholders in respect
of any meeting of shareholders for the election of directors of PGP or the
General Partner or any other matter.
[Remainder of page intentionally left blank]
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the day first above written.
GENERAL PARTNER:
PGP Morning View Terrace Holdings Inc.,
a Delaware corporation
By: __________________________
Title: _______________________
LIMITED PARTNERS:
Short Morning View Ltd.,
a California limited partnership
By: Short Family Trust,
its Managing General Partner
By: ___________________________
Donald R. Short, Trustee
By: ___________________________
Marilyn M. Short, Trustee
Short Family Trust
By: ____________________________
Donald M. Short, Trustee
By: ___________________________
Marilyn M. Short, Trustee
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<PAGE> 49
EXHIBIT A
Partners Capital and Partnership Interests
<TABLE>
<CAPTION>
Name and Address Cash Agreed Value of Total Partnership Percentage
of Partner Contribution Capital Contribution Units Interest
- ---------------- ------------ --------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
PGP-MVT
PGP Morning View
Terrace Holdings Inc. $800,000* N/A $ 800,000* N/A N/A
--------- ----------
Totals $800,000* $ 800,000*
========= ==========
Partners
Short Morning View Ltd. N/A $1,960,938 $1,960,938 93,267 51.0%
Short Family Trust N/A $1,884,036 $1,884,036 89,609 49.0%
---------- ---------- ------- -----
Totals $3,844,972 $3,844,972 182,876 100.0%
========== ========== ======= =====
</TABLE>
* These figures are only an estimate of the total Transaction Expenses and
Deferred Maintenance paid by, or on behalf of, the General Partner. These
figures will be adjusted as the actual amounts of Transaction Expenses and
Deferred Maintenance expended as of the date of the Closing are verified.
<PAGE> 50
EXHIBIT B
Capital Account Maintenance
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all capital
contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.B of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.A of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal tax purposes determined in accordance
with Section 703(a) of the Code (for this purpose all items of income, gain,
loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code which may be made by the Partnership, provided that the amounts of any
adjustments to the adjusted bases of the assets of the Partnership made pursuant
to Section 734 of the Code as a result of the distribution of property by the
Partnership to a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts) shall be reflected
in the Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
B-1
<PAGE> 51
(4) In lieu of depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall
be taken into account as gain or loss from the disposition of such asset.
(6) Any items specifically allocated under Section 1 of Exhibit C
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor. If
the transfer causes a termination of the Partnership under Section 708(b)(1)(B)
of the Code, the capital accounts of the Partners in the successor Partnership
shall be maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D.(2), the Carrying Value of
all Partnership assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D.(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis capital contribution; (b) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c) immediately prior to
the liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if the General Partner determines that such
adjustments are necessary or appropriate to reflect economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it may adopt,
or in the case of a liquidating distribution pursuant to Article 13 of the
Agreement, shall be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for individual properties).
B-2
<PAGE> 52
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
where appropriate, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
make any adjustments that are necessary or appropriate to maintain equality
between Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes; and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv)
conventions for the determination of cost recovery, depreciation and
amortization deductions, as it determines in its sole discretion are necessary
or appropriate to execute the provisions of this Agreement, to comply with
federal and state tax laws, and are in the best interest of the Partners.
2. No Interest
No interest shall be paid by the Partnership on capital
contributions or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
B-3
<PAGE> 53
Exhibit C
Special Allocation Rules
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this Exhibit C, if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of
Section 6.1 of this Agreement or any other provisions of this Exhibit C (except
Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership taxable year, other than allocations
pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
and after giving effect to the allocations required under Sections 1.A and 1.B
hereof such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain (consisting of a pro
C-1
<PAGE> 54
rata portion of each item of Partnership income, including gross income and gain
for the Partnership taxable year) shall be specifically allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, its Adjusted Capital Account Deficit created by such
adjustments, allocations or distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Limited Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which satisfy such
requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. Curative Allocations. The allocations set forth in Section 1.A through
1.F of this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under Section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income, gain, loss
and deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each person is zero. However, the
General Partner will have discretion to accomplish this result in any reasonable
manner; provided, however, that no allocation pursuant to this Section 1.G shall
cause the Partnership to fail to comply with the requirements of Regulations
Sections 1.7041(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the
C-2
<PAGE> 55
Partners in the same manner as its correlative item of "book" income, gain, loss
or deduction is allocated pursuant to Section 6.1 of the Agreement and Section 1
of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners, consistent with the principles of Section
704(c) of the Code and the Regulations thereunder, to
take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of
contribution; and
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principals of Section 704(c) of the
Code and the Regulations thereunder to take into account
the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
Exhibit B; and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in
a manner consistent with Section 2.B(1) of this Exhibit
C; and
(b) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit C.
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.
C-3
<PAGE> 56
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
C-4
<PAGE> 57
Exhibit D
Value of Existing Property
<TABLE>
<CAPTION>
Property 704(c) Value Agreed Value
- -------- ------------ ------------
<S> <C> <C>
Morning View Terrace
Apartments $15,000,000 $3,844,972
</TABLE>
D-1
<PAGE> 58
Exhibit E
Transaction Documents
The "Transaction Documents" consist of the "Partnership Transaction
Documents" and the "Partnership Bond Documents", which terms are defined as
follows:
PARTNERSHIP TRANSACTION DOCUMENTS
The "Partnership Transaction Documents" consist of the following documents
each dated June 1, 1997 (unless otherwise indicated):
1. Master Reimbursement Agreement dated December 1, 1996, as amended and
restated as of June 1, 1997, executed by the Partnership, the Federal National
Mortgage Association (herein, "Fannie Mae"), Terrace Gardens - PGP, L.P., and
Pacific Inland Communities, LLC;
2. First Amendment to Cash Management, Security, Pledge and Assignment
Agreement executed by the Partnership, Terrace Gardens - PGP, L.P., Pacific
Inland Communities, LLC, Fannie Mae and Bankers Mutual (herein, the "Lender") in
its capacity as custodian for Fannie Mae;
3. Blocked Account Agreement executed by Partnership, Fannie Mae, Lender
and Bank of America, National Trust & Savings Association;
4. Estoppel Certificate dated June 12, 1997 executed by the Partnership;
5. Multifamily Note in the original principal amount of Eleven Million
Dollars ($11,000,000) executed by the Partnership in favor of the Lender (the
"Note");
6. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of the Lender (collectively, the "Lender
Deed of Trust"), granting a security interest in the Project as more
specifically described in the Lender Deed of Trust;
7. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of Fannie Mae (collectively, the "Fannie
Mae Deed of Trust"), granting a security interest in the Project, as more
specifically described in the Fannie Mae Deed of Trust;
8. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Lender as secured party and naming Fannie Mae as assignee of secured
party;
9. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Fannie Mae as secured party;
10. Property Management Agreement, dated June 12, 1997, by and between the
Partnership and PGP;
E-1
<PAGE> 59
11. Assignment of Management Agreement executed by Partnership and Fannie
Mae, and consented to by PGP as agent, with respect to the Project;
12. Exchange Rights Agreement, dated June 12, 1997, by and among PGP, the
Partnership and the Original Limited Partners; and
13. Replacement Reserve and Security Agreement relating to the Project
executed by Partnership and Lender.
PARTNERSHIP BOND DOCUMENTS
The "Partnership Bond Documents" consist of the following documents, each
dated June 1, 1997 (unless otherwise indicated):
1. Financing Agreement, relating to the Project, executed by the
Partnership, the City of Escondido (herein, the "Issuer"), the Lender, and First
Trust of California, National Association (herein, the "Bond Trustee");
2. Amended and Restated Regulatory Agreement and Declaration of
Restrictive Covenants executed by the Partnership, the Bond Trustee and the
Issuer with respect to the Project;
3. Remarketing Agreement executed by the Issuer, the Partnership and the
Newman and Associates, Inc. (the "Remarketing Agent");
4. Agreement Regarding Redemption, Defeasance and Payment of Prior Bonds
executed by the Bond Trustee, the Issuer, the Partnership and Glendale Federal
Savings and Loan Association; and
5. Bond Purchase Agreement executed by the Issuer, the Partnership and the
Remarketing Agent relating to the purchase of the Bonds.
E-2
<PAGE> 1
EXHIBIT 10.42
AGREEMENT OF LIMITED PARTNERSHIP
OF
TERRACE GARDENS - PGP, L.P.
