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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 1-12546
PACIFIC GULF PROPERTIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MARYLAND 33-0577520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4220 VON KARMAN, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 223-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF SECURITY NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $0.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 17, 2000 was approximately $416,972,000.
On March 17, 2000, the registrant had 20,656,121 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders of
Pacific Gulf Properties Inc. to be held on May 11, 2000 are incorporated by
reference into Part III of this report.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Financial and Operating Data....................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 27
PART III
Item 10. Directors and Management.................................... 28
Item 11. Executive Compensation...................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13. Certain Relationships and Related Transactions.............. 28
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on form
8-K......................................................... 28
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Pacific Gulf Properties Inc.
(together with its consolidated operating partnerships, PGP Inland Communities,
L.P., Pacific Inland Communities, L.L.C., Terrace Gardens PGP L.P., Morning View
Terrace PGP L.P., PGP Northern Industrial L.P., PGP Southern Industrial II, L.P.
and PGP Von Karman Properties, collectively the "Company") intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "prospects" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company on
a consolidated basis include, but are not limited to: changes in economic
conditions generally and the real estate market specifically, legislative/
regulatory changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
industrial and multifamily properties in the Company's current and proposed
market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included herein and in the Company's other filings with
the Securities and Exchange Commission.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Pacific Gulf Properties Inc. operates as a self-administered and
self-managed equity real estate investment trust (a "REIT") which owns,
operates, leases, acquires, rehabilitates and develops primarily light
industrial and business park properties ("Industrial Properties") in the Western
United States. In addition to its Industrial Properties, the Company owns,
operates, acquires and develops rental housing for active seniors age 55 and
older, focusing mainly in California. The Company also owns and operates
family-style apartment communities.
As of December 31, 1999, the Company owned a portfolio of 74 industrial
properties, including five properties under development and rehabilitation,
containing an aggregate of 15.6 million leasable square feet, one of which is
being rehabilitated containing approximately 118,000 leasable square feet and
four which are being developed that will contain approximately 709,000 leasable
square feet (the "Industrial Properties"). As of December 31, 1999, the
Industrial Properties experienced a combined occupancy rate of 96%.
As of December 31, 1999, the Company also owned a portfolio of 18
multifamily properties (the "Multifamily Properties") containing 3,069 units. Of
these units, 1,438 units in eight properties are active senior rental apartment
communities (the "Active Senior" properties). The remaining 10 properties are
family-style apartment communities which the Company continues to operate. The
Company is negotiating contracts with listing brokers for the sale of the
remaining family-style apartment communities. At year end 1999, occupancy rates
at the Active Senior properties and the remaining family-style apartment
communities were 94% and 96%, respectively.
The Company was incorporated in August 1993 in the State of Maryland and
completed its initial public offering on February 18, 1994 (the "Offering").
Prior to February 18, 1994, the Company was a wholly-owned subsidiary of Santa
Anita Realty Enterprises, Inc. ("Realty"). Its executive offices are located at
4220 Von Karman Drive, Newport Beach, California 92660.
BUSINESS STRATEGY
The Company's primary objective is to seek investment opportunities in the
industrial and active senior apartment segments of the real estate industry
which may be either upgraded by capital improvements and intensive management;
developed, and or acquired at or below replacement cost. The Company strives to
maximize the growth potential of its portfolio to obtain the highest level of
funds from operations while increasing the value of its real estate holdings for
the overall benefit and profit of its shareholders.
INDUSTRIAL PROPERTIES
The Company focuses on multi tenant business parks and mid-size
warehouse/distribution facilities. It specializes in serving small to mid-size
industrial tenants ranging from 1,000 to 100,000 square feet of space. The
average tenant of the Company's Industrial Properties leases approximately 6,500
square feet of space. Over 2,300 tenants currently occupy the Industrial
Properties and no one tenant accounts for more than 1% of the Company's total
revenue.
Management believes that its properties are located in strong markets and
intends to continue to focus its activities in the Western United States. The
Company believes these regions possess diverse and vibrant economies with good
prospects for continued economic growth due to their Pacific Rim location,
quality of life, well developed transportation infrastructures, high technology
industries, well-educated employee base and excellent universities. Within these
regions, the Company focuses on sub-markets within the major metropolitan areas
of Orange County, San Bernardino/Riverside Counties, Sacramento, the East Bay
area of Northern California, Los Angeles, San Diego, Seattle, Phoenix and Las
Vegas.
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In each specific local submarket in which it operates, the Company
generally seeks to own a number of properties and to be a significant commercial
landlord in that market for the Company's product type. Through this approach,
the Company can offer prospective tenants a variety of property options and can
provide existing tenants, who are growing, additional space in properties owned
by the Company in the same area. The Company believes that this strategy gives
it a measure of control over the rental rates it charges for its properties. The
Company also believes that it has achieved significant market penetration within
a number of submarkets in which it operates. Such market focus enables the
Company to maximize synergistic opportunities and economies of scale and allows
management to concentrate its expertise on specific markets and local
conditions.
The Company manages all of its existing Industrial Properties in
California, Nevada and the Pacific Northwest using its network of eight regional
offices, each of which is headed by a Regional Manager who reports directly to
the Senior Vice President of Industrial Operations. The Company offers
industrial leases in the one- to five-year range. Lease terms include, in most
cases, annual adjustments based on changes in the consumer price index. The
standard lease also includes some refurbishing and tenant improvement allowance
with the amount varying depending upon the length of the lease, the size of the
space leased and the use. The Company will seek tenants primarily involved in
warehouse, distribution, assembly and light manufacturing activities. Standard
lease terms include a stipulated due date for rent payment, late charges
(typically with no grace period), no offset or withholding provisions, security
deposit clause, as well as many other provisions considered favorable to the
landlord.
MULTIFAMILY PROPERTIES
In 1998, the Company began to execute its strategy to exit the family-style
apartment segment of the multifamily market and to focus only on industrial and
active senior apartment properties. The Company exited out of the Pacific
Northwest market when it sold its portfolio of five family-style apartment
communities containing 1,322 units in Washington state in December of 1998 and
subsequently used the proceeds to purchase seven industrial properties
encompassing approximately 1.3 million square feet in various western markets.
As a continuation of its strategy, in February of 1999, the Company sold a 196
unit family-style apartment community in Orange County, California and used the
proceeds to repay a portion of its line of credit.
After the above-referenced sales, the Company continues to own a portfolio
of 10 family-style apartments consisting of 1,631 units all located in Southern
California. The Company is negotiating contracts with listing brokers to sell
all of these properties. There can be no assurance that the Company will
actually dispose of such properties, nor can there be any assurance as to the
timing of any such dispositions. Any such decision by the Company will be
subject to numerous factors, including prices offered for the Company's
family-style apartment communities and the availability of suitable alternate
investment for the proceeds of such dispositions.
The Company intends to focus on active senior housing for individuals ages
55 and older, where seniors can be involved in activities, social gatherings and
other types of entertainment with residents of their own age group. The Company
offers no assisted living or related services. The Company's properties are
oriented to those seniors interested in renting versus owning and who are able
to care for themselves. The Company believes that the senior population will
continue to grow and that the market for rental housing for active seniors will
be strong. In addition, management believes that active senior housing typically
has lower operating and management costs due to lower tenant turnover and
maintenance cost. The Company is focusing its active senior activities primarily
in the California marketplace.
The Company currently manages all of its Multifamily Properties in each of
its regions. Each of the regions is managed by a Regional Manager who reports
directly to the Senior Vice President of Operations -- Apartments. Within each
region, each of the Multifamily Properties is operated by a staff of
approximately six to seven individuals (three to four at the Active Senior
communities), including a manager, assistant manager and/or leasing agents, and
a maintenance and apartment preparation staff. The Company locates prospective
tenants for its Multifamily Properties primarily by advertising in magazines
listing available rentals and by
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using firms that assist tenants in locating apartments. The Company also does
magazine and direct mail advertising. Policies and procedures utilized at the
property sites, including procedures concerning lease contracts, on-site
marketing, credit collection standards and eviction standards, follow
established federal and state laws.
Individual property lease programs are structured to respond to local
market conditions. The Company attempts to balance rent increases with high
occupancy and low turnover. None of the Multifamily Properties are currently
subject to rent control or rent stabilization regulations. However, certain of
these properties are subject to restrictions based on tax-exempt loan
requirements. Standard lease terms stipulate due dates for rent payments, late
charges, no offset or withholding provisions, security deposits and damage
reimbursement clauses, as well as many other provisions considered favorable to
the property owner. Nonpayment of rent is generally handled at the properties
within 15 days from the beginning of the month, with either commencement of
collection or eviction proceedings occurring within that time period.
REHABILITATION PROGRAM
As part of its acquisition program, the Company seeks properties whose
financial performance can be enhanced through physical renovation and
rehabilitation. The Company also periodically renovates and rehabilitates the
properties it already owns. Rehabilitation activity generally involves updating
older properties to conform to current market standards and may include the
installation of additional loading facilities, sprinkler upgrades, mezzanine
level upgrades, parking lot upgrades and cosmetic rehabilitation of the
property. The Company capitalizes on senior management's experience with
renovation and rehabilitation projects, as well as third party expertise, to
expedite the renovation and rehabilitation process.
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1999 DEVELOPMENTS
PROPERTY ACQUISITION ACTIVITY
During 1999, the Company acquired approximately $11.5 million of industrial
operating properties. The Company also acquired $4.7 million and $9.0 million of
industrial development and rehabilitation and active senior apartment
development properties, respectively. The following table sets forth information
regarding these properties.
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NET RENTABLE
SQUARE TOTAL
DATE FOOTAGE/ ACQUISITION ESTIMATED INITIAL
PROPERTY NAME LOCATION ACQUIRED UNITS COST COST(1) OCCUPANCY(2)
------------- ----------------- -------- ------------ ----------- --------- ------------
(000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Operating Properties
PGDC -- Las Vegas........ Las Vegas, NV November 79,274 $ 3,525 $ 3,645 82%
Broadwood Business
Center................. Mesa, AZ November 156,197 7,950 7,960 94%
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235,471 11,475 11,605
Development and
Rehabilitation Properties
PGBP -- Renton........... Renton, WA December 107,000 1,553 6,715 n/a
PGBP -- Geneva........... Tempe, AZ August 117,792 3,108 5,600 n/a
------- ------- -------
224,792 4,661 12,315
MULTIFAMILY -- ACTIVE
SENIORS
Development Properties
The Fountains............ Anaheim Hills, CA March 259 5,461 23,878 n/a
The Fountains............ Temecula, CA August 244 2,390 16,098 n/a
The Fountains............ Sacramento, CA December 166 1,141 10,191 n/a
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669 8,992 50,167
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Total
Acquisitions.... $25,128 $74,087
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(1) Total capitalized acquisition cost, including closing and anticipated
development or rehabilitation costs.
(2) Occupancy is reported as of closing date of acquisition.
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PROPERTY DISPOSITION ACTIVITY
During 1999, the Company disposed of approximately $15.7 million of
industrial properties and $7.6 million of multifamily properties. The following
table sets forth information regarding these properties and does not include a
deferred gain of $.9 million related to collection of a note receivable.
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ACRES/
SQUARE FOOTAGE/ MONTH OF SALES COST OF GAIN ON
PROPERTY NAME LOCATION UNITS DISPOSITION PRICE SALE SALE
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(000'S) (000'S) (000'S)
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INDUSTRIAL
Pacific Gulf Spectrum Center(1).... Lake Forest, CA 1.05 April $ 850 $ 850 $ --
PGDC -- Anaheim.................... Anaheim, CA 91,200 June 4,680 3,521 1,159
Seattle Industrial 8th Avenue...... Seattle, WA 42,240 August 1,900 1,408 492
Goldenwest -- Etiwanda(2).......... Ontario, CA 302,020 October 11,160 8,646 2,514
Contra Costa Diablo(2)............. Concord, CA 16,848 December 1,400 1,294 106
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MULTIFAMILY 19,990 15,719 4,271
Park Place Apartments.............. Santa Ana, CA 196 February 11,000 7,649 3,351
------- ------- ------
Total Dispositions........ $30,990 $23,368 $7,622
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(1) Sale of excess acreage at development site.
(2) Sale of single building in a multi-building project.
COMPLETION OF INDUSTRIAL PROPERTY REHABILITATION
During 1999, the Company completed rehabilitation on a 382,000 square foot
warehouse in San Diego, California. The total rehabilitation cost for the
property was $2.6 million. The project is 100% occupied at December 31, 1999.
During 1999, the Company also completed development of a 209,000 square
foot industrial park in Lake Forest, California for a cost of $11.8 million,
excluding land costs of $3.6 million. The property is 97% occupied at December
31, 1999.
FINANCING ACTIVITY
The Company has a $150.0 million unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%.
In 1997, the Company established a pool agreement with the Federal National
Mortgage Associations ("FNMA") to provide 30-year credit enhancement on the
Company's tax-exempt projects. In 1999, the Company replaced the existing credit
enhancement which was maturing with FNMA to finance Tyler Springs senior
apartment community in Riverside, California. The $9.0 million in bonds secured
by Tyler Springs have a variable interest rate, after giving effect to credit
enhancement and other costs, of 5.04% as of December 31, 1999.
In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9.4 million as substitution collateral. The Company replaced the
letter of credit by providing its City of Industry industrial project as
replacement collateral in May 1999.
In February 1999, the Company borrowed $9.0 million at an interest rate of
LIBOR + 1.375% for a term of one year. The proceeds of this loan were used to
repay $9.0 million of indebtedness under the Company's Line of Credit. The loan
is secured by a 359,000 square foot industrial property acquired in June 1998.
In November 1999, the Company borrowed $6.5 million at an interest rate of
LIBOR + 1.65% for a term of one year. The proceeds of this loan were used to
acquire a 156,000 square foot industrial property located in Mesa, Arizona. The
loan is secured by this property.
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INDEBTEDNESS
The following table presents information on indebtedness encumbering the
Industrial and Multifamily Properties, excluding borrowings outstanding under
the Company's Line of Credit, as of December 31, 1999:
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OUTSTANDING
BALANCE MATURITY
PROPERTY (IN 000'S) DATE INTEREST RATE
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<S> <C> <C> <C>
INDUSTRIAL
Baldwin Industrial Park.................................. $ 11,270 October 2005 8.150%
PGBP -- Tukwila.......................................... 11,004 December 2002 Libor + 1.5%(d)
Vista Distribution Center(a)............................. 7,789 October 2010 8.000%
PGBP -- Rancho Cucamonga(a).............................. 3,795 October 2010 8.000%
Garden Grove Industrial Center(a)........................ 5,293 October 2010 8.000%
Horn Road Business Park.................................. 2,725 February 2006 7.950%
Various(b)............................................... 33,973 October 2007 7.110%
Eden Plaza/Eden Industrial............................... 11,639 December 2002 7.050%
PGDC -- Bell Ranch Road(c)............................... 2,475 December 2012 7.750%
PGBP -- Pacific Park(c).................................. 4,425 December 2012 7.750%
PGBP -- North County(c).................................. 4,125 December 2012 7.750%
PGBP -- Bay San Marcos(c)................................ 2,700 December 2012 7.750%
PGBC -- Escondido(c)..................................... 6,300 December 2012 7.750%
PGBP -- Riverview Industrial Park(c)..................... 4,475 December 2012 7.750%
PGDC -- Miramar Village(e)............................... 10,974 October 2001 Libor + 1.375%
PGDC -- Algona 2(f)...................................... 4,625 October 2001 Libor + 1.375%
PGDC -- City of Industry................................. 7,406 April 2006 7.300%
PGDC -- Las Vegas........................................ 4,365 January 2004 8.380%
PGDC -- Garden Grove II.................................. 2,259 June 2011 8.000%
PGBP -- Lake Forest(j)................................... 10,027 March 2000 Libor + 1.5%
Pacific Gulf Spectrum Center(k).......................... 14,599 August 2000 Libor + 1.3%
PGBC -- Tustin(n)........................................ 9,000 February 2000 Libor + 1.375%
Broadwood Business Center................................ 6,500 November 2000 Libor + 1.65%
PGDC -- Whittier(l)...................................... 7,587 September 2001 Libor + 1.525%
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Total Industrial.................................. $189,330
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MULTIFAMILY
Inn at Laguna Hills...................................... 4,556 August 2024 7.250%
Daisy V.................................................. 1,253 September 2025 7.466%(g)
Daisy VII................................................ 10,028 August 2000 6.780%
Daisy XII................................................ 3,570 September 2025 7.466%(g)
Daisy XVI................................................ 11,305 August 2000 6.780%
Daisy XVII............................................... 6,542 August 2000 6.780%
Lariat................................................... 1,155 September 2025 7.466%(g)
Daisy XIX(h)............................................. 6,444 December 2026 6.300%
Daisy XX(h).............................................. 7,396 December 2026 6.300%
Sunnyside I(h)........................................... 5,453 December 2026 6.300%
Sunnyside II(h).......................................... 1,760 December 2026 6.300%
Sunnyside III(h)......................................... 2,847 December 2026 6.300%
Raintree(h).............................................. 6,695 January 2026 6.400%
Tyler Springs(h)......................................... 8,981 January 2027 5.040%(i)
Terrace Gardens(h)....................................... 7,837 January 2026 6.385%
Morning View Terrace(h).................................. 10,644 January 2026 6.375%
The Fountains at Rancho Santa Margarita(h)............... 6,277 December 2026 6.400%
The Fountains at Anaheim Hills(m)........................ 2,620 September 2001 Libor + 1.525%
--------
Total Multifamily................................. 105,363
--------
TOTAL............................................. $294,693
========
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(a) Vista Distribution Center, PGBP -- Rancho Cucamonga and Garden Grove
Industrial Center jointly collateralize the $16,900,000 note payable.
(b) PGDC -- Fontana, PGDC -- Chino, Pacific Gulf Warm Springs Industrial,
PGDC -- Downey and PGDC -- Rancho Bernardo jointly collateralize the
$34,000,000 note payable.
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(c) PGDC -- Bell Ranch Road, PGBP -- Pacific Park, PGBP -- North County,
PGBP -- Bay San Marcos, PGBC -- Escondido and PGBP -- Riverview Industrial
Park jointly collateralize the $24,500,000 note payable.
(d) The Company entered into an interest rate swap agreement that fixed the
interest rate on $11,500,000 of the principal balance at 7.35% for five
years commencing July 1, 1996.
(e) Construction loan relating to rehabilitation of PGDC -- Miramar Village.
The maximum loan amount under the agreement was modified to $13,930,000.
The current interest rate at December 31, 1999 is 7.88%.
(f) Construction loan relating to rehabilitation of PGDC -- Algona 2. The
maximum loan amount under the agreement was modified to $4,625,000. The
current interest rate at December 31, 1999 is 7.25%.
(g) Interest rate is subject to periodic adjustments beginning March 10, 1996
based on the monthly weighted average 11th District Cost of Funds plus
2.8%.
(h) These tax-exempt mortgage loans are financed using tax-exempt bond
financing supported by credit enhancement from FNMA. The collateral
properties, which also include Applewood, not listed above, are subject to
restrictions requiring that a specified percentage of the apartment units
in such properties be made available to persons with lower and moderate
income. As of December 31, 1999, 349 apartment units, or 11% of the total
apartments owned, were required to have been made available to persons
with lower or moderate income pursuant to these requirements, and the
Company has complied with such requirements. In addition, state and local
authorities in some cases impose certain restrictions on the amount of
rent that can be charged.
(i) Interest rate is subject to periodic adjustments based on the pass through
interest rate in addition to a set rate interest component.
(j) Represents construction loan relating to development and construction of
the PGBP -- Lake Forest project with a maximum loan amount of $10,500,000.
The current interest rate at December 31, 1999 is 8.00%. An option to
extend the loan for one year was exercised in March of 2000.
(k) Represents construction loan relating to development and construction of
the Pacific Gulf Spectrum Center with a maximum loan amount of
$16,800,000. The current interest rate at December 31, 1999 is 7.80%.
(l) Construction loan relating to the development and construction of the
PGDC -- Whittier project with a maximum loan amount of $10,250,000. The
current interest rate at December 31, 1999 is 8.03%.
(m) Construction loan relating to the development and construction of the
Fountains at Anaheim Hills senior apartments with a maximum loan amount of
$16,350,000. The current interest rate at December 31, 1999 is 8.03%.
(n) In February 2000, this loan was extended to February 2001.
CORPORATE OFFICES AND EMPLOYEES
The Corporate offices are located in Newport Beach, California in
approximately 16,000 square feet of a 26,000 square foot office building, which
is owned by the Company. At December 31, 1999, the Company employed
approximately 166 persons, of which 116 were onsite or property related and 50
were corporate office employees.
COMPETITIVE AND OTHER CONDITIONS
Competition. Within its geographic areas of operation, the Company is
subject to competition from a variety of investors, including insurance
companies, pension funds, corporate and individual real estate developers and
investors and other REITs with investment objectives similar to those of the
Company. Some of these competitors have more substantial financial resources and
longer operating histories than the Company. As an owner of industrial and
apartment real estate properties, the Company competes with other owners of
similar properties in connection with their financing, sale, lease or other
disposition and use.
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While the Company has not experienced material competitive pressures
confined to specific geographic regions, it is possible that material adverse
changes in regional economies or in the operations of major regional employers
(such as Boeing in the Pacific Northwest) could have a material adverse effect
on the ability of the Company to lease its properties and on the rents charged.
Conversely, if any of the regional geographic areas in which the Company owns
properties experiences economic growth, the Company is likely to experience
increased competition for acquisition and development projects, thereby
increasing the Company's costs of acquisition and development and potentially
reducing the Company's returns therefrom.
Insurance. The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance with respect to its Industrial, Active Senior
and Multifamily Properties, with policy specifications, insured limits and
deductibles customarily carried for similar properties which the Company
believes are adequate and appropriate under the circumstances. These are certain
types of losses, such as those arising from acts of war, which are not generally
insured because they are either uninsurable or not economically insurable.
Currently the Company carries earthquake disaster insurance on its California
properties, which comprise 89% of the Company's total portfolio (as a percentage
of total revenues); however, such insurance is also subject to deductible
amounts that must be paid by the Company in the event of such an occurrence, and
may not be available in the future or may only be available at rates that, in
the opinion of the Company, are prohibitive. In the event that an uninsured
disaster or a loss in excess of insured limits should occur, the Company could
suffer a substantial loss, including loss of anticipated future revenues, while
remaining obligated on related mortgage indebtedness. The Company believes its
properties were constructed in compliance with applicable construction standards
in effect at the time of construction. The Company obtained customary title
insurance insuring fee title to its properties upon their acquisition.
