<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND 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)
MARYLAND 33-0577520
State of Incorporation (I.R.S. Employer
Identification No.)
4220 VON KARMAN, SECOND FLOOR, NEWPORT BEACH CALIFORNIA 92660-2002
(Address of principal executive offices, including zip code)
949-223-5000
(Registrant's telephone number, including area code)
COMMON STOCK, PAR VALUE $.01 PER SHARE, 20,007,814 SHARES
WERE OUTSTANDING AS OF NOVEMBER 9, 1998
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
--- ---
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PACIFIC GULF PROPERTIES INC.
FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for the Nine Months ended
September 30, 1998 and September 30, 1997 2
Consolidated Statements of Operations for the Three Months ended
September 30, 1998 and September 30, 1997 3
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1998 and September 30, 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets
Operating properties
Land $ 217,787 $ 185,789
Buildings 614,474 515,160
--------- ---------
832,261 700,949
Accumulated depreciation (52,093) (39,148)
--------- ---------
780,168 661,801
Properties under development, including land 34,485 32,107
--------- ---------
814,653 693,908
Cash and cash equivalents 5,114 1,466
Accounts receivable 4,893 3,399
Other assets 15,088 13,698
--------- ---------
$ 839,748 $ 712,471
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 395,040 $ 283,852
Accounts payable and accrued liabilities 15,882 9,009
Dividends payable 9,609 8,852
Convertible subordinated debentures 12,261 12,592
--------- ---------
432,792 314,305
Minority partners' interest in consolidated
partnerships 17,821 9,326
Commitments and contingencies -- --
Shareholders' equity
Preferred shares, $.01 par value; 10,000,000
shares authorized; 2,763,116 Senior Cumulative
Convertible Class A shares outstanding at
September 30, 1998 and December 31, 1997,
respectively 28 28
Preferred shares, $.01 par value; 300,000 shares
authorized; Class C Junior Participating
Cumulative Preferred Stock; no shares outstanding -- --
Common shares, $.01 par value; 100,000,000 shares
authorized; 20,005,559 and 19,968,189 shares
outstanding at September 30, 1998 and December
31, 1997, respectively 200 200
Outstanding restricted stock (1,282) (818)
Additional paid-in capital 412,058 411,187
Distributions in excess of net earnings (21,869) (21,757)
--------- ---------
389,135 388,840
--------- ---------
$ 839,748 $ 712,471
========= =========
</TABLE>
See accompanying notes
1
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Rental income
Industrial properties $ 54,993 $ 24,850
Multifamily properties 27,916 24,339
-------- --------
82,909 49,189
EXPENSES
Rental property operating expenses
Industrial properties 11,979 5,864
Multifamily properties 10,290 9,421
-------- --------
22,269 15,285
Depreciation 14,751 8,073
Interest (including amortization of debenture discount
and financing costs of $896 and $619, respectively) 18,965 12,621
General and administrative expenses 3,912 2,238
Minority partners' interest in earnings of consolidated
partnerships 733 114
-------- --------
60,630 38,331
-------- --------
INCOME BEFORE GAIN/(LOSS) ON SALE OF REAL ESTATE 22,279 10,858
Gain/(Loss) on sale of real estate 6,427 (111)
-------- --------
NET INCOME 28,706 10,747
Less: Preferred dividend requirements 3,621 390
-------- --------
INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 25,085 $ 10,357
======== ========
Earnings per share
Basic $ 1.26 $ 0.81
======== ========
Diluted $ 1.24 $ 0.80
======== ========
Dividends declared per common share $ 1.26 $ 1.23
======== ========
</TABLE>
See accompanying notes
2
<PAGE> 5
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
REVENUES
Rental income
Industrial properties $20,334 $ 9,620
Multifamily properties 9,458 8,837
------- -------
29,792 18,457
EXPENSES
Rental property operating expenses
Industrial properties 4,447 2,185
Multifamily properties 3,675 3,425
------- -------
8,122 5,610
Depreciation 5,479 3,139
Interest (including amortization of debenture discount
and financing costs of $217 and $176, respectively) 7,117 4,669
General and administrative expenses 1,563 766
Minority partners' interest in earnings of consolidated
partnerships 290 94
------- -------
22,571 14,278
------- -------
INCOME BEFORE GAIN/(LOSS) ON SALE OF REAL ESTATE 7,221 4,179
Gain/(Loss) on sale of real estate 6,427 --
------- -------
NET INCOME 13,648 4,179
Less: Preferred dividend requirements 1,207 275
------- -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS $12,441 $ 3,904
======= =======
Earnings per share
Basic $ 0.62 $ 0.27
======= =======
Diluted $ 0.58 $ 0.27
======= =======
Dividends declared per common share $ 0.42 $ 0.41
======= =======
</TABLE>
See accompanying notes
3
<PAGE> 6
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited))
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,706 $ 10,747
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 14,751 7,990
Amortization of debenture discount and financing costs 896 619
(Gain)/Loss on sale of real estate (6,427) 111
Minority interests in earnings of consolidated
partnerships 733 114
Compensation recognized related to restricted stock
issued to employees (464) 12
Net increase in other assets (4,046) (4,186)
Net increase in liabilities 6,871 3,040
--------- ---------
Net cash provided by operating activities 41,020 18,447
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to real estate assets (108,494) (165,589)
Development expenditures (33,833) (22,980)
Proceeds from sale of real estate 13,525 3,286
Purchase of property and equipment, net -- (3,452)
--------- ---------
Net cash used in investing activities (128,802) (188,735)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving line of credit 219,269 98,778
Repayment of revolving lines of credit (119,869) (46,719)
Proceeds from mortgage notes payable 18,300 39,642
Repayment of mortgage notes payable (22,170) (14,685)
Proceeds from construction loans 15,658 2,966
Debentures converted to common shares (331) (1,574)
Issuance of common shares 871 88,477
Issuance of preferred shares -- 13,237
Minority interest contributions 7,762 4,833
Dividends on common shares (25,181) (14,820)
Dividends on preferred shares (2,879) (112)
--------- ---------
Net cash provided by financing activities 91,430 170,023
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS 3,648 (265)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,466 1,523
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,114 $ 1,258
========= =========
</TABLE>
See accompanying notes
4
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
Pacific Gulf Properties Inc. was incorporated in Maryland and operates as a
Real Estate Investment Trust ("REIT") under the Internal Revenue Code of
1986, as amended. The consolidated financial statements include the
accounts of Pacific Gulf Properties Inc. (the "Company") and its
consolidated subsidiaries and partnerships, PGP Inland Communities, L.P.,
PGP Von Karman Properties, PGP-Terrace Gardens Holdings Inc., PGP-Morning
View Terrace Holdings Inc., PGP Northern Industrial, L.P. and PGP Southern
Industrial II, L.P. (the "Partnerships"). The information furnished has
been prepared in accordance with generally accepted accounting principles
for interim financial reporting and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Certain prior year amounts have been reclassified to
conform to the current year presentation. In the opinion of management, all
adjustments considered necessary for the fair presentation of the Company's
financial position, results of operations and cash flows have been
included. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. REAL ESTATE ACQUISITIONS AND DISPOSITIONS
In September 1998, the Company sold an apartment property located in
Washington consisting of 234 apartment units for $13,525,000 and recognized
a gain on sale of $6,427,000.
During the second quarter of 1998 the Company acquired $56,100,000 in real
estate assets. Second quarter acquisitions included (i) a 214,000 square
foot single tenant building in Whittier, California for $14,300,000 and
(ii) three industrial properties located in Southern California containing
approximately 696,000 square feet for $41,800,000. All of these second
quarter acquisitions were primarily financed with borrowings from the
Company's unsecured line of credit with Wells Fargo Bank.
During the first quarter of 1998 the Company acquired $53,615,000 in real
estate assets. Acquisitions included (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; (iii) a 300,000 square foot industrial center in Las Vegas,
Nevada for $14,100,000; (iv) a 125,000 square foot business park in Los
Alamitos, California for $7,200,000; (v) a 74,000 square foot building in
Signal Hill, California for $4,800,000; and (vi) a 147,000 square foot
industrial project in Sacramento, California for $5,850,000. All of these
1998 acquisitions were primarily financed with borrowings from the
Company's credit facilities.
Also included in the first quarter acquisitions is a 168,000 square foot
distribution facility located in Garden Grove, California in which the
Company acquired a controlling general partnership interest in a
newly-formed California limited partnership ("PGP Southern Industrial II,
L.P."). The other partner in the partnership received an aggregate of
404,950 units of limited partnership interest in the partnership for an
aggregate value of $9,000,000. The units may be tendered for redemption to
the Company any time after one year of 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.
3. LOANS PAYABLE
The Company's loans payable at September 30, 1998 and December 31, 1997
consist of the following (in thousands):
1998 1997
-------- --------
Mortgage Notes:
Conventional mortgage debt $184,600 $188,449
Tax-exempt mortgage debt 65,718 59,778
Construction loans 28,122 18,425
Revolving line of credit 116,600 17,200
-------- --------
$395,040 $283,852
======== ========
5
<PAGE> 8
4. CONVERTIBLE SUBORDINATED DEBENTURES
As of September 30, 1998, the Company's outstanding convertible
subordinated debentures totaled $12,261,000, which is net of unamortized
discount of $66,000. 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 661,943 common shares. If the debentures were
fully converted, the net income attributable to each common share would not
be diluted. During the nine months ended September 30, 1998, $367,000 in
aggregate principal amount of debentures ($331,000 net of discount) were
converted into 19,698 common shares.
5. SHAREHOLDERS' EQUITY
During the nine months ended September 30, 1998, 1,511 shares of common
stock were issued through the Company's Dividend Reinvestment Program.
On May 13, 1998 the shareholders voted to approve an amendment to the
Company's Articles of Amendment and Restatement as filed with Maryland's
State Department of Assessments and Taxation (the "Charter") that
increased the number of authorized shares of Common Stock, par value $.01
per share from 25,000,000 shares to 100,000,000 shares, and to approve an
amendment to the Company's Charter that (a) increased the authorized
number of shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), from 5,000,000 shares to 10,000,000 shares and (b)
reclassified the issued and outstanding shares of Class B Senior Cumulative
Convertible Preferred Stock (the "Class B Preferred Stock") as additional
shares of Class A Senior Cumulative Convertible Preferred Stock (the "Class
A Preferred Stock") and changed the liquidation preference of the Class A
Preferred Stock to reflect the economic terms of such reclassification of
the Class B Preferred Stock, and to approve an amendment to the Company's
Charter relating to the ownership limit to eliminate the shares of Excess
Stock (including the 5,000,000 shares currently authorized), implement a
mechanism for the automatic transfer of shares to a trust, create a
separate ownership limit for Common Stock and make conforming changes to
facilitate the Company's maintenance of its status as a REIT.
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. This filing was declared effective on April
23, 1998.
The Company has a stock rights plan under which the holders of each share
of common stock of the Company ("Common Shares") also hold one preferred
stock purchase right (a "Right"). Currently, certificates evidencing a
number of Common Shares also evidence the same number of Rights, and the
Common Shares and Rights trade in tandem. The Rights are not currently
exercisable. The Rights separate from the Common Shares, certificates for
the separated Rights will be distributed, and the Rights shall be
exercisable upon the earliest of: (a) the tenth business day following the
date of announcement that any person has become the beneficial owner of 10%
or more of the then outstanding voting stock of the Company (such person is
a "10% Stockholder" and the date of announcement is the "10% Ownership
Date"), (b) the tenth business day following the date of commencement of,
or the first public announcement of an intention to commence, a tender
offer or exchange offer, the consummation of which would cause any person
to become a 10% Stockholder, (c) the first date, on or after the 10%
Ownership Date, upon which the Company is acquired in a merger or other
business combination in which the Company is not the surviving corporation
or in which the outstanding Common Shares are changed into or exchanged for
stock or assets of another person, or upon which 50% or more of the
Company's consolidated assets or earning power are sold. Upon distribution,
the Rights will be exercisable to purchase at the exercise price, initially
$100.00 (the "Exercise Price") (i) one one-hundredth of a share of the
Company's Class C Junior Participating Cumulative Preferred Stock, or (ii)
after the tenth business day following the 10% Ownership Date, Common
Shares with a market value equal to two times the Exercise Price, or (iii)
in the event of a merger, business combination or sale of 50% or more of
the Company's consolidated assets or earning power, shares of common stock
of the surviving company or purchaser, respectively, with an aggregate
market value equal to two times the Exercise Price. The Rights will expire
on December 11, 2007, unless earlier redeemed or exchanged.
6
<PAGE> 9
6. PER COMMON SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share which have been restated to comply with Statement No.
128:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Earnings Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
----------- ------------- ----- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $25,085,000 19,936,000 1.26 $10,357,000 12,733,000 .81
==== ===
EFFECT OF DILUTIVE
SECURITIES
Stock Options 12,000 19,000
Restricted Stock 87,000 92,000
Limited Partnership Units 733,000 791,000 114,000 319,000
----------- ---------- ----------- ----------
DILUTED EPS $25,818,000 20,826,000 1.24 $10,471,000 13,163,000 .80
=========== ========== ==== =========== ========== ===
</TABLE>
Shares of Senior Cumulative Convertible Preferred Stock, convertible into
2,763,116 shares of Common Stock, were outstanding during 1998 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 662,000 and 685,000 shares of Common Stock were outstanding during
1998 and 1997, respectively, but were not included in the computation of
diluted earnings per share because the effect would be antidilutive.
7. COMMON SHARE DISTRIBUTIONS AND PREFERRED STOCK DIVIDENDS
On September 11, 1998, the Company declared its quarterly distribution of
$.42 per common share covering shares outstanding at September 30, 1998.
Assuming the Board continues to declare quarterly distributions, the
estimated annual distribution based on this amount would be $1.68. The
distribution was paid on October 9, 1998 to holders of record on October 1,
1998.
Preferred stock dividends totaling $2,414,000 related to the shares of
Class A Preferred Stock and shares of Class B Preferred Stock outstanding
in the first and second quarters of 1998 were paid by the Company on May
14, 1998 and August 14, 1998, respectively. Preferred stock dividends of
$1,207,000 related to 2,763,116 shares of Class A Preferred Stock have been
accrued through September 30, 1998 at the rate of $0.4368 per share per
quarter.
7
<PAGE> 10
8. INTEREST
Interest incurred for the nine months ended September 30 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Interest incurred $ 20,640 $ 13,447
Amortization:
Debenture discount and costs 100 106
Costs related to financing assumed from the Company's
Predecessor and line of credit costs 382 258
Long-term financing costs 414 255
Interest capitalized (2,293) (1,172)
Interest income (278) (273)
-------- --------
Interest expense $ 18,965 $ 12,621
======== ========
</TABLE>
9. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is required to be adopted on December 31, 1998. 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.
In March 1998, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on Issue 97-11, concluding that internal preacquisition costs
related to the purchase of an operating property should be expensed as
incurred. The Company has adopted the provisions of EITF Abstract 97-11,
and management does not believe that the Company's results of operations
will be materially impacted.
In February 1998, the FASB issued FAS 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which will be effective for the
year-end 1998 financial statements. FAS 132 only addresses disclosure
issues; it does not address measurement and recognition of pensions and
other postretirement benefits. FAS 132 requires the reconciliation of
changes in benefit obligation and plan assets for both pensions and other
postretirement benefits, showing the effects of the major components
separately for each reconciliation. FAS 132 will be adopted at year-end
1998 and is not expected to materially change the Company's current
pension and other postretirement disclosures.
8
<PAGE> 11
PACIFIC GULF PROPERTIES INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the consolidated financial statements of the
Company for the nine months ended September 30, 1998 and 1997, together with
liquidity and capital resources as of September 30, 1998.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
Industrial rental income increased by $30,143,000, or 121%, from $24,850,000 in
1997 to $54,993,000 in 1998. This increase was primarily attributable to the
acquisition of twenty-eight industrial parks containing approximately 4,942,000
square feet of leasable area since September 1997. Multifamily rental income
increased by $3,577,000, or 15%, from $24,339,000 in 1997 to $27,916,000 in
1998. This increase was primarily attributable to an increase in rental rates
and to the acquisition of a multifamily property containing 273 apartment units
since September 1997. As a result of these changes, total revenues increased by
$33,720,000, or 69%, from $49,189,000 in 1997 to $82,909,000 in 1998.
Industrial rental income for the nine months ended September 30, 1998 totaled
$54,993,000 and included $21,971,000 related to the industrial parks acquired
since September 30, 1997.
Multifamily rental income for the nine months ended September 30, 1998 totaled
$27,916,000 and included $1,280,000 related to the multifamily property acquired
since September 30, 1997.
Industrial rental property expenses increased $6,115,000, or 104%, from
$5,864,000 in 1997 to $11,979,000 in 1998. This increase was primarily
attributable to the acquisition of the above referenced industrial parks.
Multifamily rental property expenses increased by $869,000, or 9%, from
$9,421,000 in 1997 to $10,290,000 in 1998. This increase was primarily
attributable to the acquisition of the above referenced multifamily property.
Industrial rental property expenses for the nine months ended September 30, 1998
totaled $11,979,000 and included $5,003,000 related to industrial parks acquired
since September 30, 1997.
Multifamily rental property expenses for the nine months ended September 30,
1998 totaled $10,290,000 and included $440,000 related to multifamily property
acquired since September 30, 1997.
Total depreciation increased by $6,678,000, or 83%, from $8,073,000 in 1997 to
$14,751,000 in 1998. This increase was primarily attributable to additional
depreciation relating to the acquisition of twenty-eight industrial parks, a
multifamily property, and capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of debenture discount and financing
costs) increased by $6,344,000, or 50%, from $12,621,000 in 1997 to $18,965,000
in 1998. This increase was primarily attributable to an increase in outstanding
borrowings due to new acquisitions made during 1997 and 1998 and a higher
balance on the Company's line of credit in 1998 offset by a decrease in
convertible subordinated debentures outstanding.
General and administrative expenses increased by $1,674,000, or 75%, from
$2,238,000 in 1997 to $3,912,000 in 1998. This increase was primarily
attributable to personnel increases related to acquisitions and the expensing
of certain costs of abandoned projects.
Minority partners' interest in earnings of consolidated partnerships increased
$619,000 from $114,000 in 1997 to $733,000 in 1998. This increase was
attributable to the September 1997 acquisition of a controlling general partner
interest in the two partnerships that own senior apartments, the October 1997
acquisition of a controlling general partner interest in the partnership that
owns two industrial properties and the March 1998 acquisition of a controlling
general partner interest in the partnership that owns an industrial property.
A gain on the sale of real estate increased from a net loss on the sale of real
estate in the amount of $111,000, in 1997 to a gain of $6,427,000 in 1998.
9
<PAGE> 12
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997
Industrial rental income increased by $10,714,000, or 111%, from $9,620,000 in
1997 to $20,334,000 in 1998. This increase was primarily attributable to the
acquisition of twenty-eight industrial parks containing approximately 4,942,000
square feet of leasable area since September 1997. Multifamily rental income
increased by $621,000, or 7%, from $8,837,000 in 1997 to $9,458,000 in 1998.