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINED TERMS.............................................................. 1
ARTICLE 2
ORGANIZATIONAL MATTERS..................................................... 9
SECTION 2.1 ORGANIZATION............................................. 9
SECTION 2.2 NAME..................................................... 9
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE............ 9
SECTION 2.4 POWER OF ATTORNEY........................................ 9
SECTION 2.5 TERM..................................................... 10
ARTICLE 3
PURPOSE.................................................................... 10
SECTION 3.1 PURPOSE AND BUSINESS..................................... 10
SECTION 3.2 POWERS................................................... 11
ARTICLE 4
CAPITAL.................................................................... 11
SECTION 4.1 CAPITAL OF THE PARTNERS.................................. 11
SECTION 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS............ 12
SECTION 4.3 PREEMPTIVE RIGHTS........................................ 12
SECTION 4.4 GENERAL PARTNER LOANS.................................... 12
ARTICLE 5
DISTRIBUTIONS.............................................................. 12
SECTION 5.1 AMOUNT AND PRIORITY OF QUARTERLY DISTRIBUTIONS........... 12
SECTION 5.2 FIRST DISTRIBUTION....................................... 13
SECTION 5.3 AMOUNTS WITHHELD......................................... 13
SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION........................... 13
ARTICLE 6
ALLOCATIONS................................................................ 14
SECTION 6.1 ALLOCATIONS OF NET INCOME AND NET LOSS................... 14
SECTION 6.2 OTHER ALLOCATIONS........................................ 15
<PAGE> 3
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS...................................... 15
SECTION 7.1 MANAGEMENT............................................... 15
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP....................... 18
SECTION 7.3 NO PROPERTY TRANSFER PERIOD.............................. 18
SECTION 7.4 NO PAY DOWN PERIOD....................................... 19
SECTION 7.5 NO DISSOLUTION ACTION.................................... 19
SECTION 7.6 NO TAX TERMINATION OR DISSOLUTION........................ 19
SECTION 7.7 MANAGEMENT FEE AND REIMBURSEMENT OF THE GENERAL PARTNER.. 19
SECTION 7.8 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER................ 20
SECTION 7.9 CONTRACTS WITH AFFILIATES................................ 20
SECTION 7.10 INDEMNIFICATION......................................... 20
SECTION 7.11 LIABILITY OF THE GENERAL PARTNER........................ 22
SECTION 7.12 OTHER MATTERS CONCERNING THE GENERAL PARTNER............ 23
SECTION 7.13 TITLE TO PARTNERSHIP ASSETS............................. 23
SECTION 7.14 RELIANCE BY THIRD PARTIES............................... 23
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................................. 24
SECTION 8.1 LIMITATION OF LIABILITY.................................. 24
SECTION 8.2 MANAGEMENT OF BUSINESS................................... 24
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS................... 24
SECTION 8.4 RETURN OF CAPITAL........................................ 25
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP... 25
SECTION 8.6 NO REDEMPTION RIGHT...................................... 26
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS..................................... 26
SECTION 9.1 RECORDS AND ACCOUNTING................................... 26
SECTION 9.2 FISCAL YEAR.............................................. 26
SECTION 9.3 REPORTS.................................................. 26
ARTICLE 10
TAX MATTERS................................................................ 27
SECTION 10.1 PREPARATION OF TAX RETURNS.............................. 27
SECTION 10.2 TAX ELECTIONS........................................... 27
SECTION 10.3 TAX MATTERS PARTNER..................................... 27
SECTION 10.4 ORGANIZATIONAL EXPENSES................................. 28
SECTION 10.5 WITHHOLDING............................................. 28
- ii -
<PAGE> 4
ARTICLE 11
TRANSFERS AND WITHDRAWALS.................................................. 29
SECTION 11.1 TRANSFER................................................ 29
SECTION 11.2 TRANSFER OF THE GENERAL PARTNER'S PARTNER INTEREST AND
LIMITED PARTNER INTEREST................................ 29
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.................... 30
SECTION 11.4 SUBSTITUTED LIMITED PARTNERS............................ 31
SECTION 11.5 ASSIGNEES............................................... 31
SECTION 11.6 GENERAL PROVISIONS...................................... 31
SECTION 11.7 NO EXCHANGE............................................. 32
ARTICLE 12
ADMISSION OF PARTNERS...................................................... 32
SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER.................. 32
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS................ 33
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP............................................. 33
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION................................... 33
SECTION 13.1 DISSOLUTION............................................. 33
SECTION 13.2 WINDING UP.............................................. 34
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS...... 35
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION.................. 36
SECTION 13.5 RIGHTS OF LIMITED PARTNERS.............................. 36
SECTION 13.6 NOTICE OF DISSOLUTION................................... 36
SECTION 13.7 TERMINATION OF PARTNERSHIP AND CANCELLATION OF
CERTIFICATE OF LIMITED PARTNERSHIP...................... 36
SECTION 13.8 REASONABLE TIME FOR WINDING-UP.......................... 36
SECTION 13.9 WAIVER OF PARTITION..................................... 36
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............................... 37
SECTION 14.1 AMENDMENTS.............................................. 37
SECTION 14.2 MEETINGS OF THE PARTNERS................................ 38
- iii -
<PAGE> 5
ARTICLE 15
GENERAL PROVISIONS......................................................... 39
SECTION 15.1 ADDRESSES AND NOTICES................................... 39
SECTION 15.2 TITLES AND CAPTIONS..................................... 39
SECTION 15.3 PRONOUNS AND PLURALS.................................... 39
SECTION 15.4 FURTHER ACTION.......................................... 39
SECTION 15.5 BINDING EFFECT.......................................... 39
SECTION 15.6 CREDITORS............................................... 39
SECTION 15.7 WAIVER.................................................. 39
SECTION 15.8 COUNTERPARTS............................................ 40
SECTION 15.9 APPLICABLE LAW.......................................... 40
SECTION 15.10 INVALIDITY OF PROVISIONS......................... 41
SECTION 15.11 ENTIRE AGREEMENT................................. 41
SECTION 15.12 NO RIGHTS AS SHAREHOLDERS........................ 41
EXHIBIT A PARTNERS CAPITAL AND PARTNERSHIP INTERESTS
EXHIBIT B CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C SPECIAL ALLOCATION RULES
EXHIBIT D VALUE OF EXISTING PROPERTY
EXHIBIT E TRANSACTION DOCUMENTS
- iv -
<PAGE> 6
AGREEMENT OF LIMITED PARTNERSHIP
OF
TERRACE GARDENS - PGP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF TERRACE GARDENS - PGP, L.P. (this
"Agreement"), dated June 12, 1997 (the "Effective Date"), is entered into by and
among PGP Terrace Gardens Holdings Inc., a Delaware corporation, as the general
partner (the "General Partner"), and the Persons (as defined below) whose names
are set forth on Exhibit A as attached hereto (as it may be amended from time to
time), collectively as the limited partners (the "Limited Partners").
WHEREAS, the Limited Partners formed that certain general partnership
known as Terrace Gardens Apartments, a California general partnership (the
"California General Partnership"), pursuant to that certain General Partnership
Agreement of Terrace Gardens Apartments dated November 1, 1983, as amended (the
"Prior Agreement");
WHEREAS, the General Partner was admitted to the California General
Partnership as a general partner through an amendment to the Prior Agreement;
WHEREAS, the General Partner and the Limited Partners have entered into an
Agreement and Plan of Conversion of even date herewith whereby the California
General Partnership is being converted (the "Conversion") to a Delaware Limited
Partnership (the "Partnership");
WHEREAS, as a part of the Conversion, the General Partner and the Limited
Partners desire to amend and restate the Prior Agreement under the laws of the
State of Delaware; and
WHEREAS, upon admission to the California General Partnership, the General
Partner made certain capital contributions;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto amend and restate the Partnership Agreement,
and do hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on the
books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership taxable year (i) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
1
<PAGE> 7
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership taxable year.
"Adjusted Property" means any property, the Carrying Value of which has
been adjusted pursuant to Exhibit B hereof. The parties hereto agree that as a
result of the admission of the General Partner just prior to Conversion, the
Carrying Value of the Existing Property shall have been adjusted in accordance
with Exhibit B hereof, and as of the Effective Date, the Existing Property is
included in the definition of Adjusted Property.
"Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
"Agreed Value" means (i) in the case of the Existing Property, the Net
Value; (ii) in the case of any other property and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, Partnership gross revenues less (i) operation and
maintenance expenses (including, but not limited to, reserves for property taxes
and insurance), (ii) debt service on Partnership debt, and (iii) management fees
and expenses.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Los Angeles, California are authorized or required by
law to close.
"California General Partnership" means Terrace Gardens Apartments, a
California general partnership.
2
<PAGE> 8
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital " means, with respect to the Limited Partners, the Agreed Value
of the Existing Property, with respect to the General Partner, the cash
contributed to the Partnership, and with respect to Additional Limited Partners,
the cash, cash equivalents or the Agreed Value of property which such Partner
contributes or is deemed to contribute to the Partnership, pursuant to Section
4.1 hereof.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the date hereof with respect to such Property; and
(ii) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Exhibit B hereof, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Certificate" means a Certificate of Limited Partnership relating to the
Partnership to be filed with the execution and delivery hereof, or as soon
thereafter as is practicable in the office of the Delaware Secretary of State,
as amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provisions of future law.
"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash), contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership as a result of the termination thereof pursuant to Section 708 of
the Code and the regulations thereunder to the extent the property was
Contributed Property prior to the Section 708 termination). Once the Carrying
Value of Contributed Party is adjusted pursuant to Exhibit B hereof, such
property shall no longer constitute Contributed Property for purposes of Exhibit
B hereof, but shall be deemed an Adjusted Property for such purposes.
"Conversion" means the process of converting the California General
Partnership to the Partnership pursuant to Section 17-217 of the Act and Article
9 of the California Uniform Partnership Act of 1994 (being Section 16901 et seq.
of the California Corporations Code).
"Depreciation" means, for each taxable year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
3
<PAGE> 9
"Effective Date" means the effective date set forth in the Certificate of
Conversion filed with the Delaware Secretary of State.
"Excess Distributions" means distributions to a Limited Partner for all
periods in excess of allocations of Net Income to the Limited Partner for all
periods pursuant to Section 6.1A(3).
"Excess Transfer" means the sale or transfer or conversion of at least
eighty percent (80%), in the aggregate, of the Partnership Units received by the
Original Limited Partners and/or their respective successors and assigns in
transactions not constituting transfers permitted under this Agreement. For
purposes of the foregoing, a pledge, encumbrance or hypothecation of a
Partnership Unit or an interest therein shall not constitute a sale, transfer or
conversion.
"Exchange Rights Agreement" means that certain Exchange Rights Agreement,
dated as of June 12, 1997, by and among PGP, the Partnership and all of the
Limited Partners.
"Existing Property" means each property or other asset, in such form as
may be permitted by the Act (but excluding cash) held by the Partnership on the
date hereof.
"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnification Agreement" means that certain indemnification agreement,
dated June 12, 1997, by and among PGP, the Delaware Limited Partnership, Morning
View Terrace - PGP, L.P., and Pacific Inland Communities, LLC.