ITEM 2. PROPERTIES
The following table presents information on the composition of the
Company's operating properties based on the percentage of rental revenue at
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
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NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
OF RENTAL OF RENTAL
PROPERTIES REVENUE PROPERTIES REVENUE
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
PROPERTY TYPE
Industrial................................. 69 79% 68 67%
Active Senior.............................. 8 10 8 9
Family..................................... 10 11 11 24
-- --- -- ---
Total.............................. 87 100% 87 100%
== === == ===
GEOGRAPHIC LOCATION
California................................. 77 89% 77 82%
Pacific Northwest.......................... 6 8 7 16
Southwest.................................. 4 3 3 2
-- --- -- ---
Total.............................. 87 100% 87 100%
== === == ===
</TABLE>
10
<PAGE> 11
The tables below set forth certain information relating to the Company's
operating Industrial and Multifamily Properties by location and type as of
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER PERCENT OF
OF LEASABLE INDUSTRIAL GROSS
PROPERTIES SQUARE FEET RENTAL REVENUE(1) OCCUPANCY
---------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
INDUSTRIAL
California Inland Empire(2)............ 7 1,827,194 8% 95%
San Diego........................... 7 1,585,285 11 99
Orange County....................... 23 3,882,717 30 95
Los Angeles......................... 5 1,507,120 8 100
Northern California................. 17 3,709,506 29 96
Pacific Northwest(4)................... 6 1,313,642 9 100
Southwest(3)........................... 4 858,271 5 95
-- ---------- --- ---
Total or Weighted Average...... 69 14,683,735 100% 96%
== ========== === ===
MULTIFAMILY
California
Inland Empire(2)(5)................. 13 1,806 58% 95%
Orange County(5).................... 3 712 26 96
San Diego(5)........................ 2 551 16 96
-- ---------- --- ---
Total or Weighted Average...... 18 3,069 100% 95%
== ========== === ===
</TABLE>
- ---------------
(1) Based on rental revenues for the fourth quarter of 1999.
(2) Includes the eastern portion of Los Angeles County adjacent to the
Riverside-San Bernardino metropolitan statistical area.
(3) Includes Nevada and Arizona.
(4) Includes Washington and Oregon.
(5) Includes Active Senior properties.
INDUSTRIAL PROPERTIES
The following table presents information concerning the Industrial
Operating Properties, including the actual average rent per square foot and
percentage of the leasable square footage occupied by tenants, as of December
31, 1999:
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
---------- -------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
INLAND EMPIRE
PGBP -- Rancho
Cucamonga................ Rancho Cucamonga, CA 1990 296,821 $0.45 96%
PGDC -- Etiwanda........... Ontario, CA 1991 274,307 0.50 100%
Crescent Business Center... Rancho Cucamonga, CA 1981 136,066 0.45 94%
PGBP -- Riverview
Industrial Park.......... San Bernardino, CA 1980 297,180 0.32 76%
PGDC -- Chino.............. Chino, CA 1988 302,166 0.31 100%
PGDC -- Fontana............ Fontana, CA 1988 380,634 0.31 100%
Mountain Avenue Business
Park..................... Upland, CA 1977 140,020 0.44 95%
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
---------- -------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
SAN DIEGO, CA
Vista Distribution
Center................... Vista, CA 1990 356,800 $0.48 100%
PGBP -- Bay San Marcos..... San Marcos, CA 1988 121,768 0.53 100%
PGBC -- Escondido.......... Escondido, CA 1988 - 92 251,464 0.62 97%
PGBP -- San Marcos......... San Marcos, CA 1985 72,050 0.52 95%
PGBP -- Miramar(1)......... San Diego, CA 1981 186,022 0.79 100%
PGDC -- Rancho Bernardo.... Rancho Bernardo, CA 1990 215,502 0.56 100%
PGDC -- Miramar Village.... San Diego, CA 1981, 1999 381,679 0.50 100%
ORANGE COUNTY, CA
Garden Grove Industrial
Center................... Garden Grove, CA 1979 252,184 0.48 100%
PGBP -- Hoover............. Garden Grove, CA 1986 189,526 0.71 96%
PGBP -- Pacific Park....... Aliso Viejo, CA 1988 99,622 1.08 98%
PGBP -- North County....... Yorba Linda, CA 1987 - 89 105,516 0.62 95%
Harbor Business Park....... Santa Ana, CA 1974 - 76 193,136 0.66 93%
Harbor Warner Business
Park..................... Santa Ana, CA 1974 - 76 127,836 0.69 90%
PGBP -- Lake Forest........ Lake Forest, CA 1999 208,584 0.70 97%
PG Commerce Park --
Anaheim.................. Anaheim, CA 1972 145,745 0.66 83%
Acacia Business Center..... Fullerton, CA 1980 202,551 0.42 100%
PGDC -- Anaheim............ Anaheim, CA 1961 129,426 0.41 100%
Tower Park................. Anaheim, CA 1986, 1998 245,192 0.44 78%
PGBC -- Fullerton.......... Fullerton, CA 1977 110,900 0.57 94%
PGBP -- Irvine(1).......... Irvine, CA 1979 170,305 0.86 96%
PGBP -- Cerritos(1)........ Anaheim, CA 1985 213,755 0.55 98%
PGBP -- Los Alamitos....... Los Alamitos, CA 1975 124,924 0.75 92%
PGBC -- Garden Grove II.... Garden Grove, CA 1973 208,200 0.62 98%
PGBC -- Irvine
Cartwright............... Irvine, CA 1979 129,015 0.73 100%
PGBC -- Tustin(1).......... Tustin, CA 1974 - 76 358,807 0.77 95%
Garden Grove Industrial
Hunt Avenue(3)........... Garden Grove, CA 1979 168,390 0.48 100%
LOS ANGELES, CA
Baldwin Industrial Park.... Baldwin Park, CA 1986 567,605 0.39 100%
PGDC -- Bell Ranch Road.... Santa Fe Springs, CA 1981 128,640 0.38 100%
PGDC -- City of Industry... City of Industry, CA 1973 - 77, 1998 382,245 0.34 100%
PGDC -- Downey............. Downey, CA 1988 289,294 0.37 100%
PGBP -- La Mirada.......... La Mirada, CA 1975 82,010 0.64 82%
PGBP -- Montebello......... Montebello, CA 1985 143,391 0.41 100%
Lurline Industrial Park.... Chatsworth, CA 1976 - 78 124,585 0.62 97%
Walnut Avenue Business
Park..................... Signal Hill, CA 1990 74,453 0.70 100%
PGDC -- Whittier........... Whittier, CA 1959, 1998 214,000 0.40 100%
NORTHERN CALIFORNIA
PG -- Commerce Park -- Eden
Landing.................. Hayward, CA 1972 - 74 193,358 0.80 92%
Woodland Distribution
Center................... Woodland, CA 1986 570,000 0.19 100%
PG Warm Springs Industrial
Park..................... Fremont, CA 1980, 1987 344,416 0.46 100%
Concord Business Park...... Concord, CA 1989 141,792 0.67 89%
PG -- Commerce Park --
Sacramento............... Sacramento, CA 1973 269,146 0.81 87%
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
GROSS AVERAGE
LEASABLE MONTHLY
DATE SQUARE BASE RENT
INDUSTRIAL LOCATION COMPLETED FOOTAGE PER SQ. FT. OCCUPANCY
---------- -------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
PG -- Commerce Park -- San
Tomas.................... Santa Clara, CA 1972 188,777 1.49 97%
PG -- Commerce Park --
Sunnyvale................ Sunnyvale, CA 1972 129,513 1.48 96%
Bradshaw Business Center... Sacramento, CA 1988 114,473 0.84 90%
Horn Road Business Park.... Sacramento, CA 1988 221,300 0.46 97%
Norwood Industrial Park.... Sacramento, CA 1988 168,292 0.34 97%
Madison West Business
Park..................... North Highlands, CA 1987 - 88 147,089 0.64 88%
Contra Costa Diablo
Business Park............ Concord, CA 1980, 1984 129,478 0.68 78%
Sierra Trinity Industrial
Park..................... Dublin, CA 1985 223,371 1.31 93%
Hesperian Industrial
Park..................... Hayward, CA 1981 - 86 152,962 0.58 98%
West Sacramento Industrial
Center................... Sacramento, CA 1981 214,900 0.32 100%
PGBP -- Eden Plaza(2)...... Hayward, CA 1974 101,084 0.99 100%
PG Eden Industrial(2)...... Hayward, CA 1973 399,555 0.37 100%
PACIFIC NORTHWEST
Seattle Industrial -- 16th
Avenue................... Seattle, WA 1981 64,077 0.63 100%
Seattle Industrial -- South
200th.................... Seattle, WA 1981 78,720 0.59 100%
PGBP -- Tukwila............ Tukwila, WA 1975 - 79 475,629 0.79 99%
PGDC -- Algona............. Algona, WA 1989 200,401 0.35 100%
PGDC -- Algona 2........... Algona, WA 1988 266,305 0.32 100%
PGBP -- Airport Business
Center................... Portland, OR 1979 - 86 228,510 0.45 99%
SOUTHWEST
Hohokam 10 Industrial Park
East..................... Phoenix, AZ 1980 256,920 0.68 100%
Hohokam 10 Industrial Park
West..................... Tempe, AZ 1980 65,880 0.59 100%
Broadwood Business
Center................... Mesa, AZ 1986 156,197 0.56 94%
PGDC -- Las Vegas.......... Las Vegas, NV 1976 - 79 379,274 0.40 92%
---------- ----- ---
Sub-Total or Weighted
Average for Industrial
Properties............... 14,683,735 $0.55 96%
========== ===== ===
</TABLE>
- ---------------
(1) Subject to ground lease.
(2) Owned by PGP Northern Industrial, L.P., a limited partnership in which the
Company has an ownership interest of approximately 59%, full management and
control, and the right to substantially all of the cash flow.
(3) Owned by PGP Southern Industrial II, L.P., a limited partnership in which
the Company has an ownership interest of approximately 49%, and full
management and control.
13
<PAGE> 14
The following tables present information concerning the Company's
Industrial Properties under rehabilitation and development as of December 31,
1999.
REHABILITATION AND DEVELOPMENT PROPERTIES
REHABILITATION PROPERTIES
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED RENTABLE ESTIMATED TOTAL
DATE COMPLETION SQUARE ACQUISITION DEVELOPMENT ESTIMATED
PROPERTY NAME LOCATION ACQUIRED DATE FOOTAGE COST COST COST
------------- --------- -------- ---------- --------- ----------- ----------- ---------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
PGBP -- Geneva(1)...... Tempe, AZ Aug-99 Jan-01 117,792 $3,108 $2,492 $5,600
</TABLE>
DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
ESTIMATED
NET
ESTIMATED RENTABLE ESTIMATED TOTAL
DATE COMPLETION SQUARE ACQUISITION DEVELOPMENT ESTIMATED
PROPERTY NAME LOCATION ACQUIRED DATE FOOTAGE COST COST COST
------------- --------------- -------- ---------- --------- ----------- ----------- ---------
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
Pacific Gulf Spectrum
Center.............. Lake Forest, CA Jul-97 Apr-99 227,000 $6,516 $16,959 $23,475
PGDC -- Miramar
Village(2).......... San Diego, CA Aug-97 June-00 85,000 -- 4,961 4,961
PGDC -- Whittier(2)... Whittier, CA May-98 Jan-00 290,000 -- 14,629 14,629
PGBP -- Renton........ Renton, WA Dec-99 Dec-00 107,000 1,553 5,162 6,715
------- ------ ------- -------
709,000 $8,069 $41,711 $49,780
======= ====== ======= =======
</TABLE>
- ---------------
(1) Includes rehabilitation of existing building and development of excess land.
(2) No acquisition cost is reflected because the property being developed by the
Company is the excess portion of a property previously acquired by the
Company.
The following table shows scheduled lease expirations for all leases for
the Industrial Operating Properties (excluding properties under development) as
of December 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE
LEASABLE ANNUAL BASE PERCENTAGE OF ANNUAL
NUMBER OF SQUARE FEET OF RENT OF GROSS LEASABLE BASE RENT
YEAR LEASES EXPIRING EXPIRING LEASES EXPIRING LEASES AREA EXPIRING EXPIRING
---- --------------- --------------- --------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
2000................... 920 3,501,000 $24,743,000 41.1% 28.2%
2001................... 715 3,191,000 22,582,000 31.9 25.8
2002................... 333 2,855,000 16,947,000 14.9 19.3
2003................... 148 1,699,000 10,810,000 6.6 12.3
2004................... 103 921,000 6,173,000 4.6 7.0
2005................... 10 989,000 4,701,000 0.5 5.4
2006................... 3 7,000 49,000 0.1 0.1
2007................... 2 10,000 110,000 0.1 0.1
2008................... 4 278,000 1,163,000 0.2 1.3
2009................... 1 55,000 404,000 -- 0.5
----- ---------- ----------- ----- -----
Totals....... 2,239 13,506,000(1) $87,682,000 100.0% 100.0%
===== ========== =========== ===== =====
</TABLE>
- ---------------
(1) As of December 31, 1999, 608,000 square feet of tenants were on
month-to-month leases (which are not included above) and 570,000 square feet
were unoccupied.
14
<PAGE> 15
MULTIFAMILY PROPERTIES
The following table presents information concerning the Multifamily
Operating Properties, including average gross scheduled rents per unit and
percentage of units occupied as of December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
UNIT SIZE RENT
MULTIFAMILY LOCATION COMPLETED UNITS (SQ. FT.) PER UNIT OCCUPANCY
----------- -------- --------- ----- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ACTIVE SENIOR
Inn at Laguna Hills(1)........ Laguna Hills, CA 1994 140 500 $717 92%
The Fountains(1).............. Rancho Santa Marg., CA 1998 166 600 773 98
Tyler Springs(1).............. Riverside, CA 1987 273 714 563 92
Terrace Gardens(1)(4)......... Escondido, CA 1985 225 780 654 96
Morning View Terrace(1)(5).... Escondido, CA 1986 326 649 638 97
Sunnyside I(1)(3)............. San Dimas, CA 1984 164 495 580 94
Sunnyside II(1)(3)............ Ontario, CA 1983 60 493 508 83
Sunnyside III(1)(3)........... Ontario, CA 1985 84 504 519 89
FAMILY
Applewood..................... Santa Ana, CA 1972 406 801 834 96
Raintree(2)................... Ontario, CA 1984 165 846 672 92
Daisy 5(2)(3)................. Covina, CA 1977 38 897 763 95
Daisy 7(2)(3)................. Diamond Bar, CA 1978 204 950 919 100
Daisy 12(2)(3)................ San Dimas, CA 1979 102 952 827 96
Daisy 16(2)(3)................ West Covina, CA 1981 250 986 809 95
Daisy 17(2)(3)................ San Dimas, CA 1981 156 962 846 98
Lariat(2)(3).................. San Dimas, CA 1981 30 970 823 100
Daisy 19(3)................... Ontario, CA 1983 125 1,019 836 99
Daisy 20(3)................... Ontario, CA 1982 155 1,000 756 94
----- ---
Sub-Total or Weighted Average for Multifamily
Properties............................................ 3,069 95%
===== ===
</TABLE>
- ---------------
(1) Properties serving active senior tenants (individuals 55 and older).
(2) Under rehabilitation.
(3) Owned by PGP Inland Communities, L.P., a limited partnership in which the
Company has a 84% equity interest, full management and control, and the
right to 100% of cash flow until certain net operating income levels are
achieved.
(4) Owned by Terrace Gardens -- PGP L.P., a limited partnership in which the
Company has an ownership interest of approximately 58%, full management and
control, and the right to substantially all of the cash flow.
(5) Owned by Morning View Terrace -- PGP L.P., a limited partnership in which
the Company has an ownership interest of approximately 59%, full management
and control, and the right to substantially all of the cash flow.
15
<PAGE> 16
DEVELOPMENT PROPERTIES
The following table presents information concerning the Company's
Multifamily Properties under development as of December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED TOTAL
ACQUISITION DEVELOPMENT ESTIMATED
COMPLETED UNITS COST COSTS COST
--------- ----- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY -- ACTIVE SENIORS
The Fountains........ Anaheim Hills, CA Mar-99 Sep-00 259 $5,461 $18,437 $23,878
The Fountains........ Temecula, CA Aug-99 Nov-00 244 2,390 13,708 16,098
The Fountains........ Sacramento, CA Dec-99 Mar-01 166 1,141 9,050 10,191
--- ------ ------- -------
669 $8,992 $41,195 $50,167
=== ====== ======= =======
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any litigation nor is any
litigation threatened against the Company, other than routine litigation arising
in the ordinary course of business.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company has traded on the New York Stock Exchange
("NYSE") since October 29, 1996 under the symbol "PAG". Prior to that date and
since its formation, the Company traded on the American Stock Exchange ("ASE").
The following table sets forth the high and low closing prices for the common
stock on the respective exchange.
<TABLE>
<CAPTION>
CASH RECORD
HIGH LOW DISTRIBUTION DATE DATE PAID
---- --- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
1997
1st Quarter............... 23 3/8 19 1/4 0.41(1) April 1, 1997 April 11, 1997
2nd Quarter............... 22 1/8 20 1/2 0.41(1) July 1, 1997 July 11, 1997
3rd Quarter............... 24 5/16 20 7/8 0.41(1) October 1, 1997 October 10, 1997
4th Quarter............... 24 5/16 20 3/4 0.42(2) January 1, 1998 January 9, 1998
1998
1st Quarter............... 23 5/16 22 1/8 0.42(2) April 1, 1998 April 10, 1998
2nd Quarter............... 23 1/4 21 0.42(2) July 1, 1998 July 10, 1998
3rd Quarter............... 22 5/16 18 3/8 0.42(2) October 1, 1998 October 9, 1998
4th Quarter............... 20 1/2 16 1/4 0.43(3) January 1, 1999 January 8, 1999
1999
1st Quarter............... 21 17 11/16 0.43(3) April 1, 1999 April 9, 1999
2nd Quarter............... 23 5/16 17 3/4 0.43(3) July 1, 1999 July 9, 1999
3rd Quarter............... 23 19 3/4 0.43(3) October 1, 1999 October 15, 1999
4th Quarter............... 21 5/16 19 1/2 0.44 January 1, 2000 January 14, 2000
</TABLE>
- ---------------
(1) 28.6% of the distributions paid to beneficial owners in 1997 are estimated
to represent a capital gain distribution.
(2) 12.6% of the distributions paid to beneficial owners in 1998 represents a
return of capital ($.21 per share)
(3) 2.1% of the distributions paid to beneficial owners in 1999 represents a
return of capital ($.01 per share), 9.1% represent capital gains ($.04 per
share).
The minimum distribution requirement to maintain REIT status was
approximately $22,834,000 for 1997, $31,276,000 for 1998 and $36,426,000 for
1999.
A regular quarterly distribution of $.44 per share was paid on January 14,
2000. The closing price of the common stock on the New York Stock Exchange on
March 17, 2000 was $20 7/16 per share. As of March 17, 2000, there were
approximately 10,366 beneficial owners of common stock.
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend upon the actual Funds From Operations of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code, applicable
legal restrictions and such other factors as the Board of Directors deems
relevant. Although the Company intends to continue to make quarterly
distributions to its stockholders, no assurances can be given as to the amount
of distributions, if any, made in the future.
The statement on the face of this Annual Report on Form 10-K regarding the
aggregate market value of voting stock of the Company held by non-affiliates of
the Company is based on the assumption that all directors and officers of the
Company were, for purposes of this calculation only (and not for any other
purpose), affiliates of the Company.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table and footnotes set forth selected historical financial
and operating data for the Company:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Rental income
Industrial properties.............. $ 98,288 $ 76,271 $ 36,410 $ 20,783 $ 12,193
Multifamily properties(a).......... 25,880 36,858 33,096 29,104 24,898
---------- ---------- ---------- --------- ---------
124,168 113,129 69,506 49,887 37,091
---------- ---------- ---------- --------- ---------
Rental property expenses Industrial
properties......................... 21,570 16,746 8,212 5,308 2,567
Multifamily properties............... 9,334 13,751 12,754 11,554 10,215
---------- ---------- ---------- --------- ---------
30,904 30,497 20,966 16,862 12,782
Depreciation......................... 26,117 20,386 12,008 8,236 6,081
Interest............................. 27,242 25,758 17,337 18,411 14,066
General and administrative........... 7,165 5,903 3,159 2,974 2,423
Minority interest in earnings of
partnerships....................... 1,342 1,024 172 -- --
Nonrecurring loss on exchange of
debentures for common stock........ -- -- -- 3,596(b) --
---------- ---------- ---------- --------- ---------
92,770 83,568 53,642 50,079 35,352
---------- ---------- ---------- --------- ---------
Income (loss) before gains on sale of
real estate........................ 31,398 29,561 15,864 (192) 1,739
Gains on sale of real estate......... 8,472 35,292 5,594 74 6,664
---------- ---------- ---------- --------- ---------
Net income (loss).................... 39,870 64,853 21,458 (118) 8,403
Less preferred dividend
requirements(d).................... 4,971 4,856 855 -- --
---------- ---------- ---------- --------- ---------
Income available (loss attributable)
to common shareholders............. $ 34,899 $ 59,997 $ 20,603 $ (118) $ 8,403
========== ========== ========== ========= =========
Earnings (loss) per share(c)
Basic.............................. $ 1.73 $ 3.01 $ 1.51 $ (0.02) $ 1.74
Diluted............................ $ 1.71 $ 2.76 $ 1.47 $ (0.02) $ 1.68
Weighted average common shares
outstanding........................ 20,216,704 19,939,014 13,685,693 6,311,963 4,830,723
</TABLE>
- ---------------
(a) Includes Active Senior apartment properties.
(b) Reflects the $3,596,000 nonrecurring loss incurred on the exchange of
$42,069,000 aggregate principal amount of convertible subordinated
debentures into 2,440,002 shares of common stock in December 1996.
(c) Earnings per share data for all periods presented reflects basic and diluted
calculations in accordance with Statement No. 128 and has been restated from
the previous accounting standard of primary and fully diluted earnings per
share. (See Part IV -- Financial Statements.)
(d) Represents dividends on Class A Preferred Stock which was issued during
1997. (See Part IV -- Financial Statements)
18
<PAGE> 19
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Operating properties, net of
accumulated depreciation:
Industrial properties........... $667,285 $ 654,004 $ 455,045 $170,731 $102,813
Multifamily properties(a)....... 150,012 159,408 206,756 179,965 175,879
-------- --------- --------- -------- --------
817,297 813,412 661,801 350,696 278,692
Properties under development...... 52,815 39,926 32,107 2,171 --
-------- --------- --------- -------- --------
Total real estate................. 870,112 853,338 693,908 352,867 278,692
Total assets...................... 891,921 875,127 712,471 364,640 288,591
Senior debt....................... 418,343 403,845 283,852 197,401 149,847
Convertible subordinated
debentures...................... -- 12,244 12,592 14,227(b) 55,659
Total equity............ 427,891 415,554 388,840 139,822 71,980
PROPERTY DATA (END OF PERIOD)
Total industrial properties....... 69 68 49 21 10
Industrial leasable area (Sq.
Ft.)............................ 14,684 14,310 10,676 4,573 2,902
Industrial -- Occupancy %......... 96% 95% 95% 98% 96%
Total multifamily properties(a)... 18 19 24 22 21
Total apartment units(a).......... 3,069 3,265 4,655 4,110 3,945
Apartment -- Occupancy %.......... 95% 95% 94% 93% 92%
SUPPLEMENTAL DATA
Funds from operations(c).......... $ 52,544 $ 45,091 $ 27,017 $ 8,044 $ 7,820
Cash flow information:
Operating activities............ $ 56,149 $ 50,701 $ 27,736 $ 8,523 $ 7,138
Investing activities............ $(31,488) $(140,700) $(350,597) $(81,918) $(84,480)
Financing activities............ $(24,760) $ 90,809 $ 322,804 $ 72,071 $ 76,674
Ratio of Earnings to Fixed
Charges......................... 1.80 1.76 1.75 --(d) 1.12
</TABLE>
- ---------------
(a) Includes Active Senior apartment properties.
(b) Reflects the exchange of $42,069,000 aggregate principal amount of
convertible subordinated debentures into 2,440,002 shares of common stock in
December 1996.