This increase was primarily attributable to an increase in rental rates and to
the acquisition of a multifamily property containing 273 apartment units since
September 1997. As a result of these changes, total revenues increased by
$11,335,000, or 61%, from $18,457,000 in 1997 to $29,792,000 in 1998.
Industrial rental income for the three months ended September 30, 1998 totaled
$20,334,000 and included $8,759,000 related to the industrial parks acquired
since September 30, 1997.
Multifamily rental income for the three months ended September 30, 1998 totaled
$9,458,000 and included $415,000 related to the multifamily property acquired
since September 30, 1997.
Industrial rental property expenses increased $2,262,000, or 104%, from
$2,185,000 in 1997 to $4,447,000 in 1998. This increase was primarily
attributable to the acquisition of the above referenced industrial parks.
Multifamily rental property expenses increased $250,000, or 7%, from $3,425,000
in 1997 to $3,675,000 in 1998. This increase was primarily attributable to the
acquisition of the above referenced multifamily property.
Industrial rental property expenses for the three months ended September 30,
1998 totaled $4,447,000 and included $2,119,000 related to industrial parks
acquired since September 30, 1997.
Multifamily rental property expenses for the three months ended September 30,
1998 totaled $3,675,000 and included $178,000 related to multifamily properties
acquired since September 30, 1997.
Total depreciation increased by $2,340,000, or 75%, from $3,139,000 in 1997 to
$5,479,000 in 1998. This increase was primarily attributable to additional
depreciation relating to the acquisition of twenty-eight industrial parks, a
multifamily property, and capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of debenture discount and financing
costs) increased by $2,448,000, or 52%, from $4,669,000 in 1997 to $7,117,000 in
1998. This increase was primarily attributable to an increase in outstanding
borrowings due to new acquisitions made during 1997 and 1998 and a higher
balance on the Company's line of credit in 1998 offset by a decrease in
convertible subordinated debentures outstanding.
General and administrative expenses increased by $797,000, or 104%, from
$766,000 in 1997 to $1,563,000 in 1998. This increase was primarily attributable
to personnel increases related to acquisitions, and the expensing of certain
costs of abandoned projects.
Minority partners' interest in earnings of consolidated partnerships increased
$196,000 from $94,000 in 1997 to $290,000 in 1998. This increase was
attributable to the September 1997 acquisition of a controlling general partner
interest in the two partnerships that own senior apartments and the October 1997
acquisition of a controlling general partner interest in the partnership that
owns two industrial properties and the March 1998 acquisition of a controlling
general partner interest in the partnership that owns an industrial property.
A gain on the sale of real estate in the amount of $6,427,000 was recorded in
the 1998 period with no corresponding income in the comparable period for 1997.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $5,114,000 of cash to meet its immediate
short-term liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through net cash flow from operations, existing working
capital, and, if necessary, funding from the Company's Line of Credit.
As of September 30, 1998, the Company had borrowed $116,600,000 under its
unsecured line of credit. In April 1998, the Company replaced its secured line
of credit and unsecured bridge loan facility with a $150,000,000 unsecured
revolving credit agreement (the "Line of Credit"). The interest rate payable
under the new facility is LIBOR plus 1.25%. The facility matures in April of
2001. The Company will use the facility to finance acquisitions and for general
corporate purposes.
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,
equity offerings or debt financings, but no assurance can be given that any
acquisitions will be completed.
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 $18,447,000 for the period
ended September 30, 1997 to $41,020,000 for the period ended September 30, 1998.
The primary reason for these increases is related to the additional rental
income contributed by properties acquired during 1997 and 1998.
Cash used in investing activities decreased from $188,735,000 for the period
ended September 30, 1997 to $128,802,000 for the period ended September 30, 1998
as a result of fewer acquisitions in the 1998 period.
Cash provided by financing activities decreased from $170,023,000 for the period
ended September 30, 1997 to $91,430,000 for the year ended September 30, 1998
primarily as a result of the issuance of common stock and preferred stock in the
1997 period.
YEAR 2000 READINESS
Any of the Company's computer programs that have time-sensitive software may not
be able to distinguish the year 2000 from the year 1900, if those programs use
two digits rather than four digits to define the year. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send tenant
invoices, or engage in similar normal business activities.
A portion of the accounting software the Company is using is not Year 2000
compliant. However, the manufacturer has delivered to the Company all remaining
modules which the manufacturer has stated are Year 2000 compliant. The Company
is currently testing these modules and plans on installation in the fourth
quarter of 1998. The hardware used to run the Company's software is Year 2000
compliant.
The Company is currently completing an inventory of the Year 2000 compliance
status of the computer hardware and software used to run the property operating
systems (i.e., security, energy, elevator and safety) at its Properties. Once
this inventory is complete, the Company will test the time-sensitive systems
that have been represented to be Year 2000 compliant and reprogram or replace
the systems found not to be Year 2000 compliant. The Company cannot presently
estimate the total cost of this phase of its Year 2000 program.
The Company is currently surveying material vendors and tenants regarding the
Year 2000 compliance status of their computer hardware and software. The Company
will review the results of this survey, assess the impact of the results on its
operations and take whatever action is deemed necessary. The Company cannot
presently estimate the total cost of this phase of its Year 2000 program.
Although the Company has not yet determined the total cost of modifications to
its computerized systems; based upon the review and evaluations conducted to
date, the Company believes the costs associated with this process will not have
a material adverse effect on the Company's financial position or results of
operations.
Upon completion of the Company's Year 2000 Readiness program, management will
consider the necessity of implementing a contingency plan to mitigate any
adverse effects associated with the Year 2000 issue. The Company's ability to
complete the Year 2000 modifications outlined above prior to any anticipated
impact on its operating systems is based on numerous assumptions of future
events and is dependent upon numerous factors, including the ability of third
party software and hardware manufacturers to make necessary modifications to
current versions of their products, the availability of resources to install and
test the modified systems and other factors. Accordingly, there can be no
guarantee that these modifications will be successful.
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SUBSEQUENT EVENTS
During the third quarter of 1998, the Company entered into contracts to dispose
of a portion of its multifamily portfolio. Under terms of the contracts the
buyers are currently completing their due diligence and the buyer's deposits
remain refundable. The Company intends to replace the multifamily properties
with industrial properties and is contemplating completing the transaction as a
tax-deferred exchange among other alternatives. These potential dispositions
and replacements are subject to numerous conditions and there can be no
assurance that the transactions and replacements will be successfully completed.
The immediately preceding paragraphs contain forward looking information
involving risks and uncertainties that could significantly impact the Company's
expected liquidity requirements in the short and long term. While it is
impossible to itemize the many factors and specific events that could affect the
Company's outlook for its liquidity requirements, such factors would include the
actual timing of and costs associated with the Company's acquisitions, the
actual capital expenditures associated therewith, the strength of the local
economies of the submarkets in which the Company operates, higher than expected
acquisition, rental and/or rehabilitation costs, delays in the rehabilitation of
properties, competition in and/or the lack of growth of the local economies in
the Company's submarkets. These factors could reduce the Company's revenues and
increase its expenses, resulting in a greater burden on the Company's liquidity
than that which the Company has described above.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 - Articles of Amendment and Restatement of the Charter.
Exhibit 10.1 - Employment Contract by and between the Company and
Glenn L. Carpenter dated September 1, 1998.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company filed a report
on Form 8-K, dated June 18, 1998 and Form 8-K/A, dated August 12, 1998,
describing under Item 2 the acquisition of three industrial properties
located in Southern California containing approximately 696,000 square
feet.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
/s/ Glenn L. Carpenter /s/ Donald G. Herrman
- ---------------------------- ------------------------------
Glenn L. Carpenter Donald G. Herrman
Chairman and Chief Executive Officer Chief Financial Officer and
Secretary
DATED: November 13, 1998
-------------------
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Exhibit 3.1 - Articles of Amendment and Restatement of the Charter.
Exhibit 10.1 - Employment Contract by and between the Company and
Glenn L. Carpenter dated September 1, 1998.
Exhibit 27 - Financial Data Schedule
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PACIFIC GULF PROPERTIES INC.
Pacific Gulf Properties Inc., a Maryland corporation having its
principal office in Baltimore City, Maryland (which is hereinafter called the
"Corporation") hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: PACIFIC GULF PROPERTIES INC., a Maryland corporation (the
"Corporation"), desires to amend and restate its Charter currently in effect.
SECOND: The Charter is hereby amended and restated, in full, to read as
follows:
ARTICLE I
THE UNDERSIGNED, Henry D. Kahn, whose address is 36 S. Charles Street,
Baltimore, Maryland 21201, being at least 18 years of age, acting as
incorporator, does hereby form a corporation under the General Laws of the State
of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") shall be:
PACIFIC GULF PROPERTIES INC.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed and the business and
objects to be carried on and promoted by it are to engage in any lawful act or
activity (including, without limitation or obligation, engaging in business as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended, or any successor statute (the "Code")) for which corporations may be
organized under the general laws of the State of Maryland as now or hereafter in
force. For purposes of these Articles, "REIT" means a real estate investment
trust under Sections 856 through 860 of the Code. The Board of Directors may
determine that it is no longer in the best interests of the Corporation to
qualify as a REIT and upon any such determination the Board of Directors may
revoke or otherwise terminate the Corporation's election to be a REIT pursuant
to Section 856(g) of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the Corporation's principal office in the State of
Maryland is c/o CT Corporation System, 300 E. Lombard Street, Baltimore,
Maryland 21202. The resident agent of the Corporation is CT Corporation System,
300 E. Lombard Street, Baltimore, Maryland 21202. The resident agent is a
Maryland corporation located in the State of Maryland.
ARTICLE V
STOCK
A. Classes and Number of Shares. The total number of shares of stock of
all classes which the Corporation shall have authority to issue is 110,000,000
shares, of which (i) 100,000,000 shares are shares of Common Stock, par value
$.01 per share ("Common Stock") and (ii) 10,000,000 shares are shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"). The aggregate par
value of all authorized shares of stock having par value is $1,100,000.
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B. Ability to Reclassify. The Board of Directors may classify and
reclassify any unissued shares of any class of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock. Subject to the
terms and conditions of any outstanding capital stock, the power of the Board of
Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the charter, authority
to classify or reclassify any shares of such stock into a class or classes of
stock that have a priority as to distributions and upon liquidation and to
divide and classify shares of any class into one or more series of such class by
determining, fixing or altering one or more of the following:
(1) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided, however, that,
unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by the
Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such class
or series may be increased by the Board of Directors in connection with any
such classification or reclassification and any shares of a class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of
the authorized capital stock and be subject to classification and
reclassification as provided in this subparagraph.
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or
series of stock and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(4) Whether or not shares of such class or series shall have conversion
or exchange privileges and, if so, the terms and conditions thereof,
including provision for adjustment of the conversion or exchange rate in
such events or at such times as the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and different redemption dates and whether
or not there shall be any sinking fund or purchase account in respect
thereof and, if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a parity with
such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of such
dividends or making of distributions on, or the acquisitions of, or the use
of moneys for purchase or redemption of, any stock of the Corporation, or
upon any other action of the Corporation, including action under this
subparagraph and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or series,
not inconsistent with law and the Charter of the corporation.
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C. Voting Rights.
(1) Common. Except as required by law, each share of Common Stock shall
have one vote and, except as otherwise provided in respect of any class of
Preferred Stock, the exclusive voting power for all purposes shall be
vested in the holders of the Common Stock.
(2) Preferred. The Preferred Stock shall have no voting rights and
shall have no rights to receive notice of any meetings, except as required
by law or as expressly provided in Article XIV of this Charter or by the
Board of Directors establishing the preferences, rights, restrictions and
qualifications of such other class or series of Preferred Stock.
D. Terms of Common Stock. The Common Stock shall be subject to the
express terms of the Preferred Stock and any series thereof. Each share of
Common Stock shall be equal to every other share of Common Stock.
(1) Dividend Rights. Subject to the provisions of law and any
preferences of any class of Preferred Stock, dividends, including dividends
payable in shares of another class of the Corporation's stock, may be paid
on the Common Stock of the Corporation at such time and in such amounts as
the Board of Directors may deem advisable.
(2) Liquidation Rights. The holders of the Common Stock shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the holders of any
class of Preferred Stock having a preference on distribution in
liquidation, dissolution or winding up of the Corporation shall be
entitled, together with the holders of any other class of Preferred Stock
not having a preference on distributions in the liquidation, dissolution or
winding up of the Corporation, to share ratably in the remaining net assets
of the Corporation.
(3) Restrictions on Transfer. The Common Stock shall be governed by the
restrictions on ownership and transfer set forth in subsection F of this
Article V.
E. Issuance and Terms of Certain Preferred Stock.
(1) Class A Preferred Stock. The terms of the "Class A Senior
Cumulative Convertible Preferred Stock" (the "Class A Preferred Stock"),
including the preferences, conversion or other rights, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption, are as set forth in the description of the Class A Preferred
Stock contained in Article XIV of this Charter. All of the shares
previously classified as "Class B Senior Cumulative Convertible Preferred
Stock" are reclassified as additional shares of Class A Preferred Stock and
shall have such terms, including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption as set forth in the
description of the Class A Preferred Stock contained in Article XIV of this
Charter. The right of holders of Class B Preferred Stock to the dividends
through the date of such reclassification shall not be impaired by such
reclassification.
(2) Class C Preferred Stock. The terms of the "Class C Junior
Participating Cumulative Preferred Stock" (the "Class C Preferred Stock"),
including the preferences, conversion or other rights, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption, are as set forth in the description of the Class C Preferred
Stock contained in Article XIV of this Charter.
F. Restrictions on Ownership and Transfer to Preserve Tax Benefit.
(1) Definitions.
For the purposes of this Article V and of Article VI, the following
terms shall have the following meanings:
"AGGREGATE OWNERSHIP LIMIT" shall mean, except as otherwise provided
pursuant to subsection F(11) of this Article V, 9.8% in value of the
aggregate of the outstanding shares of Capital Stock. The
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value of the outstanding shares of Capital Stock shall be determined by the
Board of Directors of the Corporation in good faith, which determination
shall be conclusive for all purposes hereof.
"BENEFICIAL OWNERSHIP" shall mean ownership of Capital Stock by a
Person directly, beneficially or as a result of being treated as an actual
or constructive owner of such Capital Stock through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Owned" and
"Beneficially Owning" shall have the correlative meanings.
"BENEFICIARY" shall mean one or more beneficiaries of the Trust as
determined pursuant to paragraph F(3)(f) of this Article V.
"CAPITAL STOCK" shall mean shares of stock that are Common Stock or
Preferred Stock.
"COMMON STOCK OWNERSHIP LIMIT" shall mean, except as otherwise provided
pursuant to subsection F(11) of this Article V, 9.8% (in value, or in
number of shares, whichever is more restrictive) of the outstanding Common
Stock. The value of the outstanding Common Stock shall be determined by the
Board of Directors of the Corporation in good faith, which determination
shall be conclusive for all purposes hereof.
"CONSTRUCTIVE OWNERSHIP" shall mean ownership of Capital Stock by a
Person who is or would be treated as an owner of such Capital Stock either
actually or constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructively Own," "Constructively Owning" and "Constructively Owned"
shall have the correlative meanings.
"INITIAL PUBLIC OFFERING" shall mean the sale of Common Stock pursuant
to the Corporation's first effective registration statement for such Common
Stock filed under the Securities Act of 1933, as amended.
"IRS" means the United States Internal Revenue Service.
"MARKET PRICE" shall mean the last reported sales price of the Common
Stock or Preferred Stock reported on the NYSE on the trading day
immediately preceding the relevant date, or if the Common Stock or
Preferred Stock is not then traded on the NYSE, the last reported sales
price of the Common Stock or Preferred Stock on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over which the Common Stock or Preferred Stock may be traded, or if the
Common Stock or Preferred Stock is not then traded over any exchange or
quotation system, then the market price of the Common Stock or Preferred
Stock on the relevant date as determined in good faith by the Board of
Directors of the Corporation.
"NYSE" shall mean the New York Stock Exchange.
"OWNERSHIP LIMIT" shall mean the Common Stock Ownership Limit or the
Aggregate Ownership Limit, whichever is more restrictive.
"PERSON" shall mean an individual, corporation, partnership, estate,
limited liability company, unincorporated organization, joint venture,
state or a political subdivision thereof, governmental agency, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be issued
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, but does not include an Underwriter that
participates in an offering of the Common Stock, Preferred Stock, or any
convertible securities of the Corporation for purposes of determining
whether the Underwriter, but not any other Person, during the 90-day period
following such offering, has violated the Ownership Limit and provided that
the ownership of Common Stock, Preferred Stock and/or convertible
securities by such Underwriter would not result in
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the Corporation being "closely held" within the meaning of Section 856(h)
of the Code, or would otherwise result in the Corporation failing to
qualify as a REIT.
"PURPORTED BENEFICIAL TRANSFEREE," shall mean, with respect to any
purported Transfer or other event that results in a transfer of Common
Stock or Preferred Stock to the Trust pursuant to subsection F(3) of this
Article V, the purported beneficial transferee or owner for whom the
Purported Record Transferee would have acquired or owned shares of Common
Stock or Preferred Stock, if such Transfer or other event had been
permitted under subsection F(2) of this Article V.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported
Transfer or other event that results in a transfer of Common Stock or
Preferred Stock to the Trust pursuant to subsection F(3) of this Article V,
the record holder of the Common Stock or Preferred Stock if such Transfer
or other event had been permitted under subsection F(2) of this Article V.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Common Stock or Preferred Stock, including (i) the
granting of any option or entering into any agreement for the sale,
transfer or other disposition of Common Stock or Preferred Stock or (ii)
the sale, transfer, assignment or other disposition of any securities (or
rights convertible into or exchangeable for Common Stock or Preferred
Stock), whether voluntary or involuntary, whether of record or beneficially
(including but not limited to transfers of interests in other entities that
result in changes in Beneficial Ownership of Common Stock or Preferred
Stock), whether by operation of law or otherwise and whether the result of
a transaction entered into through the facilities of the NYSE or such other
stock exchange on which the Common Stock or Preferred Stock is then listed.
"TRUST" shall mean the trust created pursuant to subsection F(3) of
this Article V.
"TRUSTEE" shall mean any trustee for the Trust appointed by the
Corporation as provided in paragraph F(3)(a) of this Article V.
"UNDERWRITER" shall mean a securities firm or other similar entity in
its capacity as a party to an underwriting agreement with the Corporation
entered into with the intent of such firm or other entity of acquiring
securities of the Corporation for resale.
(2) Restriction on Ownership and Transfer.
(a) Except as provided in subsection F(9) of this Article V, from
and after the date of the Initial Public Offering, no Person shall
Beneficially Own or Constructively Own Capital Stock in excess of the
Ownership Limit.