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"Indemnitee" means any Person made a party to a proceeding or against whom
a claim is made by reason of (i) his status as the General Partner, or as a
director, officer, employee, partner, agent, representative or Affiliate of the
General Partner, or (ii) his or its liabilities pursuant to a loan guarantee or
otherwise for or as a result of any indebtedness or obligation of the
Partnership or any Subsidiary of the Partnership (including, without limitation,
the Tax Exempt Debt prior to and subsequent to any refunding thereof and any
indebtedness or obligation which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to). Notwithstanding the
foregoing, no Original Limited Partner shall be treated as an Indemnitee in
connection with the Tax Exempt Debt (as it may be refunded from time to time) or
in respect of the Indemnification Agreement.
"Limited Partner" means any Person named as a Limited Partner in Exhibit A
attached hereto, as such Exhibit may be amended from time to time, or any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner of the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Master Reimbursement Agreement" means the Master Reimbursement Agreement,
dated as of December 1, 1996 and amended and restated as of June 1, 1997, by and
among the Federal National Mortgage Association, Pacific Inland Communities,
LLC, Morning View Terrace - PGP, L.P. and the Partnership.
"Negative Capital Account Balance" means, as to any Original Limited
Partner, the aggregate negative capital account balance of such partner in the
Partnership immediately prior to the date of admission of the General Partner
(the "Admission Date") as a general partner of the Partnership (as reflected on
the books of the Partnership at that time, and without taking into account any
revaluation of property of the Partnership which may occur as a result of, or as
required by, Regulations Section 1.704- 1(b)(2)(iv)(f)), and with respect to any
Original Limited Partner which is itself a partnership on the Effective Date,
the aggregate negative capital account balances of all the partners of such
Original Limited Partner immediately prior to the Admission Date (as reflected
on the books of the Partnership at that time, and without taking into account
any revaluation of property of the Partnership which may occur as a result of,
or as required by, applicable Regulations (including, without limitation,
Regulations Section 1.704-1(b)(2)(iv)(f)); provided, however, that the Negative
Capital Account Balance in each case shall be deemed to be reduced by the amount
(determined at the time of reference) of the Original Limited Partner's share of
Non-Recourse Liabilities of the Partnership.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
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"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit "B".
"Net Value" is equal to $1,752,607.
"No Exchange Period" means a period expiring two (2) years after the date
of the Exchange Rights Agreement.
"Nonrecourse Built-in-Gain" means, with respect to any Existing Property
or Adjusted Property that is subject to a mortgage or negative pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Partners pursuant to Section 2.B of Exhibit C if such properties were
disposed of in a taxable transaction in full satisfaction of such liabilities
and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Original Limited Partner" means each person listed on Exhibit A as
attached hereto at the time of initial execution of this Agreement (excluding
the General Partner) without regard to any subsequent changes to such Exhibit,
and with regard to any such persons which are themselves partnerships, the
partners of such partnerships if and when the Partnership Units held by such
partnerships hereunder are distributed by such partnerships to such partners.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be
determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act by
conversion of the California General Partnership, and pursuant to the Prior
Agreement, as amended and restated, pursuant to this Agreement and any successor
thereto.
"Partnership Interest" means an ownership interest in the Partnership by
either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
held by a Limited Partner may be expressed as a number of Partnership Units.
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"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall be no later than ten (10) days prior to any date of
distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Limited Partners issued pursuant to Sections 4.1 and 4.2. The
number of Partnership Units outstanding and the Percentage Interest in the
Partnership represented by such Partnership Units are set forth in Exhibit A
attached hereto, as such Exhibit may be amended from time to time. The ownership
of Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities. If the
General Partner elects to evidence the Partnership Units with a certificate,
such certificate may be imprinted with a legend setting forth such restrictions
placed on the units as specified in this Agreement and the Exchange Rights
Agreement and such restrictions will be binding upon all holders of the
certificate along with the terms and conditions set forth in this Agreement and
the Exchange Rights Agreement.
"Partnership Year" means the fiscal year of the Partnership, which shall
be the calendar year.
"Percentage Interest" means, as to a Limited Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Limited Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit A may be amended from
time to time.
"Person" means an individual or a corporation, partnership, trust, limited
liability company, unincorporated organization, association or other entity.
"PGP" means Pacific Gulf Properties Inc., a Maryland corporation and an
Affiliate of the General Partner.
"Project" means the Terrace Gardens Apartments located in the City of
Escondido, County of San Diego, California, including all real and personal
property, now or hereafter existing, necessary or desirable for the proper
ownership, management and operation of the apartment complex.
"Property" means Existing Property, Contributed Property and Adjusted
Property.
"Recapture Income" means any gain recognized by the Partnership upon the
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT Share" shall mean a share of common stock of PGP, par value $.01 per
share.
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"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property, or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Restructuring Agreement" means that certain Restructuring Agreement,
dated as of May 23, 1997, by and among PGP, the General Partner, the California
General Partnership and all of the Limited Partners.
"704(c) Value" of any Existing Property means the value of such property
as set forth in Exhibit D, or if no value is set forth in Exhibit D, the fair
market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt. The 704(c) Value of any property deemed
contributed by the Partnership to a new partnership for federal income tax
purposes upon termination of the Partnership thereof pursuant to Section 708 of
the Code shall not change by virtue of such termination. Subject to Exhibit B
hereof, the General Partner shall, in its sole and absolute discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate of the
704(c) Values in a single or integrated transaction among the separate
properties on a basis proportional to their respective fair market values.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.
"Tax Exempt Debt" means the existing tax exempt financing encumbering the
Property, namely the outstanding principal balance of the City of Escondido,
California, Variable Rate Demand Multifamily Housing Revenue Bonds, Series 1985A
(Terrace Gardens Project), and any successor or refunding debt with respect
thereto.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B hereof) as of such date;
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B hereof) as of such date.
"Value" means, with respect to a REIT Share, the average of the daily
market price on the New York Stock Exchange for the ten (10) consecutive trading
days immediately preceding the Effective Date. The market price for each such
trading day shall be the closing price on such day, or if no such sale takes
place on such day, the average of the closing bid and asked prices on such day.
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ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. The Partners hereby amend and restate the Prior Agreement in its
entirety as of the date hereof. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership shall be Terrace Gardens - PGP, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purpose of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware, 19805. The principal office of the
Partnership shall be c/o PGP Terrace Gardens Holdings Inc., 363 San Miguel
Drive, Suite 100, Newport Beach, California, 92660-7805, or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices:(a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments or restatement thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change, modification or
restatement of this Agreement in accordance with its terms; (c) all conveyances
and other instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to, or
other events described in, Article 11, 12 or 13 hereof or the Capital of any
Partner; (e) all certificates, documents and
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other instruments relating to the determination of the rights, preferences and
privileges of a Partnership Interest; and (f) any and all financing statements,
continuation statements and other documents necessary or desirable to create,
perfect, continue or validate the security interest granted by a Limited Partner
pursuant to Section 10.5 of this Agreement or to exercise or enforce the
Partnership's rights with respect to such security interest; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any Liquidator, to
effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's Assignee's Partnership
Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney in accordance with the provisions of this Agreement. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
Section 2.5 Term
The term of the Partnership commenced on November 1, 1983 and shall
continue until December 31, 2095, unless, the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act with regard to the Project only;
provided, however, that such business shall be limited to and conducted in such
a manner as to permit PGP at all times to be classified as a REIT, unless PGP
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or to own
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interests in any entity engaged in any of the foregoing; and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting PGP's right, in its sole discretion, to cease
qualifying as a REIT, the Partners acknowledge PGP's current status as a REIT
inures to the benefit of all of the Partners and not solely to PGP and the
General Partner.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership; provided, however, that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of PGP to continue to qualify as a REIT; (ii) could
subject PGP to any additional taxes under Section 857 or Section 4981 of the
Code; or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over PGP, the General Partner or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner in writing.
ARTICLE 4
CAPITAL
Section 4.1 Capital of the Partners
A. The General Partner has made, and will make, in a timely manner, a cash
contribution equal to the Transaction Expenses and Deferred Maintenance, as both
terms are defined in the Restructuring Agreement. By execution and delivery of
this Agreement, the Partners hereby acknowledge and agree that the aggregate
Capital of the Limited Partners equals the Net Value. The Capital of the Limited
Partners is allocated initially among each of the Limited Partners as set forth
in Exhibit A. The Limited Partners shall own Partnership Units in the amounts
set forth for such Limited Partner in Exhibit A. The number of Partnership Units
received by each Limited Partner was calculated by dividing the respective
Partner's Capital by the Value of a REIT Share. The Limited Partners shall have
a Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest was determined by dividing the respective Limited Partner's
Partnership Units by the aggregate number of Partnership Units issued to all
Limited Partners. The Percentage Interests shall be adjusted from time to time
by the General Partner to the extent determined by the General Partner to be
necessary to reflect accurately redemptions, additional capital, the issuance of
additional Partnership Units (pursuant to any merger or otherwise), or similar
events having an effect on any Limited Partner's Percentage Interest. Except as
provided in Sections 10.5, and 13.3, the Partners shall have no obligation
whatsoever to make any additional capital contributions or loans, or advances of
any kind to the Partnership, or to in any way finance the operation of the
Partnership or any of the debt or obligations of the Partnership.
B. Except as provided in Section 13.3 of this Agreement and as otherwise
expressly provided herein, the Capital of each Partner will be returned to that
Partner only in the manner and to the extent provided in Article 5 and Article
13 hereof, and no Partner may withdraw from the Partnership or otherwise have
any right to demand or receive the return of its Capital in the Partnership,
except as specifically provided herein. Under circumstances requiring a return
of any Capital, no Partner shall have the right to receive property other than
cash, except as specifically provided herein. No Partner shall be entitled to
interest on any Capital or Capital Account. The General Partner shall not be
liable for the return of any portion of the Capital of any Limited Partner, and
the return of such Capital shall remain solely from Partnership assets.