(c) We consider funds from operations, as defined by the National Association of
Real Estate Investment Trusts, or NAREIT to be a useful financial measure of
our operating performance. We believe that funds from operations provides
investors with an additional basis to evaluate our ability to service debt
and to fund acquisitions and other capital expenditures. Funds from
operations should not be considered an alternative to net income determined
in accordance with GAAP, as an indicator of our financial performance or as
a substitute for cash flow from operating activities determined in
accordance with GAAP as a measure of our liquidity. Funds from operations
also is not necessarily indicative of funds available to fund our cash
needs, including our ability to service our debt.
The White Paper on funds from operations approved by the Board of Governors
of NAREIT in October 1999 defines funds from operations as net income or
loss computed in accordance with GAAP, excluding gains or losses from
extraordinary items, as defined by GAAP, and gains and losses from sales of
depreciable operating property plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. We compute funds from operations in accordance with standards
established by the White Paper which may differ from the standards used by
other real estate companies and, accordingly, our funds from operations may
not be comparable to those companies' funds from operations.
19
<PAGE> 20
(d) Earnings for the year ended December 31, 1996 were inadequate to cover fixed
charges by approximately $0.2 million as a result primarily of the
nonrecurring loss of $3,596,000 relating to the Company's exchange of
debentures for common stock. The ratio of earnings to fixed charges
excluding this $3.6 million non-cash item is 1.18 to 1.
CALCULATION OF FFO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income available (loss attributable) to common
shareholders.................................. $34,899 $ 59,997 $20,603 $ (118) $ 8,403
Depreciation.................................... 26,117 20,386 12,008 8,236 6,081
Gains on sale of real estate.................... (8,472) (35,292) (5,594) (74) (6,664)
------- -------- ------- ------- -------
Funds from operations........................... 52,544 45,091 27,017 8,044 7,820
Preferred dividend requirements................. 4,971 4,856 855 -- --
Interest expense on debentures.................. 615 1,041 1,100 4,720 4,736
Amortization of debenture discount and costs.... 87 130 141 570 552
------- -------- ------- ------- -------
Proforma funds from operations(a)............... $58,217 $ 51,118 $29,113 $13,334 $13,108
======= ======== ======= ======= =======
</TABLE>
- ---------------
(a) Proforma funds from operations assumes the conversion of the Company's
convertible subordinated debentures and preferred stock and excludes the
conversion of limited partnership units.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the financial
statements and notes thereto of the Company and the "Selected Financial and
Operating Data" appearing elsewhere in this report. Such financial statements
and information have been prepared to reflect the Company's financial position
as of December 31, 1999, 1998 and 1997 together with the results of its
operations and its cash flows.
Historical results and trends should not be taken as indicative of future
operations. Management's statements contained in this report that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results may differ materially from
those included in the forward-looking statements. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "prospects" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company on
a consolidated basis include, but are not limited to: changes in economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of REITs), availability of capital, interest rates, competition, supply and
demand for industrial and multifamily properties in the Company's current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included herein and in the Company's other filings with
the Securities and Exchange Commission.
The comparability of the financial information discussed below is impacted
by a significant amount of property acquisitions, developments, rehabilitations
and dispositions, as follows: during 1999, the acquisitions
20
<PAGE> 21
of three industrial properties totaling 304,000 leasable square feet, the
completion of two industrial projects containing 591,000 square feet previously
under development or rehabilitation, the disposition of two industrial
properties containing 133,000 square feet, the disposition of two individual
buildings located within existing projects totaling 319,000 square feet, the
disposition of 1.05 acres of improved land, the disposition of a multifamily
property containing 196 apartment units and the redemption of debentures for
common stock and cash; during 1998, the acquisition of 18 operating industrial
properties containing approximately 3,278,000 leasable square feet, the
completion of an active senior property containing 166 apartment units and three
industrial projects containing 464,000 square feet previously under development,
and the disposition of six multifamily properties containing 1,556 apartment
units; and during 1997, the acquisition of 27 operating industrial properties
containing approximately 5,776,000 leasable square feet, the acquisition of
three multifamily properties containing 824 apartment units, and the disposition
of one multifamily property containing 279 apartment units.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998.
Industrial rental income increased by $22,017,000 or 29%, from $76,271,000
in 1998 to $98,288,000 in 1999. This increase was primarily attributable to the
acquisition of seven industrial properties in the fourth quarter of 1998 and
three industrial properties in 1999. Industrial rental income for the year ended
December 31, 1999 included $10,041,000 related to fourth quarter 1998 and 1999
acquisitions.
Multifamily rental income decreased by $10,978,000 or 30%, from $36,858,000
in 1998 to $25,880,000 in 1999. This decrease was primarily attributable to the
sale of six multifamily properties at the end of 1998 and one multifamily
property in 1999, offset partially by an increase in rental rates.
As a result of these changes total revenues increased by $11,039,000 or
10%, from $113,129,000 in 1998 to $124,168,000 in 1999.
Industrial rental property expenses increased by $4,824,000, or 29%, from
$16,746,000 in 1998 to $21,570,000 in 1999. This increase was primarily related
to the Company's acquisitions in the fourth quarter of 1998 and the three
acquisitions in 1999. Industrial rental property expenses for the year ended
December 31, 1999 included $2,265,000 related to fourth quarter 1998 and 1999
acquisitions.
Multifamily rental property expenses decreased by $4,417,000, or 32%, from
$13,751,000 in 1998 to $9,334,000 in 1999. This decrease was primarily related
to the disposition of six multifamily properties at the end of 1998 and one
multifamily property in 1999.
Depreciation increased by $5,731,000 or 28%, from $20,386,000 in 1998 to
$26,117,000 in 1999. The increases relate primarily to the acquisitions
described above and the capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of financing costs) increased by
$1,484,000, or 6%, from $25,758,000 in 1998 to $27,242,000 in 1999. This
increase was primarily attributable to an increase in outstanding borrowings due
to new acquisitions made during 1998, offset by a lower interest rate on the
Company's line of credit and a decrease in the outstanding debentures due to the
August and November 1999 redemptions. Interest resulting from the amortization
of financing costs decreased by $328,000 or 29% from $1,129,000 in 1998 to
$801,000 in 1999. This decrease is attributable to the redemptions of the
Company's outstanding debentures offset by the write off of deferred financing
costs in August and November 1999.
General and administrative expenses increased by $1,262,000, or 21%, from
$5,903,000 in 1998 to $7,165,000 in 1999. This increase was primarily
attributable to staff additions, staff retention costs and inflation.
Minority interests in earnings of consolidated partnerships increased by
$318,000 or 31% from $1,024,000 in 1998 to $1,342,000 in 1999. Minority interest
represents earnings allocated to the minority partners in the partnerships in
which the Company has a controlling general partner interest.
21
<PAGE> 22
For the year ended December 31, 1999, the Company had income available to
common shareholders of $34,899,000 compared to income of $59,997,000 in 1998.
The results in each year were impacted by the sale of real estate. In 1998, a
$35,292,000 net gain on sale of real estate was recognized primarily from the
sale of six apartment communities with 1,556 apartment units located in
Washington, while in 1999 an $8,472,000 net gain on sale of real estate was
recognized as described in Note 9 to the financial statements.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997.
Industrial rental income increased by $39,861,000 or 109%, from $36,410,000
in 1997 to $76,271,000 in 1998. This increase was primarily attributable to the
acquisition of 18 industrial properties in 1998. Industrial rental income for
the year ended December 31, 1998 included $25,530,000 related to fourth quarter
1997 and 1998 acquisitions.
Multifamily rental income increased by $3,762,000 or 11%, from $33,096,000
in 1997 to $36,858,000 in 1998. This increase was primarily attributable to an
increase in rental rates and the completion of an active senior property
previously under development.
As a result of these changes total revenues increased by $43,623,000 or
63%, from $69,506,000 in 1997 to $113,129,000 in 1998.
Industrial rental property expenses increased by $8,534,000, or 104%, from
$8,212,000 in 1997 to $16,746,000 in 1998. This increase was primarily related
to the Company's acquisitions in 1998. Industrial rental property expenses for
the year ended December 31, 1998 included $6,282,000 related to fourth quarter
1997 and 1998 acquisitions.
Multifamily rental property expenses increased by $997,000, or 8%, from
$12,754,000 in 1997 to $13,751,000 in 1998. This increase was primarily related
to an increase in operating expenses and the completion of an active senior
property previously under development.
Depreciation increased by $8,378,000 or 70%, from $12,008,000 in 1997 to
$20,386,000 in 1998. The increases relate primarily to the acquisitions
described above and the capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of financing costs) increased by
$8,421,000, or 49%, from $17,337,000 in 1997 to $25,758,000 in 1998. This
increase was due to an increase in outstanding borrowings due to new
acquisitions made during 1997 and 1998. Interest resulting from the amortization
of financing costs increased by $302,000 or 37% from $827,000 in 1997 to
$1,129,000 in 1998. This increase is attributable to the additional finance
costs incurred as a result of the Company's new unsecured credit facility.
General and administrative expenses increased by $2,744,000, or 87%, from
$3,159,000 in 1997 to $5,903,000 in 1998. This increase was primarily
attributable to personnel increases and expensing of certain costs of abandoned
projects.
Minority interests in earnings of consolidated partnerships increased by
$852,000 from $172,000 in 1997 to $1,024,000 in 1998. Minority interest
represents earnings allocated to the minority partners in four partnerships in
which the Company has a controlling general partner interest.
For the year ended December 31, 1998, the Company had net income of
$59,997,000 compared to net income of $20,603,000 in 1997. The results in each
year were impacted by non-recurring items. In 1997, a $5,594,000 net gain on
sale of real estate was recognized primarily from the sale of a 279 unit
apartment community in Oregon, while in 1998 a $35,292,000 net gain on sale of
real estate was recognized primarily from the sale of six apartment communities
with 1,556 apartment units located in Washington.
22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
At December 31, 1999, the Company had $2,177,000 of cash to meet its
immediate short-term liquidity requirements. Future short-term liquidity
requirements are anticipated to be met through the net cash flow from
operations, existing working capital and, if necessary, funding from the
Company's Line of Credit.
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 $27,736,000 for the
year ended December 31, 1997 to $50,701,000 for the year ended December 31, 1998
and $56,149,000 for the year ended December 31, 1999. The primary reason for
this increase relates to the additional rental income contributed by properties
acquired during 1997, 1998 and 1999.
Cash used in investing activities decreased from $350,597,000 for the year
ended December 31, 1997 to $140,700,000 for the year ended December 31, 1998 and
then decreased to $31,488,000 for the year ended December 31, 1999 primarily as
a result of the reduction on acquisitions and improvements to properties.
Acquisitions and improvements decreased from $332,324,000 in 1997 to
$201,160,000 in 1998, and then decreased to $32,265,000 in 1999, and were offset
by $15,115,000 from the sale of a multifamily community in Oregon in 1997, and
$92,025,000 from the sale of a multifamily property and a multifamily portfolio
in the Pacific Northwest in 1998 and $31,840,000 from the sale of two industrial
properties, two individual industrial buildings, a multifamily property and a
parcel of improved land in 1999.
Cash provided by financing activities decreased from $322,804,000 for the
year ended December 31, 1997 to $90,809,000 for the year ended December 31, 1998
and then decreased to $24,760,000 for the year ended December 31, 1999. The
fluctuations were primarily a result of decreased capital funding from equity
offerings in 1998 as compared to 1997, and decreased borrowing activity
associated with acquisitions in 1999 as compared to 1998.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its shareholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to shareholders and for payment of other
expenditures. The Company intends to invest amounts accumulated for distribution
in short-term investments.
Unsecured Line of Credit
The Company has a $150,000,000 unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%. As of December 31, 1999, the Company had borrowed
$123,650,000 under this line.
Acquisitions and Improvements to Properties
During 1999 the Company invested $32,265,000 in real estate assets.
Proceeds for these investments were generated primarily from the sale of two
industrial properties, two individual industrial buildings, a multifamily
property and a parcel of improved land in 1999 which generated proceeds of
$30,990,000 and borrowings from the Line of Credit.
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, debt financings or asset dispositions.
23
<PAGE> 24
Dispositions
In 1999, the Company sold for a gross sales price of $30,990,000 -- a
91,200 square foot industrial property, a 302,020 square foot individual
industrial building, a 1.05 acre parcel of improved land and a 196 unit
multifamily property all located in Southern California, a 42,240 square foot
industrial property in Washington, and a 16,848 square foot individual
industrial building located in Northern California. The Company also recognized
a deferred gain of $850,000 as a result of the collection of a note receivable
relating to the sale of the Company's Texas properties in 1995. The Company
reported a gain on the sales after all costs of $8,472,000.
After the above-referenced sales, the Company continues to own a portfolio
of 10 family-style apartments consisting of 1,631 units all located in Southern
California. The Company has entered into contracts with listing brokers to sell
all of these properties. There can be no assurance that the Company will
actually dispose of such properties, nor can there be any assurance as to the
timing of any such dispositions. Any such decision by the Company will be
subject to numerous factors, including prices offered for the Company's
family-style apartment communities and the availability of suitable alternate
investment for the proceeds of such dispositions.
Developments
During 1999, the Company completed and transferred to operating properties
a 382,000 square foot warehouse in San Diego, California. The total
rehabilitation cost for the property was $2,600,000. The project is currently
100% occupied at December 31, 1999.
During 1999, the Company also developed a 209,000 square foot industrial
park in Lake Forest, California for a cost of $11,800,000, excluding land costs
of $3,600,000. The property is 97% occupied at December 31, 1999.
As of December 1999, the Company has under development four industrial
properties that will contain approximately 709,000 leasable square feet. Three
of the properties are located in Southern California and one is located in
Washington. The Company also has one industrial property which upon
rehabilitation and development will contain approximately 118,000 leasable
square feet located in Arizona. Development and rehabilitation costs for these
properties totaled $27,105,000 through December 31, 1999.
As of December 1999, the Company has under development three multifamily
apartment properties for active seniors containing 669 units. Two are located in
Southern California and one is located in Northern California. Development
costs, excluding land costs of $8,992,000, for these properties totaled
$3,505,000 through December 31, 1999.
Debt Financings
In 1997, the Company established a pool agreement with the Federal National
Mortgage Associations ("FNMA") to provide 30-year credit enhancement on the
Company's tax-exempt projects. In 1999, the Company replaced the existing credit
enhancement which was maturing with FNMA to finance Tyler Springs senior
apartment community in Riverside, California. The $9.0 million in bonds secured
by Tyler Springs have a variable interest rate, after giving effect to credit
enhancement and other costs, of 5.00% as of December 31, 1999.
In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9.4 million as substitution collateral. The Company to replaced the
letter of credit by providing its City of Industry industrial project as
replacement collateral in May 1999.
24
<PAGE> 25
Convertible Subordinated Debentures
The Company called for redemption of $6,500,000 of its outstanding
debentures on August 18, 1999. As of that date, $6,300,000 of the debentures
called had converted into 338,301 shares of Common Stock. The Company redeemed
the remaining $200,000 for cash.
The Company called for redemption of the remaining outstanding debenture of
$5,273,000 on November 10, 1999. As of that date, $5,110,000 of the debentures
called had converted into 274,373 shares of Common Stock. The Company redeemed
the remaining $163,000 for cash.
Shelf Registration
During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $300,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase securities of the Company (the "1998 Shelf Registration
Statement"). The 1998 Shelf Registration Statement was declared effective in
April of 1998. At December 31, 1999, the Company has $300,000,000 available
under the 1998 Shelf Registration Statement.
Year 2000 Readiness
In 1999, we completed our remediation and testing of systems with respect
to the Year 2000 date change. As a result of our planning and implementation
efforts, we experienced no disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We incurred costs of less
than $100,000 during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products, our internal systems or the products and services of third parties. We
will continue to monitor our mission critical computer applications and those of
our suppliers and vendors throughout the year to ensure that any latent Year
2000 matters that may arise are addressed promptly.
Capital Expenditures
The Company capitalizes the direct and indirect cost of expenditures for
the acquisition of development properties or rehabilitation of its multifamily
and industrial properties. The Company also capitalizes the direct cost of
capital expenditures that are considered revenue producing ("Revenue Producing")
and other expenditures that increase the service life of the Company's
properties ("Restorations").
Revenue Producing expenditures are improvements which significantly
increase the revenue-producing capability of the asset including tenant
improvements at industrial properties, installation of washers and dryers at
multifamily properties, and other value-added additions.
Rehabilitation expenditures are costs the Company determines are necessary
during the due diligence phase immediately preceding the acquisition of a
property. At newly acquired properties, the Company often finds it necessary to
upgrade the physical appearance of such properties and to complete the
maintenance and repair work that had been deferred by prior owners.
Restorations are nonrevenue-producing capital expenditures which recur on a
regular basis, and have estimated useful lives of more than one year.
Make ready costs incurred after a property's rehabilitation, such as carpet
and appliance replacement, interior painting and window coverings are expensed
as incurred.
25
<PAGE> 26
The following table summarizes capital expenditures incurred by the Company
related to its operating properties for the years ended December 31, 1999 and
1998 (all amounts are in thousands):
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
INDUSTRIAL
Development................................................. $ 2,400 $ 832
Acquisitions................................................ 14,744 181,780
Revenue-Producing........................................... 7,718 5,427
Rehabilitation.............................................. -- 6,820
Restorations................................................ 5,140 2,373
------- --------
30,002 197,232
------- --------
MULTIFAMILY
Development................................................. -- 1,639
Acquisitions................................................ -- --
Revenue-Producing........................................... 25 123
Rehabilitation.............................................. 1,135 1,955
Restorations................................................ 1,103 211
------- --------
2,263 3,928
------- --------
$32,265 $201,160
======= ========
</TABLE>
The Company expects such expenditures will be funded from available cash
balances, revolving lines of credit, equity offerings, and proceeds from
refinancing.
IMPACT OF INFLATION
Substantially all of the Company's leases on its Industrial Properties,
which have terms generally ranging from one to five years, contain provisions
providing for rental increases based either on fixed increases or on increases
in the Consumer Price Index. All of the Company's leases on its Multifamily
Properties are for a period of one year or less. Substantially all of the
Company's leases allow at the time of renewal, for adjustments in the rent
payable thereunder. Accordingly, management believes the provisions contained in
its industrial leases and the nature of its multifamily leases tend to mitigate
the adverse impact of inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's current and future debt obligations. The Company is
vulnerable to significant fluctuations of interest rates on its floating rate
debt, repricing on its fixed rate debt at various points in the future and
future debt.
26
<PAGE> 27
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table below
presents principal cash flows and related weighted-average interest rates by
expected maturity dates.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT AND AVERAGE INTEREST RATE BY EXPECTED MATURITY
-------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER
----------------- -------------- ------- ---- ------ ----------
(IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes................ $43,375 $ -- $22,644 $ -- $4,366 $109,543
Construction Loans............ 24,626 25,806 -- -- -- --
Tax Exempt Mortgage Debt...... -- -- -- -- -- 64,333
Line of Credit -- Unsecured... -- 123,650 -- -- -- --
------- -------- ------- ---- ------ --------
Total............... $68,001 $149,456 $22,644 $ -- $4,366 $173,876
======= ======== ======= ==== ====== ========
Weighted Average Interest
Rates
Mortgage Notes................ 7.25% -- 7.20% -- 8.38% 7.58%
Construction Loans............ Libor + 1.30, Libor + 1.375, -- -- --
Libor + 1.50 Libor + 1.525
or reference rate
Tax Exempt Mortgage Debt...... -- -- -- -- 6.30%
Line of Credit................ -- Libor + 1.30 -- -- --
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements for a listing of the financial statements
and supplementary data filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE
None.
27
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is hereby incorporated by reference
from the Company's proxy statement for the Year 2000 Annual Meeting ("Proxy
Statement") under the caption "Election of Directors -- Nominees" and "Officers
and Key Employees."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Officers and Key Employees
-- Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
The information required by this item is hereby incorporated by reference
from the Proxy Statement under the caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report
1. Financial Statements. See Index to Financial Statements.
2. Financial Statement Schedule. See Index to Financial Statements.
3. Exhibits. See Exhibit Index on pages F-28 and F-29.
(b) Reports on Form 8-K.
None.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
------------------------------------
Glenn L. Carpenter
Chairman of the Board of Directors
President and Chief Executive
Officer
By: /s/ DONALD G. HERRMAN
------------------------------------
Donald G. Herrman
Executive Vice President, Secretary,
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ GLENN L. CARPENTER Chairman of the Board of Directors
- ------------------------------------------ President, Chief Executive Officer
Glenn L. Carpenter
(Principal Executive Officer)
/s/ PETER L. EPPINGA Director
- ------------------------------------------
Peter L. Eppinga
/s/ CHRISTINE GARVEY Director
- ------------------------------------------
Christine Garvey
/s/ CARL C. GREGORY, III Director
- ------------------------------------------
Carl C. Gregory, III
/s/ JOHN F. KOOKEN Director
- ------------------------------------------
John F. Kooken
/s/ DONALD E. LANGE Director
- ------------------------------------------
Donald E. Lange
/s/ ROBERT E. MORGAN Director
- ------------------------------------------
Robert E. Morgan
/s/ JAMES E. QUIGLEY, 3RD Director
- ------------------------------------------
James E. Quigley, 3rd
/s/ KEITH W. RENKEN Director
- ------------------------------------------
Keith W. Renken
</TABLE>
29
<PAGE> 30
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Shareholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III -- Real Estate and Accumulated
Depreciation........................................... F-25
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Pacific Gulf Properties Inc.