(b) From and after the date of the Initial Public Offering, any
Transfer or other event that, if effective, would result in Common
Stock and Preferred Stock being beneficially owned by fewer than 100
Persons shall, to the maximum extent possible under law, be null and
void ab initio, and the intended transferee or other purported owner of
such Common Stock or Preferred Stock, which, if recognized, would cause
the 100 shareholder requirement of Code Section 856(a)(5) to be
violated, shall acquire, possess and retain no rights to or economic
interest whatsoever in such Common Stock or Preferred Stock to the
extent such recognition would cause this requirement to be violated.
(c) Notwithstanding any other provisions contained in this Article
V, from and after the date of the Initial Public Offering, no Person
shall Beneficially Own or Constructively Own Capital Stock to the
extent such Beneficial or Constructive Ownership would result in the
Corporation being "closely held" within the meaning of Section 856(h)
of the Code, or would otherwise result in the Corporation failing to
qualify as a REIT (including but not limited to ownership that would
result in the Corporation owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the
Code if the income derived by the Corporation (either directly or
indirectly through one or more entities) from such tenant would cause
the Corporation to fail to satisfy any of the gross income requirements
of Section 856(c) of the Code).
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(3) Consequences of Violative Ownership.
(a) If at any time after the date of the Initial Public Offering
there is a purported Transfer or other event (whether or not such
Transfer or other event is the result of a transaction entered into
through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system) that, if
effective, would result in any Person Beneficially or Constructively
Owning Capital Stock in violation of paragraphs F(2)(i) or (iii) above,
then the Common Stock or Preferred Stock purportedly being Transferred
(or in the case of an event other than a Transfer, the Common Stock or
Preferred Stock that would be Beneficially Owned or Constructively
Owned) and which would cause one or more of such restrictions on
ownership or transfer to be violated (rounded up to the nearest whole
share) shall be automatically transferred to the Trustee in his
capacity as a Trustee of a Trust for the exclusive benefit of the
Beneficiary. Such transfer to the Trust shall occur without any action
by the Corporation, the Trustee, the Purported Beneficial Owner or the
Purported Record Owner and shall be effective as of the close of
business on the business day prior to the date of such Transfer or
other event. The Trustee shall be appointed by the Corporation and
shall be a Person unaffiliated with the Corporation, any Purported
Beneficial Transferee and any Purported Record Transferee. Each
Beneficiary shall be designated by the Corporation as provided in
paragraph F(3)(f) of this Article V.
(b) Common Stock or Preferred Stock held by the Trustee shall be
issued and outstanding Common Stock or Preferred Stock, as the case may
be, of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall have no rights in the shares of
Capital Stock held by the Trustee. The Purported Beneficial Transferee
or Purported Record Transferee shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no
rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares of Capital Stock held in the Trust.
(c) The Trustee shall have all voting rights and rights to
dividends with respect to Capital Stock held in the Trust, which rights
shall be exercised for the exclusive benefit of the Beneficiary. Any
dividend or distribution paid prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee shall
be paid to the Trustee upon demand, and any dividend or distribution
declared but unpaid shall be paid when due to the Trustee with respect
to such Capital Stock. Any dividends or distributions so paid over to
the Trustee shall be held in trust for the Beneficiary. The Purported
Record Transferee and Purported Beneficial Transferee shall have no
voting rights with respect to the Capital Stock held in the Trust and,
subject to Maryland law, effective as of the date the Capital Stock has
been transferred to the Trustee, the Trustee shall have the authority
(at the Trustee's sole discretion) (i) to rescind as void any vote cast
by a Purported Record Transferee with respect to such Capital Stock
prior to the discovery by the Corporation that the Capital Stock has
been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of
the Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action based upon such vote, then the
Trustee shall not have the authority to rescind and recast such vote.
Notwithstanding the provisions of this Article V, until the Corporation
has received notification that the Capital Stock has been transferred
into a Trust, the Corporation shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists
of stockholders entitled to vote at meetings, determining the validity
and authority of proxies and otherwise conducting votes of
stockholders.
(d) Within 20 days of receiving notice from the Corporation that
shares of Capital Stock have been transferred to the Trust, the Trustee
of the Trust shall sell (through the facilities of a stock exchange if
appropriate) the shares of Capital Stock held in the Trust to a person,
designated by the Trustee, whose ownership of the shares of Capital
Stock will not violate the ownership limitations set forth in
subsection F(2). Upon such sale, the interest of the Beneficiary in the
shares of Capital Stock sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Purported Record
Transferee and to the Beneficiary as provided in this subsection
F(3)(d). The
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Purported Record Transferee shall receive the lesser of
(i) the price paid by the Purported Record Transferee for the shares of
Capital Stock in the transaction that resulted in such transfer to the
Trust (or, if the event which resulted in the transfer to the Trust did
not involve a purchase of such shares of Capital Stock at Market Price,
the Market Price of such shares of Capital Stock on the day of the
event which resulted in the transfer of such shares of Capital Stock to
the Trust) and (ii) the price per share received by the Trustee (net of
any commissions and other expenses of sale) from the sale or other
disposition of the shares of Capital Stock held in the Trust. Any net
sales proceeds in excess of the amount payable to the Purported Record
Transferee shall be immediately paid to the Beneficiary together with
any dividends or other distribution thereon received by the Trustee.
If, prior to the discovery by the Corporation that shares of such
Capital Stock have been transferred to the Trustee, such shares of
Capital Stock are sold by a Purported Record Transferee then (x) such
shares of Capital Stock shall be deemed to have been sold on behalf of
the Trust and (y) to the extent that the Purported Record Transferee
received an amount for such shares of Capital Stock that exceeds the
amount that such Purported Record Transferee was entitled to receive
pursuant to this subsection F(3)(d), such excess shall be paid to the
Trustee upon demand. Each Purported Record Transferee, Purported
Beneficial Transferee and Beneficiary waives any and all claims that it
may have against the Trustee and the Trust arising out of the
disposition of any shares of Capital Stock transferred to the Trust,
except for claims arising out of the gross negligence or willful
misconduct arising out of the enforcement of this Section F.
(e) Capital Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price paid by the
Purported Record Transferee for the shares of Capital Stock in the
transaction that resulted in such transfer to the Trust (or, if the
event which resulted in the transfer to the Trust did not involve a
purchase of such shares of Capital Stock at Market Price, the Market
Price of such shares of Capital Stock on the day of the event which
resulted in the transfer of such shares of Capital Stock to the Trust)
and (ii) the Market Price on the date the Corporation, or its designee,
accepts such offer. The Corporation shall have the right to accept such
offer until the Trustee has sold the shares of Capital Stock held in
the Trust pursuant to subsection F(3)(d). Upon such a sale to the
Corporation, the interest of the Beneficiary in the shares of Capital
Stock sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Purported Record Transferee and any
dividends or other distributions held by the Trustee with respect to
such Capital Stock shall thereupon be paid to the Beneficiary.
(f) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Beneficiary of
the interest in the Trust (and the relative percentage interests in the
Trust of each such organization) such that (i) the shares of Capital
Stock held in the Trust would not violate the restrictions set forth in
subsection F(2) in the hands of such Beneficiary and (ii) each
Beneficiary is an organization described in Sections 170(b)(1)(A),
170(c)(2) or 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under Section 170(b)(1)(A)
of the Code.
(g) No delay or failure on the part of the Corporation, the Board
of Directors or the Trustee, in exercising any right under the Charter
shall operate as a waiver of any right of the Corporation, the Board of
Directors or the Trustee, as the case may be, except to the extent
specifically waived in writing.
(h) If the transfer to the Trust describe in paragraph F(3)(a) of
this Article V would not be effective for any reason to prevent the
violation of paragraphs F(2)(a) and (c) of this Article V, then the
Transfer of that number of shares of Capital Stock that otherwise would
cause any Person to violate paragraphs F(2)(a) and (c) of this Article
V shall be void ab initio, and the intended transferee shall acquire no
rights in such shares of Capital Stock.
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(4) Remedies for Breach. If the Board of Directors or its designees
shall at any time determine in good faith that a Transfer or other event
has taken place in violation of subsection F(2) of this Article V or that a
Person intends to acquire, has attempted to acquire or may acquire
Beneficial or Constructive Ownership of any shares of the Corporation in
violation of subsection F(2) of this Article V, the Board of Directors or
its designees shall take such action as it deems advisable to refuse to
give effect to or to prevent such Transfer or other event, including, but
not limited to, causing the Corporation to redeem such shares upon the
terms and conditions specified by the Board of Directors in its sole
discretion, refusing to give effect to such Transfer or other event on the
books of the Corporation or instituting proceedings to enjoin such Transfer
or other event; provided, however, that any Transfer (or, in the case of
events other than a Transfer, Beneficial Ownership or Constructive
Ownership) in violation of paragraphs F(2)(a) and (c) of this Article V
shall automatically result in the transfer to the Trust described in
subsection F(3) irrespective of any action (or inaction) by the Board of
Directors.
(5) Notice of Restricted Transfer. Any Person who acquires or attempts
or intends to acquire Common Stock or Preferred Stock or other securities
in violation of subsection F(2) of this Article V, or any Person who is a
Purported Record Owner or Purported Beneficial Owner of Capital Stock
transferred to the Trust pursuant to subsection F(3) of this Article V,
shall immediately give written notice to the Corporation of such event or,
in the case of a proposed or intended transaction, give at least 15 days
prior written notice, and shall provide to the Corporation such other
information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted Transfer or other event on
the Corporation's status as a REIT.
(6) Owners Required To Provide Information. From and after the date of
the Initial Public Offering, each Person who is a Beneficial Owner of
Common Stock or Preferred Stock and each Person (including the stockholder
of record) who is holding Common Stock or Preferred Stock for a Beneficial
Owner of Common Stock or Preferred Stock shall provide to the Corporation
such information that the Corporation may request, in good faith, in order
to determine the Corporation's status as a REIT.
(7) Remedies Not Limited. Nothing contained in this Article V (but
subject to section G of this Article V) shall limit the authority of the
Board of Directors to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders
by preservation of the Corporation's status as a REIT.
(8) Ambiguity. In the case of an ambiguity in the application of any of
the provisions of section F of this Article V, including any definition
contained in subsection F(1), the Board of Directors shall have the power
to determine the application of the provisions of this section F with
respect to any situation based on the facts known to it (subject, however,
to the provisions of section G of this Article V). In the event section F
requires an action by the Board of Directors and this Charter fails to
provide specific guidance with respect to such action, the Board of
Directors shall have the power to determine the action to be taken so long
as such action is not contrary to the provisions of section F. Absent a
decision to the contrary by the Board of Directors (which the Board may
make in its sole and absolute discretion), if a Person would have (but for
the remedies set forth in subsections F(2) and F(3)) acquired Beneficial or
Constructive Ownership of Capital Stock in violation of subsection F(2),
such remedies (as applicable) shall apply first to the shares that, but for
such remedies, would have caused such violation and would have been
actually owned by the Purported Beneficial Owner, second to shares that,
but for such remedies, would have caused such violation but which would not
have been actually owned by the Purported Beneficial Owner, pro rata among
the Persons who actually attempted to acquire such shares based upon the
relative value of what would have been the Purported Beneficial Owner's
Beneficial Ownership or Constructive Ownership interest in the shares such
Person attempted to acquire, third to other shares that are actually owned
by the Purported Beneficial Owner, and fourth to shares that are actually
owned by such other Persons whose ownership of shares is attributed to the
Purported Beneficial Owner, pro rata among such Persons based upon the
relative value of the Purported Beneficial Owner's Beneficial Ownership or
Constructive Ownership interest in the shares so owned.
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(9) Exceptions.
(a) Subject to paragraph F(2)(c) of this Article V, the Board of
Directors, in its sole and absolute discretion, may exempt a Person
from the Ownership Limit if the Board of Directors obtains such
representations and undertakings from such Person as it determines in
its sole and absolute discretion are reasonably necessary to ascertain
that no individual's Beneficial or Constructive Ownership of Common
Stock or Preferred Stock will violate the Ownership Limit or that any
such violation will not cause the Corporation to fail to qualify as a
REIT under the Code, and such Person agrees that any violation of such
representations or undertakings (or other action which is contrary to
the restrictions contained in subsection F(2) of this Article V and not
exempted by the Board of Directors) or attempted violation will result
in such Common Stock or Preferred Stock being transferred to the Trust
in accordance with subsection F(3) of this Article V.
(b) [Reserved]
(c) Prior to granting any exemption pursuant to paragraph F(9)(a)
of this Article V, the Board of Directors may require a ruling from the
IRS or an opinion of counsel, in either case in the form and substance
satisfactory to the Board of Directors in its sole discretion as it may
deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT; provided, however, that obtaining a
favorable ruling or opinion shall not be required for the Board of
Directors to grant an exception hereunder.
(10) Legend. Each certificate for Common Stock shall bear the following
legend:
"The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The
Board of Directors is authorized to determine the preferences,
limitations and relative rights of the Preferred Stock before the
issuance of any Preferred Stock. The Corporation will furnish, without
charge, to any stockholder making a written request therefor, a copy of
the Corporation's Charter and a written statement of the designations,
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemption applicable to each class of stock.
Requests for such written statement may be directed to Pacific Gulf
Properties Inc. at its principal executive offices, Attention:
Secretary.
"The shares of Common Stock represented by this certificate are
subject to restrictions on ownership and transfer for the purpose of
the Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended. No Person
may Beneficially Own or Constructively Own Common Stock in excess of
9.8% (in value or in number of shares, whichever is more restrictive)
of the outstanding Common Stock of the Corporation, and no Person may
Beneficially Own or Constructively Own Capital Stock (including Common
Stock and Preferred Stock) having a value in excess of 9.8% of the
value of the aggregate of the outstanding shares of Capital Stock of
the Corporation, with certain further restrictions and exceptions set
forth in the Corporation's Charter. Capital Stock that may be acquired
upon conversion of convertible securities of the Corporation held,
directly or constructively, by an investor, but not Capital Stock
issuable with respect to convertible securities held by others, is
deemed to be owned by the investor and outstanding prior to conversion
for purposes of determining the percentage of Capital Stock held by
that investor. Any Person who attempts to Beneficially Own or
Constructively Own Capital Stock in excess of the above limitations
must immediately notify the Corporation. All capitalized terms in this
legend have the meanings defined in the Corporation's Charter.
Transfers or other events in violation of the restrictions described
above shall be null and void ab initio, the purported transferee or
purported owner shall acquire or retain no rights to, or economic
interests in, any Common Stock held in violation of these restrictions,
and the shares that are subject to the purported transfer or other
event are transferred automatically to a trust for the benefit of one
or more charitable organizations. The Corporation may redeem such
shares upon the terms and conditions specified by
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the Board of Directors in its sole discretion if the Board of Directors
determines that a Transfer or other event would violate the
restrictions described above."
Shares of Preferred Stock shall bear a corresponding legend.
(11) The Board of Directors may from time to time increase or decrease
the Common Stock Ownership Limit and the Aggregate Stock Ownership Limit;
provided, however, that:
(a) Any decrease may be made only prospectively as to subsequent
holders or, with respect to existing holders, subsequent Transfers
(other than a decrease in such limits as a result of a retroactive
change in existing law, in which case such decrease shall be effective
immediately);
(b) Subject to subsection F(9), neither ownership limitation may be
increased if, after giving effect to such increase, five Persons could
Beneficially Own or Constructively Own, in the aggregate, more than
50.0% in value of the shares of Capital Stock then outstanding; and
(c) Prior to the modification of either of the ownership
limitations, the Board of Directors of the Corporation may require such
opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the
Corporation's status as REIT.
(12) Severability. If any provision or item of this Article V or any
application of any such provision or item is determined to be invalid by
any federal or state court having jurisdiction, the validity of the
remaining provisions and items shall not be affected and other applications
of such provision or item shall be affected only to the extent necessary to
comply with the determination of such court.
G. Settlement. Nothing in this Article V shall preclude the settlement
of any transaction entered into through facilities of the NYSE or such other
stock exchange on which the Corporation's Common Stock or Preferred Stock may be
listed. The shares that are the subject of such transaction shall continue to be
subject to the terms of this Article V after such settlement.
H. Issuance of Rights to Purchase Securities and Other Property. Subject
to the rights of the holders of any series of Preferred Stock, the Board of
Directors is hereby authorized to create and to authorize and direct the
issuance (on either a pro rata or a non-pro rata basis) by the Corporation of
rights, options and warrants for the purchase of shares of Capital Stock, other
securities of the Corporation, or shares or other securities of any successor in
interest of the Corporation (a "Successor"), at such times, in such amounts, to
such persons, for such consideration (if any), with such form and content
(including without limitation the consideration for which any shares of Capital
Stock, other securities of the Corporation, or shares or other securities of any
Successor are to be issued) and upon such terms and conditions as it may, from
time to time, determine, subject only to the restrictions, limitations,
conditions and requirements imposed by the Maryland General Corporation Law,
other applicable laws and the Corporation's Charter.
I. Preemptive Rights. Except as may be provided by the Board of
Directors in authorizing the issuance of shares of Preferred Stock and as set
forth in Articles Supplementary creating such Preferred Stock, no holder of
shares of stock of the Corporation shall, as such holder, have any preemptive
right to purchase or subscribe for any additional shares of stock of the
Corporation or any other security of the Corporation which it may issue or sell.
J. Authorized Shares of Common and Preferred Stock. The authorized
number of shares of Common Stock and Preferred Stock may, without a class or
series vote, be increased or decreased from time to time by the affirmative vote
of the holders of a majority of the combined voting power of the
then-outstanding shares of Capital Stock of the Corporation that pursuant to the
Charter are entitled to vote generally in the election of directors of the
Corporation, voting together as a single class.
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ARTICLE VI
DIRECTORS
A. Number. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be three, which number may be
increased or decreased pursuant to the Bylaws of the Corporation; provided,
however, that the number of directors shall never be less than three or greater
than eleven.
B. Classification. The directors of the Corporation, other than those
who may be elected by the holders of any series of Preferred Stock, shall be
divided, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, with the initial term of
office of the Class I directors to expire at the 1995 annual meeting of
stockholders, the initial term of office of the Class II directors to expire at
the 1996 annual meeting of stockholders and the initial term of office of the
Class III directors to expire at the 1997 annual meeting of stockholders,
provided that the directors in office on September 30, 1993 shall consist of one
Class I director, one Class II director and one Class III director. Members of
each class shall hold office until their successors are elected and qualified.
At each succeeding annual meeting of stockholders of the Corporation, the
successors of the class of directors whose term expires at that meeting shall be
elected by a plurality vote of all votes cast at such meeting to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
C. Written Ballot. Unless and except to the extent that the Bylaws of
the Corporation shall so require, the election of directors of the Corporation
need not be by written ballot.