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C. No Limited Partner shall have any further personal liability to
contribute money to, or in respect of, the liabilities or the obligations of the
Partnership, nor shall any Limited Partner be personally liable for any
obligations of the Partnership, except as otherwise provided in this Agreement
or in the Act. No Limited Partner shall be required to make any contributions to
the capital of the Partnership other than as expressly provided in this
Agreement.
Section 4.2 Issuances of Additional Partnership Interests
Upon the consent of a majority in interest of the Limited Partners, the
General Partner is hereby authorized to cause the Partnership from time to time
to issue to the Partners (including the General Partner) or other Persons
additional Partnership Units or other Partnership Interests in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including, rights, powers and duties senior to the Limited
Partners (including the Original Limited Partners), except that, notwithstanding
the foregoing, none of such additional Partnership Units or Partnership
Interests shall carry or give to their holders rights to receive distributions
(as to amount, timing, and priority) senior to the rights of the Original
Limited Partners as set forth in this Agreement.
Section 4.3 Preemptive Rights
No Person shall have any preemptive, preferential or other similar right
with respect to (i) additional capital contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
Section 4.4 General Partner Loans
The General Partner and its Affiliates shall have the right, but not the
obligation, to make loans and advances to the Partnership, and shall be treated
as a third party lender to the Partnership (with all attendant rights,
privileges, and remedies) to the extent that it does so. Loans and advances, if
any, funded by the General Partner or its Affiliates shall be on commercially
competitive terms, comparable to similar loans and advances made by unrelated
third party institutional lenders; and, if institutional lenders would not
regularly make such loans or advances, then terms for a comparable loan or
advance described by any unrelated third party loan broker upon request by the
General Partner shall be conclusively presumed to be commercially competitive
and comparable to similar loans and advances made by unrelated third parties for
purposes of this Agreement.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Amount and Priority of Quarterly Distributions
Except as provided in Sections 5.2 and 5.4 hereof, the General Partner
shall cause to be distributed within 60 days of the end of each calendar
quarter, beginning with the calendar quarter ending March 31, 1998, an amount
equal to 100% of Available Cash generated by the Partnership during such
calendar quarter to those Partners who are Partners on the Partnership Record
Date for such calendar quarter, as follows:
A. First, to the Limited Partners who are Partners on the Partnership
Record Date, an amount (the "Quarterly Distribution Amount") equal
to the lesser of (i) 100% of such Available Cash, or (ii) an amount
determined by multiplying the total number of Partnership Units held
by such Limited Partners by the amount of the dividend per share
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paid to common stock shareholders of PGP with respect to such
calendar quarter. As among such Limited Partners, the Quarterly
Distribution Amount shall be distributed pro rata in accordance with
their respective Partnership Interests; and
B. The balance to the General Partner.
Section 5.2 First Distribution
The General Partner shall cause to be distributed not later than February
28, 1998 an amount equal to 100% of Available Cash generated by the Partnership
from and including the Effective Date to and including December 31, 1997, to
those Partners who are Partners on the Partnership Record Date for the calendar
quarter ending December 31, 1997, as follows:
A. First, to the Limited Partners who are Partners on the Partnership
Record Date, an amount (the "First Distribution Amount") equal to
the lesser of (i) 100% of such Available Cash, or (ii) an amount
which is the sum of the following: (A) an amount determined by
multiplying the number of total Partnership Units held by such
Limited Partners by the amount of the dividend per share paid to
common stock shareholders of PGP with respect to the calendar
quarter ended September 30, 1997 and multiplying that product by a
fraction (x) the numerator of which is the number of days from and
including the Effective Date to and including September 30, 1997,
and (y) the denominator of which is 92, and (B) an amount determined
by multiplying the total number of Partnership Units held by such
Limited Partners by the amount of the dividend per share paid to
common stock shareholders of PGP with respect to the calendar
quarter ended December 31, 1997. As among such Limited Partners, the
First Distribution Amount shall be distributed pro rata in
accordance with their respective Partnership Interests; and
B. The balance to the General Partner.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Sections 5.1 or 5.2 for all
purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
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ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations of Net Income and Net Loss
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Loss for a particular period shall be allocated as follows:
(1) First, to the General and Limited Partners in proportion to and
to the extent of their positive Capital Account balances, if any.
(2) Second, to the Limited Partners in proportion to and to the
extent of their respective Negative Capital Account Balances, until the
amount allocated under this Section 6.1A(2) for the current fiscal year
and all prior fiscal years equals the Negative Capital Account Balances of
all Limited Partners.
(3) Third, to the Limited Partners, in proportion to and to the
extent of, their respective aggregate Excess Distributions, until the
amount allocated under this Section 6.1A(3) for the current fiscal year
and all prior fiscal years equals the Excess Distributions of all Limited
Partners.
(4) Fourth, to the Limited Partners, in proportion to their
respective Percentage Interests until the amount allocated under this
Section 6.1(A)(4) for the current fiscal year and all prior fiscal years
equals the principal paid on the Tax Exempt Debt of the Partnership for
all periods up to an amount equal to $600,000.
(5) Fifth, to the General Partner.
B. Net Income for a particular period shall be allocated as follows:
(1) First, to the Partners that have previously been allocated Net
Loss pursuant to Section 6.1A in amounts and among such Partners in the
reverse order (and in the corresponding amounts) of all Net Loss
previously allocated to them until the amount of Net Income allocated
pursuant to this Section 6.1B(1) equals the aggregate amount of all Net
Loss theretofore allocated pursuant to Section 6.1A.
(2) Second, if applicable, to the Limited Partners in proportion to
their respective Partnership Interests until the aggregate Net Income
allocated pursuant to this Section 6.1B(2) for the current taxable period
and all previous taxable periods equals the aggregate amount of Available
Cash distributed to the Limited Partners pursuant to Section 5.1A and 5.2.
(3) Third, to the General Partner.
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Section 6.2 Other Allocations
A. For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain; and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Limited Partners in accordance with
their respective Percentage Interests.
B. Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to Exhibit C, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
C. Notwithstanding the provisions of Sections 6.1A and 6.1B, to the extent
that the Partnership is treated for income tax purposes as having sold all or a
portion of the Existing Property in connection with the Conversion, any gain
recognized as a result of such sale shall be allocated to the Partners to whom
the consideration deemed to have been received by the Partnership in respect of
such sale, and by reason of the receipt of which the gain is recognized, is
deemed distributed (in proportion to their respective Partnership Interests
immediately prior to such distribution).
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation (but in all cases subject to the terms of this Agreement):
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, money to be used to pay off a portion of
the existing debt encumbering the Partnership's assets) and making prepayments
on loans and borrowing money to permit the Partnership to make distributions to
its Partners in such amounts as will permit PGP (so long as PGP qualifies as a
REIT) to avoid the payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the Code) and to make
distributions to its shareholders in amounts sufficient to permit PGP to
maintain REIT status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidence of indebtedness
(including the securing of the same by deed, mortgage, deed of trust or other
lien or encumbrance on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
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(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or into
another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has an equity
investment, and the making of capital contributions to its Subsidiaries, the
holding of any real, personal and mixed property of the Partnership in the name
of the Partnership or in the name of a nominee or trustee and the creation, by
grant or otherwise, of easements or servitudes;
(5) the management, operation, leasing, collection of rents,
marketing, landscaping, repair, alteration, renovation, rehabilitation,
demolition or improvement of the Property or any other assets owned by the
Partnership or any Subsidiary of the Partnership and the performance of any and
all other acts necessary or appropriate to the operation of the Property or
other assets including, without limitation, applications for rezoning or
objections to rezoning of the Property or other assets;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers useful or
necessary to the conduct of the Partnership's operations or the implementation
of the General Partner's powers under this Agreement, including, without
limitation, the execution and delivery of leases on behalf of or in the name of
the Partnership, contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the Partnership's assets;
(7) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other instruments,
and the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring
(whether or not any of the foregoing are also employed by, consultants to,
independent contractors for, or otherwise do business with the General Partner
or its Affiliates in related or unrelated matters);
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate (whether or
not such is done as part of a group, combined or other policy or policies under
which the Partnership and the General Partner (or its Affiliates) are also
insured, so long as the General Partner fairly allocates the expense thereof
among the covered parties);
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(12) the formation of, or acquisition of an interest in, and the
contribution of some or all of property (or any part thereof or interest
therein) to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);
(13) the control of any and all matters affecting the rights and
obligations of the Partnership, including the settlement, compromise, submission
to arbitration or any other form of dispute resolution, or abandonment of, any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitration or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law and consistent with
the terms of this Agreement, including in each and all of the foregoing
instances any such matter or thing in which the General Partner or its
Affiliates have a direct interest;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as the
General Partner may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the Partnership
does not have an interest pursuant to contractual or other arrangements with
such Person;
(19) the making, execution and delivery of any and all deeds,
leases, notes, mortgages, deeds of trust, security agreements, conveyances,
contracts, guarantees, warranties, indemnities, waivers, releases or legal
instruments or agreements in writing necessary or appropriate, in the judgment
of the General Partner, for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement; and
(20) the issuance of additional Partnership Units or Partnership
Interests, as appropriate, in connection with capital contributions by
Additional Limited Partners and additional capital contributions by Partners
pursuant to Article 4 hereof.
B. Except as otherwise expressly provided in this Agreement, each of the
Limited Partners agrees that the General Partner is authorized to execute,
deliver and perform the above-mentioned agreements and transactions on behalf of
the Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, to the fullest extent permitted under the Act or other
applicable law, rule or regulation. The
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execution, delivery or performance by the General Partner or the Partnership of
any agreement authorized or permitted under this Agreement shall not constitute
a breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
hereof.