We have audited the accompanying consolidated balance sheets of Pacific
Gulf Properties Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index on page F-1. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific Gulf
Properties Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
February 10, 2000
F-2
<PAGE> 32
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Real estate assets
Operating properties
Land................................................... $232,665 $229,920
Buildings.............................................. 657,347 633,268
-------- --------
890,012 863,188
Accumulated depreciation............................... (72,715) (49,776)
-------- --------
817,297 813,412
Properties under development, including land.............. 52,815 39,926
-------- --------
870,112 853,338
Cash and cash equivalents................................... 2,177 2,276
Accounts and other receivables.............................. 4,005 4,984
Other assets................................................ 15,627 14,529
-------- --------
$891,921 $875,127
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Loans payable............................................. $418,343 $403,845
Accounts payable and accrued liabilities.................. 17,244 15,828
Dividends payable......................................... 10,366 9,844
Convertible subordinated debentures....................... -- 12,244
-------- --------
445,953 441,761
Minority interests in consolidated partnerships............. 18,077 17,812
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 December 31, 1999, and
December 31, 1998...................................... 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; 20,685,402 and 20,017,814 shares
outstanding at December 31, 1999 and December 31, 1998,
respectively........................................... 207 201
Outstanding restricted stock.............................. (1,193) (1,203)
Additional paid-in capital................................ 424,632 412,093
Retained earnings......................................... 4,217 4,435
-------- --------
427,891 415,554
-------- --------
$891,921 $875,127
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 33
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Rental income
Industrial properties..................................... $ 98,288 $ 76,271 $36,410
Multifamily properties.................................... 25,880 36,858 33,096
-------- -------- -------
124,168 113,129 69,506
EXPENSES
Rental property expenses
Industrial properties..................................... 21,570 16,746 8,212
Multifamily properties.................................... 9,334 13,751 12,754
-------- -------- -------
30,904 30,497 20,966
Depreciation................................................ 26,117 20,386 12,008
Interest (including amortization of debenture discount and
financing costs of $801, $1,129 and $827, respectively)... 27,242 25,758 17,337
General and administrative.................................. 7,165 5,903 3,159
Minority interests in earnings of consolidated
partnerships.............................................. 1,342 1,024 172
-------- -------- -------
92,770 83,568 53,642
-------- -------- -------
INCOME BEFORE GAINS ON SALE OF REAL ESTATE.................. 31,398 29,561 15,864
Gains on sale of real estate................................ 8,472 35,292 5,594
-------- -------- -------
NET INCOME.................................................. 39,870 64,853 21,458
Less preferred dividend requirements...................... 4,971 4,856 855
-------- -------- -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS..................... $ 34,899 $ 59,997 $20,603
======== ======== =======
EARNINGS PER SHARE
Basic..................................................... $ 1.73 $ 3.01 $ 1.51
======== ======== =======
Diluted................................................... $ 1.71 $ 2.76 $ 1.47
======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 34
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK OUTSTANDING ADDITIONAL RETAINED EARNINGS
--------------- --------------- RESTRICTED PAID-IN (DISTRIBUTIONS IN
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL EXCESS OF EARNINGS) TOTAL
------ ------ ------ ------ ----------- ---------- ------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1996...... 9,758 $ 98 -- $ -- $ (878) $157,896 $(17,294) $139,822
Common shares issued.............. 10,189 102 -- -- -- 200,787 -- 200,889
Preferred shares issued........... -- -- 2,763 28 -- 52,504 -- 52,532
Net issuance of restricted
stock........................... 21 -- -- -- 60 -- -- 60
Dividends on common shares........ -- -- -- -- -- -- (25,066) (25,066)
Dividends on preferred shares..... -- -- -- -- -- -- (855) (855)
Net income........................ -- -- -- -- -- -- 21,458 21,458
------ ---- ----- ---- ------- -------- -------- --------
Balance -- December 31, 1997...... 19,968 200 2,763 28 (818) 411,187 (21,757) 388,840
Common shares issued.............. 50 1 -- -- -- 932 -- 933
Preferred shares issued........... -- -- -- -- -- (26) -- (26)
Net issuance of restricted
stock........................... -- -- -- -- (385) -- -- (385)
Dividends on common shares........ -- -- -- -- -- -- (33,805) (33,805)
Dividends on preferred shares..... -- -- -- -- -- -- (4,856) (4,856)
Net income........................ -- -- -- -- -- -- 64,853 64,853
------ ---- ----- ---- ------- -------- -------- --------
Balance -- December 31, 1998...... 20,018 201 2,763 28 (1,203) 412,093 4,435 415,554
Common shares issued.............. 667 6 -- -- -- 12,357 -- 12,363
Net issuance of restricted
stock/compensation earned on
options......................... -- -- -- -- 10 182 -- 192
Dividends on common shares........ -- -- -- -- -- -- (35,117) (35,117)
Dividends on preferred shares..... -- -- -- -- -- -- (4,971) (4,971)
Net income........................ -- -- -- -- -- -- 39,870 39,870
------ ---- ----- ---- ------- -------- -------- --------
Balance -- December 31, 1999...... 20,685 $207 2,763 $ 28 $(1,193) $424,632 $ 4,217 $427,891
====== ==== ===== ==== ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 35
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 39,870 $ 64,853 $ 21,458
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 26,117 20,386 12,008
Amortization of debenture discount and financing
costs................................................ 801 1,129 827
Minority interests in earnings of consolidated
partnerships......................................... 1,342 1,024 172
Gains on sale of real estate........................... (8,472) (35,292) (5,594)
Compensation recognized related to restricted stock
issued to employees.................................. 10 (385) 59
Compensation recognized related to options issued to
employees............................................ 182 -- --
Net increase in other assets........................... (3,849) (7,370) (4,532)
Net increase in liabilities............................ 148 6,356 3,338
-------- --------- ---------
Net cash provided by operating activities......... 56,149 50,701 27,736
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions and improvements to properties............... (32,265) (201,160) (332,324)
Development expenditures.................................. (31,063) (31,565) (29,936)
Proceeds from sale of real estate......................... 31,840 92,025 15,115
Purchase of property and equipment, net................... -- -- (3,452)
-------- --------- ---------
Net cash used in investing activities..................... (31,488) (140,700) (350,597)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from unsecured line of credit.................... 36,150 236,419 158,278
Repayment of unsecured line of credit..................... (46,250) (119,869) (154,764)
Proceeds from mortgage notes payable...................... 15,500 18,300 97,921
Repayment of mortgage notes payable....................... (9,355) (28,411) (19,784)
Proceeds from construction loans.......................... 18,453 19,515 4,800
Repayment of construction loans........................... -- (5,962) --
Debentures converted to common shares..................... (304) (348) (1,635)
Issuance of common shares................................. 424 907 200,891
Issuance of preferred shares.............................. -- -- 52,531
Minority interests contributions.......................... (1,077) 7,462 5,636
Dividends on common shares................................ (34,623) (33,583) (20,215)
Dividends on preferred shares............................. (3,678) (3,621) (855)
-------- --------- ---------
Net cash (used in) provided by financing activities....... (24,760) 90,809 322,804
-------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (99) 810 (57)
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 2,276 1,466 1,523
-------- --------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. $ 2,177 $ 2,276 $ 1,466
======== ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pacific Gulf Properties Inc. was incorporated in Maryland in August 1993.
The Company operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, which owns, operates, leases,
acquires, rehabilitates and develops light industrial and business park
properties and multifamily properties including active senior and family-style
apartment communities. The Company commenced operations on February 18, 1994
upon the completion of its initial public offerings and consummation of certain
formation transactions.
BASIS OF PRESENTATION
The consolidated financial statements include the Company's accounts and
all subsidiaries and partnerships over which it has control. The Company's
controlled partnerships and subsidiaries include PGP Inland Communities, L.P.,
PGP -- Terrace Gardens Holdings Inc., PGP -- Morning View Terrace Holdings Inc.,
PGP Northern Industrial, L.P., PGP Southern Industrial II, L.P., Pacific Inland
Communities LLC and PGP Von Karman Properties. Minority interests represent the
ownership interests of outside limited partners in certain of the partnerships
controlled by the Company. All intercompany accounts and transactions have been
eliminated in consolidation.
REAL ESTATE ASSETS
Real estate assets consist of operating properties and properties under
development. Operating properties are held for investment and carried at cost
less accumulated depreciation. Cost includes the cost of land and completed
buildings and related improvements. Expenditures that increase the service life
of properties are capitalized; the cost of maintenance and repairs is charged to
expense as incurred. Depreciation is generally provided on a straight-line basis
over the estimated useful lives of the buildings and improvements, ranging
primarily from 15 to 40 years. When depreciable property is retired or disposed
of, the related costs and accumulated depreciation are removed from the accounts
and any gain or loss reflected in operations.
Properties under development are carried at cost. The cost of development
includes land acquisition and infrastructure costs, direct and indirect
construction costs and carrying costs including interest and taxes. Land
acquisition and infrastructure costs are allocated to components of properties
based on relative fair value. Interest and property taxes are capitalized to
properties while development activities are in progress. When a project or
property under development is completed, all related holding and operating costs
are expensed as incurred.
Impairment losses are recorded on long-lived assets used in operations and
properties under development when indicators of impairment are present and the
assets' carrying amount is greater than the sum of the future undiscounted cash
flows, excluding interest, estimated to be generated by those assets. As of
December 31, 1999, no indicators of impairment existed and no impairment losses
have been recorded.
The Company follows the provisions of EITF 97-11, Accounting for Internal
Costs Related to Real Estate Property Acquisitions. Accordingly, effective April
1, 1998, the Company ceased capitalizing its internal acquisition costs incurred
in conjunction with the identification and acquisition of properties to be held
for operations. The Company continues capitalizing internal acquisition costs
associated with properties which are under development.
CASH AND CASH EQUIVALENTS
Certificates of deposit and short-term investments with remaining
maturities of three months or less when acquired are considered cash
equivalents.
F-7
<PAGE> 37
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Accounts receivable are net of an allowance for uncollectible accounts
totaling $1,012,000 and $298,000 at December 31, 1999 and 1998, respectively.
FINANCING COSTS
Financing costs are included in other assets and consist of loan fees,
other loan costs and deferred debenture costs. Loan fees and other loan costs
are amortized over the term of the respective loan. Costs relating to the
convertible subordinated debentures offering are amortized over the term of the
debentures using a method that approximates the effective interest method.
Amortization of financing costs is included in interest expense.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk are primarily cash investments and accounts
receivable from tenants. Cash is generally invested in investment-grade short-
term instruments and the amount of credit exposure to any one commercial issuer
is limited. Concentration of credit risk with respect to accounts receivable
from tenants is limited. The Company performs credit evaluations of prospective
tenants and security deposits are also obtained.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's short-term investments and loans
payable approximate their fair values as of December 31, 1999.
DIVIDEND REINVESTMENT PLAN
During the years ended December 31, 1999 and 1998, the Company issued 3,330
and 2,156 shares, respectively, under the Company's Dividend Reinvestment Plan.
RENTAL INCOME
Rental income from multifamily leases is recognized when due from tenants.
Apartment units are rented under lease agreements with terms of one year or
less.
Rental income from industrial leases is recognized on a straight-line basis
over the related lease term. As a result, deferred rent is created when rental
income is recognized during free rent periods of a lease. The deferred rent is
included in other assets, evaluated for collectibility and amortized over the
lease term.
INTEREST
Interest incurred for the years ended December 31, 1999, 1998 and 1997
totaled $29,757,000, $28,810,000 and $19,469,000, respectively. Interest
incurred in 1999, 1998 and 1997 includes $615,000, $1,041,000 and $1,100,000
related to the Company's convertible subordinated debentures.
For the years ended December 31, 1999, 1998 and 1997, the Company
capitalized $2,515,000, $3,052,000 and $2,132,000 of interest related to
properties under development
Interest paid for the years ended December 31, 1999, 1998 and 1997 totaled
$29,448,000, $27,732,000 and $18,932,000, respectively.
F-8
<PAGE> 38
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GAINS ON SALE OF REAL ESTATE
Gains on sale of real estate are recognized by the Company when title to
the real estate passes to the buyer, an adequate down payment is received, the
collectibility of notes received from buyers is reasonably assured, and all
other conditions necessary for profit recognition have been satisfied.
INCOME TAXES
The Company has elected to be taxed as a REIT. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT status, the Company
is required to distribute annually as dividends at least 95% of its REIT taxable
income, as defined by the Internal Revenue Code ("IRC"), to its shareholders,
among other requirements.
PER SHARE DATA
The Company reports earnings per share pursuant to Statement of Financial
Accounting Standards No. 128 ("Statement No. 128"). All earnings per share
amounts for all periods presented reflect basic and diluted earnings per share
and have been restated from the previous standard of primary and fully diluted
earnings per share. (See Note 10 for additional information.)
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of December 31, 1999 and 1998 and revenues and expenses for each of the three
years in the period ended December 31, 1999. Actual results could differ from
those estimates in the near term.
STOCK-BASED COMPENSATION
During 1999, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which establishes a fair value method of accounting for stock-based compensation
plans. The Company follows SFAS No. 123 for all plans adopted after January 1,
1999. For stock-based compensation plans established prior to January 1, 1999,
the Company continues to follow the intrinsic value method set forth in APB
Opinion 25, "Accounting for Stock Issued to Employees." The adoption of this
Standard in 1999 had no material effect on the Company's financial statements
(see Note 5).
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities as amended", which
is required to be adopted on June 15, 2000. At that time, the Company will be
required to report the fair value of derivatives and reflect adjustments to the
carrying amount of hedged items as gains or losses. The Company does not believe
the additional requirements will have a significant impact on its financial
position or results of operations.
RECLASSIFICATIONS
Certain prior year financial statement amounts have been reclassified to
conform to the current year presentation.
F-9
<PAGE> 39
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. REAL ESTATE ASSETS
The Company's real estate assets consist of the following at December 31:
OPERATING PROPERTIES
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
INDUSTRIAL PROPERTIES
Land.................................................. $191,650,000 $187,416,000
Buildings and improvements............................ 529,381,000 500,837,000
------------ ------------
721,031,000 688,253,000
Accumulated depreciation.............................. (53,747,000) (34,249,000)
------------ ------------
667,284,000 654,004,000
------------ ------------
MULTIFAMILY PROPERTIES
Active Senior Apartments
Land.................................................. 14,116,000 14,116,000
Buildings and improvements............................ 57,083,000 56,270,000
------------ ------------
71,199,000 70,386,000
Accumulated depreciation.............................. (5,259,000) (3,303,000)
------------ ------------
65,940,000 67,083,000
------------ ------------
Family Apartments
Land.................................................. 26,899,000 28,388,000
Buildings and improvements............................ 70,883,000 76,161,000
97,782,000 104,549,000
Accumulated depreciation.............................. (13,709,000) (12,224,000)
------------ ------------
84,073,000 92,325,000
------------ ------------
TOTAL OPERATING PROPERTIES
Land.................................................. 232,665,000 229,920,000
Buildings and improvements............................ 657,347,000 633,268,000
------------ ------------
890,012,000 863,188,000
Accumulated depreciation.............................. (72,715,000) (49,776,000)
------------ ------------
$817,297,000 $813,412,000
============ ============
</TABLE>
OPERATING PROPERTIES
Industrial Properties
At December 31, 1999, the Company owns and operates 69 operating industrial
properties containing an aggregate of 14,684,000 leasable square feet located in
the states of California, Washington, Nevada, Arizona and Oregon. During 1999,
the Company purchased three industrial properties located in Nevada and Arizona
containing an aggregate of 304,000 leasable square feet.
F-10
<PAGE> 40
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's industrial properties are leased to tenants under operating
leases with terms ranging from 1 to 5 years. The minimum future lease payments
to be received from noncancelable industrial leases for each of the next five
years ending December 31 and thereafter, are summarized as follows:
<TABLE>
<S> <C>
2000........................................................ $24,743,000
2001........................................................ 22,582,000
2002........................................................ 16,947,000
2003........................................................ 10,810,000
2004........................................................ 6,173,000
Thereafter.................................................. 6,427,000
-----------
$87,682,000
===========
</TABLE>
Multifamily Properties
At December 31, 1999, the Company owns and operates 18 multifamily
properties containing 3,069 apartment units located in Southern California,
including 8 multifamily properties with 1,438 units for active seniors. During
1999, the Company sold a multifamily property containing 196 apartment units
located in Southern California. (See Note 9.)
PROPERTIES UNDER DEVELOPMENT
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INDUSTRIAL PROPERTIES
Land.................................................... $13,662,000 $16,467,000
Buildings and improvements.............................. 26,656,000 23,459,000
----------- -----------
40,318,000 39,926,000
=========== ===========
MULTIFAMILY PROPERTIES
Active Senior Apartments
Land.................................................... 8,992,000 --
Buildings and improvements.............................. 3,505,000 --
----------- -----------
12,497,000 --
=========== ===========
TOTAL PROPERTIES UNDER DEVELOPMENT
Land.................................................... 22,654,000 16,467,000
Buildings and improvements.............................. 30,161,000 23,459,000
----------- -----------
$52,815,000 $39,926,000
=========== ===========
</TABLE>
PROPERTIES UNDER DEVELOPMENT
Industrial Properties
During 1999, the Company completed and transferred to operating properties
one rehabilitation project; a 382,000 square foot warehouse in San Diego,
California. The total rehabilitation cost for the property was $2,572,000. The
project is 100% occupied at December 31, 1999.
During 1999, the Company also completed development of a 209,000 square
foot industrial park in Lake Forest, California for a cost of $11,793,000,
excluding land costs of $3,554,000. The property is 97% occupied at December 31,
1999.
As of December 1999, the Company has under development in Southern
California and Washington, four industrial properties that will contain
approximately 709,000 leasable square feet, and one industrial
F-11
<PAGE> 41
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
property in Arizona under rehabilitation containing approximately 118,000
leasable square feet. Development costs, excluding land costs of $8,992,000, for
these properties totaled $27,105,000 through December 31, 1999.
Multifamily Properties
As of December 1999, the Company has under development three multifamily
properties for active seniors in California (two in Southern California and one
in Northern California) that will contain 669 units. Development costs for these
properties totaled $3,505,000.
3. LOANS PAYABLE
The Company's loans payable at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
MORTGAGE NOTES
Conventional mortgage debt
Industrial............................................ $141,519,000 $141,629,000
Active Senior......................................... 4,556,000 4,620,000
Family................................................ 33,853,000 26,355,000
------------ ------------
179,928,000 172,604,000
Tax exempt mortgage debt
Industrial............................................ -- --
Active Senior......................................... 43,799,000 44,697,000
Family................................................ 20,534,000 20,815,000
------------ ------------
64,333,000 65,512,000
Construction loans...................................... 50,432,000 31,979,000
Unsecured line of credit................................ 123,650,000 133,750,000
------------ ------------
$418,343,000 $403,845,000
============ ============
</TABLE>
MORTGAGE NOTES
At December 31, 1999, the Company's conventional mortgage debt consists of
21 notes secured by industrial properties and active senior and multifamily
apartments, due in monthly installments and maturing at various dates through
September 2025. Certain of the Company's conventional mortgage note agreements
contain cross-collateralization provisions (see schedule III). Approximately
$173,951,000 or 18 conventional mortgage notes bear fixed rates of interest
ranging from 6.78% to 8.50% per annum. The remaining three conventional mortgage
notes totaling $5,977,000 bear a variable rate of interest based on the Federal
Home Loan Bank 11th District Rate plus 2.8%. The weighted average interest rate
of the Company's conventional mortgage debt at December 31, 1999 was 7.51%.
During the year ended December 31, 1999, the Federal Home Loan Bank 11th
District Rate ranged from 4.48% to 4.69% and was 4.67% at December 31, 1999.
At December 31, 1999, the Company's tax-exempt mortgage debt consists of
eight notes totaling $64,333,000 that are secured by active senior properties
and multifamily apartment properties. Seven of the tax-exempt mortgage notes
totaling $55,352,000 and related bond financings are in a 30 year refunding
agreement, which is backed by credit and liquidity support from guaranteed
mortgage pass-through certificates issued by the Federal National Mortgage
Association ("FNMA"). Standard & Poor's Rating Group assigned a rating of AAA to
the bonds based on a collateral agreement with FNMA. The Company makes monthly
principal and interest payments on the loans to a trustee, which in turn pays
the bondholders when interest is due. The bonds are remarketed periodically and
bear interest at fixed rates scheduled to increase from 3.75% to 5.20% through
2007. Principal payments on the loans are amortized based on
F-12
<PAGE> 42
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
scheduled amounts over a 30-year period. As part of the refunding agreement, the
Company is required to deposit impounds with the trustee for property taxes,
property and liability insurance and reserves for capital replacements on a
semiannual basis. Unamortized finance costs and fees related to the refunding
agreement are included in other assets and totaled $2,976,000 and $1,462,000 at
December 31, 1999 and 1998, respectively. The weighted average interest rate of
the Company's tax-exempt mortgage notes backed by FNMA, at December 31, 1999,
was 6.35%.
The Company's eighth tax-exempt mortgage note is a variable rate obligation
supported by letters of credit from financial institutions. In 1999, the Company
replaced the existing credit enhancement which was maturing with FNMA. At
December 31, 1999 the principal amount of the debt was $8,981,000 and the
interest rate was 5.04% at December 31, 1999.
CONSTRUCTION LOANS
At December 31, 1999 the Company has six construction loans, which are
payable to a bank, and are secured by industrial properties under development.
The construction loans bear interest at LIBOR + 1.30% to 1.525% or the reference
rate payable monthly and mature between March 2000 and October 2001. Undisbursed
funds on the construction loans at December 31, 1999 total $22,023,000. Upon
completion of the properties, the Company has the option to convert the interest
rate on the loans into a fixed rate of interest upon meeting certain conditions.
At December 31, 1999, LIBOR was 5.835%.
UNSECURED LINE OF CREDIT
The Company has a $150,000,000 unsecured revolving credit agreement (the
"Line of Credit") which matures in April 2001. The interest rate payable under
the Line of Credit is based on the leverage level of the Company and at December
31, 1999 is LIBOR plus 1.30%.
The Company's Line of Credit contains certain debt covenants. The most
significant covenants require the Company to maintain a minimum net worth, a
leverage ratio based on a calculated asset value no greater than 50%, an
interest coverage ratio in excess of 2.00 (measured on a quarterly basis) and a
fixed charge coverage ratio of not less than 1.75. In addition, the Line of
Credit contains a provision which limits the loan availability amount to
approximately 58% of the value of the Company's unencumbered assets, less
unsecured debt. As of December 31, 1999, the Company was in compliance with all
debt covenants.
INTEREST RATE SWAP AGREEMENTS
The Company has interest rate swap agreements that effectively convert
certain floating rate mortgage notes to a fixed-rate basis, thus reducing the
impact on future earnings of fluctuations in interest rates. At December 31,
1999, the Company's interest rate swap agreements have notional amounts totaling
$34,500,000 under which the Company pays fixed rates of interest and receives
floating rates of interest based on an index that is reset weekly. The swap
counterparties are all financial institutions rated AAA by Standard & Poor's.
The rate differences to be paid or received are accrued and included in interest
expense as a yield adjustment and the related payable or receivable from
counterparties is included in accrued liabilities or other assets. The interest
rate swap agreements mature in August, 2000.
F-13
<PAGE> 43
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LOANS PAYABLE MATURITIES
The principal payments due on loans payable for each of the next five years
ending December 31 and thereafter are summarized as follows:
<TABLE>
<S> <C>
2000........................................................ $ 68,001,000
2001........................................................ 149,456,000
2002........................................................ 22,644,000
2003........................................................ --
2004........................................................ 4,366,000
Thereafter.................................................. 173,876,000
------------
$418,343,000
============
</TABLE>
4. CONVERTIBLE SUBORDINATED DEBENTURES
The Company called for redemption of $6,500,000 of its outstanding
debentures on August 18, 1999. As of that date, $6,300,000 of the debentures
called had converted into 338,301 shares of Common Stock. The Company redeemed
the remaining $200,000 for cash.
The Company called for redemption of its remaining outstanding debenture of
$5,273,000 on November 10, 1999. As of that date, $5,110,000 of the debentures
called had converted into 274,373 shares of Common Stock. The Company redeemed
the remaining $163,000 for cash.
5. BENEFIT PLANS
SHARE OPTION PLANS
The Company has stock options outstanding under share option plans as more
fully described in the Company's proxy filed with the Securities and Exchange
Commission. The Company's stock options consist of fixed and variable stock
options as listed below. Fixed options vest over a specified period. Variable
options are subject to performance based vesting criteria. Available shares
under the Company's share option plans totaled 3,145,000 (including 300,000
reserved for non-employee directors). Approximately 845,000 of the Company's
options, at an exercise price of $20.75 per share, were granted under a plan
approved by the Board of Directors and is subject to shareholder approval.
F-14
<PAGE> 44
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIXED STOCK OPTIONS
The stock options listed in the table below, except as noted, primarily
vest in equal installments over a five-year period from the date of the grant
and expire ten years from the original grant date.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996........................ 241,200 $15.00 - $18.25
Granted............................................... 468,000 $20.75 - $23.75
Canceled.............................................. (4,000) $18.25
Exercised............................................. (13,550) $16.25 - $21.38
--------- ----------------
Outstanding at December 31, 1997........................ 691,650 $15.00 - $23.75
Granted............................................... 340,000 $19.50 - $22.56
Canceled.............................................. (3,500) $18.25
Exercised............................................. (900) $21.38
--------- ----------------
Outstanding at December 31, 1998........................ 1,027,250 $15.00 - $23.75
Granted(a)............................................ 285,000 $18.94 - $20.75
Canceled.............................................. (17,850) $19.00 - $22.625
Exercised............................................. (8,486) $15.00 - $20.06
--------- ----------------
Outstanding at December 31, 1999........................ 1,285,914 $15.00 - $23.75
=========
</TABLE>
- ---------------
(a) 210,000 of options vest in equal installments over a three-year period from
the date of the grant and expire ten years from the original grant date.