D. Removal. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of 66-2/3% of the then outstanding shares of
stock entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
E. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other causes shall be filled by a majority vote of the
stockholders or directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then remaining. A
director so chosen by the remaining directors shall hold office until the next
annual meeting of stockholders, at which time the stockholders shall elect a
director to hold office for the balance of the term then remaining. No decrease
in the number of directors constituting the Board of Directors shall affect the
tenure of the office of any director.
F. Stock Issuances. The Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and without
any action by the stockholders.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right at any time and from time to time to
make any amendment to its Charter, now or hereafter authorized by law, including
any amendment altering the terms or contract rights, as expressly set forth in
its Charter, or any shares of outstanding stock. Any amendment to the
Corporation's Charter shall be valid only if such amendment shall have been
approved by the affirmative vote of the holders of a majority of the outstanding
Voting Stock, voting together as a single class. All rights and powers conferred
by the Corporation's Charter on stockholders, directors and officers are granted
subject to this reservation.
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ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
Bylaws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such bylaws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. No amendment of the Charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment on repeal.
ARTICLE IX
LIMITATION OF LIABILITY
To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of the Corporation shall be
personally, liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.
ARTICLE X
CERTAIN TRANSACTIONS
With respect to any proposed merger, acquisition, business combination
or other transaction or proposal, a director of the Corporation, in determining
what is in the best interests of the Corporation, shall consider the interests
of the Stockholders of the Corporation and, in his or her discretion, may
consider (i) the interests of the Corporation's employees, suppliers, creditors
and customers, (ii) the economy of the nation, (iii) community and societal
interests and (iv) the long-term as well as short-term interests of the
Corporation and its Stockholders, including the possibility that these interests
may be best served by the continued independence of the Corporation. Pursuant to
this provision, the Board of Directors may consider numerous judgmental or
subjective factors affecting a proposal, including certain nonfinancial matters,
and on the basis of these considerations may oppose a business combination or
other transaction which, as an exclusively financial matter, might be attractive
to some, or a majority, of the Corporation's stockholders.
ARTICLE XI
BUSINESS COMBINATIONS
The Corporation hereby expressly elects not to be governed by the
provision of Title 3, Subtitle 6 of the Maryland General Corporation Law.
ARTICLE XII
RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS
In carrying on its business, or for the purpose of attaining or
furthering any of its objects, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others.
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Any director or officer individually, or any firm of which any director
or officer may be a member, or any corporation or association of which any
director or officer may be a director or officer or in which any director or
officer may be interested as the holder of any amount of its capital stock or
otherwise, may be a party to, or may be pecuniarily or otherwise interested in,
any contract or transaction of the Corporation, and, in the absence of fraud, no
contract or other transaction shall be thereby affected or invalidated;
provided, however, that (a) such fact shall have been disclosed or shall have
been known to the Board of Directors or the committee thereof that approved such
contract or transaction and such contract or transaction shall have been,
approved or ratified by the affirmative vote of a majority of the disinterested
directors, or (b) such fact shall been disclosed or shall have been known to the
stockholders entitled to vote, and such contract or transaction shall have been
approved or ratified by a majority of the votes cast by the stockholders
entitled to vote, other than the votes of shares owned of record or beneficially
by the interested director or corporation, firm or other entity, or (c) the
contract or transaction is fair and reasonable to the Corporation. Any director
of the Corporation who is also a director or officer of, or interested in, such
other corporation or association, or who, or the firm of which he or she is a
member, is so interested, may be counted in determining the existence of a
quorum at any meeting of the Board of Directors of the Corporation which shall
authorize any such contract or transaction, with like force and effect as if he
or she were not such director or officer of such other corporation or
association or were not so interested or were not a member of a firm so
interested.
Except as otherwise provided in the Corporation's Charter or the Bylaws
of the Corporation, as amended from time to time, the business of the
Corporation shall be managed by its Board of Directors. The Board of Directors
shall have and may exercise all the rights, powers and privileges of the
Corporation except only for those that are by law, these Articles of
Incorporation or the Bylaws of the Corporation, conferred upon or reserved to
the stockholders. Additionally, the Board of Directors is hereby specifically
authorized and empowered from time to time in its discretion:
To borrow and raise money, without limit and upon any terms, for any
corporate purposes; and, subject to applicable law, to authorize the
creation, issuance, assumption, or guaranty of bonds, debentures, notes or
other evidences of indebtedness for money so borrowed, to include therein
such provisions as to redeemability, convertibility or otherwise, as the
Board of Directors, in its sole discretion, determines, and to secure the
payment of principal, interest or sinking fund in respect thereof by
mortgage upon, or the pledge of, or the conveyance or assignment in trust
of, all or any part of the properties, assets, and goodwill of the
Corporation then owned or thereafter acquired;
To make, alter, amend, change, add to or repeal the Bylaws of the
Corporation in accordance with the terms of the Bylaws adopted by the Board
of Directors pursuant to Section 2-109 of the Maryland General Corporation
Law; and
To the extent permitted by law, to declare and pay dividends or other
distributions to the stockholders from time to time out of the earnings,
earned surplus, paid-in surplus or capital of the Corporation,
notwithstanding that such declaration may result in the reduction of the
capital of the Corporation. In connection with any dividends or other
distributions upon the Common Stock, the Corporation need not reserve any
amount from such dividend or other distributions to satisfy any
preferential rights of any stockholder.
Notwithstanding any provision of law requiring the authorization of any
action by a greater proportion than a majority of the total number of shares of
all classes of capital stock or of the total number of shares of any class of
capital stock, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total of shares of all
classes outstanding and entitled to vote thereon, except as otherwise provided
in the Charter.
ARTICLE XIII
DURATION
The duration of the Corporation shall be perpetual.
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ARTICLE XIV
PREFERRED STOCK
A. Class A Preferred Stock.
(1) Preferred Shares -- Designation and Amount. The shares of such
class of Preferred Stock shall be designated as "Class A Senior Cumulative
Convertible Preferred Stock" and the number of shares constituting the
class so designated shall be 2,763,113 (the "Preferred Shares").
(2) Preferred Shares -- Dividend Rights.
(a) General. Subject to Section 9, and in addition to any other
dividends provided for herein, the Corporation shall pay in cash, when,
as and if declared by the Board, out of funds legally available
therefor as provided by the M.G.C.L. (the "Legally Available Funds"),
dividends at the quarterly rate equal to the Applicable Dividend Rate
(as defined below) per issued and outstanding Preferred Share, per
quarter. Such dividends shall be cumulative and payable (if declared)
quarterly on each February 15, May 15, August 15 and November 15, with
respect to the prior quarter, commencing February 15, 1997 (except that
if such date is not a Business Day (as defined below), then such
dividend will be payable on the next succeeding Business Day) to the
holders of record at the close of business on the date specified by the
Board at the time such dividend is declared no more than thirty (30)
days prior to the date fixed for payment thereof; provided, however,
that the Corporation shall have the right to declare and pay dividends
at any time. Dividends shall begin to accrue and be cumulative from the
date of issuance of such Preferred Share to and including the first to
occur of (i) the date on which the Liquidation Value (as defined
herein) of such Preferred Share or Put Payment (plus all accrued and
unpaid dividends thereon whether or not declared) is paid to the holder
thereof in connection with the liquidation of the Corporation or the
redemption of such Preferred Share by the Corporation, (ii) the last
day of the quarter preceding the quarter in which such Preferred Shares
are converted into shares of Common Stock hereunder if such date is
after the record date for the Regular Quarterly Dividend (as defined
herein) on the Common Stock for the quarter in which such conversion
takes place, (iii) the last day of the quarter second preceding the
quarter in which such Preferred Shares are converted into shares of
Common Stock hereunder if such date is prior to the record date for the
Regular Quarterly Dividend on the Common Stock for the quarter in which
such conversion takes place, or (iv) the date on which such share is
otherwise acquired and paid for by the Corporation.
(b) Cumulative Dividends. Each of such dividends shall be fully
cumulative, to the extent not previously paid. Any accrued dividend
that is not paid, or made available for payment, on the date set forth
in Section 2(a) above shall accrue dividends at a rate of (i) 2.297%
per fiscal quarter for any quarter which ends on or prior to December
31, 1997 and (ii) for any subsequent fiscal quarter the greater of (x)
2.297% per quarter and (y) the product of 1.04 and the per share
quarterly dividend paid in that quarter in respect of the common stock,
par value $.01 per share, of the Corporation (the "Common Stock"),
divided by $19.905, per quarter until such amount has been paid. Any
dividend payment with respect to the Preferred Shares shall first be
credited against any prior accrued and unpaid dividend. No dividends
shall be set apart for or paid upon the Common Stock or any other
shares of stock ranking junior to the Preferred Shares unless all such
cumulative dividends on the Preferred Shares have been paid.
(c) Applicable Dividend Rate. With respect to any Preferred Share
then issued and outstanding the "Applicable Dividend Rate" shall be (i)
$0.425 per Preferred Share, per fiscal quarter for any quarter which
ends on or prior to December 31, 1997 and (ii) for any subsequent
fiscal quarter the greater of (x) $0.425 per Preferred Share, per
quarter, and (y) the product of 1.04 and the per share quarterly
dividend paid in that quarter in respect of the Common Stock, per
fiscal quarter. If any of the events described under Section 7
requiring the adjustment of the Conversion Price (as defined herein)
occurs, such dividends payable thereafter on the Common Stock shall be
calculated for
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purposes of the foregoing clause (y) so as to reverse
the effect of such events. The Applicable Dividend Rate shall be pro
rated for the actual number of days in any partial quarter.
(d) Pro Rata Distribution. All dividends paid with respect to
Preferred Shares pursuant to this Section 2 shall be paid pro rata in
respect of each Preferred Share entitled thereto. In the event that the
Legally Available Funds available for the payment of dividends shall be
insufficient for the payment of the entire amount of dividends payable
with respect to Preferred Shares on any date on which the Board has
declared the payment of a dividend or otherwise, the amount of any
available surplus shall be allocated for the payment of dividends with
respect to the Preferred Shares and any other shares of capital stock
that are pari passu as to dividends pro rata based upon the amount of
accrued and unpaid dividends of such shares of capital stock.
(e) Business Day. For purposes hereof, the term "Business Day"
shall mean any Monday, Tuesday, Wednesday, Thursday or Friday which is
not a day on which banking institutions in New York City are authorized
or obligated by law or executive order to close.
(3) Preferred Shares -- Certain Restrictions. Unless the dividends
(including accrued and unpaid dividends in arrears whether or not declared)
described above in Section 2, which pursuant to their terms should have
been paid, have been paid in full or declared and set apart for payment,
the Corporation shall be prohibited from paying dividends on, making any
other distributions on, or redeeming or purchasing or otherwise acquiring
for consideration any capital stock of the Corporation (without regard to
its rank, either as to dividends or upon liquidation, dissolution or
winding up). The Corporation shall not permit any subsidiary or
subpartnership of the Corporation to purchase or otherwise acquire for
consideration or make any payment with respect to any shares of capital
stock of the Corporation if the Corporation is prohibited from purchasing
or otherwise acquiring for consideration or making any payment with respect
to such shares at such time and in such manner pursuant to the prior
sentence, provided, however, that the Corporation shall not be prohibited
from making a capital contribution of capital stock of the Corporation to
any of its subsidiaries or subpartnerships.
(4) Preferred Shares -- Voting Rights.
(a) General. Except as limited by law the holders of the Preferred
Shares shall be entitled to vote or consent on all matters submitted to
the holders of Common Stock together with the holders of the Common
Stock as a single class.
(b) Calculation of Votes. For the purposes of calculating the votes
cast for a particular matter when voting or consenting pursuant to
Section 4(a), each Preferred Share will entitle the holder thereof to
one vote for each share of Common Stock into which such Preferred Share
is convertible as provided in Section 7(c) herein as of the record date
for such vote or consent or, if no record date is specified, as of the
date of such vote or consent.
(c) Section 4(c) Directors. In addition to the other voting rights
described herein, upon the issuance to Five Arrows Realty Securities
L.L.C. of Preferred Shares such that, and until Five Arrows Realty
Securities L.L.C., Rothschild Realty Inc. or the ninety-nine percent
(99%) member of Five Arrows Realty Securities L.L.C., ceases to own
either (A) all of the outstanding Preferred Shares or (B) an amount of
voting securities of the Corporation which, if converted into shares of
Common Stock, would exceed 10% of the outstanding Common Stock on a
fully diluted basis (determined on the basis of then convertible,
exercisable or exchangeable securities, warrants or options issued by
the Corporation (such amount as set forth in clauses (A) and (B) above,
the "Minimum Threshold"), (i) the number of directors constituting the
Board shall be automatically increased by one (1) member and (ii) upon
the first to occur, or from time to time following the
Dividend/Earnings Cure (as defined herein) upon the first to occur, of
(x) the Corporation's failure to pay the Regular Quarterly Dividend on
the Common Stock for any quarter in an amount of at least $.40 per
share (adjusted to reverse the effect of any event set forth in Section
7 that would require an adjustment to the Conversion Price (the
"Dividend Reduction Default"), (y) the Corporation's
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<PAGE> 16
financial results reflecting that the ratio of its Combined EBITDA to
its reported interest expense (as described in clause (2) under the
definition of Combined EBITDA below) for each of three consecutive
fiscal quarters was less than 1.25 to 1.00 (the "Earnings Default"), or
(z) the Corporation's failure to pay in full the quarterly dividend
payable hereunder (whether or not declared) at any time in respect of
the Preferred Shares (the "Dividend Payment Default"), the Board shall
be automatically increased by an additional one (1) member for an
aggregate maximum increase pursuant hereto of two directors. The
position on the Board established pursuant to clause (i) of this
Section 4(c) shall remain available until the Minimum Threshold is no
longer satisfied. The position on the Board established pursuant to
clause (ii) of this Section 4(c) shall remain available until the first
to occur of such time as (i) the Minimum Threshold fails to be
satisfied and (ii) the Dividend/Earnings Cure (as defined herein). Any
director elected pursuant to this section shall be deemed to have
resigned upon the position created hereby not being available.
The term "Regular Quarterly Dividend" means any cash dividend or
dividends paid in any calendar quarter that do not in the aggregate
exceed the Corporation's reported Funds From Operations (as defined by
the National Association of Real Estate Investment Trusts prior to
1996) for the quarter relating to such dividend.
The term "Combined EBITDA" means the combined net income of the
Corporation (before extraordinary income or gains) as reported in its
Quarterly Report on Form 10-Q under the Securities Exchange Act of
1934, as amended (the "Exchange Act") or otherwise furnished to holders
of Preferred Shares pursuant to Section 4(j) increased (to the extent
deducted in determining consolidated net income) by the sum of the
following (without duplication):
(1) all income and state franchise taxes paid or accrued
according to generally accepted accounting principals in the United
States ("GAAP") for such period (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or
losses except to the extent that such gains were not included in
Combined EBITDA),
(2) all interest expense paid or accrued in accordance with
GAAP for such period (including financing fees and amortization of
deferred financing fees and amortization of original issue
discount),
(3) depreciation and depletion reflected in such reported net
income,
(4) amortization reflected in such reported net income
including, without limitation, amortization of capitalized debt
issuance costs (only to the extent that such amounts have not been
previously included in the amount of Combined EBITDA pursuant to
clause (2) above), and
(5) any other non-cash charges to the extent deducted from
combined net income (including, but not limited to, income
allocated to minority interests, non-recurring or one-time GAAP
non-cash income, gains, expenses or losses).
(d) Section 4(d) Directors. In addition to the other voting rights
described herein, at any time after the Minimum Threshold ceases to be
satisfied and a Dividend Payment Default occurs for three consecutive
fiscal quarters, the number of directors constituting the Board shall
be automatically increased by a maximum of two (2) members. The
position on the Board created pursuant to this Section 4(d) shall
continue to be available until the earlier to occur of such time as (i)
there are no Preferred Shares of the Corporation outstanding and (ii)
the Dividend Payment Cure (as defined herein). Any director elected
pursuant to this section shall be deemed to have resigned upon the
position created hereby not being available.
(e) Election of Preferred Directors. The holders of the Preferred
Shares shall have the special right, voting separately as a single
class, to elect as soon as practical, a director to fill each vacancy
created pursuant to Section 4(c) or 4(d) and to elect their respective
successors at each
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<PAGE> 17
succeeding annual meeting of the Corporation thereafter at which such
successor is to be elected. The director so elected from time to time
in respect of clause (i) of Section 4(c) shall be referred to herein as
the "Section 4(c)(i) Director." The director so elected from time to
time in respect of clause (ii) of Section 4(c) shall be referred to
herein as the "Section 4(c)(ii) Director." The directors so elected
from time to time in respect of Section 4(d) shall be referred to
herein as the "Section 4(d) Directors." As used herein, the term
"Preferred Director" shall refer to each of the Section 4(c)(i)
Director, the Section 4(c)(ii) Director or a Section 4(d) Director, as
appropriate, and the term "Preferred Directors" shall refer to all such
directors. At no time shall there be more than two Preferred Directors
on the Board.
(f) Classification of Board. Each vacancy created upon the Board
from time to time pursuant to clause (i) or (ii) of Section 4(c) or
Section 4(d), as the case may be, shall be apportioned among the
classes of directors, if any, so that the number of directors in each
of the classes of directors is as nearly equal in number as possible.
The Preferred Directors shall be classified accordingly.
(g) Cure. Upon the occurrence of a Dividend Reduction Default or an
Earnings Default, the same shall be deemed to continue to exist until
such time as (the "Dividend/Earnings Cure") (i) the Regular Quarterly
Dividend paid in the immediately preceding quarter on the Common Stock
shall be greater than $.40 per share (adjusted to reverse the effect of
any event set forth in Section 7 that would require an adjustment to
the Conversion Price), (ii) the Corporation reports for the prior three
consecutive fiscal quarters that the ratio of its Combined EBITDA to
its reported interest expense (as described in clause (2) under the
definition of Combined EBITDA above) for each such quarter was greater
than 1.25 to 1.00, and (iii) all dividends, and all other accrued and
unpaid dividends whether or not declared, on the Preferred Shares have
been paid or made available for payment. Upon the occurrence of the
Dividend Payment Default, the same shall be deemed to continue and
exist until (the "Dividend Payment Cure") such time as the earlier to
occur of (i) none of the Preferred Shares shall remain outstanding or
(ii) all dividends, including accrued and unpaid dividends on the
Preferred Shares whether or not declared, have been paid or made
available for payment.
(h) Board Committees. The 4(c)(i) Director shall be designated as a
member of every committee of the Board, other than two committees, such
two committees to be specified by such 4(c)(i) Director. During such
period of time as a 4(c)(ii) Director shall be a member of the Board,
such 4(c)(ii) Director shall be designated as a member of each
committee of the Board on which the 4(c)(i) Director is not a member.