E. The General Partner, on behalf of the Partnership, may hire, employ or
otherwise contract with any Affiliate of the General Partner to manage the
Property, and the Limited Partners do hereby waive any conflict which may exist
because of the Affiliate relationship.
F. Without any further act, approval or vote of the Partners and
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation, the Partnership and Partners on behalf of the
Partnership, hereby authorize, approve and ratify the Partnership's, and the
General Partner's on behalf of the Partnership, execution, delivery and
performance of the Transaction Documents described in Exhibit E attached hereto
and all other documents deemed necessary or required by the General Partner. The
General Partner is hereby authorized to enter into the Transaction Documents on
behalf of the Partnership, but such authorization shall not be deemed a
restriction on the power of the General Partner to enter into other agreements
on behalf of the Partnership.
Section 7.2 Certificate of Limited Partnership
The General Partner shall file the Certificate with the Secretary of State
of Delaware as required by the Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and any other state,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.
Section 7.3 No Property Transfer Period. The General Partner
covenants and agrees not to cause the Partnership to sell, transfer or otherwise
dispose of any of the Existing Property which is real property, or any interest
therein, directly or indirectly, whether as a result of a Terminating Capital
Transaction or otherwise (collectively referred to as a "Property Transfer"),
nor distribute to the Original Limited Partners or their successors and assigns
any property if such distribution would trigger tax liability under Section 737
of the Code, for a period of five (5) years after the Effective Date, in either
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case unless and until either (i) during said five-year period there has been an
Excess Transfer, or (ii) the Property Transfer occurs in a manner which, upon
such transfer, is fully tax free to, and as such does not produce any income
taxation upon, the Original Limited Partners or their successors and assigns.
Section 7.4 No Pay Down Period. During a period of five (5) years after
the Effective Date, the General Partner shall not cause the Partnership to pay
down any of the Tax Exempt Debt (other than as required by the debt instrument
or any other agreement ancillary thereof) nor take any other action which would
result in a reduction of the allocation of debt to the Original Limited Partners
or their successors or assigns for purposes of computing such parties' basis for
income tax purposes, unless either (i) simultaneously with such pay down the
Partnership refinances the full amount paid down with other debt, and such
refinanced debt shall not result in a reduction of the allocation of debt to the
Original Limited Partners or their successors or assigns for purposes of
computing such parties' basis for income tax purposes, or (ii) during said
five-year period there has been an Excess Transfer.
Section 7.5 No Dissolution Action. Without limiting the provisions of
Section 7.4, for the five-year period immediately following the Effective Date,
the General Partner will not cause the Partnership to take any action which
results in dissolution of the Partnership.
Section 7.6 No Tax Termination or Dissolution. The General Partner hereby
covenants and agrees that for the five-year period immediately following the
Effective Date, the General Partner will not make a disposition of its general
partner interest in the Partnership (i) which would cause a termination of the
Partnership pursuant to Section 708(b)(1)(B) of the Code when the fair market
value of the property deemed contributed to the successor partnership as a
result of such termination is less than the liabilities to which such property
is then subject, or (ii) which in the opinion of legal counsel for the
Partnership or the General Partner would result in the Partnership being treated
as an association taxable as a corporation.
Section 7.7 Management Fee and Reimbursement of the General Partner
A. The General Partner and/or its Affiliates shall have the right, but not
the obligation, in the sole discretion of the General Partner, to perform all or
any of the property management services on account of the property owned or
managed by the Partnership. If the General Partner elects to so perform, or to
have an Affiliate so perform, the property management services, then the General
Partner or its Affiliate shall be reimbursed expenses and otherwise compensated
therefor by the Partnership in amounts determined by the General Partner, in its
good faith discretion, to be comparable to amounts which would be charged by
reputable unrelated third party property management companies which have
substantial experience in performing property management services for properties
of the type owned or managed by the Partnership for institutional owners with
portfolios under management which are substantially similar in size, nature, and
condition of property owned or managed by the Partnership. It is agreed that a
management fee of four percent (4%) of gross income may be charged by the
General Partner or its Affiliates for property management services as
contemplated hereunder, and such shall be deemed conclusively to satisfy the
foregoing requirements. The reimbursements and fees payable to the General
Partner or its Affiliates shall be paid no less frequently than monthly. Except
as provided in this Section 7.7A and elsewhere in this Agreement (including the
provisions of Articles 5 and 6 regarding distributions, payments, and
allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs relating to the ownership and operation of, or for the
benefit of, the Existing Property, the Partnership or any of its assets. The
General Partner shall also be reimbursed for all expenses it incurs relating to
(i) the ownership and operation of the Existing Property and other assets or
properties owned by the Partnership, (ii) the reorganization or
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restructuring thereof, and (iii) the management of Partnership Units. Any
reimbursement in this paragraph (B) shall be in addition to any reimbursement
made as a result of indemnification pursuant to Section 7.10 hereof.
Section 7.8 Outside Activities of the General Partner
The General Partner and its Affiliates shall be permitted to purchase,
own, operate, manage and otherwise deal with and profit from any property, real,
personal or mixed, not owned by the Partnership for their own account and
benefit, whether or not competitive with the business and affairs of the
Partnership, and neither the Partnership, any Limited Partner, or any other
Person shall have any right, claim, interest or cause of action therein or as a
result thereof. Without limiting the generality of the above, nothing in this
Agreement shall obligate the General Partner or its Affiliates to first offer
the Partnership an opportunity to invest in any investment which has been
offered to or found by the General Partner or its Affiliates, whether or not
such investment is of a nature that may be invested in by the Partnership or
would compete directly or indirectly with the business of the Partnership. The
Limited Partners hereby acknowledge that the PGP and its Affiliates currently
own a variety of real estate investments and may in the future acquire
additional real estate investments that may be competitive with the business of
the Partnership.
Section 7.9 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the Partnership,
Subsidiaries of the Partnership or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiaries of the Partnership.
E. Any or all of the foregoing may be jointly established with the General
Partner or its Affiliates, provided that in such case the allocation of expense
shall be shared among the parties on whose behalf such plans exist as determined
by the General Partner in good faith to be fair and reasonable.
Section 7.10 Indemnification
A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorneys' fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings,
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civil, criminal, administrative or investigative, that relate to the operations
of the Partnership or the General Partner in its capacity as general partner of
the Partnership as set forth in this Agreement, in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, whether or
not suit or other legal proceedings are commenced, unless it is established by a
court of competent jurisdiction and all appeals relating thereto have been fully
completed or the applicable appeal periods have expired that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceedings and either was committed in intentional bad faith or was the result
of active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper and unpermitted personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee knew, or was
reckless in not knowing, that the act or omission was unlawful. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee pursuant to a loan guaranty, recourse obligation, general partner
liability, or otherwise for any indebtedness of the Partnership (including
without limitation the Tax Exempt Debt and guarantee of PGP in favor of Fannie
Mae in its capacity as credit-enhancer for the Tax Exempt Debt) or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.10 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
as set forth in this Section 7.10A. The termination of any proceeding by
conviction of an Indemnitee, or an entry of an order of probation against an
Indemnitee prior to judgment, in each case after all appeals relating thereto
have been fully completed or the applicable appeal periods have expired, creates
a rebuttable presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.10A with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.10 shall be made only
out of the assets of the Partnership (including those assets required to be
contributed by the Limited Partners to restore deficits in their respective
Capital Accounts in accordance with the terms hereof), and, except as otherwise
may be required herein, neither the General Partner nor any Limited Partner
shall have any obligation to contribute to the capital of the Partnership, or
otherwise provide funds, to enable the Partnership to fund its obligations under
this Section 7.10.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this Section 7.10 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.10, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.10; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries
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of the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement, except to the extent the Partners are required to restore negative
balances in their Capital Account; provided, however, that nothing in this
Section 7.10(F) shall restrict or otherwise limit personal liability arising by
application of the Indemnification Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.10 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.10 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.10 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.10, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.11 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or any act
or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the shareholders of the General Partner
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (except as otherwise provided herein)
in deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.11 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.11 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
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Section 7.12 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of PGP to continue to qualify as a
REIT; or (ii) to avoid PGP incurring any taxes under Section 857 or Section 4981
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.
Section 7.13 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is being held in
the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.14 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be
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available against such Person to contest, engage or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect; (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership; and (iii) such certificate, document or instrument
was duly executed and delivered in accordance with the terms and provisions of
this Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such)
shall take part in the operation, management or control (within the meaning of
the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to the terms and provisions hereof, it is agreed that any Partner
(General and/or Limited) and any Affiliate of any Partner (including any
officer, director, employee, agent, or representative of any Partner) shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights, claims, or interests by virtue of this Agreement
or any relationships, duties or obligations hereunder (including, but not
limited to, any fiduciary or similar duties created by this Agreement, under the
Act, or otherwise existing at law or in equity) in any business ventures or
investments of any General Partner or Limited Partner, or any Affiliate of any
of the foregoing. None of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person could be taken by such
Person.
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It is further agreed that none of the Partners, General or Limited, or any
of their Affiliates, have any duty, obligation, or liability to present to the
Partnership any business or investment opportunity which may arise in the course
of activity for or on behalf of the Partnership, or otherwise, for investment by
the Partnership or any of the Partners (even if within the line and scope of the
business and affairs of the Partnership), and instead any Partner, General or
Limited, and any Affiliate may pursue such opportunity for such Partner's or
Affiliate's own benefit and account, without any participation, right, or claim
therein by the Partnership or any other Partner, and without notification or
disclosure to the Partnership or any other Partner.
Section 8.4 Return of Capital
No Limited Partner shall be entitled to the withdrawal or return of its
Capital, except to the extent of distributions made pursuant to this Agreement
or upon termination of the Partnership as provided herein. Except to the extent
provided by Exhibit C hereof or as otherwise expressly provided in this
Agreement, no Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee, either as to the return of Capital or as to
profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly balance
sheet, income statement, and related financial statements prepared by the
Partnership;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner to the extent the foregoing is
materially different from information contained in financial statements or other
reports provided to Limited Partners.