VARIABLE STOCK OPTIONS
A summary of the status of the Company's variable stock options as of
December 31, 1999 and changes during the year is presented below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1998............................ -- --
Granted................................................... 635,000 20.75
Canceled.................................................. -- --
Exercised................................................. -- --
------- -----
Outstanding at December 31, 1999............................ 635,000 20.75
======= =====
</TABLE>
Variable stock options will vest depending on achieving certain specified
performance measures of the Company during the period July 1, 1999 through
December 31, 2001. Subject to the shareholders approval discussed above vesting
of such options will occur after December 31, 2001 (subject to earlier vesting
in the event of a change in control of the Company or the death or disability of
a participant). Measurement of the specified performance criteria and the
determination of the number of options that will vest, if any, will occur at the
end of 2001. Any variable options that do not vest will expire.
As described in Note 1, the Company adopted Statement SFAS No. 123
effective January 1, 1999. Accordingly, the Company accounts for all options
granted after January 1, 1999 using the fair value method which resulted in
compensation expense totaling $182,000 for the year ended December 31, 1999.
Stock options granted after January 1, 1999 and accounted under SFAS No. 123
totaled 920,000, all of which are outstanding at December 31, 1999.
F-15
<PAGE> 45
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company continues to account for options granted prior to January 1,
1999 using the previous standard (APB No. Opinion 25) which has resulted in no
compensation costs being recorded. Stock options granted prior to January 1,
1999 and accounted under this Opinion No. 25 totaled 1,070,700, of which
1,000,914 are outstanding at December 31, 1999.
For disclosure purposes only, the Company has measured the compensation
cost which would have been recognized had the fair value of the these pre-1999
options been used at the date of their grant for accounting purposes in
accordance with SFAS No. 123. Based on such calculations, net income and
earnings per share amounts would be approximately the same as the amounts
reported by the Company. The fair value of all options at date of grant was
estimated using a Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest of 5.51%; a dividend yield of 8.60%; a
volatility factor for the price of the Company's common shares of .210 and
expected lives for the options of ten years.
RESTRICTED STOCK AWARDS
The Company awards restricted stock to its employees for compensation
purposes. Compensation expense related to restricted stock awards is measured
based on the market price of the stock on the date of the grant, and is expensed
ratably over the vesting period of each award with the unamortized portion
reflected as outstanding restricted stock in the shareholders' equity section in
the Company's balance sheets.
The restricted stock awards listed in the table below were awarded to
employees based on performance and vest over periods ranging between one to
seven years.
<TABLE>
<CAPTION>
NUMBER OF
AWARDS
---------
<S> <C>
Outstanding at December 31, 1997.......................... 48,796
Granted................................................... 25,261
------
Outstanding at December 31, 1998.......................... 74,057
Granted................................................... 15,000
------
Outstanding at December 31, 1999.......................... 89,057
------
Vested at December 31, 1999............................... 41,549
======
</TABLE>
At December 31, 1999 and 1998, the unamortized amount of outstanding
restricted stock issued to employees which will be charged to compensation
expense in future periods totaled $1,193,000 and $1,203,000, respectively.
THRIFT PLAN
The Company has a thrift plan under which employees may elect to contribute
up to 21% of their annual compensation, excluding bonuses, on a combination
before-and-after tax basis. Contributions by the employee are matched by the
Company at a 75% rate with total matching contributions not exceeding 4 1/2% of
the contributing employee's annual compensation up to a maximum of 6% of
compensation. Matching contributions and employee contributions are invested in
a fixed income fund, various growth funds, or a combination thereof, according
to the employee's choice. The thrift plan provides for 20% vesting of
contributions by the Company for each full year of service, increasing to 100%
vesting after five years of service. Contributions made by the Company to the
thrift plan for the years ended December 31, 1999, 1998 and 1997 totaled
$107,000, $113,000, and $29,000 respectively.
F-16
<PAGE> 46
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RETIREMENT INCOME PLAN
The Company has a defined benefit retirement plan for full time employees
who are at least 21 years of age with one or more years of service. Plan assets
consist of investments in a life insurance group annuity contract. Plan benefits
are based primarily on years of service and qualifying compensation during the
final years of employment. Funding requirements comply with federal requirements
that are imposed by law. The Company has adopted Statement No. 132, Employers'
Disclosures About Pensions and Other Post-Retirement Benefits, in 1998.
Accordingly, the following information reflects the required disclosures
pursuant to that Statement.
Net periodic pension cost related to the retirement income plan includes
amortization of past service cost over a remaining period of 26 years. Based
upon actuarial valuation dates as of December 31, 1999 and 1998, the benefit
obligations were $2,040,000 and $1,878,000, respectively, and the plan's net
assets available for benefits were $1,392,000 in 1999 and $1,142,000 in 1998.
The Company's net periodic pension cost included in general and
administrative expenses for the years ended December 31, 1999, 1998, and 1997
consists of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Service cost.......................................... $ 288,000 $275,000 $116,000
Interest cost on projected benefit obligation......... 122,000 112,000 65,000
Expected return on plan assets........................ (103,000) (63,000) (41,000)
Amortization of transition/obligation................. 7,000 7,000 --
Amortization of unrecognized prior service costs and
unrecognized net obligation......................... 13,000 24,000 1,000
--------- -------- --------
Net periodic pension cost............................. $ 327,000 $355,000 $141,000
========= ======== ========
</TABLE>
F-17
<PAGE> 47
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the plan's funded status for the fiscal
years ending December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $1,878,000 $1,598,000
Service cost................................................ 288,000 275,000
Interest cost............................................... 122,000 112,000
Plan participant contributions.............................. -- --
Actuarial gain.............................................. (150,000) (107,000)
Benefits paid............................................... -- --
Other....................................................... (98,000) --
---------- ----------
Benefit obligation at end of year........................... $2,040,000 $1,878,000
========== ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $1,142,000 $ 704,000
Actual return on plan assets................................ (41,000) 109,000
Employer contributions...................................... 291,000 329,000
Plan participant contributions.............................. -- --
Benefits paid............................................... -- --
Other....................................................... -- --
---------- ----------
Fair value of plan assets at end of year.................... $1,392,000 $1,142,000
========== ==========
RECONCILIATION OF FUNDED STATUS
Funded status underfunded................................... $ (648,000) $ (735,000)
Unrecognized net actuarial loss............................. 281,000 293,000
Unrecognized transition obligation.......................... 153,000 160,000
Unrecognized prior service cost............................. 19,000 124,000
---------- ----------
Accrued benefit cost........................................ $ (195,000) $ (158,000)
========== ==========
ADDITIONAL MINIMUM LIABILITY DISCLOSURES
Accrued benefit liability................................... $ -- $ --
Intangible asset............................................ -- --
Other comprehensive income, not adjusted for applicable
income tax................................................ $ -- $ --
</TABLE>
Assumptions used in determining the status of the Company's retirement
income plan are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate.............................. 7.0% 6.5% 7.0%
Weighted average rate of increase in compensation levels.... 4.8% 4.9% 4.9%
Expected long-term rate of return on plan assets............ 7.5% 7.5% 7.5%
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
In conjunction with its initial public offerings, the Company assumed the
deferred compensation obligations attributable to employees who were previously
employed by its predecessor. Deferred compensation agreements were provided to
selected management employees with a fixed benefit at retirement. Benefits were
based primarily on years of service and qualifying compensation during the final
years of employment. During 1995, the deferred compensation agreements were
substantially replaced with restricted stock.
F-18
<PAGE> 48
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONSOLIDATED REAL ESTATE PARTNERSHIPS
The Company's consolidated partnerships include the following:
PGP Inland Communities, L.P.
PGP Inland Communities, L.P., a Delaware limited partnership (the
"Partnership") was formed by the Company in August 1995 for the purpose of
acquiring and operating 11 multifamily properties consisting of 1,368 apartment
units located in Southern California (the "Properties") which were contributed
by unrelated parties. In exchange for contributing the Properties to the
Partnership, the unrelated parties received approximately 225,452 limited
partnership units representing an initial ownership interest of approximately
22%. The Company is the sole general partner in the Partnership and currently
holds an ownership interest of approximately 84%. The terms of the Partnership
agreement provide that all net income (and cash flow) from the Properties be
allocated (distributed) to the Company until the Properties have achieved a
threshold net operating income of $6,200,000 for any given year, and
cumulatively for all prior years. The Partnership's results of operations since
1995 have been fully allocated to the Company. Beginning in August 1997, the
Partnership's limited partnership units can be tendered for redemption on a
one-for-one basis for cash or for shares of common stock at the election of the
Company. As of December 31, 1999, 55,920 of these units have been tendered for
cash, the cost of which has been capitalized to the properties.
Terrace Gardens -- PGP L.P. and Morning View Terrace -- PGP L.P.
In June 1997, the Company, through its subsidiaries, PGP Terrace Gardens
Holdings Inc. and PGP Morning View Terrace Holdings Inc., acquired a controlling
general partner interest in two existing limited partnerships ("Terrace Gardens"
and "Morning View") that own two adjacent active seniors apartment communities
located in Escondido, California. The properties contain an aggregate of 551
apartment units. Following the acquisition, the Company became the sole general
partner of the existing limited partnerships (Terrace Gardens -- PGP L.P. and
Morning View Terrace -- PGP L.P.) that own and manage the properties. The
existing partners of the partnerships received an aggregate of approximately
266,000 limited partnership units in such partnerships valued at $5,596,000.
Beginning in June 1999, the limited partnership units can be tendered for
redemption to the Company. Upon tender, the Company, at its election, may either
issue common shares for the units on a one-for-one basis (subject to certain
adjustments) or pay cash for the units based on the then fair market value of
the Company's common shares. Since 1997, approximately 129,000 limited
partnership units were tendered for cash, the cost of which was capitalized to
the properties. As a result of the tender, the Company currently holds an
ownership interest of approximately 58% and 59% in Terrace Gardens -- PGP L.P
and Morning View Terrace -- PGP L.P., respectively. Net income from the
partnerships is allocated to the limited partners based on an amount equal to
the Company's dividend rate on common stock applied to the number of limited
partnership units held by stock partners and the remaining income is allocated
to the Company. Distributions are made to the extent of cash flow available.
PGP Northern Industrial L.P.
On October 20, 1997, the Company acquired a controlling general partner
interest in PGP Northern Industrial L.P., a California limited partnership ("PGP
Northern")which owns two industrial properties ("Eden Plaza/Eden Industrial")
containing approximately 501,000 leasable square feet located in Hayward,
California. The Company acquired such interest for a cash contribution of
approximately $3,977,000. The previous owners of Eden Plaza/Eden Industrial
became limited partners in PGP Northern and received 143,391 limited partnership
units valued at $2,869,000 in exchange for the contribution of the two
industrial properties. The limited partnership units can be tendered for
redemption to the Company. Upon tender, the Company, at its election, may either
issue common shares for the units on a one-for-one basis (subject to certain
adjustments) or pay cash for the units based on the then fair market value of
the common shares. At
F-19
<PAGE> 49
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999, the Company holds an ownership interest of approximately 59%.
Net income from the partnership is allocated to the limited partners based on an
amount equal to the Company's dividend rate on common stock applied to the
number of limited partnership units held by such partners and the remaining
income is allocated to the Company. Distributions are made to the extent of cash
flow available.
PGP Southern Industrial II, L.P.
On March 13, 1998, the company acquired a controlling general partner
interest in PGP Southern Industrial II, L.P., a California limited partnership
("PGP Southern") which owns a 168,000 square foot distribution facility located
in Garden Grove, California. The other partner in the partnership received an
aggregate of 404,950 limited partnership units in the partnership for an
aggregate value of $9,000,000. Beginning in March, 1999 the limited partnership
units can be tendered for redemption to the Company. 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. Net income from the partnerships is
allocated to the limited partners based on an amount equal to the Company's
dividend rate on common stock applied to the number of limited partnership units
held by stock partners and the remaining income is allocated to the Company.
Distributions are made to the extent of cash flow available.
Condensed unaudited combined financial information for the consolidated
real estate partnerships as of December 31, 1999 and 1998 and for the years
ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Real Estate Assets
Land.................................................. $ 34,903,000 $ 34,903,000
Building.............................................. 97,632,000 96,087,000
------------ ------------
132,535,000 130,990,000
Accumulated depreciation................................ (10,491,000) (6,886,000)
------------ ------------
122,044,000 124,104,000
Cash and other assets................................... 10,933,000 8,404,000
------------ ------------
$132,977,000 $132,508,000
============ ============
Liabilities (primarily tax-exempt and mortgage notes)... $ 89,600,000 $ 90,749,000
Partners' Capital
Company............................................... 25,300,000 23,947,000
Minority interests.................................... 18,077,000 17,812,000
------------ ------------
43,377,000 41,759,000
------------ ------------
$132,977,000 $132,508,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues........................................ $20,159,000 $18,505,000 $12,999,000
Expenses........................................ 16,606,000 13,575,000 12,129,000
----------- ----------- -----------
Net income...................................... $ 3,553,000 $ 4,930,000 $ 870,000
=========== =========== ===========
Company's share of net income................... $ 2,211,000 $ 3,906,000 $ 698,000
Minority partners' interest in earnings of
consolidated partnerships..................... 1,342,000 1,024,000 172,000
----------- ----------- -----------
$ 3,553,000 $ 4,930,000 $ 870,000
=========== =========== ===========
</TABLE>
F-20
<PAGE> 50
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
GENERAL MATTERS
The Company's commitments and contingencies include the usual obligations
of real estate owners and operators in the normal course of business. In the
opinion of management, these matters will not have a material adverse effect on
the Company's consolidated financial statements.
As of December 31, 1999, 11% of the apartment units within the Company's
multifamily properties were required to be set aside for residents within
certain income levels and had limitations on the rent that could be charged to
such tenants.
GROUND LEASE COMMITMENTS
One of the Company's industrial properties is subject to a ground lease
that expires in July 2035 which is accounted for as an operating lease. Monthly
ground lease payments total $22,000 and are subject to increases based on the
Consumer Price Index, with the next adjustment in September 2000. Ground lease
payments during 1999 and 1998 totaled $261,000 in each year. Two other
("PGBP -- Irvine" and "PGBP -- Cerritos") industrial properties acquired in
December 1997 are subject to ground leases which expire in August 2029 and April
2034, respectively. Monthly ground lease payments total $36,000 and $43,000 and
are subject to increases based on the Consumer Price Index, with the next
adjustment in April 2009 and October 2004 for Irvine and Cerritos, respectively.
Ground lease payments during 1999 and 1998 on the Irvine property totaled
$430,000 and $303,000 respectively and ground lease payments on the Cerritos
property totaled $473,000 and $455,000, respectively. During June 1998, the
Company acquired a property in Tustin which is subject to a ground lease which
expires in January 2044. Annual ground lease payments in the amount of $101,000
are due in January of each year; such payments are expected to increase in
January 2001 based on a reappraisal of the land value.
The minimum future ground lease payments to be made for each of the next
five years ending December 31 and thereafter, are summarized as follows:
<TABLE>
<S> <C>
2000........................................................ $ 1,303,000
2001........................................................ 1,303,000
2002........................................................ 1,303,000
2003........................................................ 1,303,000
2004........................................................ 1,303,000
Thereafter.................................................. 37,149,000
</TABLE>
LETTER OF CREDIT
In December 1998 in conjunction with the sale of the Company's Washington
apartment communities, the Company restructured the existing indebtedness on the
Hampton Bay apartment community. The lender, a life insurance company, released
the Hampton Bay property as collateral and accepted a letter of credit in the
amount of $9,400 000 as substitution collateral. The Company replaced the letter
of credit by providing its City of Industry industrial project as replacement
collateral in May 1999.
8. CAPITAL STOCK
COMMON SHARES
In May 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 eliminate the 30,000,000 of Excess Stock
authorized.
F-21
<PAGE> 51
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SHELF REGISTRATION STATEMENT
During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the aggregate amount of $300,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase such securities of the Company (the "1998 Shelf
Registration Statement"). The 1998 Shelf Registration Statement was declared
effective April 23, 1998 by the Securities and Exchange Commission. Availability
under the 1998 Shelf Registration Statement at December 1999 was $300,000,000.
During 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $250,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase such securities of the Company (the "1997 Shelf
Registration Statement"). The 1997 Shelf Registration Statement was declared
effective April 11, 1997 by the Securities and Exchange Commission. Availability
under the 1997 Shelf Registration Statement at December 31, 1999 was
$56,126,000.
PREFERRED STOCK
In May 1998, the shareholders voted 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 Preferred Stock as additional shares of Class A
Preferred Stock and changed the liquidation preference of the Class A Preferred
Stock to $19.91 per share to reflect the economic terms of such reclassification
of the Class B Preferred Stock.
The Class A Preferred Stock are convertible into shares of common stock, on
a one-for-one basis, subject to adjustment upon certain events. The annual
dividend per share on the Class A Preferred Stock is $1.70 from the date of
issuance until December 31, 1997 and thereafter, the greater of $1.70 per share
or 104% of the then current dividend on the Company's common stock. At its
option, the Company may redeem the Class A Preferred Stock beginning December
31, 2001 for cash at a premium of 6% over the initial $18.50 per share
liquidation value, decreasing to zero % by December 31, 2009. The Class A
Preferred Stock, or any shares of common stock into which such Class A Preferred
Stock could be converted, were nontransferable until June 30, 1998.
9. GAINS ON SALE OF REAL ESTATE
In December 1999, the Company sold a 16,848 square foot industrial property
located in Concord, California for $1,400,000. The net gain recognized was
$106,000.
In October 1999, the Company sold a 302,020 square foot industrial property
located in Ontario, California for $11,160,000. The net gain recognized was
$2,514,000.
In August 1999, the Company sold a 42,240 square foot industrial property
located in Seattle, Washington for $1,900,000. The net gain recognized was
$492,000.
In August 1999, the Company recognized a deferred gain of $850,000 as a
result of the collection of a note receivable relating to the sale of the
Company's Texas properties in 1995.
During the second quarter of 1999, the Company sold a 91,200 square foot
single-tenant industrial property locate in Anaheim, California and a 1.05 acre
parcel of land in Lake Forest, California, for $4,680,000 and $850,000,
respectively. The net gain recognized from these sales was $1,159,000.
In February 1999, the Company sold a multifamily apartment property located
in Santa Ana, California, consisting of 196 apartment units for $11,000,000 and
recognized a gain on sale of $3,351,000.
F-22
<PAGE> 52
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In December 1998, the Company sold five apartment properties located in
Washington consisting of 1,322 apartment units for $78,500,000 and recognized a
gain on sale of $28,913,000.
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 $6,379,000.
In December 1997, the Company sold an apartment property located in Oregon
consisting of 279 apartment units for $15,575,000 and recognized a gain on sale
of $5,705,000.
In April 1997, the Company sold its 7,000 square foot Corporate office in
Newport Beach, California for $850,000 and recognized a loss on the sale of
$111,000. The Company has relocated to a newly acquired 26,000 square foot
facility also located in Newport Beach, California.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share which have been restated to comply with Statement No.
128:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- --------------------------------------
WEIGHTED WEIGHTED
AVERAGE EARNINGS AVERAGE EARNINGS
EARNINGS SHARES PER EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
----------- ------------- -------- ----------- ------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
Common
shareholders....... $34,899 20,148 $1.73 $59,997 19,939 $3.01
===== =====
EFFECT OF DILUTIVE
SECURITIES
Stock options........ 11 31
Restricted stock..... 98 86
Limited partnership
units.............. 1,342 868 1,024 811
Convertible
subordinated
debentures......... 697 470 1,171 660
Convertible preferred
stock.............. 4,856 2,763
------- ------ ------- ------
DILUTED EPS.......... $36,938 21,595 $1.71 $67,048 24,290 $2.76
======= ====== ===== ======= ====== =====
<CAPTION>
1997
--------------------------------------
WEIGHTED
AVERAGE EARNINGS
EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE
----------- ------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC EPS
Income available to
Common
shareholders....... $20,603 13,686 $1.51
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options........ 17
Restricted stock..... 63
Limited partnership
units.............. 172 363
Convertible
subordinated
debentures.........
Convertible preferred
stock..............
------- ------
DILUTED EPS.......... $20,775 14,129 $1.47
======= ====== =====
</TABLE>
Shares of senior cumulative convertible preferred stock, convertible into
2,763,116 shares of common stock, were issued and outstanding during 1999 and
1997 but were not included in computing diluted earnings per share. Including
these shares of preferred stock in the computations increases earnings per share
$.01, and are therefore considered antidilutive. Convertible subordinated
debentures, convertible into 682,000 shares of common stock, were outstanding
during 1997, but were not included in the computation of diluted earnings per
share because the effect would be antidilutive.
11. REPORTABLE SEGMENTS
During the fourth quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect the results of operations or financial position of the
Company.
F-23
<PAGE> 53
PACIFIC GULF PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company operates and develops industrial properties and multifamily
properties (consisting of active senior and family apartments). The properties
generate rental and other income through the leasing of industrial space and
apartment units to a diverse base of tenants.
The Company separately evaluates the performance both of its industrial and
multifamily operating segments and allocates resources primarily based on net
operating income ("NOI"). NOI is defined by the Company as rental income less
rental property expenses. Accordingly, NOI excludes certain expenses such as
interest, depreciation and minority interests in consolidated partnerships which
are included in the determination of Net Income under generally accepted
accounting principles.
NOI from industrial properties totaled $76,718,000, $59,525,000 and
$28,198,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
NOI from multifamily properties totaled $16,546,000, $23,107,000 and $20,342,000
for the years ended 1999, 1998 and 1997, respectively.
All revenues are from external customers and no revenues are generated from
transactions between segments. There are no tenants which contributed 10% or
more of the Company's total revenues during 1999, 1998 or 1997. Interest expense
on debt is not allocated to the segments or individual properties even if such
debt is secured by the properties. Certain items in the consolidated statements
of operations such as minority interest in consolidated partnerships are not
allocated to the properties. Additionally, there is no provision for income
taxes as the Company is organized as a REIT under the Internal Revenue Code.