(I) Voting Procedures. At each meeting of the stockholders of the
Corporation at which the holders of the Preferred Shares shall have the
right to vote as a single class, as provided in this Section 4, the
presence in person or by proxy of the holders of record of a majority
of the total number of Preferred Shares then outstanding shall be
necessary and sufficient to constitute a quorum of such class for such
election by such stockholders as a class. At any such meeting or
adjournment thereof the absence of a quorum of holders of Preferred
Shares shall not prevent the election of directors other than the
Preferred Directors, and the absence of a quorum of the holders of any
other class or series of stock for the election of such other directors
shall not prevent the election of any Preferred Directors by the
holders of the Preferred Shares.
(j) Vacancy. In case any vacancy shall occur among the directors
elected by the holders of the Preferred Shares such vacancy shall be
filled by the vote of holders of the Preferred Shares, voting as a
single class, at a special meeting of such stockholders called for that
purpose.
(k) Written Consent. Notwithstanding the foregoing, any action
required or permitted to be taken by holders of Preferred Shares at any
meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a unanimous consent, in writing, setting
forth the action so taken, shall be signed by each of the holders of
Preferred Shares and shall be executed and delivered
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<PAGE> 18
to the Secretary of the Corporation for placement among the minutes of
proceedings of the stockholders of the Corporation.
(l) Approval by the Corporation. The Corporation acting through a
majority of its Directors shall have the right to approve the
nomination of any Section 4(c)(i) Director or Section 4(c)(ii)
Director, such approval not to be unreasonably withheld; provided,
however, that such right shall not apply to any of John D. McGurk,
James E. Quigley 3rd, Matthew W. Kaplan, and D. Pike Aloian.
(m) Restrictions. So long as Preferred Shares of the Corporation
are outstanding, without the consent of the holders of at least the
majority of the Preferred Shares at the time outstanding, given in
person or by proxy, at a meeting called for that purpose at which the
holders of the Preferred Shares shall vote separately as a class, or by
the unanimous consent in writing of all of the holders of the Preferred
Shares (in addition to any other vote or consent of stockholders
required by law or by the Charter), the Corporation may not (i) effect
or validate the amendment, alteration or repeal of any provision of the
Charter of the Corporation which would adversely effect the rights of
the holders of the Preferred Shares as such, (ii) effect or validate
the amendment, alteration or repeal of any provision of the Charter of
the Corporation which would increase in any respect the restrictions or
limitations on ownership applicable to the Preferred Shares pursuant
thereto, (iii) effect or validate the amendment, alteration or repeal
of any provision of the Charter of the Corporation or By-Laws of the
Corporation so as to limit the right to indemnification provided to any
present or future member or members of the Board elected by the holders
of the Preferred Shares, (iv) other than the 2,763,113 Preferred Shares
authorized herein, issue Preferred Shares (or a series of preferred
stock that would vote as a class with the Preferred Shares with respect
to the election of any Preferred Director) or shares of stock ranking
senior or equal to the Preferred Shares (as to dividends or upon
liquidation, dissolution or winding up), or (v) effect or validate the
amendment, alteration or repeal of any provision of the Charter of the
Corporation or ByLaws of the Corporation so as to increase the number
of members of the Board beyond ten (10) members (not including any
Preferred Directors). Nothing in this Section 4(m) shall prevent the
Corporation from issuing any shares of stock of the Corporation which
rank junior (as to dividends and upon liquidation, dissolution or
winding up) to the Preferred Shares upon such terms as the Board shall
authorize from time to time.
(n) Reports. The Corporation shall mail to each holder of record of
Preferred Shares, at such holder's address in the records of the
Corporation, within 45 days after the end of the first three fiscal
quarters of each fiscal year and within 90 days after the end of each
fiscal year, its financial reports for such fiscal period in such form
and containing such independent accountants report as set forth under
the rules of the Securities and Exchange Commission (together with the
report of the Corporation's independent accountants with respect to
such fiscal period) irrespective of whether the Corporation is then
required to file reports under such rules.
(5) Preferred Shares -- Redemption Rights.
(a) General. The Corporation may, at its option, to the extent it
shall have Legally Available Funds therefor, redeem all or any portion
(on a pro rata basis) of the outstanding Preferred Shares, at any time
on or after the date which is the fifth anniversary of the original
date of issuance of Preferred Shares.
(b) Notice. The option of the Corporation to redeem the Preferred
Shares pursuant to this Section 5 shall be exercised by mailing of a
written notice of election (a "Redemption Notice") by the Corporation
to the holders of the Preferred Shares at such holder's address
appearing on the records of the Corporation, which notice shall be
mailed at least 30 days prior to the date specified therein for the
redemption of the Preferred Shares. Such notice shall state, at a
minimum, the amount of Preferred Shares to be redeemed, the date on
which such redemption shall occur and the last date on which such
holder can exercise the conversion rights provided for in Section 7
herein (the "Final Conversion Date"). Any notice which was mailed in
the manner herein provided shall be
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conclusively presumed to have been given on the date mailed whether or
not the holder receives such notice.
(c) Conversion. During the period beginning on the date on which
the Corporation mailed to each holder of the Preferred Shares a written
notice of election pursuant to subsection (b) above and ending on the
thirtieth day following the date of such mailing, each holder of the
Preferred Shares may exercise its rights pursuant to Section 7 herein.
(d) Redemption Price. Upon the thirtieth day following the mailing
to the holder of the Preferred Shares of a written notice of election
pursuant to subsection (b) above, the Corporation shall be required,
unless such holder of Preferred Shares has exercised its rights
pursuant to subsection (c) above, to purchase from such holder of
Preferred Shares (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Share), such
Preferred Shares specified in the Redemption Notice, at a price equal
to the product of (i) $19.905 per share plus accrued and unpaid
dividends (whether or not declared and accrued through the date of
payment for redemption or the date payment is made available for
payment to the holder thereof) plus a premium equal to the following
percentage of $19.905:
REDEMPTION OCCURS
ON OR AFTER BUT PRIOR TO % PREMIUM
----------- ------------ ---------
April 1, 2002 December 31, 2002 6.0
December 31, 2002 December 31, 2003 5.0
December 31, 2003 December 31, 2004 4.0
December 31, 2004 December 31, 2005 3.0
December 31, 2005 December 31, 2006 2.5
December 31, 2006 December 31, 2007 2.0
December 31, 2007 December 31, 2008 1.5
December 31, 2008 December 31, 2009 1.0
December 31, 2009 0.0
and (ii) the number of Preferred Shares to be redeemed as provided in
the Redemption Notice (the "Redemption Price").
(e) Dividends. No Preferred Share is entitled to any dividends
accruing thereon after the date on which the payments provided by and
in accordance with Section 5(d) are paid or made available for payment
to the holder thereof. On such date all rights of the holder of such
Preferred Share shall cease, and such Preferred Share shall not be
deemed to be outstanding.
(6) Preferred Shares -- Liquidation Rights.
(a) Liquidation Payment. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, then out of the assets of the Corporation before any
distribution or payment to the holders of shares of capital stock of
the Corporation ranking junior to the Preferred Shares (as to dividends
or upon liquidation, dissolution or winding up), the holders of the
Preferred Shares shall be entitled to be paid $19.905 per share (the
"Liquidation Value") plus accrued and unpaid dividends whether or not
declared, if any, (or a pro rata portion thereof with respect to
fractional shares), to the date of final distribution or the
distribution is made available; provided, however, that if such
liquidation, dissolution or winding up of the Corporation occurs in
connection with or subsequent to a Change of Control (as defined in
Section 8(e)), then the holders of the Preferred Shares shall be
entitled to be paid the Put Payment (as defined herein). Except as
provided in this Section 6, the holders of the Preferred Shares shall
be entitled to no other or further distribution in connection with such
liquidation, dissolution or winding up.
(b) ProRata Distribution. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available
for distribution to the holders of Preferred Shares shall be
insufficient to permit payment in full to such holders the sums which
such holders are
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entitled to receive in such case, then all of the assets available for
distribution to the holders of the Preferred Shares shall be
distributed among and paid to the holders of Preferred Shares, ratably
in proportion to the respective amounts that would be payable to such
holders if such assets were sufficient to permit payment in full.
(7) Preferred Shares -- Conversion.
(a) Conversion Rights. Subject to and upon compliance with the
provisions of this Section 7, a holder of Preferred Shares shall have
the right, at such holder's option, at any time to convert all or a
portion of such shares into the number of fully paid and non-assessable
shares of Common Stock obtained by dividing the number of Preferred
Shares being converted by the Conversion Ratio (as defined below and as
in effect at the time and on the date provided for in this Section
7(b)(iv)) by surrendering such Preferred Shares to be converted. Such
surrender shall be made in the manner provided in Section 7, paragraph
(b); provided, however, that the right to convert any Preferred Shares
called for redemption pursuant to Section 5 shall terminate at the
close of business on the Final Conversion Date, unless the Corporation
shall default in making payment of any cash payable upon such
redemption under Section 5 hereof. The "Conversion Ratio" with respect
to any Preferred Shares will initially be equal to 1, subject to
adjustment as described below.
(b) Manner of Conversion.
(i) In order to exercise the conversion right, the holder of
each Preferred Share to be converted shall surrender to the
Corporation the certificate representing such share, duly endorsed
or assigned to the Corporation or in blank, accompanied by written
notice to the Corporation that the holder thereof elects to convert
such Preferred Shares. Unless the shares of Common Stock issuable
on conversion are to be issued in the same name as the name in
which such Preferred Shares are registered, each Preferred Share
surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by
the holder or such holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax (or evidence
reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid).
(ii) As promptly as practicable after the surrender of
certificates of Preferred Shares as aforesaid, the Corporation
shall issue and shall deliver at such office to such holder, or on
such holder's written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion
of such Preferred Shares in accordance with the provisions of this
Section 7, and any fractional interest in respect of a share of
Common Stock arising upon such conversion shall be settled as
provided in paragraph (c) of this Section 7.
(iii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
certificates for Preferred Shares have been surrendered and such
notice received by the Corporation as aforesaid, and the person or
persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall
be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Ratio in effect at such time
on such date unless the stock transfer books of the Corporation
shall be closed on that date, in which event such conversion shall
have been deemed to have been effected and such person or persons
shall be deemed to have become the holder or holders of record at
the close of business on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the
Conversion Ratio in effect on the date on which such shares shall
have been surrendered and such notice received by the Corporation.
(c) Fractional Shares. No fractional shares or scrip representing
fractions of shares of Common Stock shall be issued upon conversion of the
Preferred Shares. Instead of any fractional interest in a share of Common
Stock that would otherwise be deliverable upon the conversion of Preferred
Shares, the
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Corporation shall pay to the holder of such share an amount in
cash based upon the Current Market Price of Common Stock on the Trading Day
immediately preceding the date of conversion. If more than one Preferred
Share shall be surrendered for conversion at one time by the share holder,
the number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of Preferred Shares
so surrendered.
(d) Adjustment of Conversion Ratio. The Conversion Ratio shall be
adjusted from time to time as follows:
(i) If the Corporation shall, while any Preferred Shares are
outstanding, (A) pay a dividend or make a distribution with respect to
its capital stock in shares of its Common Stock, (B) subdivide its
outstanding Common Stock into a greater number of shares, (C) combine
its outstanding Common Stock into a smaller number of shares or (D)
issue any shares of capital stock by reclassification of its Common
Stock, the Conversion Ratio in effect at the opening of business on the
day next following the date fixed for the determination of shareholders
entitled to receive such dividend or distribution or at the opening of
business on the day following the day on which such subdivision,
combination or reclassification becomes effective, as the case may be,
shall be adjusted so that the holder of any Preferred Shares thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events described
above had such Preferred Shares been converted immediately prior to the
record date in the case of a dividend or distribution or the effective
date in the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (i) shall become
effective immediately after the opening of business on the day next
following the record date (except as provided in paragraph (h) below)
in the case of a dividend or distribution and shall become effective
immediately after the opening of business on the day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall, while any Preferred Shares are
outstanding, issue rights, options or warrants to all holders of Common
Stock entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common Stock
at a price per share less than the Current Market Price per share of
Common Stock on the record date for the determination of shareholders
entitled to receive such rights or warrants, then the Conversion Ratio
in effect at the opening of business on the day next following such
record date shall be adjusted to equal the ratio determined by
multiplying (I) the Conversion Ratio in effect immediately prior to the
opening of business on the day next following the date fixed for such
determination by (II) a fraction, the numerator of which shall be the
sum of (A) the number of shares of Common Stock outstanding on the
close of business on the date fixed for such determination and (B) the
number of shares that the aggregate proceeds to the Corporation from
the exercise of such rights or warrants for Common Stock would purchase
at such Current Market Price, and the denominator of which shall be the
sum of (A) the number of Shares of Common Stock outstanding on the
close of business on the date fixed for such determination and (B) the
number of additional shares of Common Stock offered for subscription or
purchase pursuant to such rights or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights or warrants entitle the
holders of Common Stock to subscribe for or purchase shares of Common
Stock at less than such Current Market Price, there shall be taken into
account any consideration received by the Corporation upon issuance and
upon exercise of such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors.
(iii) If the Corporation shall distribute to all holders of its
Common Stock any shares of capital stock of the Corporation (other than
Common Stock) or evidence of its indebtedness or assets (excluding
Regular Quarterly Dividends) or rights or warrants to subscribe for or
purchase any of its securities (excluding those rights and warrants
issued to all holders of Common Stock entitling them for a period
expiring within 45 days after the record date referred to in
subparagraph (ii) above to
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<PAGE> 22
subscribe for or purchase Common Stock, which rights and warrants are
referred to in and treated under subparagraph (ii) above) (any of the
foregoing being hereinafter in this subparagraph (iii) called the
"Securities"), then in each such case each holder of Preferred Shares
shall receive concurrently with the receipt by holders of the Common
Stock the kind and amount of such Securities that it would have owned
or been entitled to receive had such Preferred Shares been converted
immediately prior to such distribution or related record date, as the
case may be.
(iv) Distribution of Cash. In case the Corporation shall pay or
make a dividend or other distribution on its Common Stock exclusively
in cash (excluding Regular Quarterly Dividends), each holder of
Preferred Shares shall receive concurrently with the receipt by holders
of the Common Stock the kind and amount of any such distribution that
it would have owned or been entitled to receive had such Preferred
Shares been converted immediately prior to such distribution or related
record date, as the case may be.
(v) No adjustment in the Conversion Ratio shall be required unless
such adjustment would require a cumulative increase or decrease of at
least 1%; provided, however, that any adjustments that by reason of
this subparagraph (v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until made.
Notwithstanding any other provisions of this Section 7, the Corporation
shall not be required to make any adjustment of the Conversion Ratio
for (x) the issuance of any shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional
amounts in shares of Common Stock pursuant to any plan providing for
the reinvestment of dividends or interest payable on securities of the
Corporation and the investment of additional optional amounts in shares
of Common Stock under such plan, (y) the issuance of contingent rights
issued pursuant to a stockholders' rights plan adopted by the
Corporation pursuant to which the acquisition by any third party of a
specified percentage of Common Stock triggers the exercisability of
such rights to purchase Common Stock, for so long as no event has
occurred triggering such rights to exercise, and (z) the issuance of
Common Stock or options to purchase Common Stock pursuant to an
employee benefit plan. All calculations under this Section 7 shall be
made to the nearest cent (with $.005 being rounded upward) or to the
nearest one-tenth of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion
Ratio, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase stock or
securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its shareholders shall
not be taxable, or if that is not possible, to diminish any income
taxes that are otherwise payable because of such event.
(e) Adjustment of Conversion Ratio Upon Certain Transactions. If the
Corporation shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender
offer for all or substantially all shares of Common Stock, sale of all or
substantially all of the Corporation's assets or recapitalization of the
Common Stock and excluding any transaction as to which subparagraph (d)(i)
of this Section 7 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which shares of Common
Stock shall be converted into the right to receive stock, securities or
other property (including cash or any combination thereof), each Preferred
Share that is not converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock, securities and
other property (including cash or any combination thereof) receivable upon
the consummation of such Transaction by a holder of that number of shares
of Common Stock into which one Preferred Share was convertible immediately
prior to such Transaction, assuming such holder of Common Stock (i) is not
a person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such
sale or transfer was made, as the case
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may be (a "Constituent Person"), or an affiliate of a Constituent Person or
(ii) failed to exercise his or her rights of election, if any, as to the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of
stock, securities and other property (including cash) receivable upon such
Transaction is not the same for each share of Common Stock of the
Corporation held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("Non-electing Share"),
then for the purpose of this paragraph (e) the kind and amount of stock,
securities and other property (including cash) receivable upon such
Transaction by each Non-electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-electing Shares).
The Corporation shall not be a party to any Transaction unless the terms of
such Transaction are consistent with the provisions of this paragraph (e),
and it shall not consent or agree to the occurrence of any Transaction
until the Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of
the Preferred Shares that will contain provisions enabling the holders of
the Preferred Shares that remain outstanding after such Transaction to
convert into the consideration received by holders of Common Stock at the
Conversion Ratio in effect immediately prior to such Transaction. The
provisions of this paragraph (e) shall similarly apply to successive
Transactions.
(f) Notice of Certain Events. If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than the Regular Quarterly
Dividend); or
(ii) the Corporation shall authorize the granting to all holders
of the Common Stock of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common Stock
(other than any event to which subparagraph (d)(i) of this Section 7
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any shareholders of the Corporation is
required, or a statutory share exchange, or self tender offer by the
Corporation for all or substantially all of its outstanding shares of
Common Stock or the sale or transfer of all or substantially all of the
assets of the Corporation as an entity (other than the Corporation's
current exchange offer with respect to its outstanding 8.375%
Convertible Subordinated Debentures due 2001); or
(iv) there shall occur the involuntary or voluntary liquidation,
dissolution or winding up of the Corporation, then the Corporation
shall cause to be mailed to the holders of Preferred Shares, at the
address as shown on the stock records of the Corporation, as promptly
as possible, but at least 15 Business Days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B) the date
on which such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it is expected
that holders of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Section 7.
(g) Notice of Adjustment of Conversion Ratio. Whenever the Conversion
Ratio is adjusted as herein provided, the Corporation shall prepare a
notice of such adjustment of the Conversion Ratio setting forth the
adjusted Conversion Ratio and the effective date of such adjustment and
shall mail such notice of such adjustment of the Conversion Ratio to the
holders of the Preferred Shares at such holders' last address as shown on
the stock records of the Corporation.
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(h) Timing of Adjustment. In any case in which paragraph (d) of this
Section 7 provides that an adjustment shall become effective on the day
next following the record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of Preferred
Shares converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and above the
Common Stock issuable upon such conversion before (giving effect to such
adjustment and (B) paying to Such holder any amount of cash in lieu of any
fraction pursuant to paragraph (c) of this Section 7.