The request by a Limited Partner of quarterly and annual balance sheets
and income statements regularly prepared by the Partnership in order to verify
the correctness of distributions of cash, if any, to the Limited Partner in
accordance with the terms and provisions of this Agreement shall be considered a
purpose reasonably related to the Limited Partner's interest as a limited
partner in the Partnership.
B. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, desirable or necessary any information that: (i) the General
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Partner reasonably believes to be in the nature of trade secrets or other
information, the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business; or (ii) the Partnership is required by law or by agreement with
an unaffiliated third party to keep confidential.
If the General Partner desires to disclose any information of the type
described in the preceding paragraphs (i) or (ii) to a Limited Partner, the
General Partner may require, as a condition to such disclosure, that the Limited
Partner agree in writing that such information will be held in strictest
confidence and no distribution of such information will be made.
Section 8.6 No Redemption Right
No Limited Partner (other than the General Partner) shall have the right
to require the Partnership to redeem all or a portion of the Partnership Units
held by such Limited Partner.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Sections 8.5A
and 9.3 hereof. Any records maintained by or on behalf of the Partnership in the
regular course of its business may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or such other basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each Partnership Year an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner in its
discretion (such selection may include any such accountants who also perform
accounting or auditing work for the General Partner and its Affiliates).
The Partnership shall mail to each Limited Partner no later than ninety (90)
days after the close of each calendar quarter (except the last calendar quarter
of each year), a report containing unaudited financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate. All accounting and other
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professional fees associated with the preparation, compilation, review, audit,
and any other matters relating to the Partnership's records, financial
statements and reports, tax returns, and any other Partnership items described
in the preceding paragraphs shall be at the expense of the Partnership, not the
General Partner.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by the Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that if requested by a transferee of a
Partnership Interest, the General Partner shall file an election on behalf of
the Partnership pursuant to Section 754 of the Code to adjust the basis of the
Partnership property in the case of a transfer of a Partnership Interest made in
accordance with the provisions of this Agreement. The General Partner shall have
the right to seek to revoke any tax election it makes (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination, in its sole and absolute discretion, that such
revocation is in the best interest of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number and
profit interest of each of the Limited Partners and the Assignees to the extent
the General Partner has such information.
B. The tax matters partner is authorized, but not required
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time period prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner; or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" ( as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing
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of a petition for readjustment with the Tax Court or the District Court of the
United States for the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken account
of by a Partner for tax purposes, or an item affected by such item; and
(6) to take any other action of behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.10 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no special compensation for its
services as such. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees
and expenses) shall be borne or reimbursed by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, including
an accounting firm which also renders services to the General Partner and its
Affiliates.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code and any
provision of state or local income tax law. Any amount paid on behalf of or with
respect to a Limited Partner shall constitute a loan by the Partnership to such
Limited Partner, which loan shall be repaid by such Limited Partner within
fifteen (15) days after notice from the General Partner that such payment must
be made unless (i) the Partnership withholds such payment from a distribution
which would otherwise be made to the Limited Partner; or (ii) the General
Partner determines, in its sole and absolute discretion, that such payment may
be satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner hereby unconditionally
and irrevocably grants to the Partnership a security interest in such Limited
Partner's Partnership Interest to secure such Limited
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Partner's obligation to pay to the Partnership any amounts required to be paid
pursuant to this Section 10.5. In the event that a Limited Partner fails to pay
any amounts owed to the Partnership pursuant to this Section 10.5 when due, the
General Partner may, in its sole and absolute discretion, elect to make the
payment to the Partnership on behalf of such defaulting Limited Partner, and
shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall at its own expense take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer" when used in this Article 11 with respect to a
Partnership Unit shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any acquisition of Partnership Interests by the
General Partner from any Limited Partner of any Partnership Units, nor does it
include any grant of a security interest or any related action involving levy,
execution, or the like contemplated under Section 10.5 of this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part
(including any interest therein), except in accordance with the terms and
conditions set forth in this Article 11. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article 11 shall be null
and void ab initio, and the Partnership shall have no duty or obligation to
recognize the transferee as a partner or holder of any interest whatsoever in
the Partnership, and the transferee shall have no rights, interests or claims in
or against the Partnership or any Partner.
Section 11.2 Transfer of the General Partner's Partner Interest and
Limited Partner Interest
Subject to the provisions of Section 7.5 and 7.6, the General Partner may
transfer any of its General Partner Interest or withdraw as General Partner, or
transfer any of its Limited Partner Interest, without consent or approval from
any Limited Partners. Such transfer includes transfer PGP or to an entity which
is wholly-owned by PGP and is a Qualified REIT Subsidiary under Section 856(i)
of the Code.
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Section 11.3 Limited Partners' Rights to Transfer
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and 11.4,
a Limited Partner (other than the General Partner) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
In addition, those Original Limited Partners which are themselves partnerships
shall have the right to transfer, assign, and convey their Partnership Units to
their constituent partners, provided that such constituent partners shall first
have executed and delivered a written agreement to be bound by the terms,
provisions, and conditions of the Exchange Rights Agreement and the
Restructuring Agreement, and that at the time of such transfer, assignment, and
conveyance to such constituent partners, the representations and warranties made
by such constituent partners in any subscription or other documents are true and
correct in all material respects.
B. If a Limited Partner is subject to Incapacity, the partners, executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner or
its Partnership Units if, in the opinion of legal counsel to the Partnership or
the General Partner, such transfer would require filing of a registration
statement under the Securities Act of 1933 or would otherwise violate any
federal or state securities laws or regulations applicable to the Partnership or
the Partnership Units.
D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if:(i) in the opinion of legal counsel for the Partnership or the
General Partner, it would result in the Partnership being treated as an
association taxable as a corporation; (ii) such transfer is effectuated through
an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code; (iii) such
transfer would cause the Partnership to become, with respect to any employee
benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(c) of the Code); (iv) such transfer would, in the opinion of legal counsel
for the Partnership or the General Partner, cause any portion of the assets of
the Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 2510.2-101; (v) such transfer would
subject the Partnership to be regulated under the Investment Company Act of
1940, the Investment Advisors Act of 1940 or the Employee Retirement Income
Security Act of 1974, each as amended; or (vi) in the opinion of legal counsel
for the Partnership or the General Partner, it would adversely affect the
ability of PGP to continue to qualify as a REIT or subject PGP to any additional
taxes under Section 857 or Section 4981 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan,
immediately prior to such transfer, constitutes a Nonrecourse Liability, without
the consent of the General Partner, in its sole and absolute discretion;
provided that as a condition to such consent the lender will be required to
enter into an arrangement with the Partnership or the General Partner to
exchange or redeem at a price agreeable to the lender, the General Partner, and
the transferring Partner (each in their respective discretion) any Partnership
Units in which a security interest is held immediately prior to the time at
which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.
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Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner. Notwithstanding
the foregoing, in the event of transfers of Partnership Units by Original
Limited Partners in accordance with the second sentence of Section 11.3A, the
transferees shall be admitted as Substituted Limited Partners, and the General
Partner hereby consents to such.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address, number of Partnership Units,
and Percentage Interest of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee of a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Partnership Units assigned to such transferee, but shall not be deemed to be
a holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to vote such Partnership Units for any other purpose under
this Agreement, and shall not be entitled to vote such Partnership Units in any
matter presented to the Limited Partners for a vote (such Partnership Units
being deemed to have been voted on such matters in the same proportion as all
other Partnership Units held by Limited Partners are voted). In the event any
such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all of the provisions of this Article
11 to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all such Limited Partner's Partnership Units
in accordance with this Article 11 or pursuant to any agreement consented to by
the Partnership pursuant to which the Limited Partner's interests in the
Partnership are conveyed and the Limited Partner's withdrawal is provided for.
B. Any Limited Partner who shall transfer all of its Partnership Units in
a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to any agreement of the type referred to
in the preceding paragraph shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
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D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or assignment occurs shall be
allocated to the transferee Partner, and none of such items for the calendar
month in which a redemption occurs shall be allocated to a redeeming Partner.
All distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, or redemption shall be made to the transferor Partner, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
Section 11.7 No Exchange
Notwithstanding anything in this Section 11 to the contrary, each of the
Limited Partners hereby agrees that, except as set forth below, from the date
hereof until two (2) years following the Effective Date (the "No Exchange
Period"), without the prior written consent of the General Partner (which may be
granted or withheld in its sole and absolute discretion), it shall be prohibited
from transferring any Partnership Units; provided, however, that where a Limited
Partner is a natural person and such Limited Partner dies (or, in the case of
Partnership Units owned as community property by the Limited Partner and its
spouse, then where either the Limited Partner or its spouse dies) prior to the
expiration of the No Exchange Period, the No Exchange Period shall, as to such
Limited Partner only, expire on the later of (i) one (1) year from the Effective
Date or (ii) the death of such Limited Partner (or such Limited Partner's
spouse, as the case may be); provided, further, however, that the foregoing
shall not apply to the Stewart Family Trust as an owner of Partnership Units in
its capacity as an Original Limited Partner, but shall apply to the Stewart
Family Trust as an owner of Partnership Units, if any, in its capacity as a
partner (or former partner) of any Limited Partner.
Notwithstanding anything in this Section 11.7 to the contrary, each of the
Limited Partners hereby agree that, without the prior written consent of the
General Partner (which may be granted in its sole and absolute discretion), each
Limited Partner shall be prohibited from transferring any Partnership Units
following the occurrence of a Liquidating Event.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. The admission of any such transferee shall not cause a dissolution of
the Partnership and such transferee shall carry on the business of the
Partnership in accordance with the forms and provisions of this Agreement. In
each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership Year, all items attributable to the
General Partner Interest for such Partnership Year shall be allocated between
the transferring General Partner and such successor as provided in Section
11.6.D hereof.