12. SELECTED QUARTERLY DATA (UNAUDITED)
The following tables set forth the quarterly results of operations of the
Company for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Revenues.......................................... $29,690 $30,864 $31,557 $32,057
Income before gains on sale of real estate........ $ 7,656 $ 8,064 $ 7,685 $ 7,993
Gains on sale of real estate...................... $ 3,351 $ 1,273 $ 1,228 $ 2,620
Income available to common shareholders........... $ 9,771 $ 8,102 $ 7,677 $ 9,349
Earnings per share:
Basic........................................... $ 0.49 $ 0.41 $ 0.38 $ 0.46
Diluted......................................... $ 0.48 $ 0.40 $ 0.38 $ 0.45
1998
Revenues.......................................... $25,318 $27,799 $29,792 $30,220
Income before gains on sale of real estate........ $ 7,415 $ 7,643 $ 7,221 $ 7,282
Gains on sale of real estate...................... $ -- $ -- $ 6,427 $28,865
Income available to common shareholders........... $ 6,208 $ 6,436 $12,441 $34,912
Earnings per share:
Basic........................................... $ 0.31 $ 0.32 $ 0.62 $ 1.75
Diluted......................................... $ 0.31 $ 0.32 $ 0.58 $ 1.51
</TABLE>
F-24
<PAGE> 54
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COSTS TO SUBSEQUENT TO GROSS AMOUNT AT WHICH
COMPANY ACQUISITION CARRIED AT CLOSE OF PERIOD
----------------------- ------------- ---------------------------------
BUILDINGS LAND AND BUILDINGS
AND BUILDING AND
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------- ------------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
CALIFORNIA
Baldwin Industrial Park.......... 11,270 999 27,876 1,042 8,155 21,762 29,917
Garden Grove Industrial Center... 5,293 4,230 4,564 973 4,230 5,537 9,767
PGDC -- Etiwanda................. 5,310 10,801 (6,606) 2,549 6,956 9,505
PGBP -- Rancho Cucamonga......... 3,795 1,610 8,196 898 1,610 9,094 10,704
Crescent Business Center......... 1,666 3,367 726 1,666 4,093 5,759
Vista Distribution Center........ 7,789 3,465 7,896 1,126 3,465 9,022 12,487
PGBP -- Hoover................... 3,905 3,016 1,193 3,905 4,209 8,114
PGDC -- Bell Ranch Road.......... 2,475(d) 1,725 2,041 473 1,725 2,514 4,239
PGBP -- La Mirada................ 1,541 2,057 464 1,541 2,521 4,062
PGBP -- Pacific Park............. 4,425(d) 2,760 4,142 749 2,760 4,891 7,651
PGBP -- North County............. 4,125(d) 2,713 3,625 369 2,713 3,994 6,707
PGBP -- Bay San Marcos........... 2,700(d) 1,827 2,907 132 1,827 3,039 4,866
PGBC -- Escondido................ 6,300(d) 3,782 6,614 919 3,782 7,533 11,315
PG Commerce Park -- Eden
Landing......................... 2,239 5,107 1,261 2,239 6,368 8,607
PGBP -- San Marcos............... 825 1,838 406 825 2,244 3,069
PGBP -- Riverview Industrial
Park............................ 4,475(d) 1,147 5,320 846 1,147 6,166 7,313
PGDC -- City of Industry......... 7,406 5,774 2,155 8,427 6,686 9,670 16,356
PGBP -- Miramar.................. -- 7,287 774 -- 8,061 8,061
Harbor Business Park............. 1,924 7,231 683 1,924 7,914 9,838
Harbor Warner Business Park...... 1,299 4,257 409 1,299 4,666 5,965
Woodland Distribution Center..... 1,824 11,002 82 1,824 11,084 12,908
PGDC -- Chino.................... 33,973(f) 2,208 8,483 277 2,208 8,760 10,968
PGDC -- Downey................... (f) 3,568 8,027 173 3,568 8,200 11,768
PGDC -- Fontana.................. (f) 2,801 11,422 66 2,801 11,488 14,289
PG Warm Springs Industrial
Park............................ (f) 4,985 12,034 558 4,985 12,592 17,577
PGDC -- Rancho Bernardo.......... (f) 4,737 9,467 384 4,737 9,851 14,588
PG -- Spectrum Center............ (c) -- -- 113 -- 113 113
PGDC -- Miramar Village.......... (g) 5,518 10,581 5,507 5,520 16,086 21,606
Concord Busn Park................ 1,593 6,054 541 1,593 6,595 8,188
PG -- Commerce Park Anaheim...... 1,589 5,333 506 1,589 5,839 7,428
PG -- Commerce Park Sacramento... 2,642 12,928 1,097 2,642 14,025 16,667
PG -- Commerce Park San Tomas.... 6,279 14,694 985 6,279 15,679 21,958
PG -- Commerce Park Sunnyvale.... 2,864 11,482 332 2,864 11,814 14,678
Acacia Busn Center............... 1,967 7,141 12 1,967 7,153 9,120
PGDC -- Anaheim.................. 2,509 3,630 51 2,509 3,681 6,190
Tower Park....................... 2,069 7,515 2,675 2,069 10,190 12,259
PGBC -- Fullerton................ 1,197 4,336 217 1,197 4,553 5,750
Bradshaw Busn Center............. 2,725 2,087 6,637 164 2,087 6,801 8,888
Horn Road Busn Park.............. 2,788 6,739 326 2,788 7,065 9,853
PGBP -- Irvine................... -- 7,020 432 -- 7,452 7,452
PGBP -- Cerritos................. -- 8,485 338 -- 8,823 8,823
PGBP -- Montebello............... 2,338 2,471 125 2,338 2,596 4,934
Norwood Indrl Pk................. 1,216 3,500 345 1,216 3,845 5,061
Eden Plaza....................... 11,639(e) 2,062 4,617 962 2,062 5,579 7,641
Eden Rock #5..................... (e) 653 1,462 54 653 1,516 2,169
Eden Rock #9..................... (e) 653 1,462 52 653 1,514 2,167
Eden Rock #10.................... (e) 2,614 5,847 1,279 2,614 7,126 9,740
PGBP -- Lake Forest.............. 3,555 10,677 1,116 3,555 11,793 15,348
Mountain Ave Busn Park........... 1,110 4,038 118 1,110 4,156 5,266
Lurline Industrial Park.......... 2,374 5,270 489 2,374 5,759 8,133
PGBP -- Los Alamitos............. 1,082 6,169 375 1,082 6,544 7,626
<CAPTION>
MAXIMUM
LIFE
ON WHICH
DEPRECIATION
IN LATEST
INCOME
ACCUMULATED DATE OF DATE STATEMENT IS
DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
CALIFORNIA
Baldwin Industrial Park.......... 9,917 1983, 1985 1994 30 Years
Garden Grove Industrial Center... 949 1979 1994 40 Years
PGDC -- Etiwanda................. 1,525 1991 1994 40 Years
PGBP -- Rancho Cucamonga......... 1,842 1987, 1990 1994 40 Years
Crescent Business Center......... 663 1981 1994 40 Years
Vista Distribution Center........ 1,756 1990 1994 40 Years
PGBP -- Hoover................... 771 1986 1996 40 Years
PGDC -- Bell Ranch Road.......... 224 1981 1996 40 Years
PGBP -- La Mirada................ 456 1975 1996 30 Years
PGBP -- Pacific Park............. 556 1988 1996 40 Years
PGBP -- North County............. 486 1987, 1988 1996 40 Years
PGBP -- Bay San Marcos........... 345 1988 1996 40 Years
PGBC -- Escondido................ 944 1988-92 1996 40 Years
PG Commerce Park -- Eden
Landing......................... 1,063 1972-74 1996 30 Years
PGBP -- San Marcos............... 288 1985 1996 30 Years
PGBP -- Riverview Industrial
Park............................ 703 1980 1996 30 Years
PGDC -- City of Industry......... 1,706 n/a 1996 n/a
PGBP -- Miramar.................. 756 1981 1996 30 Years
Harbor Business Park............. 795 1974, 1976 1997 40 Years
Harbor Warner Business Park...... 491 1974, 1976 1997 40 Years
Woodland Distribution Center..... 808 n/a 1997 40 Years
PGDC -- Chino.................... 798 1988 1997 30 Years
PGDC -- Downey................... 721 1988 1997 30 Years
PGDC -- Fontana.................. 955 1989 1997 30 Years
PG Warm Springs Industrial
Park............................ 1,109 1980 1997 30 Years
PGDC -- Rancho Bernardo.......... 864 1990 1997 30 Years
PG -- Spectrum Center............ -- 1989 1999 40 Years
PGDC -- Miramar Village.......... 1,143 1980, 1997 1997 30 Years
Concord Busn Park................ 577 1989 1997 30 Years
PG -- Commerce Park Anaheim...... 405 1972 1997 40 Years
PG -- Commerce Park Sacramento... 800 1972 1997 40 Years
PG -- Commerce Park San Tomas.... 906 1972 1997 40 Years
PG -- Commerce Park Sunnyvale.... 683 1972 1997 40 Years
Acacia Busn Center............... 511 1980 1997 30 Years
PGDC -- Anaheim.................. 202 1961 1997 40 Years
Tower Park....................... 616 1951 1997 40 Years
PGBC -- Fullerton................ 259 1979 1997 40 Years
Bradshaw Busn Center............. 487 1988, 1989 1997 30 Years
Horn Road Busn Park.............. 537 1988 1997 30 Years
PGBP -- Irvine................... 485 1979 1997 40 Years
PGBP -- Cerritos................. 654 1985 1997 30 Years
PGBP -- Montebello............... 200 1985 1997 30 Years
Norwood Indrl Pk................. 309 1988 1997 30 Years
Eden Plaza....................... 591 1974 1997 40 Years
Eden Rock #5..................... 105 1973 1997 40 Years
Eden Rock #9..................... 109 1973 1997 40 Years
Eden Rock #10.................... 643 1973 1997 40 Years
PGBP -- Lake Forest.............. 681 1998 1998 40 Years
Mountain Ave Busn Park........... 215 1977 1998 30 Years
Lurline Industrial Park.......... 335 1976-78 1998 30 Years
PGBP -- Los Alamitos............. 348 1975 1998 30 Years
</TABLE>
F-25
<PAGE> 55
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COSTS TO SUBSEQUENT TO GROSS AMOUNT AT WHICH
COMPANY ACQUISITION CARRIED AT CLOSE OF PERIOD
----------------------- ------------- ---------------------------------
BUILDINGS LAND AND BUILDINGS
AND BUILDING AND
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ------- ------------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Walnut Ave Busn Park............. 1,686 3,148 153 1,686 3,301 4,987
Madison West Busn Park........... 2,107 3,789 373 2,107 4,162 6,269
PGBC -- Garden Grove II.......... 2,259 6,098 5,625 554 6,098 6,179 12,277
PBGC -- Irvine Cartwright........ 3,803 7,464 8 3,803 7,472 11,275
PGBC -- Tustin................... 9,000 -- 19,069 527 -- 19,596 19,596
PGDC -- Whittier................. 2,505 6,625 46 2,505 6,671 9,176
Contra Costa Diablo Busn Park.... 3,243 4,835 (623) 2,765 4,691 7,455
Sierra Trinity Industrial Park... 8,233 14,873 696 8,233 15,569 23,802
Hesperian Industrial Park........ 3,193 4,877 207 3,193 5,084 8,277
West Sacramento Industrial
Center.......................... 1,288 5,158 130 1,288 5,288 6,576
Garden Grove Industrial-Hunt
Ave............................. 2,920 6,096 154 2,920 6,250 9,170
Hohokam 10 Industrial Park
East............................ 4,527 10,870 282 4,527 11,152 15,679
Hohokam 10 Industrial Park
West............................ 1,270 3,039 23 1,270 3,062 4,332
PGBP -- Geneva................... 1,520 1,588 129 1,520 1,717 3,237
Broadwood Business Center........ 6,500 2,333 5,617 23 2,333 5,640 7,973
PGDC -- Las Vegas................ 4,365 4,707 9,511 4,520 6,149 12,589 18,738
Seattle Industrial -- 16th
Avenue.......................... 401 1,028 293 401 1,321 1,722
Seattle Industrial -- South
200th........................... 974 2,497 488 974 2,985 3,959
PGBP -- Tukwila.................. 11,004 6,684 10,677 3,020 6,684 13,697 20,381
PGDC -- Algona 1................. 2,490 7,002 30 2,490 7,032 9,522
PGDC -- Algona 2................. 2,864 5,916 2,781 2,864 8,697 11,561
PGBP -- Airport Busn Center...... 2,910 8,265 432 2,910 8,697 11,607
------- ------- ------- ------ ------- ------- -------
141,518 185,379 486,389 49,263 191,651 529,380 721,031
------- ------- ------- ------ ------- ------- -------
MULTIFAMILY
PROPERTIES
Inn @ Laguna Hills............... 4,556 1,798 5,981 567 1,795 6,551 8,345
Terrace Gardens.................. 7,837 2,064 8,075 407 2,064 8,482 10,546
Morning View Terrace............. 10,644 4,108 11,059 588 4,182 11,573 15,755
Tyler Springs.................... 8,981 2,394 11,064 396 2,394 11,460 13,854
Sunnyside I...................... 5,453 1,306 5,448 356 1,331 5,779 7,110
Sunnyside II..................... 1,760 322 2,232 162 326 2,390 2,716
Sunnyside III.................... 2,847 385 3,223 199 391 3,416 3,807
Fountains........................ 6,277 1,642 -- 7,492 1,642 7,492 9,134
Applewood........................ -- 6,985 18,581 2,025 6,985 20,606 27,591
Daisy 5.......................... 1,253 558 1,466 113 569 1,568 2,137
Daisy 7.......................... 10,028 3,958 8,048 831 4,034 8,803 12,837
Daisy 12......................... 3,570 1,695 3,520 332 1,727 3,820 5,547
Daisy 16......................... 11,305 3,856 9,848 831 3,930 10,605 14,535
Daisy 17......................... 6,542 2,390 6,123 621 2,436 6,698 9,134
Lariat........................... 1,155 432 1,312 146 440 1,450 1,890
Daisy 19......................... 6,444 2,273 5,626 577 2,316 6,160 8,476
Daisy 20......................... 7,396 2,654 5,671 701 2,705 6,321 9,026
Raintree......................... 6,695 1,749 4,525 267 1,749 4,792 6,541
------- ------- ------- ------ ------- ------- -------
102,743 40,569 111,802 16,611 41,014 127,967 168,981
------- ------- ------- ------ ------- ------- -------
244,261(g) 225,948 598,191 65,874 232,665 657,347 890,012
======= ======= ======= ====== ======= ======= =======
<CAPTION>
MAXIMUM
LIFE
ON WHICH
DEPRECIATION
IN LATEST
INCOME
ACCUMULATED DATE OF DATE STATEMENT IS
DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Walnut Ave Busn Park............. 215 1990 1998 40 Years
Madison West Busn Park........... 311 1987, 1988 1998 40 Years
PGBC -- Garden Grove II.......... 411 1973 1998 30 Years
PBGC -- Irvine Cartwright........ 354 1979 1998 30 Years
PGBC -- Tustin................... 969 1974, 1976 1998 30 Years
PGDC -- Whittier................. 258 1959, 1998 1998 40 Years
Contra Costa Diablo Busn Park.... 121 1980, 1984 1998 40 Years
Sierra Trinity Industrial Park... 431 1985 1998 40 Years
Hesperian Industrial Park........ 133 1981-86 1998 40 Years
West Sacramento Industrial
Center.......................... 143 1981 1998 40 Years
Garden Grove Industrial-Hunt
Ave............................. 363 1979 1998 40 Years
Hohokam 10 Industrial Park
East............................ 298 1980 1998 40 Years
Hohokam 10 Industrial Park
West............................ 79 1980 1998 40 Years
PGBP -- Geneva................... 10 1981 1999 40 Years
Broadwood Business Center........ 3 1986 1999 40 Years
PGDC -- Las Vegas................ 534 1976-79 1998 30 Years
Seattle Industrial -- 16th
Avenue.......................... 534 1981 1994 24 Years
Seattle Industrial -- South
200th........................... 1,275 1981 1994 24 Years
PGBP -- Tukwila.................. 2,379 1975-79 1995 40 Years
PGDC -- Algona 1................. 645 1989 1997 30 Years
PGDC -- Algona 2................. 774 1998 1997 40 Years
PGBP -- Airport Busn Center...... 213 1979-86 1998 40 Years
------
53,747
------
MULTIFAMILY
PROPERTIES
Inn @ Laguna Hills............... 927 1987 1994 40 Years
Terrace Gardens.................. 743 1985 1997 30 Years
Morning View Terrace............. 974 1986 1997 30 Years
Tyler Springs.................... 793 1987 1997 30 Years
Sunnyside I...................... 672 1984 1995 40 Years
Sunnyside II..................... 292 1983 1995 40 Years
Sunnyside III.................... 440 1985 1995 40 Years
Fountains........................ 417 1997-98 1998 40 Years
Applewood........................ 7,588 1972 1994 33 Years
Daisy 5.......................... 197 1978-79 1995 40 Years
Daisy 7.......................... 1,075 1979 1995 40 Years
Daisy 12......................... 464 1981 1995 40 Years
Daisy 16......................... 1,293 1981 1995 40 Years
Daisy 17......................... 831 1981 1995 40 Years
Lariat........................... 181 1981 1995 40 Years
Daisy 19......................... 778 1983 1995 40 Years
Daisy 20......................... 851 1982 1995 40 Years
Raintree......................... 451 1984 1996 40 Years
------
18,968
------
72,715(b)
======
</TABLE>
F-26
<PAGE> 56
SCHEDULE III
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(a) The changes in total real estate for the years ended December 31, 1999,
1998 and 1997 area as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period....................... $863,188 $700,949 $379,540
Acquisitions developments/improvements............... 32,265 201,160 332,324
Transfer of costs from properties under
development........................................ 18,175 23,746 --
Retirement of Washington family apartments........... (62,667) --
Sale of Oregon multifamily property.................. -- (10,915)
Sale of California multifamily property.............. (8,196) -- --
Sale of California industrial properties............. (13,828) -- --
Sale of Washington industrial property............... (1,592) -- --
-------- -------- --------
Balance at end of period............................. $890,012 $863,188 $700,949
======== ======== ========
</TABLE>
(b) The changes in accumulated depreciation for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period.......................... $49,776 $39,148 $28,844
Additions -- depreciation expense....................... 25,198 20,386 11,809
Retirement of Washington family apartments.............. -- (9,409) --
Retirement of Oregon multifamily property............... -- -- (1,505)
Sale of California industrial properties................ (971) -- --
Sale of California multifamily property................. (846) -- --
Sale of Washington industrial property.................. (442) -- --
Other................................................... -- (349) --
------- ------- -------
Balance at end of period................................ $72,715 $49,776 $39,148
======= ======= =======
</TABLE>
(c) A portion of this property is currently under development.
(d) These properties collateralize borrowings under the same mortgage note
payable totaling $24,500,000.
(e) These properties collateralize borrowings under the same mortgage note
payable totaling $11,639,000.
(f) These properties collateralize borrowings under the same mortgage note
payable totaling $33,973,000.
(g) Excludes construction loans of $50,432,000.
F-27
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Articles of Amendment and Restatement of Charter(1)
3.2 Bylaws(2)
10.1 1999 Long-Term Stock Compensation Plan.
10.2 Employment Contract by and between the Company and Glenn L.
Carpenter dated September 1, 1998.(1)
10.3 1993 Share Option Plan.
10.4 Amended and Restated Agreement of Limited Partnership of PGP
Inland Communities, L.P., dated as of August 15, 1995.(3)
10.5 Master Contribution Agreement, dated as of August 15, 1995,
regarding formation of PGP Inland Communities, L.P.(3)
10.6 Dividend Reinvestment Plan of the Company dated May 9,
1995.(4)
10.7 Investment Agreement, dated December 31, 1996, between the
Company and Five Arrows Realty Securities L.L.C.(5)
10.8 Articles Supplementary, dated January 1997, classifying
1,351,351 Shares of Preferred Stock as Class A Senior
Cumulative Convertible Preferred Stock of the Company.(5)
10.9 Operating Agreement, dated January 1997, between the Company
and Five Arrows Realty Securities L.L.C.(5)
10.10 Amendment to 1993 Share Option Plan dated May 8, 1996.(6)
10.11 Amendment to 1993 Share Option Plan dated May 7, 1997.(12)
10.12 Investment Agreement, dated May 27, 1997, between Company
and Five Arrows Realty Securities L.L.C.(7)
10.13 Articles Supplementary classifying 1,411,765 Shares of
Preferred Stock as Class B Senior Cumulative Convertible
Preferred Stock.(7)
10.14 Form of Amended and Restated Agreement and Waiver, between
the Company and Five Arrows Realty Securities L.L.C.(7)
10.15 Rights Agreement, dated December 11, 1997, between the
Company and Harris Trust Company of California, as Rights
Agent.(8)
10.16 Form of Restricted Stock Agreement.
10.17 Form of Change of Control Agreement.(2)
10.18 Agreement of Limited Partnership of PGP Northern Industrial,
L.P.(2)
10.19 Agreement of Limited Partnership of Morning View
Terrace -- PGP, L.P.(2)
10.20 Agreement of Limited Partnership Terrace Gardens -- PGP,
L.P.(2)
10.21 Agreement of Limited Partnership of PGP Southern Industrial
II, L.P.(9)
10.22 Credit Agreement among Pacific Gulf Properties Inc., a
Maryland corporation, as Borrower and Wells Fargo Bank,
National Association Together with the other Lenders named
herein and such other assignees becoming parties hereto
pursuant to Section 11.12, as Lenders and Wells Fargo Bank,
National Association, as Agent dated as of April 9, 1998.(9)
10.23 Purchase Agreement and Escrow Instructions and related
amendments between Pacific Gulf Properties Inc. (as seller)
and SAP II Originating LLC (as buyer) for the sale of the
Northwest Multifamily Properties.(10)
10.24 Amendment to 1993 Share Option Plan dated May 13, 1998.(11)
21.01 Subsidiaries.(4)
</TABLE>
F-28
<PAGE> 58
<TABLE>
<C> <S>
23.01 Consent of Ernst & Young LLP
27.00 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K of
the Company for the year ended December 31, 1997.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K of
the Company for the year ended December 31, 1995.
(4) Incorporated by reference from the Company's registration statement on Form
S-3 (33-92082) filed on May 9, 1995.
(5) Incorporated by reference from the Company's Current Report on Form 8-K
filed on January 14, 1997.
(6) Incorporated by reference from the Company's Proxy Statement filed on or
about April 5, 1996.
(7) Incorporated by reference form the Company's Current Report on Form 8-K
filed on June 26, 1997.
(8) Incorporated by reference from the Company's registration statement on Form
8-A filed on December 17, 1997.
(9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(10) Incorporated by reference from the Company's Current Report on Form 8-K
filed on January 7, 1999.
(11) Incorporated by reference from the Company's Proxy Statement filed on or
about April 16, 1998.
(12) Incorporated by reference from the Company's Proxy Statement filed on or
about April 7, 1997.
F-29
<PAGE> 1
EXHIBIT 10.1
PACIFIC GULF PROPERTIES INC.
1999 LONG TERM STOCK COMPENSATION PLAN
I. ESTABLISHMENT, PURPOSE AND DURATION.
1.1 There is hereby adopted the 1999 Long Term Stock Compensation Plan
(the "PLAN") of Pacific Gulf Properties Inc. (the "COMPANY"). THE GRANT OF
OPTIONS UNDER THE PLAN IS CONDITIONED ON APPROVAL OF THE PLAN BY THE AFFIRMATIVE
VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF VOTING
STOCK OF THE COMPANY, VOTING IN PERSON OR BY PROXY AT A STOCKHOLDERS' MEETING
DULY HELD WITHIN 12 MONTHS OF ITS ADOPTION. No option granted hereunder shall be
exercisable unless and until the Plan has been so approved. Capitalized terms
are defined in Article VIII.
1.2 The purpose of the Plan is to provide incentives for the Company's
executives to improve the long term performance of the Company.
1.3 This Plan is intended to be in addition to, and not in substitution
of, any other stock option or incentive plan of the Company.
1.4 Each option granted under the Plan may be either an option intended
to be an Incentive Stock Option or an option not so intended, as specified in
the applicable Option Agreement. No participant may be granted options to
purchase more than two hundred fifty thousand (250,000) shares in any year.
1.5 The period covered by the Plan is July 1, 1999 through December 31,
2001 (the "PLAN PERIOD").