(i) No Duplication of Adjustments. There shall be no adjustment of the
Conversion Ratio in case of the issuance of any stock of the Corporation in
a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 7. If any action or transaction
would require adjustment of the Conversion Ratio pursuant to more than one
paragraph of this Section 7, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) Other Adjustments to Conversion Ratio. If the Corporation shall
take any action affecting the Common Stock, other than action described in
this Section 7, that would materially adversely affect the conversion
rights of the holders of the Preferred Shares or the value of such
conversion rights, the Conversion Ratio for the Preferred Shares may be
adjusted, to the extent permitted by law, in such manner, if any, and at
such time, as the Board of Directors, in its sole discretion, may determine
to be equitable in the circumstances.
(k) Reservation, Validity, Listing and Securities Law Compliance With
Respect to Shares of Common Stock.
(i) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock for the purpose
of effecting conversion of the Preferred Shares, the full number of
shares of Common Stock deliverable upon the conversion of all
outstanding Preferred Shares not therefore converted. Before taking any
action which would cause an adjustment in the Conversion Ratio such
that Common Stock issuable upon the conversion of Preferred Shares
would be issued below par value of the Common Stock, the Corporation
will take any corporate action which may, in the opinion of its
counsel, be reasonably necessary in order that the Corporation may
validly and legally issue fully-paid and nonassessable shares of Common
Stock at such adjusted Conversion Ratio.
(ii) The Corporation covenants that any shares of Common Stock
issued upon the conversion of the Preferred Shares shall be validly
issued, fully paid and non-assessable.
(iii) The Corporation shall endeavor to list the shares of Common
Stock required to be delivered upon conversion of the Preferred Shares,
prior to such delivery, upon each national securities exchange, if any,
upon which the outstanding Common Stock is listed at the time of such
delivery.
(iv) Prior to the delivery of any securities that the Corporation
shall be obligated to deliver upon conversion of the Preferred Shares,
the Corporation shall endeavor to comply with all federal and state
laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof,
by any governmental authority.
(l) Transfer Taxes. The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities or property on
conversion of the Preferred Shares pursuant hereto; provided, however, that
the Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issue or delivery of shares of
Common Stock or other securities or property in a name other than that of
the holder of the Preferred Shares to be converted, and no such issue or
delivery shall be made unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or
established, to the reasonable satisfaction of the Corporation, that such
tax has been paid.
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(m) Certain Defined Terms. The following definitions shall apply to
terms used in this Section 7:
(1) "CURRENT MARKET PRICE". For the purpose of any computation
under this Section 7, the Current Market Price per share of Common
Stock on any date in question shall be deemed to be the average of the
daily closing prices for the five consecutive Trading Days preceding
such date in question; provided, however, that if another event occurs
that would require an adjustment pursuant to subsection (f) through
(j), inclusive, the Board may make such adjustments to the closing
prices during such five Trading Day period as it deems appropriate to
effectuate the intent of the adjustments in this Section 7, in which
case any such determination by the Board shall be set forth in a
resolution of the Board and shall be conclusive.
(2) "TRADING DAY" shall mean a day on which Preferred Shares are
traded on the national Preferred Shares exchange or quotation system
used to determine the Closing Price.
(8) Preferred Shares -- Change of Control and Put Option.
(a) Subject to the last sentence of this Section 8(a), if a
Change of Control or Put Event occurs, in either case as a result of
the voluntary (and not legally compelled) act, omission or
participation of the Corporation, which act, omission or participation
the Corporation had the discretion under existing laws and regulations
to refrain from, then each holder of Preferred Shares will have the
right to require that the Corporation, to the extent it shall have
Legally Available Funds therefor, to redeem such holder's Preferred
Shares at a redemption price payable in cash in an amount equal to 102%
of the Liquidation Value thereof, plus accrued and unpaid dividends
whether or not declared, if any (the "Put Payment"), to the date of
purchase or the date payment is made available (the "Put Date")
pursuant to the offer described in subsection (b) below (the "Put
Offer"). If a Change of Control or Put Event occurs that is not the
result of such voluntary act, omission or participation of the
Corporation, the Corporation may elect not to make the foregoing Put
Payment by not commencing the Put Offer on the Put Date, in which event
the Conversion Ratio shall be revised to the greater of (i) 75% of the
then current Conversion Ratio so that each Preferred Share will be
convertible into 133% of the number of shares of Common Stock into
which it would otherwise have been convertible and (ii) a fraction the
numerator of which is 75% of the Current Market Price (as defined in
Section 7 hereof) and the denominator of which is $19.905.
Notwithstanding the foregoing, if the Securities and Exchange
Commission or its staff (collectively, the "SEC"), by written
communication to the Corporation, indicates that the provisions of the
first sentence of this Section 8(a) would preclude the Corporation from
treating the Preferred Shares as equity on its financial statements,
then those events constituting either a Change of Control Event or Put
Event for which the SEC objects to the holder of Preferred Shares
having a cash redemption right shall, instead, be covered by the
Conversion Ratio revision alternative set forth in the second sentence
of this Section 8(a).
(b) Within 15 days following the Company becoming aware that an
event has occurred that has resulted in any Change of Control or Put
Event, the Corporation shall mail a notice to each holder of Preferred
Shares, at such holder's address appearing in the records of the
Corporation, stating (i) that a Change of Control or Put Event, as
applicable, has occurred and that such holder has the right to require
the Corporation to redeem such holder's Preferred Shares in cash, (ii)
the date of redemption (which shall be a Business Day, no earlier than
30 days and no later than 60 days from the date such notice is mailed,
or such later date as may be necessary to comply with the requirements
of applicable law including the Exchange Act), (iii) the redemption
price for the redemption, and (iv) the instructions determined by the
Corporation, consistent with this subsection, that a holder must follow
in order to have its Preferred Shares redeemed.
(c) On the Put Date, the Corporation will, to the extent lawful,
accept for payment Preferred Shares or portions thereof tendered
pursuant to the Put Offer and pay an amount equal to the Put Payment in
respect of all Preferred Shares or portions thereof so tendered. The
Corporation shall
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promptly mail to each holder of Preferred Shares to
be redeemed the Put Payment for such Preferred Shares.
(d) Notwithstanding anything else herein, to the extent they are
applicable to any Change of Control Offer, the Corporation will comply
with Section 14 of the Exchange Act and the provisions of Regulation
14D and 14E and any other tender offer rules under the Exchange Act and
any other federal and state securities laws, rules and regulations and
all-time periods and requirements shall be adjusted accordingly.
(e) "Change of Control" means each occurrence of any of the
following: (i) the acquisition, directly or indirectly, by any
individual or entity or group (as such term is used in Section 13(d)(3)
of the Exchange Act of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act, except that such individual or entity shall be
deemed to have beneficial ownership of all shares that any such
individual or entity has the right to acquire, whether such right is
exercisable immediately or only after passage of time) of more than 25%
of the aggregate outstanding voting power of capital stock of the
Corporation; (ii) other than with respect to the election, resignation
or replacement of the Preferred Directors, during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Corporation (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Corporation was
approved by a vote of 66 2/3% of the directors of the Corporation
(excluding Preferred Directors) then still in office who were either
directors at the beginning of such period, or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Corporation then in office; and (iii) (A) the Corporation consolidates
with or merges into another entity (the "Merger Entity) or conveys,
transfers or leases all or substantially all of its respective assets
(including, but not limited to, real property investments) to any
individual or entity (the "Acquiring Entity", and, together with the
Merger Entity, the "Successor Entity"), or (B) any corporation
consolidates with or merges into the Corporation, which in either event
(A) or (B) is pursuant to a transaction in which the outstanding voting
capital stock of the Corporation is reclassified or changed into or
exchanged for cash, securities or other property (unless the holders of
the voting capital stock of the Corporation immediately prior to such
transaction hold immediately after such transaction more than 50% of
the outstanding voting capital stock of the Successor Entity.
(f) "Put Event" means each occurrence of any of (i) the
Corporation fails to qualify as a real estate investment trust as
described in Section 856 of the Internal Revenue Code of 1986, as
amended, other than as a result of any action, or unreasonable failure
to act, by any holder of Preferred Shares; (ii) the Corporation becomes
a "Pension-held REIT" as defined in Section 856(h)(3)(D) of the
Internal Revenue Code of 1986, as amended, other than as a result of
any action, or unreasonable failure to act, by the holders of Preferred
Shares; or (iii) the Corporation ceases to be engaged primarily in the
business of owning and managing multi-family properties and/or
industrial properties directly, or through subsidiaries, as carried on
as of the date hereof and described in the Corporation's Annual Report
on Form 10-K, as amended, as filed with the Securities and Exchange
Commission for the year ended December 31, 1995.
(9) Preferred Shares -- Restrictions on Ownership Transfer to
Preserve Tax Benefit.
(a) The Preferred Shares shall be governed by the restrictions on
ownership and transfer set forth in subsection F of Article V of the
Charter.
(b) So long as Preferred Shares are outstanding, without the
consent of the holders of at least a majority of the Preferred Shares
at the time outstanding, given in person or by proxy, at a meeting
called for that purpose at which the holders of the Preferred Shares
shall vote separately as a class, or by unanimous written consent in
writing of all holders of the Preferred Shares, the Corporation will
not effect or validate any amendment, alteration or repeal of any
Section of the
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Charter, so as to increase in any respect the restrictions or
limitations on ownership applicable to the Preferred Shares pursuant
thereto.
(10) Miscellaneous.
(a) Exchange or Market Transactions. Nothing in Section 9 or this
Section 10 shall preclude the settlement of any transaction entered
into through the facilities of the NYSE or any other national
securities exchange or automated inter-dealer quotation system. The
shares that are the subject of such transaction shall continue to be
subject to the terms of Article V after such settlement.
(b) Severability. If any provision of Section 9 or this Section
10 or any application of any such provision is determined to be invalid
by any federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and other
applications of such provisions shall be affected only to the extent
necessary to comply with the determination of such court.
(c) Mailings. All mailings shall be made by overnight United
States mail or by another overnight courier service.
(d) Reacquired Shares. Any Preferred Shares purchased or
otherwise acquired by the Corporation in any matter whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be classified again and reissued as
part of a new series or class of Preferred Stock to be created by the
Board pursuant to its power contained in the Charter, subject to
conditions and restrictions on issuance set forth herein.
B. Class C Preferred Stock.
(1) Designation and Amount. The shares of such class of Preferred Stock
shall be designated as "Class C Junior Participating Cumulative Preferred
Stock" and the number of shares constituting such class so designated shall
be 300,000 (the "Class C Preferred Stock"). Such number of shares may be
increased or decreased by resolution of the Board of Directors and as
otherwise provided hereunder; provided, however, that no decrease shall
reduce the number of shares of Class C Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Class C Preferred Stock.
(2) Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Class C Preferred Stock with respect to dividends, the
holders of shares of Class C Preferred Stock, in preference to the
holders of shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction
of a share of Class C Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (i) $.25 per share ($1.00
per annum) or (ii) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a
share of Class
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C Preferred Stock. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such event the amount to which the holder of each
share of Class C Preferred Stock was entitled immediately prior to such
event under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on
the Class C Preferred Stock as provided in paragraph (a) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.25 per
share ($1.00 per annum) on the Class C Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Class C Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which event dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Class C Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall cumulate but shall not bear interest. Dividends
paid on the shares of Class C Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Class C
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Class C Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Class C Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series C Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein, in the Charter, in any
other Articles Supplementary creating a series of Preferred Stock or
any similar stock or by law, the holders of shares of Class C Preferred
Stock and the holders of shares of Common Stock and any other capital
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<PAGE> 29
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Class C Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Class C Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not authorized or declared, on
shares of Class C Preferred Stock outstanding shall have been paid in
full, the Corporation shall not, directly or indirectly:
(i) authorize, declare or pay dividends on, or make any other
distributions with respect to any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding
up) to the Class C Preferred Stock;
(ii) authorize, declare or pay dividends on, or make any other
distributions with respect to any shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Class C Preferred Stock, except dividends paid
ratably on the Class C Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Class C Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Class C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Class C Preferred Stock, or any shares of stock
ranking on a parity with the Class C Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration,
directly or indirectly, any shares of stock of the Corporation unless
the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such
manner.
(5) Reacquired Shares. Any shares of Class C Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set forth
herein, in the Charter, in any other Articles Supplementary creating a
series of Preferred Stock or any similar stock or as otherwise required by
law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
to: (i) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Class C
Preferred Stock unless, prior thereto, the holders of shares of Class C
Preferred Stock shall have received the greater of (A) $100.00 per share
($1.00 per one one-hundredth of a share), plus an amount equal to accrued
and unpaid
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dividends and distributions thereon, whether or not declared, to
the date of such payment, or (B) an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock; or (ii) the holders of shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the
Class C Preferred Stock, except distributions made ratably on the Class C
Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such event the aggregate amount to which each holder of a
share of Class C Preferred Stock was entitled immediately prior to such
event under the proviso in clause (i) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(7) Consolidation, Merger or Other. In the event the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property or otherwise changed,
then in any such event each share of Class C Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such event the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Class C Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event, and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(8) No Redemption. The shares of Class C Preferred Stock shall not be
redeemable.
(9) Rank. The Class C Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series
or classes of the Corporation's Preferred Stock whether issued before or
after the issuance of the Class C Preferred Stock.
(10) Amendment. The Charter shall not be amended in any manner that
would materially alter or change the powers, preferences or special rights
of the Class C Preferred Stock, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Class C Preferred Stock, voting
together as a single class.
THIRD: The foregoing Amendment and Restatement of the Charter of the
Corporation (the "Restated Articles") as hereinabove set forth have been duly
authorized and approved by a majority of the Board of Directors and approved by
the stockholders of the Corporation as required by the Maryland General
Corporation Law.
FOURTH: The current address of the principal office of the Corporation
in the State of Maryland is as set forth in Article IV of the foregoing Restated
Articles.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article IV of the foregoing Restated Articles.
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SIXTH: The number of directors of the Corporation is eight, and the
names of those currently serving as directors are: Glenn L. Carpenter, Keith W.
Renken, Royce B. McKinley, James E. Quigley, 3rd, Carl C. Gregory, III, Peter L.
Eppinga, John F. Kooken and Robert E. Morgan.
SEVENTH: (a) Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Charter of the Corporation, the Board of
Directors divided and classified 1,351,351 shares of the Preferred Stock of the
Corporation into a class designated Class A Senior Cumulative Convertible
Preferred Stock (the "Class A Preferred Stock") and provided for the issuance of
such Class A Preferred Stock. The terms of the Class A Preferred Stock,
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, were set forth in Articles Supplementary filed with
the Maryland State Department of Assessments and Taxation ("SDAT") on April 3,
1997. Pursuant to the foregoing Restated Articles, the Corporation has amended
certain terms and conditions of the Class A Preferred Stock. Therefore, after
the foregoing Restated Articles become effective, the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Class A Preferred
Stock shall be as set forth in the description of the Class A Preferred Stock
contained in Article XIV of the foregoing Restated Articles and the Articles
Supplementary specifically referenced above shall be of no further force and
effect.
(b) Pursuant to the authority expressly vested in the Board of Directors
of the Corporation by the Charter of the Corporation, the Board of Directors
divided and classified 1,411,765 shares of the Preferred Stock of the
Corporation into a class designated Class B Senior Cumulative Convertible
Preferred Stock (the "Class B Preferred Stock") and provided for the issuance of
such Class B Preferred Stock. The terms of the Class B Preferred Stock,
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption, were set forth in Articles Supplementary filed with
SDAT on October 21, 1997. Pursuant to the foregoing Restated Articles and
effective upon the filing of these Restated Articles with SDAT, the Corporation
hereby reclassifies each share of Class B Preferred Stock as one (1) additional
share of Class A Preferred Stock; the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of such Class A Preferred Stock as set forth
in the description of the Class A Preferred Stock contained in Article XIV of
the foregoing Restated Articles. Therefore, after the foregoing Restated
Articles become effective, the Articles Supplementary specifically referenced
above shall be of no further force and effect.
(c) Pursuant to the authority expressly vested in the Board of Directors
of the Corporation by the Charter of the Corporation, the Board of Directors
divided and classified 300,000 shares of the Preferred Stock of the Corporation
into a class designated Class C Junior Participating Cumulative Preferred Stock
(the "Class C Preferred Stock") and provided for the issuance of such class C
Preferred Stock. The terms of the Class C Preferred Stock, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption, were set forth in Articles Supplementary filed with SDAT on December
24, 1997. The foregoing Restated Articles include (and restate without
amendment) the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Class C Preferred Stock in the description of
the Class C Preferred Stock contained in Article XIV. Therefore, after the
foregoing Restated Articles become effective, the above-referenced Articles
Supplementary shall be of no further force and effect.
EIGHTH: (a) Immediately before these Articles of Amendment and
Restatement become effective, the total number of shares of stock of all classes
which the Corporation has authority to issue is Sixty Million (60,000,000)
shares of capital stock, having an aggregate par value of Six Hundred Thousand
Dollars ($600,000), of which (i) Twenty-Five Million (25,000,000) shares are
Common Stock, par value $.01 per share, (ii) Thirty Million (30,000,000) shares
are Excess Stock, par value $.01 per share and (iii) Five Million (5,000,000)
shares are Preferred Stock, par value $.01 per share.
(b) As amended by these Articles of Amendment and Restatement, the total
number of shares of stock of all classes which the Corporation has authority to
issue is One Hundred and Ten Million (110,000,000)
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shares of capital stock, having an aggregate par value of One Million One
Hundred Thousand Dollars ($1,100,000), of which (i) One Hundred Million
(100,000,000) shares are Common Stock, par value $.01 per share and (ii) Ten
Million (10,000,000) shares are Preferred Stock, par value $.01 per share.
(c) Before the Articles of Amendment and Restatement become effective, the
aggregate par value of all shares of stock of all classes of the Corporation is
Six Hundred Thousand Dollars ($600,000.00). After the Articles of Amendment and
Restatement become effective, the aggregate par value of all shares of stock of
all classes of the Corporation shall be One Million One Hundred Thousand Dollars
($1,100,000).
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<PAGE> 33
IN WITNESS WHEREOF. Pacific Gulf Properties Inc. has caused these
presents to be signed in its name and on its behalf by its President and Chief
Executive Officer and witnessed by is Assistant Secretary on June , 1998.
WITNESS:
/s/ Cindy Smith /s/ Glenn L. Carpenter
- --------------------------- -------------------------------
Cindy Smith Glenn L. Carpenter
Asistant Secretary President and Chief Executive
Officer
The undersigned, President of Pacific Gulf Properties Inc., who executed on
behalf of the Corporation the foregoing Articles of Amendment and Restatement of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment and Restatement
to be the corporate act of said corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under penalties of perjury.
/s/ Glenn L. Carpenter
-------------------------------
Glenn L. Carpenter
President and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT") is
entered into as of September 1, 1998, by and among Pacific Gulf Properties Inc.,
a Maryland corporation (the "COMPANY"), and Glenn L. Carpenter ("EMPLOYEE").