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Section 12.2 Admission of Additional Limited Partners
A. Except as otherwise provided elsewhere in this Agreement, after the
admission to the Partnership of the initial Limited Partners on the date hereof,
a Person who makes a capital contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
of the Partners and Assignees, including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment to this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs be wound up, only upon the first to occur of any of the following
("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
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B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of voluntary bankruptcy), unless within ninety (90) days
after such event of withdrawal a majority in interest in capital and profits of
the remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner;
C. on or before December 31, 2095, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties of
the Partnership; or
So long as Fannie Mae (as defined in the Master Reimbursement Agreement)
continues to provide a Facility (as defined in the Master Reimbursement
Agreement), no dissolution shall occur under paragraph (C) above or as a result
of the filing by the General Partner of a voluntary petition in bankruptcy
without the consent of Fannie Mae.
Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
common stock in the General Partner) shall be applied and distributed in the
following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
reasonable provision for payment thereof);
(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the reasonable
provision for payment thereof);
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners (whether by payment or the reasonable
provision for payment thereof); and
(4) The balance, if any, to the General Partner and Limited Partners
in accordance with their positive Capital Account balances, after giving effect
to all contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation
for any services performed pursuant to this Article 13.
B. Notwithstanding any provision herein to the contrary, if the Project is
sold, all Partnership Units held by the Limited Partners (other than PGP or any
Affiliate) shall be mandatorily converted to REIT Shares and shall be
automatically deemed tendered for acquisition by PGP pursuant to Section 4 of
the Exchange Rights Agreement (regardless of whether the Limited Partner was a
signatory to the
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Exchange Rights Agreement); provided, however, that the foregoing provision
shall not apply in the event the Property is sold for less than its Carrying
Value or is otherwise sold for a loss for either book or tax purposes.
C. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
D. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to one or more trust(s) established for the benefit
of the creditors and the General Partner and Limited Partners for the purposes
of liquidating Partnership assets, collecting amounts owed to the Partnership,
and paying any contingent, conditional or unmatured liabilities or obligations
of the Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust(s) shall be distributed to the
creditors and General Partner and Limited Partners from time to time, in the
reasonable direction of the Liquidator, in the same manner and proportions as
the amount distributed to such trust(s) by the Partnership would otherwise have
been distributed to the creditors and General Partner and Limited Partners
pursuant to this Agreement; and
(2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld or escrowed amounts shall be distributed to the creditors and
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A as soon as practicable.
Section 13.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
(provided, however, in no event shall the Partnership be liquidated prior to the
date which would be the Settlement Date within the meaning of the Exchange
Rights Agreement for Partners who tender an Exchange Notice (within the meaning
of the Exchange Rights Agreement) on or before the fifth (5th) day after the
date of receipt of the notice of liquidation by the Partnership). If any Partner
has a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall make a
contribution to the capital of the Partnership equal to such deficit, and such
deficit shall be considered a debt owed to the Partnership. The Partners intend
that the deficit restoration contributions be used to repay obligations of the
Partnership, including, without limitation, the Tax Exempt Debt and obligations
under the Indemnification Agreement.
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Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its capital
contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its capital contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, a certificate of cancellation shall be filed,
the Partnership shall be terminated, a certificate of cancellation shall be
filed, and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
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<PAGE> 42
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty-five
percent (25%) or more of the Partnership Interests. Following such proposal, the
General Partner shall submit any proposed amendment to the Limited Partners. The
General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than fifteen (15) days, and failure to respond in such time period
shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
13.1C, 14.1B, 14.1C, or 14.1D, a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the General Partner and it
receives the Consent of Partners holding a majority of the Percentage Interests
of all Partners; provided, however, that, except as otherwise provided in
Section 4.2 hereof, any amendment which materially and adversely alters the
right of a Limited Partner (including an Original Limited Partner) to receive
distributions of Available Cash or allocations of Net Income, Net Loss or any
other items in the amounts, in the priorities or at the times described in this
Agreement shall require the consent of such Limited Partner (including Original
Limited Partner) in order to become effective.
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent or approval of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of other holders of any additional Partnership Interests issued
pursuant to Section 4.2, or otherwise pursuant to the terms of this Agreement;
(4) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement, or make any
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement;
(5) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; and
(6) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal
court or agency or contained in federal or state law necessary to maintain the
REIT status of PGP.
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The General Partner shall provide notice to the Limited Partners when any
action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof; (iv) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1; or (v) amend this Section
14.1.C.
D. Notwithstanding Section 14.1.A and 14.1.B hereof, the General Partner
shall not amend Sections 7.5, 7.6, 14.1A, 14.1C or 14.2 without Consent of
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners, excluding Limited Partner Interests held by the General Partner; and,
to the extent that any such amendment would affect the amount, priority, or
timing of distributions to any of the Original Limited Partners or their
successors and assigns under this Agreement, the General Partner shall not amend
Sections 7.5, 7.6, 14.1A, 14.1C, or 14.2 without Consent of Original Limited
Partners holding a majority of the percentage interest of the Original Limited
Partners (in each case including their successors and assigns).
Section 14.2 Meetings of the Partners
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty-five percent
(25%) or more of the Partnership Interests. The request shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or consent of the Partners is permitted or required
under this Agreement, such vote or consent may be given at a meeting of the
Partners or may be given in accordance with the procedures prescribed in
Sections 14.1A or 14.2B hereof. Except as otherwise expressly provided in this
Agreement, the Consent of holders of a majority of the Percentage Interests held
by Limited Partners (including Limited Partnership Interests held by the General
Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by majority of the Percentage Interests of the Limited
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Limited Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date hereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
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D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the General Partner and may be
held at the same time, and as part of, meetings of the shareholders of the
General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notices
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain form taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
Other than as expressly set forth herein with respect to the Indemnities,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any covenant, duty, agreement or condition.
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Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
[Remainder of page intentionally left blank]
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Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of other
remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.
Section 15.12 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as shareholders of
PGP or the General Partner, including, without limitation, any right to receive
dividends or other distributions made to shareholders of PGP or the General
Partner or to vote or to consent or to receive notice as shareholders in respect
of any meeting of shareholders for the election of directors of PGP or the
General Partner or any other matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the day first above written.
GENERAL PARTNER:
PGP Terrace Gardens Holdings Inc.,
a Delaware corporation
By: __________________________
Title: _______________________
LIMITED PARTNERS:
The Short Family Trust
By: _______________________________
Donald R. Short, Trustee
By: ________________________________
Marilyn M. Short, Trustee
_________________________________
Bruce H. White
_________________________________
Betty C. White
[Signatures for the Agreement of Limited Partnership continued on page 42]
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[Signatures for the Agreement of Limited Partnership continued on page 41]
225 Units Limited,
a California limited partnership
__________________________________
Donald R. Short
General Partner
The Stewart Family Trust
__________________________________
Richard Stewart, Trustee
__________________________________
Mattie Stewart, Trustee
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<PAGE> 48
EXHIBIT A
Partners Capital and Partnership Interests
<TABLE>
<CAPTION>
Name and Address Cash Agreed Value of Total Partnership Percentage
of Partner Contribution Capital Contribution Units Interest
---------- ------------ ------- ------------ ----- --------
<S> <C> <C> <C> <C> <C>
General Partner
PGP Terrace Gardens
Holdings Inc. $ 800,000* N/A $ 800,000* N/A N/A
---------- ----------
Totals $ 800,000* $ 800,000*
========== ==========
Limited Partners
Short Family Trust N/A $ 581,798 $ 581,798 27,672 33.196139%
Stewart Family Trust N/A $ 739,425 $ 739,425 35,169 42.190000%
Bruce H. and
Betty C. White N/A $ 295,162 $ 295,162 14,038 16.841290%
225 Units Limited N/A $ 136,222 $ 136,222 6,479 7.772571%
---------- ---------- ---------- ----------
Totals $1,752,607 $1,752,607 83,358 100.00000%
========== ========== ========== ==========
</TABLE>
* These figures are only an estimate of the total Transaction Expenses and
Deferred Maintenance paid by, or on behalf of, the General Partner. These
figures will be adjusted as the actual amounts of Transaction Expenses and
Deferred Maintenance expended as of the date of the Closing are verified.
<PAGE> 49
EXHIBIT B
Capital Account Maintenance
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all capital
contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement; and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.B of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement; and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.A of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal tax purposes determined in accordance
with Section 703(a) of the Code (for this purpose all items of income, gain,
loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code which may be made by the Partnership, provided that the amounts of any
adjustments to the adjusted bases of the assets of the Partnership made pursuant
to Section 734 of the Code as a result of the distribution of property by the
Partnership to a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts) shall be reflected
in the Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of such
property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
B-1
<PAGE> 50
(4) In lieu of depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall
be taken into account as gain or loss from the disposition of such asset.
(6) Any items specifically allocated under Section 1 of Exhibit C
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor. If
the transfer causes a termination of the Partnership under Section 708(b)(1)(B)
of the Code, the capital accounts of the Partners in the successor Partnership
shall be maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D.(2), the Carrying Value of
all Partnership assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership property, as
of the times of the adjustments provided in Section 1.D.(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis capital contribution; (b) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c) immediately prior to
the liquidation of the Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if the General Partner determines that such
adjustments are necessary or appropriate to reflect economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be determined by
the General Partner using such reasonable method of valuation as it may adopt,
or in the case of a liquidating distribution pursuant to Article 13 of the
Agreement, shall be determined and allocated by the Liquidator using such
reasonable methods of valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for individual properties).