II. ADMINISTRATION OF THE PLAN.
2.1 Subject to any contrary decision of the Board of Directors (the
"BOARD"), the Plan shall be administered by the Compensation Committee of the
Board (the "COMMITTEE"). The Committee shall consist solely of two or more
Non-Employee and Outside directors. The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board. The Committee shall select one
of its members as chairman and shall hold meetings at such times and places as
it may determine. A majority of the Committee shall constitute a quorum, and
acts of the Committee at which a quorum is present, or acts reduced to or
approved in writing by all the members of the Committee, shall be the valid acts
of the Committee.
2.2 Subject to the terms and conditions and within the limitations of
the Plan, the Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan and to construe and
interpret the Plan, the rules and regulations and the instruments evidencing
options granted under the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All decisions,
determinations, and interpretations of the Committee shall be binding on all
holders of options.
2.3 The Board may determine which key employees of the Company or of
any affiliate should be granted options under the Plan, the terms thereof (to
the extent not specified in the Plan), the
<PAGE> 2
number of shares subject to such option or options, and the time or times at
which options should be granted; provided, however, that no options shall be
granted after December 31, 1999. The Board shall have the authority to grant
options under the Plan.
2.4 Subject to the terms and conditions and within the limitations of
the Plan, the Committee may modify, extend or renew outstanding options granted
under the Plan. Notwithstanding the foregoing, however, no modification of an
option shall, without the consent of the option holder, alter or impair any
rights or obligations under any option theretofore granted under the Plan.
2.5 In making any determination or in taking or not taking any action
under this Plan, the Committee or the Board, as the case may be, may obtain and
may rely on the advice of experts, including professional advisors to the
Company. No director, officer or agent of the Company shall be liable for any
such determination made, or action or inaction undertaken, in good faith.
2.6 In lieu of the foregoing, if the Board, in its discretion, so
determines, the Plan shall be solely administered by the Board. In such a case,
the term "Committee" when used in this Plan and in any option agreement shall
refer to the Board and the Board shall have the authority to perform any and all
actions that the Committee is authorized to perform including, without
limitation, the authority to act on all matters concerning the Plan and its
administration.
III. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 5.12, the maximum number and kind
of shares of stock as to which options may be granted under the Plan are eight
hundred forty-five thousand (845,000) shares of Common Stock, par value $.01 per
share ("COMMON STOCK"), of the Company. As the Committee may determine from time
to time, the shares subject to options may consist either in whole or in part of
authorized but unissued shares, or authorized and issued shares reacquired by
the Company and held in its treasury.
IV. ELIGIBILITY AND EXERCISE.
4.1 Eligibility for Grant. Options may be granted to such officers of
the Company or its affiliates as the Board, in its discretion, shall designate.
Members of the Board of Directors of the Company or of an affiliate who are not
officers of the Company or of any affiliate may not participate in the Plan.
4.2 Options Available for Exercise. Only vested options may be
exercised, and a vested option may only be exercised prior to its expiration.
V. TERMS AND CONDITIONS OF OPTIONS.
5.1 Option Agreement. Each option granted pursuant to the Plan shall be
evidenced by a written stock option agreement ("OPTION AGREEMENTS") executed by
the Company and the person to whom such option is granted. Such Option
Agreements shall be in such form, not inconsistent with the Plan, as the
Committee shall from time to time determine in its discretion, provided that
such agreements shall comply with and be subject to the terms and conditions of
this Plan.
5.2 Option Term. Subject to Section 5.4, the term of each option shall
be for such period of time, not more than ten (10) years from the date it is
granted, as the Committee may determine in its
2
<PAGE> 3
discretion. Notwithstanding anything to the contrary herein contained, no
option, or any portion thereof, shall be exercised later than the date of
expiration of the option term.
5.3 Option Price. Subject to Section 5.4, the purchase price to be paid
upon exercise of each option shall be determined by the Committee in its
discretion, but such price shall not be less than 100% of the Fair Market Value
of the shares subject to such option on the date the option is granted.
5.4 Incentive Stock Options. Any options granted under the Plan and
intended to be Incentive Stock Options shall be subject to the following
provisions:
(a) An option may be granted to any person who, at the time the
option is granted, owns stock (as determined in accordance with the Code
provisions relating to Incentive Stock Options) possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an affiliate (a "10% SHAREHOLDER") only if, at the time the option is
granted, the option price is at least 110% of the Fair Market Value of the stock
subject to the option and the option, by its terms, is not exercisable after the
expiration of five years from the date such option is granted.
(b) To the extent that the aggregate "fair market value" of stock
with respect to which incentive stock options first become exercisable by a
Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified stock options. For this purpose, the
"fair market value" of the stock subject to options shall be determined as of
the date the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction of simultaneously
granted options is necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
(c) There shall be imposed in any Option Agreement relating to
Incentive Stock Options such terms and conditions as from time to time are
required in order that the option be an "incentive stock option" as that term is
defined in Section 422 of the Code.
5.5 Manner of Exercise. Any exercisable Award shall be deemed to be
exercised when the Secretary of the Company receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 5.6.
5.6 Payment of Exercise Price. The purchase price of any shares
purchased on exercise of an option shall be paid in full at the time of each
purchase in one or a combination of the following methods: (i) in cash or by
electronic funds transfer; (ii) by check payable to the order of the Company;
(iii) if authorized by the Committee or specified in the applicable Option
Agreement, in cash in an amount equal to the par value of the shares being
purchased, and, in the form of a promissory note (consistent with the
requirements of Section 5.7) of the Participant in an amount equal to the
difference between said cash amount and the purchase price of such shares; (iv)
by notice and third party payment in such manner as may be authorized by the
Committee; (v) by the delivery of shares of Common Stock of the Company already
owned by the Participant, provided, however, that the Committee may in its
absolute discretion limit the Participant's ability to exercise an option by
delivering such shares; or (vi) if authorized by the Committee or specified in
the applicable Option Agreement, by reduction in the number of shares of Common
Stock otherwise deliverable upon exercise by that number of shares
3
<PAGE> 4
that have a then Fair Market Value equal to such purchase price. Previously
owned shares of Common Stock used to satisfy the exercise price of an option
under clauses (v) and (vi) shall be valued at their Fair Market Value on the
date of exercise.
5.7 Acceptance of Notes to Finance Exercise. The Company may, with the
Committee's approval, accept one or more notes from any Participant in
connection with the exercise or receipt of any outstanding Award, provided that
any such note shall be subject to the following terms and conditions:
(a) The principal of the note shall not exceed the amount required
to be paid to the Company upon the exercise of options under the Plan and the
note shall be delivered directly to the Company in consideration of such
exercise.
(b) The note shall be repaid over a period of time not to exceed
five (5) years, with annual installments of at least 10% of principal during the
first four (4) years and a balloon payment of the remaining principal amount at
the end of the fifth (5th) year; provided, however, that the Company may demand
any payment, in addition to such installments, as may be required for the note
to remain in compliance with any applicable federal or state regulation.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate equal to the then-prevailing yield to maturity on
U.S. Treasury obligations having a maturity that most closely matches the
maturity date of such note; provided, however, that in no event shall the
interest rate charged be less than the applicable imputed interest rate
specified by the Code.
(d) Except as otherwise provided by the Committee, if the
employment of the Participant terminates, the unpaid principal balance of the
note shall become due and payable on the 10th business day after such
termination; provided, however, that if a sale of shares securing such note
would cause such Participant to incur liability under Section 16(b) of the
Exchange Act, the unpaid balance shall become due and payable on the 10th
business day after the first day on which a sale of such shares could have been
made without incurring such liability assuming for these purposes that there are
no other transactions by the Participant subsequent to such termination.
(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with
applicable rules and regulations of the Federal Reserve Board as then in effect.
5.8 Effect of Termination of Employment, Death or Total Disability. A
Participant's options and all of such Participant's rights under this Plan, to
the extent not exercised, shall terminate and become null and void at such time
as the Participant ceases to be employed by either the Company or any
Subsidiary. Notwithstanding the preceding, if the Participant's employment is
not terminated for Cause, the Participant (or, in the event of the Participant's
death, his or her Beneficiary) may exercise any option within any applicable
period specified in clauses (i), (ii), or (iii) below to the extent the option
was vested and exercisable at the date of the Participant's termination of
employment (for any reason other than termination for Cause), either by its
terms or pursuant to a determination by the Committee (within a reasonable
period after such termination) to accelerate vesting, as follows:
4
<PAGE> 5
(i) if the Participant terminates employment by reason of
voluntary resignation, the Participant may exercise vested options at
any time within a period of three (3) months after such termination;
(ii) if the Participant terminates employment by reason of
Total Disability or voluntary Retirement, the Participant may exercise
vested options at any time within a period of thirty-six (36) months
after such termination;
(iii) if the Participant dies while in the employ of the
Company or any Subsidiary, or during the period referred to in clause
(a) or (b) of this Section 5.8, then vested options may be exercised by
the Participant's Beneficiary within a period of thirty-six (36) months
after the Participant's date of death;
provided, however, that in no event may an option be exercised by anyone after
the date of its expiration. If a Participant is employed by an entity that
ceases to be a Subsidiary, such event shall be deemed for purposes of this
Section 5.8 to be a termination of employment described in clause (i) above in
respect of that Participant. Absence from work caused by military service or
authorized sick leave shall not be considered as a termination of employment for
purposes of this Section. Notwithstanding the preceding, in the event that all
or a portion of an option is exercised after the periods permitted by or
pursuant to Section 422 of the Code regarding incentive stock options, the
portion of the option that is then exercised shall be treated as a nonqualified
stock option.
5.9 No Transferability. Options may be exercised only by, and shares
issuable pursuant to an option shall be issued only to (or registered only in
the name of), the Participant or, if the Participant has died, the Participant's
Beneficiary or, if the Participant has suffered a Total Disability, the
Participant's Personal Representative, if any, or if there is none, the
Participant, or (to the extent permitted by applicable law and Rule 16b-3) to a
third party pursuant to such conditions and procedures as the Committee may
establish. Other than by will or the laws of descent and distribution or
pursuant to a QDRO or other exception to transfer restrictions under Rule 16b-3
(except to the extent not permitted in the case of an Incentive Stock Option),
no right or benefit under this Plan or any option shall be transferable by the
Participant or shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge (other than to the Company)
and any such attempted action shall be void. The Company shall disregard any
attempt at transfer, assignment or other alienation prohibited by the preceding
sentences and shall pay or deliver such cash or shares of Common Stock in
accordance with the provisions of this Plan. The designation of a Beneficiary
hereunder shall not constitute a transfer for these purposes.
5.10 Holding of Stock by Option Holder. At the discretion of the
Committee, any Option Agreement may provide that the Participant shall, by
accepting such option, represent and agree that all shares of stock purchased
upon exercise of the option will be acquired and held in accordance with the
restrictions of the Securities Act and shall not be further transferred except
as permitted by the Securities Act and the rules and regulations of the
Commission thereunder, that the Company may instruct its transfer agent to
restrict further transfer of said stock in its records except upon receipt of
satisfactory evidence that such restrictions have been satisfied, that upon each
exercise of any portion of an option the certificates evidencing said stock
shall bear an appropriate legend on the face thereof evidencing such
restrictions, and that the person entitled to exercise the same shall furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired
subject to such restrictions.
5
<PAGE> 6
5.11 Restrictions on Transfer of Stock. The transfer of stock received
pursuant to the exercise of an option granted under the Plan is prohibited
unless such transfer is exempt from registration under the Securities Act, or
unless a registration statement covering such transfer is in effect at the time
the transfer is to occur. The certificates evidencing said stock shall bear an
appropriate legend on the face thereof evidencing such restrictions.
5.12 Adjustment Provisions. If the outstanding shares of Common Stock
are increased, decreased, changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, upon proper authorization by the Board of Directors, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
or other securities as to which options may be granted under the Plan and the
number or kind of shares or other securities as to which the unexercised
portions of any options that shall have been granted prior to such change shall
be exercisable. Any such adjustments in the outstanding options shall be made
without change in the aggregate purchase price applicable to the unexercised
portion of any option, but with corresponding adjustment in the purchase price
for each share or other unit of any security covered by the option. Any such
changes shall be made solely in order to preserve, but not increase, the
benefits of the holders of any options granted under the Plan. No adjustment
shall be made to the number of shares of Common Stock that may be acquired
pursuant to outstanding Incentive Stock Options or the maximum number of shares
of Common Stock with respect to which Incentive Stock Options may be granted
under this Plan to the extent such adjustment would result in such options being
treated as other than Incentive Stock Options, and no such adjustment shall be
made to the extent the Committee determines that such adjustment would result in
the disallowance of a federal income tax deduction for compensation attributable
to any option that is intended to qualify as "performance-based compensation"
for purposes of Section 162(m) of the Code by causing such compensation not to
so qualify as performance based compensation.
VI. TYPES OF OPTION GRANTS AND VESTING.
6.1 Types of Option Grants. Each grant of options under the Plan shall,
at the discretion of the Committee, be comprised of one or both of the following
components:
(a) FIXED OPTION GRANT - a fixed number of options that vest over
the period covered by the Plan; and
(b) VARIABLE OPTION GRANT - a variable number of options that vest
at the end of the period covered by the Plan, subject to the Company's
achievement of certain performance measures during the Plan Period.
6.2 Fixed Option Grant. The Fixed Option Grant shall consist of a fixed
number of options that will vest over the Plan Period. One-third of the number
of Fixed Options granted to each Participant shall vest at the end of each of
years 1999 through 2001 without regard to the financial performance of the
Company.
6.3 Variable Option Grant; Cliff Vesting. The number of options, if
any, that will vest under the Variable Option Grant shall be variable in amount,
depending on the Company's satisfaction of specified Performance Criteria over
the Plan Period. The determination of the Company's satisfaction of the
Performance Criteria, and therefore the determination of the number of options,
if any, that will vest under the Variable Option Grant, shall be made by the
Committee only after
6
<PAGE> 7
December 31, 2001 (i.e., these options will only vest if target criteria are met
at that date, and there will be no periodic vesting).
6.4 Variable Option Grant Performance Criteria. The vesting of options
under the Variable Option Grant shall be based on two separate and independent
performance criteria components ("PERFORMANCE CRITERIA"):
(a) The average percentage growth rate in the Company's funds from
operations per share (as defined in Section 6.6(b), "FFO PER SHARE"); and
(b) TOTAL SHAREHOLDER RETURN (as defined in Section 6.7(a)),
calculated based on dividends paid and stock price change.
6.5 Allocation of Variable Option Grant. Of the total number of options
available to each Participant in the Variable Option Grant,
(a) The vesting of 65% of those options will be based on the growth
in FFO per Share; and
(b) The vesting of the remaining 35% of those options will be based
on the Total Shareholder Return.
Depending on the Company's performance during the Plan Period on each of the two
Performance Criteria, it is possible for Participants to vest in either all or
some portion of the Variable Option Grant or none of such options (if the
Company's performance falls below the minimums for both performance criteria).
It is also possible for Participants to vest in the options allocated to the FFO
per Share component and not vest in the options allocated to Total Shareholder
Return, and vice versa.
6.6 Vesting of FFO Per Share Component.
(a) During the Plan Period, the targeted average FFO per Share
percentage growth rate is 10%. The average percentage growth rate of FFO per
share will be calculated by averaging the following: (a) the percentage increase
in FFO per Share for the six months ending December 31, 1999 compared to that
for the six months ended December 31, 1998; (b) the percentage increase in FFO
per Share for the year 2000 compared to that for 1999; and (c) the percentage
increase in FFO per Share for the year 2001 compared to that for 2000. The three
percentages will then be averaged (without weighting) to determine the average
FFO per Share percentage growth rate during the Plan Period.
(b) FFO PER SHARE will be calculated (using the definition of the
National Association of Real Estate Investment Trusts as in effect at August 31,
1999) on a fully diluted basis (i.e., assuming conversion of all of the
Company's convertible subordinated debentures and preferred stock, but excluding
the conversion of limited partnership units until they are actually converted).
(c) Individuals receiving the Variable Option Grant will be
eligible for vesting of the following portions of the options attributable to
the FFO per Share component depending on the Company's average FFO per Share
percentage growth rate over the Plan Period. Four different vesting levels apply
as described below:
7
<PAGE> 8
<TABLE>
<CAPTION>
===========================================================================================================================
THEN THE EXECUTIVE WILL BE VESTED WITH THE
IF THE COMPANY ACHIEVES AN AVERAGE FOLLOWING PERCENTAGE OF THE TOTAL NUMBER OF
FFO PER SHARE PERCENTAGE GROWTH OPTIONS ALLOCATED TO THE FFO PER SHARE
LEVEL RATE OVER THE PLAN PERIOD OF: COMPONENT:
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. MINIMUM - (Also, the Company's AT LEAST 8% UP TO 10% 75%
average FFO growth rate must at
least equal the average for the
Company's peer group*)
- ---------------------------------------------------------------------------------------------------------------------------
2. TARGET AT LEAST 10% UP TO 11% 100%
- ---------------------------------------------------------------------------------------------------------------------------
3. TARGET PLUS AT LEAST 11% UP TO 13% 120%
- ---------------------------------------------------------------------------------------------------------------------------
4. MAXIMUM AT LEAST 13% 150%
===========================================================================================================================
</TABLE>
6.7 Vesting of Total Shareholder Return Component.
(a) During the Plan Period, the targeted average Total Shareholder
Return percentage is 18%. The TOTAL SHAREHOLDER RETURN for a given period during
the Plan Period will be measured by:
o Adding:
o the dividends per share paid in respect of that period
(attributing dividends to the fiscal quarter immediately
preceding their payment and annualizing dividends paid in
respect of a partial year), plus
o the increase or decrease (expressed as a negative number)
(in each case measured in dollars and cents) in the Average
Fair Market Value per share of Common Stock as of the last
day of that period from the Average Fair Market Value per
share of Common Stock as of the last day of the preceding
year, except that the change in the Average Fair Market
Value per share of Common Stock as of the last day of 1999
shall be measured against $19.78 per share;
o Then dividing that sum by the Average Fair Market Value per
share of Common Stock as of the last day of the preceding
year, except that, for the calculation of Total Shareholder
Return for the six months ending December 31, 1999, the
foregoing sum shall be divided by $19.78 per share.
- --------------------
* The Board shall, in its sole discretion, select the companies comprising
the Company's peer group and the measurement data concerning such peers to
be used in making such comparison. Notwithstanding the fact that the Plan
commences as of July 1, 1999, in calculating the average FFO per share
percentage growth rate of each peer, the following percentage growth rates
of such peer will be averaged: (i) the percentage increase in FFO per share
for the full year 1999 compared to that for full year 1998; (ii) the
percentage increase for the full year 2000 compared to full year 1999; and
(iii) the percentage increase for the full year 2001 compared to full year
2000.
8
<PAGE> 9
(b) Individuals receiving the Variable Option Grant will be
eligible for vesting of the following portions of the options attributable to
the Total Shareholder Return component depending on the Company's average Total
Shareholder Return percentage over the Plan Period. Four different vesting
levels apply as described below:
<TABLE>
<CAPTION>
=============================================================================================================================
THEN THE EXECUTIVE WILL BE VESTED WITH THE
FOLLOWING PERCENTAGE
IF THE COMPANY ACHIEVES AN OF THE TOTAL NUMBER OF OPTIONS
AVERAGE TOTAL SHAREHOLDER RETURN ALLOCATED TO THE TOTAL SHAREHOLDER
LEVEL PERCENTAGE OF: RETURN COMPONENT:
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. MINIMUM - (Also, the Company's average AT LEAST 16% UP TO 18% 75%
Total Shareholder Return percentage
must at least equal the average for
the Company's peer group*)
- -----------------------------------------------------------------------------------------------------------------------------
2. TARGET AT LEAST 18% UP TO 20% 100%
- -----------------------------------------------------------------------------------------------------------------------------
3. TARGET PLUS AT LEAST 20% UP TO 23% 120%
- -----------------------------------------------------------------------------------------------------------------------------
4. MAXIMUM AT LEAST 23% 150%
=============================================================================================================================
</TABLE>
6.8 Fixed Option Grant Vesting Upon Termination of Employment After a
Change of Control.
(a) If, within twenty-four months (24) following a CHANGE OF
CONTROL (as defined in Appendix A hereto), a Participant's employment with the
Company shall be terminated (i) by such Participant for Good Reason or (ii) for
reasons other than (x) such Participant's death or Total Disability or (y) the
Company's termination of such employment for Cause, then such Participant's
unvested options in the Fixed Option Grant component of this Plan shall
immediately vest upon such termination of employment.
- -----------
* The Board shall, in its sole discretion, select the companies comprising
the Company's peer group and the measurement data concerning such peers to
be used in making such comparison. Notwithstanding the fact that the Plan
commences as of July 1, 1999, in calculating the average Total Shareholder
Return of each peer, such peer's full year 1999 dividend data shall be
utilized and the 1999 data shall be compared against the Average Fair
Market Value per share of such peer's common stock as of the last day of
1998, and the calculations for 2000 and 2001 shall be in the same manner as
that for the Company.
9
<PAGE> 10
(b) If a Participant's employment with the Company shall be
terminated other than under the circumstances described in Section 6.8(a), then
no further vesting of such Participant's options shall occur under the Fixed
Option Grant from and after the date of termination of such employment.
6.9 Variable Option Grant Vesting Upon a Change of Control. Upon a
Change of Control, the Variable Option Grant component of this Plan will be
subject to the following vesting provisions. Upon a Change of Control, the Plan
Period will terminate in respect of the Variable Option Grant, and the
performance levels under the Variable Option Grant component of the Plan will be
determined at that time based on the shortened Plan Period as follows. Any
vesting of options under the Variable Option Grant component of the Plan
pursuant to the following calculations shall occur on the date of the Change of
Control.
(a) Change of Control Before March 31. If the Change of Control
occurs on or before March 31 of a year during the Plan Period, the Plan Period
will be deemed to have terminated as of the immediately preceding December 31.
The average growth rate in FFO per Share and the average Total Shareholder
Return calculations shall be made over the shortened Plan Period, and the full
number of options allocated to each Participant under the Variable Option Grant
component will be available for vesting on the Change of Control date based on
the same minimum, target, target plus and maximum performance levels as
specified in Sections 6.6 and 6.7.
(b) Change of Control After March 31. If the Change of Control
occurs after March 31 of a year during the Plan Period:
o The FFO per Share calculation for the year in which the Change
of Control occurs ("SHORTENED FINAL YEAR") will be made
through the end of the most recently completed quarter prior
to the Change of Control, and the percentage growth rate for
the Shortened Final Year will be based on a comparison to the
comparable period of the prior year. The average FFO per Share
percentage growth rate over the entire shortened Plan Period
will be calculated by averaging the percentage increase in FFO
per Share for all prior periods and for the Shortened Final
Year without weighting.
o The Total Shareholder Return calculation for the Shortened
Final Year will be made using the Average Fair Market Value
per share of Common Stock as of the day preceding the date of
the Change of Control and using an annualized amount of
dividends per share based on the most recently declared
dividend per share; then comparing the result for the
Shortened Final Year to the Average Fair Market Value per
share of Common Stock that would have been used for a
comparison if the Shortened Final Year had been a full year.
The average Total Shareholder Return over the entire shortened
Plan Period will be calculated by averaging the Total
Shareholder Return for all prior periods and for the Shortened
Final Year without weighting.
The full number of options allocated to each Participant under the Variable
Option Grant component will be available for vesting on the Change of Control
date based on the same minimum, target, target plus and maximum performance
levels as specified in Sections 6.6 and 6.7.