WITNESSETH:
WHEREAS, the Company and Employee are parties to an Amended and Restated
Employment Agreement, entered into as of February 17, 1994, (the "PREDECESSOR
AGREEMENT"), pursuant to which Employee has served the Company as President and
Chief Executive Officer; and
WHEREAS, the Company desires to obtain the benefit of continued service
by Employee to the Company, and Employee desires to render services to the
Company; and
WHEREAS, the Board of Directors of the Company (the "BOARD") has
determined that because of Employee's substantial experience and business
relationships in connection with the business of the Company and the Company's
performance under the leadership of Employee, it is in best interest of the
Company to retain the services of Employee and to provide Employee certain
additional benefits; and
WHEREAS, the Company and Employee desire to set forth in this Agreement
the terms and conditions of Employee's future employment with the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree to terminate in its entirety the Predecessor
Agreement, and the parties further agree as follows:
1. TERM AND EXTENSIONS.
The Company agrees to employ Employee and Employee agrees to
serve the Company, in accordance with the provisions of this Agreement, for an
initial term commencing with an effective date of September 1, 1998 and ending
August 31, 2003; provided, however, that the term of Employee's employment under
this Agreement (the "EMPLOYMENT PERIOD") shall be extended automatically for one
(1) additional year on August 31 of each year during the term hereof, commencing
August 31, 1999, unless and until either party gives written notice to the other
at least ninety (90) days, and not more than one hundred twenty (120) days, in
advance of August 31 of any year during the Employment Period that such party
elects not to extend the Employment Period, in which event the Employment Period
shall thereafter remain at its then-current duration; provided, further,
however, that the Employment Period may be earlier terminated in accordance with
the express terms of this Agreement.
2. EMPLOYMENT.
(a) During the Employment Period, Employee shall be employed as
a senior executive officer of the Company with the title of President and Chief
Executive Officer or in such other executive position as the Board may from time
to time determine and which position is
<PAGE> 2
acceptable to Employee. In the performance of his duties, Employee agrees to
observe and comply with the rules and regulations of the Company as adopted by
the Board respecting the performance of Employee's duties and agrees to carry
out orders, directions and policies of the Company and the Board as they may be,
from time to time, communicated to Employee by the Board either orally or in
writing. The Company agrees that the duties which may be assigned to Employee
shall be the usual and customary duties of the offices(s) or position(s) to
which Employee may from time to time be appointed or elected and shall not be
inconsistent with the provisions of the charter documents of the Company or
applicable law.
(b) Employee shall have such corporate power and authority as
shall reasonably be necessary to enable Employee to discharge the duties and
responsibilities of any corporate office or position which Employee holds during
the Employment Period.
(c) Employee agrees to his employment as described in this
Section 2 and, subject to the provisions of Section 3 hereof, agrees to devote
substantially all of his business time and efforts to the business and affairs
of the Company. During the Employment Period, Employee agrees to (i) devote his
full and exclusive business time, energy and abilities exclusively to the
business, affairs and interests of the Company and its subsidiaries and matters
related thereto; (ii) serve the Company faithfully and to the best of his
ability; (iii) perform such services and duties in connection with the business,
affairs and operations of the Company as may be assigned or delegated to him
from time to time by or under, and in accordance with, the authority and
direction of the Board; and (iv) use his best efforts in the promotion and
advancement of the Company and its welfare.
3. NONCOMPETITION AGREEMENT.
The parties acknowledge that Employee's services to the Company
are essential and that Employee has access to the Company's confidential
information. Accordingly, Employee covenants and agrees that:
(a) During the Employment Period, Employee will be a full-time
employee of the Company as provided in Section 2 hereof and Employee will not,
without the express prior written consent of the Board:
(i) render services to any other person or firm for
compensation; or
(ii) directly or indirectly, engage, participate or
assist, as an employee, consultant, director, officer, agent, or as a
Significant Investor (as defined below), in any activity competitive with or
adverse to the business of the Company or its subsidiaries. Employee shall be
considered to be a "SIGNIFICANT INVESTOR" in any entity in which Employee owns
greater than 5% of the outstanding capital or equity securities, and any such
investment is referred to herein as a "SIGNIFICANT INVESTMENT."
(b) Notwithstanding any other provision of this Agreement that
may be construed to the contrary, Employee may make and manage personal business
investments of his choice (excluding Significant Investments in any entity
competitive with or adverse to the Company or its business) and serve in any
capacity with any civic, charitable or educational organization without seeking
or obtaining approval by the Board provided that such investments, activities,
and services do not
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<PAGE> 3
substantially interfere or conflict with the performance of Employee's duties
under this Agreement or create any conflict of interest with respect to the
performance of such duties.
4. COMPENSATION.
(a) Base Salary.
During the Employment Period, the Company agrees to pay Employee
a base salary (the "BASE SALARY") at a rate of not less than $330,000 per year,
payable in equal twice monthly installments.
(b) Additional Benefits.
(i) During the Employment Period, Employee shall be
entitled to participate in, and to all rights and benefits provided by, the
Company's Retirement Income Plan, Thrift Plan, Deferred Income Plan, Health
Plan, Disability Plan, and in each and every other health, life, medical,
dental, disability, insurance and welfare plan maintained by the Company,
including, without limitation, automobile leasing and expense benefits for
Employee and the benefits contemplated by Section 6 hereof (collectively, the
"COMPANY'S BENEFIT PLANS"), that are maintained from time to time by the Company
for the benefit of Employee, the executives of the Company generally or for the
Company's employees generally, provided that Employee is eligible to participate
in such plan under the eligibility provisions thereof that are generally
applicable to the participants thereof.
(ii) During the Employment Period, Employee shall be
eligible for additional compensation in the form of a cash bonus, shares of
stock in the Company or stock options, and shall be eligible to participate in
the Company's 1993 Share Option Plan and any other stock option, incentive
compensation, profit participation, bonus or extra compensation plan that is
adopted by the Company and in which the Company's executive officers generally
participate (collectively, the "COMPANY'S AWARD Plans"). Awards, if any, made
under the Company's Award Plans shall be determined in the discretion of the
Compensation Committee of the Board of Directors (the "COMPENSATION COMMITTEE")
(iii) Employee's rights and benefits provided under the
Company's Benefit Plans and the Company's Award Plans are sometimes collectively
referred to herein as "ADDITIONAL BENEFITS."
(iv) Notwithstanding any other provision of this Agreement
that may otherwise be construed to the contrary, if any provision of this
Agreement conflicts with, is contrary to, or is inconsistent with any specific
eligibility or participation provision contained in any of the Company's Benefit
Plans or in any of the Company's Award Plans, the specific eligibility or
participation provision contained in such plan shall prevail over the
conflicting, contrary or inconsistent provisions contained in this Agreement.
(c) Periodic Review/Adjustment.
Employee's Base Salary and Additional Benefits shall be reviewed
no less frequently than once in every twelve month period commencing February
1999 by the Board and may be
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<PAGE> 4
increased, but not decreased, during the Employment Period in light of
additional or modified responsibilities, if any, that may have been assigned or
assumed by Employee, the results of operations and prospects of the Company, and
current salaries and benefits then being paid to other persons holding similar
positions.
(d) Other Benefits. Until the termination of the Employment
Period, Employee shall be entitled to four (4) weeks of paid vacation during
each twelve month period commencing January 1, 1998, which shall accrue on a pro
rata basis. Vacation time shall continue to accrue so long as Employee's total
accrued and unused vacation time does not exceed eight (8) weeks. Should
Employee's total accrued and unused vacation time reach eight (8) weeks,
Employee will then cease to accrue any further vacation time until Employee's
accrued and unused vacation time falls below the eight (8) week level. Employee
shall also be entitled to all other benefits which are made available from time
to time to the executives of the Company pursuant to the Company's policies and
procedures.
(e) Continuation of Welfare Benefits. If Employee's employment
is terminated due to Employee's Total Disability (as defined in Section 5(c)
hereof) or if a Termination for Good Reason, a Termination Without Cause, or a
Change in Control Termination (as such terms are defined in Section 5 hereof)
occurs, and if Employee is no longer eligible to participate in one or more of
the Company's Benefit Plans because of such termination, Employee shall be
entitled to, and the Company shall provide to Employee at the Company's sole
expense, benefits substantially equivalent to those health, disability, life
insurance, accident insurance and all other benefits to which Employee was
entitled immediately prior to such termination for the periods specified in the
applicable provisions of Section 5 for the provision of such benefits.
(f) Overall Qualification. Nothing in this Agreement shall be
construed as preventing the Company from modifying, suspending, discontinuing or
terminating any of the Company's Benefit Plans or any of the Company's Award
Plans without notice or liability to Employee so long as (i) the modification,
suspension, discontinuation or termination of any such plan is authorized by and
performed in accordance with the specific provisions of such plan and (ii) such
modification, suspension, discontinuation or termination is taken generally with
respect to all similarly situated employees of the Company and does not single
out or discriminate against Employee.
5. TERMINATION.
(a) At-Will Employment. Employee's employment hereunder is "at
will" and may be terminated by Employee or the Company by written notice to the
other party at any time for any or no reason, in the case of the Company, by a
majority vote of all of the members of the Board, subject only to the provisions
specifically set forth in this Section 5. The date as of which Employee's
employment by the Company is terminated, whether such termination is initiated
by the Company or Employee, under the provisions of the applicable subsection of
this Section 5 is referred to herein as the "TERMINATION DATE." Except as
provided in Sections 5(c), (d), (f), (g) and (h) hereof, the Employment Period
shall expire on the Termination Date. Except as specifically otherwise provided
in this Section 5, in the Company's Benefit Plans, in the Company's Award Plans
or as otherwise required by law, all compensation and benefits to Employee under
this Agreement shall terminate on the Termination Date.
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<PAGE> 5
(b) Termination On Account of Death of Employee. If Employee
dies during the Employment Period, the date of Employee's death shall be deemed
to be the Termination Date and the date of expiration of the Employment Period.
In such event, the Company shall have no further obligation to Employee or
Employee's estate, heirs or successors, except that the Company shall provide to
Employee (i) payment of Employee's unpaid Base Salary through the Termination
Date; (ii) payment at the Base Salary rate for Employee's accrued and unused
vacation time through the Termination Date; (iii) payment or distribution of all
benefits to be provided under each of the Company's Benefit Plans on account of
Employee's death; and (iv) payment or distribution of all benefits to be
provided on account of Employee's death under each of the Company's Award Plans.
Payments of the unpaid portion of Employee's Base Salary and for Employee's
accrued and unused vacation time shall be made to Employee's designated
beneficiaries or, if none, to Employee's estate in a lump sum in cash within
thirty (30) days from the time that claim is made therefor by such beneficiary
or estate.
(c) Termination On Account of Total Disability of Employee.
(i) If Employee suffers a Total Disability (as defined in
Section 5(c)(ii) hereof) during the Employment Period, Employee's employment
with the Company may be terminated at the option of the Company. Such
termination by the Company shall be by a written notice of termination from the
Company to the Employee or Employee's personal representative. The date of such
notice shall be the Termination Date. In such event, the Company shall have no
further obligation to Employee or Employee's estate, heirs or successors, except
that the Company shall provide to Employee (i) payment of Employee's unpaid Base
Salary through the Termination Date; (ii) payment at the Base Salary rate for
Employee's accrued and unused vacation time through the Termination Date; (iii)
payment monthly to Employee (or Employee's personal representative), commencing
on the Termination Date and for the entire period of Employee's Total Disability
until Employee attains age 65 or, if earlier, until the cessation of Employee's
Total Disability or Employee's death, of an amount equal to the difference of
(A) 60% of Employee's monthly Base Salary in effect at the Termination Date
minus (B) the aggregate amount Employee receives in respect of such month
pursuant to (x) any State Disability Insurance Plan and (y) any disability
income plan applicable to Employee that is maintained by the Company or any of
its subsidiaries; (iv) payment or distribution of all benefits arising by virtue
of such Total Disability under each of the Company's Benefit Plans and
continuation of Employee's participation (to the extent such participation is
possible under the laws then pertaining to such Plans) in the Company's Benefit
Plans and benefits thereunder for the entire period of Employee's Total
Disability until Employee attains age 65 or, if earlier, until the cessation of
Employee's Total Disability or Employee's death; and (v) payment or distribution
of all benefits to be provided under the Company's Award Plans in the event of
Employee's Total Disability.
(ii) For purposes of this Agreement, the term "TOTAL
DISABILITY" shall mean that Employee is unable to substantially perform all of
the material duties of his regular occupation on a full-time basis for a period
of ninety (90) consecutive days due to physical or mental infirmity as
determined by the Board in its reasonable judgment after consideration of a
written opinion by a physician who is board certified in the area of medicine
covering the cause of Employee's purported disability. Such physician shall be
one who is chosen by the Board and who is acceptable to Employee. Employee shall
not unreasonably withhold his acceptance to a proposed choice of
5
<PAGE> 6
physician by the Board. For purposes of this Agreement, Employee's Total
Disability shall in any event be deemed to have occurred if Employee becomes
entitled to receive benefits under the Company's group long term disability
plan.
(d) Termination by Employee for Good Reason. Employee's
employment hereunder may be terminated effective immediately by Employee by
written notice to the Board in the event of (i) a failure of the Board to elect
Employee to offices with the same or substantially the same duties and
responsibilities as set forth in Section 2 hereof; (ii) a failure by the Company
to comply with the provisions of Section 4 hereof; or (iii) a material breach by
the Company of any other provision of this Agreement (any such event being
referred to herein as "GOOD REASON"). A termination of employment by Employee
under this Section 5(e) is referred to herein as a "TERMINATION FOR GOOD
REASON." Notwithstanding a Termination for Good Reason, the Employment Period
shall be deemed to extend through the same expiration date as existed
immediately prior to such termination (without any extensions of such expiration
date after such employment termination). Upon a Termination for Good Reason, the
Company shall provide Employee with the benefits described in Section 5(g)
hereof.
(e) Termination by the Company for Cause or by Employee Without
Good Reason.
(i) If (A) Employee is terminated for Cause (as defined in
Section 5(e)(ii) hereof) prior to a Change in Control or (B) if Employee shall
voluntarily terminate his employment, and, in either case, such termination is
not a Termination for Good Reason or a Change in Control Termination (as defined
Section 5(h) hereof), such termination of employment shall be effective upon
delivery of notice by the terminating party to the other party, and the date of
such notice shall be the Termination Date and the date of expiration of the
Employment Period. In the event of such a termination of employment, Employee
shall be entitled to receive only his Base Salary at the rate then in effect
until the Termination Date and payment at the Base Salary rate for Employee's
accrued and unused vacation time through the Termination Date.
(ii) For purposes of this Agreement, "CAUSE" shall mean a
reasonable and documented finding by the Board prior to a Change in Control that
Employee has (i) acted with gross negligence or willful misconduct in connection
with the performance of his material duties hereunder; (ii) defaulted in the
performance of his material duties hereunder (other than a failure resulting
from Employee's death or incapacity due to physical or mental illness or from
assignment to Employee of duties that would constitute Good Reason) and has not
corrected such action within 15 days of receipt of written notice thereof; (iii)
acted against the best interests of the Company or committed a material act of
common law fraud against the Company or its employees, which act in either event
has had a material and adverse impact on the financial affairs of the Company;
or (iv) been convicted of a felony and such conviction has a material adverse
affect on the financial affairs of the Company; provided, however, that,
notwithstanding anything contained in this Agreement to the contrary, no act or
failure to act by Employee following a Change in Control constitute Cause for
purposes of this Agreement.
(f) Termination by the Company Without Cause. If Employee's
employment is terminated by the Company without Employee's consent and other
than for Cause, death, or disability and such termination is not a Change in
Control Termination (a "TERMINATION WITHOUT CAUSE"), such termination of
employment shall be effective upon delivery of notice by the Company to
Employee, and the date of such notice shall be the Termination Date.
Notwithstanding a Termination Without
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<PAGE> 7
Cause, the Employment Period shall be deemed to extend through the same
expiration date as existed immediately prior to such termination (without any
extensions of such expiration date after such employment termination). Upon a
Termination Without Cause, the Company shall provide Employee with the benefits
described in Section 5(g) hereof.
(g) Benefits Upon Termination for Good Reason or a Termination
Without Cause. In the event of a Termination for Good Reason or a Termination
Without Cause, the Company shall provide Employee with the following benefits:
(i) The Company shall continue to pay Employee's Base
Salary for the remaining term of the Employment Period after the Termination
Date at the same rate, and on the same schedule of periodic payments, as that in
effect at the Termination Date; provided, however, that, if Employee so elects,
the Company shall pay to Employee in cash a lump sum representing the present
value of the aggregate unpaid Base Salary that would be payable over the
remainder of the Employment Period, discounted from the scheduled periodic
payment dates to a present value utilizing a discount rate of 8% per annum, in
lieu of Employee's right to continue to receive periodic payments of Employee's
Base Salary;
(ii) The Company shall pay Employee in cash at the Base
Salary rate for Employee's accrued and unused vacation time through the
Termination Date;
(iii) For the remaining term of the Employment Period,
Employee shall continue to receive all benefits under the Company's Benefit
Plans that Employee was receiving immediately prior to the Termination Date. For
purposes of the application of such benefits, Employee shall be treated as if he
had remained in the employ of the Company for the remainder of the Employment
Period with a Base Salary at the rate in effect on the Termination Date;
(iv) For purposes of each of the Company's Award Plans,
Employee shall be treated as if he had remained in the employ of the Company for
the remaining term of the Employment Period so that Employee may exercise any
exercisable stock options, receive any appropriate restricted stock awards and
continue to vest any rights during the remaining term of the Employment Period
with respect to each of the Company's Award Plans as if Employee's employment
with the Company had not terminated until the end of the Employment Period;
(v) If, in spite of the provisions above, benefits or
service credits under any of the Company's Benefit Plans or any of the Company's
Award Plans shall not be payable or provided under such plan to Employee, or to
Employee's dependents, beneficiaries or estate, because Employee is no longer
deemed to be an employee of the Company, the Company shall pay, or provide for
payment of, such benefits and service credits for such benefits to Employee, or
to Employee's dependents, beneficiaries or estate, for the remaining term of the
Employment Period; and.
(vi) Nothing herein shall be deemed to obligate Employee
to seek other employment in the event of any such termination and any amounts
earned or benefits received from any such other employment will not serve to
reduce in any way the amounts and benefits payable in accordance herewith.
(h) Termination After Change in Control.
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<PAGE> 8
(i) If Employee's employment is terminated by the Company
or Employee for any or no reason within thirty-six (36) months following a
Change in Control (in either case, a "CHANGE IN CONTROL TERMINATION"), then the
Termination Date shall be the earlier of the specified date of employment
termination set forth in any written notice of termination by the Company or the
date of receipt by the Company of written notice of termination from Employee.