B-2
<PAGE> 51
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to Article
14 of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to Article 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
where appropriate, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
make any adjustments that are necessary or appropriate to maintain equality
between Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes; and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv)
conventions for the determination of cost recovery, depreciation and
amortization deductions, as it determines in its sole discretion are necessary
or appropriate to execute the provisions of this Agreement, to comply with
federal and state tax laws, and are in the best interest of the Partners.
2. No Interest
No interest shall be paid by the Partnership on capital
contributions or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
B-3
<PAGE> 52
Exhibit C
Special Allocation Rules
1. Special Allocation Rules
Notwithstanding any other provision of the Agreement or this Exhibit C,
the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this Exhibit C, if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of
Section 6.1 of this Agreement or any other provisions of this Exhibit C (except
Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership taxable year, other than allocations
pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
and after giving effect to the allocations required under Sections 1.A and 1.B
hereof such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain for the Partnership taxable
year) shall be specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the
C-1
<PAGE> 53
extent required by the Regulations, its Adjusted Capital Account Deficit created
by such adjustments, allocations or distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Limited Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which satisfy such
requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. Curative Allocations. The allocations set forth in Section 1.A through
1.F of this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under Section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income, gain, loss
and deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each person is zero. However, the
General Partner will have discretion to accomplish this result in any reasonable
manner; provided, however, that no allocation pursuant to this Section 1.G shall
cause the Partnership to fail to comply with the requirements of Regulations
Sections 1.7041(b)(2)(ii)(d), -2(e) or -2(i).
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
C-2
<PAGE> 54
(1) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners, consistent with the principles of Section
704(c) of the Code and the Regulations thereunder, to
take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of
contribution; and
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principals of Section 704(c) of the
Code and the Regulations thereunder to take into account
the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
Exhibit B; and
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in
a manner consistent with Section 2.B(1) of this Exhibit
C; and
(b) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of
"book" gain or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit C.
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to Section 6.1 of the Agreement and Section 1 of this Exhibit
C.
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of his capital
contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
C-3
<PAGE> 55
Exhibit D
Value of Existing Property
<TABLE>
<CAPTION>
Property 704(c) Value Agreed Value
- -------- ------------ ------------
<S> <C> <C>
Terrace Gardens
Apartments $ 10,000,000 $ 1,752,607
</TABLE>
<PAGE> 56
Exhibit E
Transaction Documents
The "Transaction Documents" consist of the "Partnership Transaction
Documents" and the "Partnership Bond Documents", which terms are defined as
follows:
PARTNERSHIP TRANSACTION DOCUMENTS
The "Partnership Transaction Documents" consist of the following documents
each dated June 1, 1997 (unless otherwise indicated):
1. Master Reimbursement Agreement dated December 1, 1996, as amended and
restated as of June 1, 1997, executed by the Partnership, the Federal National
Mortgage Association (herein, "Fannie Mae"), Morning View Terrace - PGP, L.P.,
and Pacific Inland Communities, LLC;
2. First Amendment to Cash Management, Security, Pledge and Assignment
Agreement executed by the Partnership, Morning View Terrace - PGP, L.P., Pacific
Inland Communities, LLC, Fannie Mae and Bankers Mutual (herein, the "Lender") in
its capacity as custodian for Fannie Mae;
3. Blocked Account Agreement executed by Partnership, Fannie Mae, Lender
and Bank of America, National Trust & Savings Association;
4. Estoppel Certificate dated June 12, 1997 executed by the Partnership;
5. Multifamily Note in the original principal amount of Eight Million One
Hundred Thousand Dollars ($8,100,000) executed by the Partnership in favor of
the Lender (the "Note");
6. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of the Lender (collectively, the "Lender
Deed of Trust"), granting a security interest in the Project as more
specifically described in the Lender Deed of Trust;
7. Multifamily Deed of Trust, Assignment of Rents and Security Agreement
(with Fixture Filing), executed by the Partnership to First American Title
Company, as trustee, for the benefit of Fannie Mae (collectively, the "Fannie
Mae Deed of Trust"), granting a security interest in the Project, as more
specifically described in the Fannie Mae Deed of Trust;
8. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Lender as secured party and naming Fannie Mae as assignee of secured
party;
9. California Financing Statement, Form UCC-1, executed by Partnership as
debtor and Fannie Mae as secured party;
10. Property Management Agreement, dated June 12, 1997, by and between the
Partnership and PGP;
<PAGE> 57
11. Assignment of Management Agreement executed by Partnership and Fannie
Mae, and consented to by PGP as agent, with respect to the Project;
12. Exchange Rights Agreement, dated June 12, 1997, by and among PGP, the
Partnership and the Original Limited Partners; and
13. Replacement Reserve and Security Agreement relating to the Project
executed by Partnership and Lender.
PARTNERSHIP BOND DOCUMENTS
The "Partnership Bond Documents" consist of the following documents, each
dated June 1, 1997 (unless otherwise indicated):
1. Financing Agreement, relating to the Project, executed by the
Partnership, the City of Escondido (herein, the "Issuer"), the Lender, and First
Trust of California, National Association (herein, the "Bond Trustee");
2. Amended and Restated Regulatory Agreement and Declaration of
Restrictive Covenants executed by the Partnership, the Bond Trustee and the
Issuer with respect to the Project;
3. Remarketing Agreement executed by the Issuer, the Partnership and the
Newman and Associates, Inc. (the "Remarketing Agent");
4. Agreement Regarding Redemption, Defeasance and Payment of Prior Bonds
executed by the Bond Trustee, the Issuer, the Partnership and Glendale Federal
Savings and Loan Association; and
5. Bond Purchase Agreement executed by the Issuer, the Partnership and the
Remarketing Agent relating to the purchase of the Bonds.
<PAGE> 1
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3, No. 333-02798) pertaining to the registration of $250,000,000 of common
stock, preferred stock, debt securities and warrants to purchase such securities
of Pacific Gulf Properties Inc. of our report dated February 13, 1998, with
respect to the consolidated financial statements and related financial statement
schedule of Pacific Gulf Properties, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1997.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-73688) pertaining to the Pacific Gulf Properties Inc. 1993
Share Option Plan, and the Registration Statement (Form S-3, No. 33-92082)
pertaining to the Pacific Gulf Properties Inc. Dividend Reinvestment Plan of our
report dated February 13, 1998, with respect to the consolidated financial
statements and related financial statement schedule of Pacific Gulf Properties
Inc. included in the Annual Report (Form 10-K) for the year ended December 31,
1997.
/s/ ERNST & YOUNG LLP
Newport Beach, California
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 2,466 13,115 2,631
<SECURITIES> 0 0 0
<RECEIVABLES> 1,857 2,168 2,114
<ALLOWANCES> 1,000 1,000 1,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 14,283 3,745
<PP&E> 308,201 355,565 366,091
<DEPRECIATION> 23,231 25,133 26,634
<TOTAL-ASSETS> 294,390 350,922 349,691
<CURRENT-LIABILITIES> 7,208 10,279 10,268
<BONDS> 213,255 232,443 232,740
0 0 0
0 0 0
<COMMON> 49 74 74
<OTHER-SE> 70,360 104,608 103,091
<TOTAL-LIABILITY-AND-EQUITY> 294,390 350,922 349,691
<SALES> 0 0 0
<TOTAL-REVENUES> 10,835 11,865 13,442
<CGS> 0 0 0
<TOTAL-COSTS> 6,493 6,431 7,371
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,049 4,782 4,782
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 293 652 1,289
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 293 652 1,363
<EPS-PRIMARY> .06 .12 .18
<EPS-DILUTED> .06 .12 .17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,523
<SECURITIES> 0
<RECEIVABLES> 3,125
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 381,711
<DEPRECIATION> 28,844
<TOTAL-ASSETS> 364,640
<CURRENT-LIABILITIES> 9,672
<BONDS> 211,628
0
0
<COMMON> 98
<OTHER-SE> 139,724
<TOTAL-LIABILITY-AND-EQUITY> 364,640
<SALES> 0
<TOTAL-REVENUES> 49,887
<CGS> 0
<TOTAL-COSTS> 31,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,411
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118)
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 7,302 14,008 1,258
<SECURITIES> 0 0 0
<RECEIVABLES> 2,506 3,266 3,501
<ALLOWANCES> 1,000 1,000 1,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 8,808 16,274 3,759
<PP&E> 421,166 462,817 566,994
<DEPRECIATION> 31,170 33,691 36,744
<TOTAL-ASSETS> 406,830 458,119 548,576
<CURRENT-LIABILITIES> 10,842 11,908 14,850
<BONDS> 208,998 210,170 290,035
0 0 0
0 3 7
<COMMON> 122 143 143
<OTHER-SE> 183,350 227,500 235,076
<TOTAL-LIABILITY-AND-EQUITY> 406,830 458,119 548,576
<SALES> 0 0 0
<TOTAL-REVENUES> 14,813 15,919 18,457
<CGS> 0 0 0
<TOTAL-COSTS> 7,778 8,303 9,515
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,953 3,999 4,699
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 3,082 3,597 4,179
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,082 3,371 3,904
<EPS-PRIMARY> .27 .27 .27
<EPS-DILUTED> .26 .26 .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,466
<SECURITIES> 0
<RECEIVABLES> 4,399
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,865
<PP&E> 733,056
<DEPRECIATION> 39,146
<TOTAL-ASSETS> 712,471
<CURRENT-LIABILITIES> 17,861
<BONDS> 296,444
0
28
<COMMON> 200
<OTHER-SE> 388,612
<TOTAL-LIABILITY-AND-EQUITY> 712,471
<SALES> 0
<TOTAL-REVENUES> 69,506
<CGS> 0
<TOTAL-COSTS> 36,133
<OTHER-EXPENSES> 172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,337
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,458
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.47
</TABLE>