Upon such a Change in Control Termination, the Company shall provide Employee
with the following benefits:
(A) The Company shall pay Employee in cash
Employee's unpaid Base Salary through the Termination Date;
(B) The Company shall pay Employee in cash at the
Base Salary rate for Employee's accrued and unused vacation time through the
Termination Date;
(C) The Company shall pay Employee as severance pay
in a single cash payment an amount (the "SEVERANCE AMOUNT") equal to the product
of three (3) multiplied by the sum of (A) Employee's Base Salary in effect at
the Termination Date plus (B) the amount of the highest annual cash bonus paid
to Employee in respect of the five (5) fiscal years of the Company ended prior
to the Termination Date;
(D) The Company shall pay Employee the amounts
contemplated by Section 5(j) hereof;
(E) Employee shall immediately vest in any benefits
as are provided to vest pursuant to the provisions of each of the Company's
Benefit Plans and each of the Company's Award Plans in the event of a Change in
Control;
(F) All theretofore unvested stock options,
restricted options, restricted stock and other awards issued to Employee
pursuant to the Company's share option plan and any and all other stock option
or incentive plans shall immediately vest;
(G) All theretofore unvested employer contributions
in Employee's account pursuant to the Company's plan maintained under Section
401(k) of the Internal Revenue Code of 1986, as amended (the "CODE") shall
immediately vest, or the Company shall pay to Employee in cash the financial
equivalent thereof on an after-tax basis; and
(H) For a period of twenty-four (24) calendar months
commencing on the Termination Date (the "CONTINUATION PERIOD"), the Company
shall at its expense continue on behalf of Employee and Employee's dependents
and beneficiaries the medical, dental and hospitalization benefits, and life,
disability and accident insurance plan coverages, provided (A) to Employee at
any time during the 90-day period prior to the Change in 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 coverage and benefits
(including deductibles and costs) provided in this Section 5(h) during the
Continuation Period shall be no less favorable to Employee and Employee'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;
provided, however, that the Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that Employee obtains any such
benefits pursuant to a subsequent employer's benefit plans, in which case the
Company may
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<PAGE> 9
reduce the coverage of any benefits it is required to provide Employee hereunder
as long as the aggregate coverages and benefits of the combined benefit plans is
no less favorable to Employee than the coverages and benefits required to be
provided hereunder; this Section 5(h) shall not be interpreted so as to limit
any benefits to which Employee, Employee's dependents or beneficiaries may be
entitled under any of the Company's employee benefit plans, programs or
practices following Employee's termination of employment, including without
limitation, retiree medical and life insurance benefits.
(ii) The amounts provided for in Sections 5(h)(i)(A)
through (C) shall be paid in a single lump sum cash payment within five (5) days
after the Termination Date (or earlier, if required by applicable law).
(iii) For purposes of this Agreement, "CHANGE IN CONTROL"
shall mean any of the following events:
(A) An acquisition of any securities of the Company
entitled to vote generally in the election of directors of the Company (the
"VOTING SECURITIES") 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 in 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 in Control. A "NON-CONTROL ACQUISITION"
shall mean an acquisition of Voting Securities of the Company by (w) an employee
benefit plan (or a trust forming a part thereof) maintained by (1) the Company
or (2) 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"), (x) the Company or any Subsidiary, (y) any Person
as a result of a Non-Control Transaction (as hereinafter defined) or (z) a
Person directly from the Company (except that an acquisition by virtue of the
exercise of a conversion privilege shall not be considered within this clause
(z) unless the converted security was itself acquired directly from the
Company);
(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:
9
<PAGE> 10
(x) 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:
(1) 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,
consolidation or reorganization (the "SURVIVING CORPORATION") in substantially
the same proportion as their ownership of the Voting Securities of the Company
immediately prior to such merger, consolidation or reorganization;
(2) 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 5(h)(iii)(C)(x)(1) above; and
(3) 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 (1) through (3) of this Section
5(h)(iii)(C)(x) is herein referred to as a "NON-CONTROL TRANSACTION;"
(y) A complete liquidation or dissolution of the
Company; or
(z) 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 in 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 in 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 in Control shall be deemed to have occurred.
10
<PAGE> 11
(D) Notwithstanding anything contained in this
Agreement to the contrary, if Employee's employment is terminated prior to a
Change in Control and Employee reasonably demonstrates that such termination (i)
was at the request of a Person that has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and that effectuates a
Change in Control or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control that actually occurs, then for all purposes
of this Agreement, the date of a Change in Control with respect to Employee
shall mean the date immediately prior to the date of such termination of
Employee's employment, and such employment termination shall constitute a Change
in Control Termination.
(i) Mitigation. Employee 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 Employee in any subsequent employment
except as otherwise expressly provided herein.
(j) Excise Tax Gross-Up.
(i) Notwithstanding anything contained in this Agreement
to the contrary, in the event it is determined (pursuant to Section 5(j)(ii)
below) or finally determined (as defined in Section 5(j)(iii)(C) 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 Employee or
Employee'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(j)) (each a "PAYMENT" and collectively
the "PAYMENTS") is or was subject to the excise tax imposed by Section 4999 of
the Code, or 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 Employee with respect to such excise tax
(such excise tax, together with any such interest, penalty or addition to tax,
herein collectively referred to as the "EXCISE TAX"), then, within ten (10) days
after such determination or final determination, as the case may be, the Company
shall pay to Employee an additional cash payment (hereinafter referred to as the
"GROSS-UP PAYMENT") in an amount such that after payment by Employee 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), Employee 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 Employee in the same position as Employee would
have been had no Excise Tax been imposed upon or incurred as a result of any
Payment.
(ii) Except as provided in Section 5(j)(iii) 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 Employee ("EMPLOYEE'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 Employee's Accountant,
hereinafter, the "EMPLOYEE'S DETERMINATION"). Employee'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
11
<PAGE> 12
Company shall notify Employee within ten (10) business days after receipt of
Employee'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 Employee's Determination, and any agreement by the Company with Employee's
Determination shall obligate the Company to make payment as provided in Section
5(j)(i) above within ten (10) days from the expiration of such ten (10)
business-day period. In the event of an objection by the Company to Employee's
Determination, any amount not in dispute shall be paid within ten (10) days
following the ten (10) business-day period referred to herein, and with respect
to the amount in dispute Employee'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 Employee 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 ten (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(j) shall be borne solely by the Company.
(iii) (A) Employee 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 thirty (30) days after Employee 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 Employee
to give such notice within such 30-day period shall not result in a waiver or
forfeiture of any of Employee's rights under this Section 5 except to the extent
of actual damages suffered by the Company as a result of such failure. Employee
shall not pay such claim prior to the expiration of the 15-day period following
the date on which Employee 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
Employee 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 Employee its ability to make the payments to Employee that may ultimately be
required under this section before assuming responsibility for the claim),
Employee shall:
(w) give the Company any information reasonably
requested by the Company relating to such claim;
(x) 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 Employee;
(y) cooperate with the Company in good faith in
order effectively to contest such claim; and
(z) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company shall
bear and pay directly all attorneys
12
<PAGE> 13
fees, costs and expenses (including additional interest, penalties and additions
to tax) incurred in connection with such contest and shall indemnify and hold
harmless Employee, on an after-tax basis, for all 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 Employee'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 Employee to pay
the tax, interest or penalties claimed and sue for a refund or contest the claim
in any permissible manner, and Employee 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 Employee to pay such
claim and sue for a refund, the Company shall advance an amount equal to such
payment to Employee, on an interest-free basis, and shall indemnify and hold
harmless Employee, 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; provided, further, however, that any extension of the
statute of limitations relating to payment of taxes, interest, penalties or
additions to tax for the taxable year of Employee with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount; and, provided, further, however, that any settlement of any claim shall
be reasonably acceptable to Employee 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 Employee shall be entitled to settle or contest, as the
case may be, any other issue.
(B) If, after receipt by Employee of an amount
advanced by the Company pursuant to Section 5(j)(iii)(A), Employee receives any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of Section 5(j)) 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 Employee in connection with such advance, after giving
effect to such repayment. If, after the receipt by Employee of an amount
advanced by the Company pursuant to Section 5(j)(iii)(A), it is finally
determined that Employee 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.
(C) For purposes of this Section 5(j), whether the
Excise Tax is applicable to a Payment shall be deemed to be "finally determined"
upon the earliest of: (w) the expiration of the 15-day period referred to in
Section 5(j)(iii)(A) above if the Company has not notified Employee that it
intends to contest the underlying claim, (x) the expiration of any period
following which no right of appeal exists, (y) the date upon which a closing
agreement or similar agreement with respect to the claim is executed by Employee
and the Taxing Authority (which agreement may be executed only in compliance
with this Section 5(j)), and (z) the receipt by Employee of notice from the
Company that it no longer seeks to pursue a contest (which notice shall be
deemed received if the
13
<PAGE> 14
Company does not, within fifteen (15) days following receipt of a written
inquiry from Employee, affirmatively indicate in writing to Employee that the
Company intends to continue to pursue such contest).
(iv) 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(j)(ii) above and shall be paid to Employee as an additional
Gross-Up Payment. The Company shall be entitled to use procedures similar to
those available to Employee in Section 5(j)(ii) to determine the amount of any
Overpayment (provided that the Company shall bear all costs of the accountants
as provided in Section 5(j)(ii)). In the event of a determination that an
Overpayment was made, any such Overpayment shall be treated for all purposes as
a loan to Employee 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
Employee to the Company shall be subject to reduction to the extent necessary to
put Employee in the same after-tax position as if such Overpayment were never
made.
6. BUSINESS EXPENSES.
During the term of this Agreement, to the extent that such
expenditures satisfy the criteria for federal income tax purposes as ordinary
and necessary business expenses, whether or not fully deductible by the Company,
the Company shall reimburse Employee promptly for reasonable business
expenditures, including travel, entertainment, parking, business meetings, and
professional dues. In addition, whether or not such expenditures satisfy
criteria for federal income tax purposes for deductibility, the Company shall
reimburse Employee promptly for the costs of (or dues associated with)
maintaining club memberships approved by the Compensation Committee. All such
expenditures shall be made and substantiated in accordance with policies,
practices and procedures established from time to time by the Board and shall be
incurred in pursuit and furtherance of the Company's business and goodwill.
7. INDEMNITY.
To the fullest extent permitted by applicable law and the bylaws
of the Company as from time to time in effect, the Company shall indemnify
Employee and hold Employee harmless from and against any acts or decisions made
in good faith while performing services for the Company, and the Company shall
use its best efforts to obtain coverage for Employee (provided the same may be
obtained at reasonable cost) under any liability insurance policy or policies
now in force or hereafter obtained during the term of this Agreement that cover
other officers of the Company having comparable or lesser status and
responsibility. To the same extent, the Company will pay and, subject to any
legal limitations, advance all expenses, including reasonable attorneys' fees
and costs of court approved settlements, actually and necessarily incurred by
Employee in connection with the defense of any action, suit or proceeding and in
connection with any appeal thereon, which has been brought
14
<PAGE> 15
against Employee by reason of Employee's services as an officer, employee or
agent of the Company or of a subsidiary of the Company or performance by
Employee at the request of the Company.
8. REMEDIES FOR BREACH.
(a) Employee's Breach. If Employee materially breaches any of
the terms of this Agreement, in addition to any other remedies which it may
have, the Company may terminate Employee's employment and any further
participation in any of the Company's Benefit Plans and Award Plans in
accordance with employment policies of the Company as in effect from time to
time, and Employee shall forfeit any further compensation. Employer's exercise
of its right to terminate shall be without prejudice to any other right or
remedy to which it may be entitled at law, in equity or under this Agreement. In
addition, the provisions of this Agreement may be specifically enforced against
Employee if not performed according to their terms. Without limiting the
generality of the foregoing, the parties acknowledge that the Company would be
irreparably damaged and there would be no adequate remedy at law for Employee's
breach of Sections 3 and 9 hereof and, accordingly, Employee hereby consents to
the entry of any temporary order or preliminary or ex parte injunction, in
addition to any other remedies available at law or in equity, to enforce the
provisions thereof. This Section shall survive the termination of this
Agreement.
(b) Company's Breach. Employee agrees that the payments
expressly provided and contemplated by this Agreement shall constitute the sole
and exclusive obligation of Employer if Company breaches any provision of this
Agreement or terminates Employee's employment during the Employment Period for
any reason and that the payment thereof shall be the sole and exclusive remedy
for any termination of Employee's employment. Employee covenants not to assert
or pursue any other remedies, at law or in equity, with respect to any
termination of employment.
9. RECORDS AND NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to not make use of, divulge or otherwise
disclose, directly or indirectly, any trade secret or other confidential or
proprietary information concerning the business (including but not limited to
its products, employees, services, practices or policies) of the Company or any
of its affiliates of which Employee may learn or be aware as a result of
Employee's employment during the term of this Agreement, except to the extent
such use of disclosure is (i) necessary to the performance of this Agreement and
in furtherance of the Company's best interests, (ii) required by applicable law,
(iii) lawfully obtainable from other sources, or (iv) authorized in writing by
the Company.
(b) Employee, prior to and during the term of employment, has
had and will have access to and become acquainted with various trade secrets,
consisting of software, plans, customer lists, contracts, and compilations of
information, records and specifications, that are owned by the Company and
regularly used in the operation of its businesses and that may give the Company
an opportunity to obtain an advantage over competitors who do not know or use
such trade secrets. Employee agrees and acknowledges that Employee has been
granted access to these valuable trade secrets only by virtue of the
confidential relationship created by Employee's employment. Employee shall not
disclose any of the aforesaid trade secrets, directly or indirectly, or use them
in any way,
15
<PAGE> 16
either during the term of this Agreement or at any time thereafter, except as
required in the course of employment by the Company and for its benefit.
(c) All records, files, documents, software, equipment, and
similar items relating to the business of the Company or its affiliates,
including without limitation all records relating to customers (the
"DOCUMENTS"), whether prepared by Employee or otherwise coming into Employee's
possession, shall remain the exclusive property of the Company or such
affiliates. Upon termination of employment, Employee agrees to promptly deliver
to the Company all Documents in the possession or under the control of Employee.
(d) Employee agrees to comply with and be bound by the Company's
Policy on Securities Trading and Disclosure of Confidential Information
incorporated herein by this reference as if set forth in full.
(e) The agreements set forth in this Section 9 shall survive the
expiration of the Employment Period and any termination of this Agreement.
10. MISCELLANEOUS.
(a) Succession; Survival.
This Agreement shall inure to the benefit of and shall be
binding upon the Company, its successors and assigns, but without the prior
written consent of Employee this Agreement may not be assigned other than in
connection with a merger or sale of substantially all the assets of the Company
or a similar transaction in which the successor or assignee assumes (whether by
operation of law or express assumption) all obligations of the Company hereunder
including without limitation those in Section 4 hereof in respect of such
successor or assignee. The obligations and duties of Employee hereunder are
personal and otherwise not assignable. The Company shall require any successor
of the Company that shall acquire, directly or indirectly, by merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Company, by an agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent as the Company would be to perform if no such succession had
taken place. Employee's obligations and representations under this Agreement
will survive the termination of Employee's employment, regardless of the manner
of such termination.
(b) Notices.
Any notice or other communication provided for in this Agreement
shall be in writing and sent, if to the Company, to its principal office at:
4220 Von Karman, 2nd Floor
Newport Beach, CA 92660-2002
Attention: Chairman of the Compensation
Committee of the Board of Directors
or at such other address as the Company may from time to time in writing
designate, and if to Employee, at such address as Employee may from time to time
in writing designate (or Employee's
16
<PAGE> 17
business address of record in the absence of such designation). Each such notice
or other communication shall be effective (i) if given by telecommunication,
when transmitted to the applicable number so specified in (or pursuant to) this
Section 10(b) and an appropriate answer back is received; (ii) if given by mail,
three (3) days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid; or (iii) if given by any other
means, when actually delivered at such address.
(c) Entire Agreement; Amendments.
This Agreement taken together with the current provisions of
each of the Company's Benefit Plans, including, without limitation, the Exchange
Agreement between the Company and Employee effective as of April 15, 1995 and
the Restricted Stock Award Agreement between the Company and Employee effective
as of April 15, 1995, and each of the Company's Award Plans contain the entire
agreement of the parties relating to the subject matter hereof and supersede any
prior agreements, undertakings, commitments and practices relating to Employee's
employment by the Company. No amendment or modification of the terms of this
Agreement shall be valid unless made in writing and signed by Employee and, on
behalf of the Company, by an officer expressly so authorized by the Board.
(d) Waiver.
No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof or of any other
right, nor shall any single or partial exercise preclude any further or other
exercise of such right or any other right.
(e) Choice of Law; Construction.
This Agreement, the legal relations between the parties and any
action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, the relationship of the parties or the subject matter
hereof shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines, to the extent permitted by law.
The headings and subheadings of the sections and subsections of this Agreement
are for reference purposes only and shall not affect in any way the meaning,
construction or interpretation of the terms of this Agreement. 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.
(f) Arbitration.
Any dispute, controversy or claim arising out of or in respect
of this Agreement (or its validity, interpretation or enforcement.), the
employment relationship or the subject matter hereof shall at the request of
either party be submitted to and settled by arbitration conducted before a
single arbitrator in Newport Beach, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
be governed by the Federal Arbitration Act (9 U.S.C. Sections 1-16). The
arbitration of such issues, including the determination of any amount of damages
suffered, shall be final and binding upon the parties to the maximum extent
permitted by law. The
17
<PAGE> 18
arbitrator in such action shall not be authorized to change or modify any
provision of this Agreement. Judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. The arbitrator shall
award reasonable expenses (including reimbursement of the assigned arbitration
costs) to the prevailing party upon application therefor.
(g) Place of Employment.
The principal place of employment and the location of Employee's
principal office shall be in Orange County, California or such other place
within a reasonable commuting distance therefrom as shall be mutually agreed
upon by Employee and the Company; provided, however, that Employee will be
expected to engage in periodic travel within and outside the State of California
as the Company may reasonably request or as may be required for the proper
rendition of services hereunder.
(h) Severability.
If this Agreement shall for any reason be or become
unenforceable in any material respect by any party, this Agreement shall
thereupon terminate and become unenforceable by the other party as well. In all
other respects, if any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in full
force and effect and such invalid or unenforceable provisions shall be limited
or modified (consistent with its general intent) to the extent necessary so that
it shall be valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained herein,
and the parties will use their best efforts to substitute a valid, legal and
enforceable provision that, insofar as practicable, implements the purpose and
intent of the provision or part of such provision originally contained herein.
If any provision is held invalid or unenforceable with respect to particular
circumstances it shall nevertheless remain in full force and effect in all other
circumstances, to the fullest extent permitted by law.
(i) Withholding; Deductions.
All compensation payable hereunder, including salary and other
benefits, shall be subject to applicable taxes, withholding and other required,
normal or elected employee deductions.
(j) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Employment Agreement as the date first above written.
18
<PAGE> 19
THE "COMPANY"
PACIFIC GULF PROPERTIES INC.
By______________________________________
Its_____________________________________
"EMPLOYEE"
________________________________________
Glenn L. Carpenter
19
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0
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