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<PAGE> 11
6.10 Death or Total Disability. In the event of the death or Total
Disability of a Participant, (a) no further vesting of such Participant's
options shall occur under the Fixed Option Grant from and after the date of such
Participant's death or Total Disability, and (b) the vesting of such
Participant's options shall occur under the Variable Option Grant in the same
manner as if a Change of Control had occurred on the date of such Participant's
death or Total Disability.
VII. OTHER PROVISIONS.
7.1 Rights of Participants and Beneficiaries.
(a) Employment Status. Status as an employee of the Company shall
not be construed as a commitment that any option will be granted under this Plan
to such employee.
(b) No Employment Contract. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Option Agreement) shall (i)
confer upon any employee or other Participant any right to continue in the
employ or other service of the Company or constitute any contract or agreement
of employment or other service, or (ii) interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.
(c) No Fiduciary Relationship. Neither the provisions of this Plan
(or of any related documents), nor the creation or adoption of this Plan, nor
any action taken pursuant to the provisions of this Plan, shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person.
7.2 Compliance with Laws. This Plan, the granting and vesting of
options under this Plan and the offer, issuance and delivery of shares of Common
Stock and/or the payment of money under this Plan or under options granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including, but not limited to, state and federal
securities laws and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the opinion of counsel
for the Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
7.3 Tax Withholding.
(a) Shares or Cash. Upon any exercise, vesting, or payment in
respect of any option, the Company shall have the right at its option to require
the Participant (or Personal Representative or Beneficiary, as the case may be)
to pay or provide for payment of the amount of any taxes that the Company may be
required to withhold with respect to such transaction. In any case where a tax
is required to be withheld in connection with the delivery of shares of Common
Stock under this Plan, the Committee may grant (either at the time of the option
grant or thereafter) to the Participant the right to elect, pursuant to such
rules and subject to such conditions as the Committee may establish, to have the
Company reduce the number of shares to be delivered by (or otherwise
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reacquire) the appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation.
(b) Tax Loans. The Committee may, in its discretion, authorize a
loan to a Participant in the amount of any taxes that the Company may be
required to withhold with respect to shares of Common Stock received (or
disposed of, as the case may be) pursuant to a transaction described in Section
7.3(a). Such a loan shall be on the terms set forth in Section 5.7.
7.4 Privileges of Stock Ownership. Except as otherwise expressly
authorized by the Committee or this Plan, a Participant shall not be entitled to
any privilege of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by him or her. No adjustment will be made for
dividends or other rights as a shareholder for which a record date is prior to
such date of delivery.
7.5 Effective Date of the Plan. This Plan shall be effective as of July
1, 1999, subject to shareholder approval.
7.6 Governing Law; Construction; Severability.
(a) Governing Law. This Plan, the options, all Option Agreements
and all other related documents shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
made and performed within such State, except as such laws may be supplanted by
the laws of the United States of America, which laws shall then govern its
effect and its construction to the extent they supplant California law.
(b) Severability. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) Plan Construction. It is the intent of the Company that this
Plan and options hereunder satisfy and be interpreted in a manner that in the
case of Participants who are or may be subject to Section 16 of the Exchange Act
satisfies the applicable requirements of Rule 16b-3 so that such persons will be
entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16
of the Exchange Act and will not be subjected to avoidable liability thereunder.
If any provision of this Plan or of any option or any prior action by the
Committee would otherwise frustrate or conflict with the intent expressed above,
that provision to the extent possible shall be interpreted and deemed amended so
as to avoid such conflict, but to the extent of any remaining irreconcilable
conflict with such intent as to such persons in the circumstances, such
provision shall be deemed void.
7.7 Captions. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
7.8 Effect of Change of Subsidiary Status. For purposes of this Plan
and any option hereunder, if an entity ceases to be a Subsidiary, a termination
of employment shall be deemed to have occurred with respect to each employee of
such Subsidiary who does not continue as an employee of another entity within
the Company.
7.9 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Committee to grant options or
authorize any other compensation, with or without reference to the Common Stock,
under any other plan or authority.
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VIII. DEFINITIONS.
8.1 Definitions.
"Average Fair Market Value," as of any date, shall mean the average of
the per share closing prices of the stock on the Composite Tape, as published in
the Western Edition of The Wall Street Journal, of the principal national
securities exchange on which the stock is so listed or admitted to trade, on the
twenty (20) consecutive trading days preceding and including such date;
provided, however, if the stock is not listed or admitted to trade on a national
securities exchange, the Committee may designate such other exchange, market or
source of data as it deems appropriate for determining such value for Plan
purposes
"Beneficiary" shall mean the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive the benefits
specified in the Option Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is identified and able to act under the circumstances.
"Board" shall mean the Board of Directors of the Company.
"Cause"
(a) For purposes of this Agreement, except as set forth in
paragraph (b) below, a termination of a Participant's employment is for "Cause"
if such Participant has been convicted of a felony involving moral turpitude or
the termination is evidenced by a resolution adopted in good faith by two-thirds
of the Board that the Participant (i) intentionally and continually failed
substantially to perform his or her reasonably assigned duties with the Company
(other than a failure resulting from the Participant's death or incapacity due
to physical or mental illness or from the Participant's assignment of duties
that would constitute "Good Reason" as hereinafter defined) which failure
continued for a period of at least thirty (30) days after a written notice of
demand for substantial performance has been delivered to the Participant
specifying the manner in which the Participant has failed substantially to
perform; or (ii) intentionally engaged in conduct that is demonstrably and
materially injurious to the Company; provided, however, that no termination of
the Participant's employment shall be for Cause as set forth in clause (ii)
above until (x) there shall have been delivered to the Participant written
notice setting forth that the Participant was guilty of the conduct set forth in
clause (ii) and specifying the particulars thereof in detail and (y) the
Participant shall have been provided an opportunity to be heard in person by the
Board (with the assistance of the Participant's counsel if the Participant so
desires). Neither an act nor a failure to act, on the Participant's part, shall
be considered "intentional" unless the Participant has acted or failed to act
with a lack of good faith and with a lack of reasonable belief that the
Participant's action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Participant after the Participant has delivered to the Company
a notice of termination of employment for Good Reason shall constitute Cause.
(b) In the event a written employment agreement is in place between
the Participant and the Company, the definition of "Cause" set forth in such
employment agreement shall apply for all purposes of this Plan in lieu of the
provisions of paragraph (a) above.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
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"Commission" shall mean the Securities and Exchange Commission.
"Committee" shall mean the Compensation Committee of the Board.
"Common Stock" shall mean the Common Stock of the Company and such
other securities or property as may become the subject of options pursuant to an
adjustment made under this Plan.
"Company" shall mean, collectively, the Pacific Gulf Properties Inc.
and its Subsidiaries.
"Non-Employee and Outside" shall mean "non-employee" within the meaning
of any applicable regulatory requirements, including Rule 16b-3, and "outside"
within the meaning of Section 162(m) of the Code.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value", as of any date, shall mean the per share closing
price of the stock on the Composite Tape, as published in the Western Edition of
The Wall Street Journal, of the principal national securities exchange on which
the stock is so listed or admitted to trade, on such day, or, if such day is not
a trading day, on the last trading day preceding such date; provided, however,
if the stock is not listed or admitted to trade on a national securities
exchange, the Committee may designate such other exchange, market or source of
data as it deems appropriate for determining such value for Plan purposes.
"Good Reason"
(a) Subject to paragraph (b) below, "Good Reason" shall mean the
occurrence after a Change of Control of any of the events or conditions
described in clauses (i) through (vii) hereof:
(i) a change in Participant's status, position or responsibilities
(including reporting responsibilities) that, in Participant's
reasonable judgment, represents a substantial adverse change from his
or her status, position or responsibilities as in effect at any time
within 90 days preceding the date of a Change of Control or at any time
thereafter; the assignment to Participant of any duties or
responsibilities that, in Participant's reasonable judgment, are
inconsistent with his or her status, title, position or
responsibilities as in effect at any time within ninety (90) days
preceding the date of a Change of Control or at any time thereafter; or
any removal of Participant from or failure to reappoint or reelect
Participant to any of such offices or positions held prior to the
Change of Control, except in connection with the termination of
Participant's employment for Total Disability, Cause, as a result of
his or her death or by Participant other than for Good Reason;
(ii) a reduction in Participant's base salary or any failure to pay
Participant any compensation or benefits to which Participant is
entitled within five days of notice from Participant of such
non-payment;
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(iii) the Company's requiring Participant to be based at any place
outside a 30-mile radius from Newport Beach, California, except for
reasonably required travel on the Company's business that is not
materially greater than such travel requirements prior to the Change of
Control;
(iv) the failure by the Company to provide Participant with
compensation and benefits, in the aggregate, at least equal (in terms
of benefit levels and/or reward opportunities) to those provided for
under each other employee benefit plan, program and practice in which
Participant was participating at any time within ninety (90) days
preceding the date of a Change of Control or at any time thereafter;
(v) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which petition is
not dismissed within sixty (60) days;
(vi) any material breach by the Company of any provision of this
Plan; or
(vii) any purported termination of Participant's employment for
Cause by the Company which does not comply with the requirements set
forth in the definition of "Cause."
(b) Any event or condition described in paragraph (a) above that
occurs prior to a Change of Control but that the subject Participant reasonably
demonstrates (i) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change of Control and
who effectuates a Change of Control, or (ii) otherwise arose in connection with,
or in anticipation of, a Change of Control that actually occurs, shall
constitute Good Reason for such Participant notwithstanding that it occurred
prior to the Change of Control.
"Incentive Stock Option" shall mean an option that is designated as an
incentive stock option within the meaning of Section 422 of the Code and that
contains such provisions as are necessary to comply with that section.
"Nonqualified Stock Option" shall mean an option that is designated as
a Nonqualified Stock Option and shall include any option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any option granted hereunder that is not designated as an incentive
stock option shall be deemed to be designated a nonqualified stock option under
this Plan and not an incentive stock option under the Code.
The term "option" shall mean an option to purchase Common Stock under
this Plan. The Committee shall designate any option granted to a Participant as
a Nonqualified Stock Option or an Incentive Stock Option.
"Option Agreement" shall mean any writing setting forth the terms of an
option grant under this Plan that has been authorized by the Committee.
"Participant" shall mean an employee who has been granted an option
under this Plan.
"Personal Representative" shall mean the person or persons who, upon
the Total Disability or incompetence of a Participant, shall have acquired on
behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
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"Plan" shall mean this Long Term Stock Compensation Plan.
"QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
"Retirement" shall mean retirement from active service as an employee
or officer of the Company on or after attaining age 65.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Subsidiary" shall mean any corporation or other entity a majority of
whose outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Company.
"Total Disability" shall mean a "permanent and total disability" within
the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
8.2 Other Definitions Provided in the Text.
"Change of Control" - Appendix A
"FFO per Share" - Section 6.6(b)
"Performance Criteria" - Section 6.4
"Plan Period" - Section 1.5
"Shortened Final Year" - Section 6.9(b)
"10% Shareholder" - Section 5.4(a)
"Total Shareholder Return" - Section 6.7(a)
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APPENDIX A
DEFINITION OF CHANGE OF CONTROL
For purposes of the Company's 1999 Long Term Stock Compensation Plan, a
CHANGE OF CONTROL shall have the meaning set forth below. This definition
intentionally differs from that used in executives' Change of Control Agreements
with the Company.
"CHANGE OF CONTROL" shall mean any of the following events or
circumstances:
(a) An acquisition (other than directly from the Company) of any voting
securities (the "VOTING Securities") of the Company by any "PERSON" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT")), immediately after which such
Person has "BENEFICIAL OWNERSHIP" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty five percent (35%) or more of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, that in determining whether a Change of Control has occurred, Voting
Securities that are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition that would cause a Change of
Control. A "NON-CONTROL ACQUISITION" shall mean an acquisition of Voting
Securities of the Company by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (x) the Company or (y) any corporation or other
Person of which a majority of its voting power or its equity securities or
equity interests is owned directly or indirectly by the Company (a
"Subsidiary"), (ii) the Company or any Subsidiary or (iii) any Person as a
result of a "Non-Control Transaction" (as hereinafter defined).
(b) The individuals who, as of July 1, 1999, 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 Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"PROXY CONTEST") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless, after giving effect to such merger, consolidation or
reorganization, all of the following criteria are met:
(A) the stockholders of the Company, as constituted immediately
prior to such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger,
consolidation or reorganization, at least fifty percent (50%) of
the combined voting power of the outstanding Voting Securities of
the corporation resulting from such merger or consolidation or
reorganization (the "SURVIVING CORPORATION") in substantially the
same proportion as their ownership of the Voting
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Securities of the Company immediately prior to such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least a
majority of the members of the board of directors of the entity
whose Voting Securities are held directly by the former
stockholders of the Company in satisfaction of the criterion set
forth in Section (c)(i)(A) above; and
(C) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial Ownership of thirty
five percent (35%) or more of the then outstanding Voting
Securities of the Company) owns, directly or indirectly, thirty
five percent (35%) or more of the combined voting power of the
Surviving Corporation's then outstanding Voting Securities.
A merger, consolidation or reorganization meeting all of the criteria
set forth in clauses (A) through (C) of this Section (c)(i) is herein
referred to as a "NON-CONTROL TRANSACTION;"
(ii) A complete liquidation or dissolution of the Company; or
(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
solely because any Person (the "SUBJECT PERSON") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition by the Company of its own Voting Securities which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided, however,
that if a Change of Control would occur (but for the operation of this sentence)
as a result of the acquisition by the Company of its own Voting Securities, and
after such share acquisition by the Company the Subject Person becomes the
Beneficial Owner of any additional Voting Securities of the Company that
increases the percentage of the then outstanding Voting Securities of the
Company Beneficially Owned by the Subject Person, then a Change of Control shall
be deemed to have occurred.
(d) If an executive's employment is terminated prior to a Change of
Control and such executive reasonably demonstrates that such termination (i) was
at the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change of Control and who effectuates a Change
of Control (a "THIRD PARTY") or (ii) otherwise occurred in connection with, or
in anticipation of, a Change of Control that actually occurs, then the date of a
Change of Control with respect to such executive shall mean the date immediately
prior to the date of such termination of such executive's employment.
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<PAGE> 1
EXHIBIT 10.3
PACIFIC GULF PROPERTIES INC.
1993 SHARE OPTION PLAN
I. THE PLAN
1.1 Purpose
The purpose of this Plan is to promote the success of the Company
by providing an additional means through the grant of Awards to attract,
motivate, retain and reward key employees, including officers, whether or not
directors, of the Company with awards and incentives for high levels of
individual Performance and improved financial performance of the Company and to
attract, motivate and retain experienced and knowledgeable independent directors
through the benefits provided under Article VII. "Corporation" means Pacific
Gulf Properties Inc. and "Company" means the Corporation and its Subsidiaries,
collectively. These terms and other capitalized terms are defined in Article VI.
1.2 Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by, and all Awards
to Eligible Employees shall be authorized by, the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to
the express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the
particular Eligible Employees who will receive any Awards;
(ii) to grant Awards to Eligible Employees, determine the price
at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable
or shall vest, or determine that no delayed exercisability or
vesting is required, and establish the events of termination or
reversion (if any) of such Awards;
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(iii) to approve the forms of Award Agreements (which need not
be identical either as to type of Award or among Participants);
(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Eligible
Employee Participants under this Plan, further define the terms
used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any or
all outstanding Awards held by Eligible Employees, subject to any
required consent under Section 5.6;
(vi) to accelerate or extend the exercisability or vesting
extend the term of any or all such outstanding Awards within the
maximum ten-year term of Awards under Section 1.6; and
(vii) to make all other determinations and take such other
action as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the effectuation
of its purposes.
Notwithstanding the foregoing, the provisions of Article VII relating to
Non-Employee Director Awards shall be automatic and, to the maximum extent
possible, self-effectuating, and the discretion of the Committee shall not
extend to such Awards in any manner that would be impermissible under
Rule 16b-3(c)(2).
(c) Binding Determinations. Any action taken by, or inaction of,
the Corporation, any Subsidiary, the Board or the Committee relating or pursuant
to this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No
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director, officer or agent of the Company shall be liable for any such action or
determination taken or made or omitted in good faith.
(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company.
1.3 Participation.
Awards may be granted by the Committee only to those persons that
the Committee determines to be Eligible Employees. An Eligible Employee who has
been granted an Award may, if otherwise eligible, be granted additional Awards
if the Committee shall so determine. Non-Employee Directors shall not be
eligible to receive any Awards except for Nonqualified Stock Options granted
automatically without action of the Committee under the provisions Of Article
VII.
1.4 Shares Available for Awards.
Subject to the provisions of Section 5.2, the capital stock that
may be delivered under this Plan shall be shares of the Corporation's authorized
but unissued Common Stock and any shares of its Common Stock held as treasury
shares. The shares may be delivered for any lawful consideration.
(a) Number of Shares. The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to Eligible Employees under
this Plan shall not exceed 305,000 shares, and the maximum number of shares of
Common Stock that may be delivered under the provisions of Article VII shall not
exceed 45,000 shares, in each case subject to adjustments contemplated by
Section 5.2. The maximum number of shares subject to options which may be
granted to an Eligible Employee during any one-year period shall not exceed
100,000, subject to adjustment as contemplated in Section 5.2.
(b) Calculation of Available Shares and Replenishment. Shares
subject to outstanding Awards of derivative securities (as defined in Rule
16a-l(c) under the Exchange Act) shall be reserved for issuance. If any option
or other right to acquire shares of Common Stock under an Award shall expire or
be cancelled or terminated without having been exercised in full, or any Common
Stock subject to a Restricted Stock Award or other Award shall not vest or be
delivered, the unpurchased, unvested or undelivered shares subject thereto shall
again be available for the purposes of the Plan, subject to any applicable
limitations under Rule 16b-3. If a Stock Appreciation Right or similar
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right is exercised, the number of shares of Common Stock to which such exercise
or payment relates under the applicable Award shall be charged against the
maximum amount of Common Stock that may be delivered pursuant to Awards under
this Plan and, if applicable, such Award. If the Corporation withholds shares of
Common Stock pursuant to Section 5.5, the number of shares that would have been
deliverable with respect to an Award shall be reduced by the number of shares
withheld and such shares shall not be available for additional Awards under this
Plan. Notwithstanding the foregoing provisions, but subject to Sections 5.10(c)
and 3.2(b), Awards payable solely in cash shall not reduce the number of shares
available for Awards under this Plan and any imputed charges to the maximum
number of shares deliverable under this Plan shall be reversed in the case of
Awards actually paid in cash. Thus, to the extent any shares were previously
reserved in respect of such Awards, the number of shares not issued shall again
be available for purposes of this Plan.
1.5 Grant of Awards.
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award, and the
price (if any) to be paid for the shares or the Award. Each Award shall be
evidenced by an Award Agreement signed by the Corporation and, if required by
the Committee, by the Participant.
1.6 Award Period.
Each Award and all executory rights or obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but in the case of Options or other rights to
acquire Common Stock not later than ten (10) years after the Award Date.
1.7 Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise. Except as may otherwise be provided in
an Award Agreement, no Award shall be exercisable or shall vast until at least
six months after the initial Award Date, and once exercisable an Award shall
remain exercisable until the expiration or earlier termination of the Award,
unless the Committee otherwise provides.
(b) Procedure. Any exercisable Award shall be deemed to be
exercised when the Secretary of the Corporation receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(b) or 7.3, as the case may be.
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(c) Fractional Shares/Minimum Issue. Fractional share interests
shall be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Employees that cash, other securities or other
property will be paid or transferred in lieu of any fractional share interests.
No fewer than 10 shares may be purchased on exercise of any Award at one time
unless the number purchased is the total number at the time available for
purchase under the Award.
1.8 Acceptance of Notes to Finance Exercise.
The Corporation may, with the Committee's approval, accept one or
more notes from any Eligible Employee in connection with the exercise or
receipt of any outstanding Award; provided that any such note shall be subject
to the following terms and conditions:
(a) The principal of the note shall not exceed the amount
required to be paid to the Corporation upon the exercise or receipt
of one or more Awards under the Plan and the note shall be
delivered directly to the Corporation in consideration of such
exercise or receipt.
(b) The note shall be repaid over a period of time not to
exceed five years, with annual installments of at least 10% of
principal the first four years and a balloon payment of the
remaining principal amount at the end of the fifth year; provided
that the Corporation may demand any payment, in addition to such
installments, as may be required for the note to remain in
compliance with any applicable federal or state regulation.
(c) The note shall provide for full recourse to the Eligible
Employee Participant and shall bear interest at a rate equal to the
then prime rate of interest charged by Bank of America to its most
credit-worthy customers, which interest rate shall be adjusted
annually to reflect the then prime interest rate; provided that in
no event shall the interest rate charged be less than the
applicable imputed interest rate specified by the Code.
(d) Except as otherwise provided by the Committee, if the
employment of the Eligible Employee Participant terminates, the
unpaid principal balance of the note shall become due and payable
on the 10th business day after such termination; provided, however,
that if a sale of such shares would cause such Eligible Employee
Participant to incur liability under Section 16(b) of the Exchange
Act, the unpaid balance shall
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become due and payable an the 10th business day after the first day
on which a sale of such shares could have been made without
incurring such liability assuming for these purposes that there are
no other transactions by the Employee Participant subsequent to
such termination.
(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed
thereby in compliance with applicable law.
(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall
conform with applicable rules and regulations of the Federal
Reserve Board as then in effect.
1.9 No Transferability.
Awards may be exercised only by, and amounts payable or shares
issuable pursuant to an Award shall be paid only to (or registered only in the
name of), the Participant or, if the Participant has died, the Participant's
Beneficiary or, if the Participant has suffered a Total Disability, the
Participant's Personal Representative, if any, or if there is none, the
Participant, or (to the extent permitted by applicable law and Rule 16b-3) to a
third party pursuant to such conditions and procedures as the Committee may
establish. Other than by will or the laws of descent and distribution or
pursuant to a QDRO or other exception to transfer restrictions under Rule 16b-3
(except to the extent not permitted in the case of an Incentive Stock Option),
no right or benefit under this Plan or any Award, including, without limitation,
any Option or share of Restricted Stock that has not vested, shall be
transferrable by the Participant or shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge (other than to the Corporation) and any such attempted action shall be
void. The Corporation shall disregard any attempt at transfer, assignment or
other alienation prohibited by the preceding sentences and shall pay or deliver
such cash or shares of Common Stock in accordance with the provisions of this
Plan. The designation of a Beneficiary hereunder shall not constitute a transfer
for these purposes.
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II. EMPLOYEE OPTIONS.
2.1 Grants.
One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted may be either an Option intended to be an
Incentive Stock Option, or an option not so intended, and such intent shall be
indicated in the applicable Award Agreement. No Eligible Employee may be granted
an Option to purchase more than 100,000 shares in any year.
2.2 Option Price.
(a) Pricing Limits. Subject to Section 2.4, the purchase price per
share of the Common Stock covered by each Option shall be determined by the
Committee at the time the Option is granted, but shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares purchased
on exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, in cash in an amount equal to the par value of the shares being
purchased, and, in the form of a promissory note (consistent with the
requirements of Section 1.8) of the Participant in an amount equal to the
difference between said cash amount and the purchase price of such shares; (iv)
by notice and third party payment in such manner as may be authorized by the
Committee; (v) by the delivery of shares of Common stock of the Corporation
already owned by the Participant, provided, however, that the Committee may in
its absolute discretion limit the Participant's ability to exercise an Award by
delivering such shares; or (vi) if authorized by the Committee or specified in
the applicable Award Agreement, by reduction in the number of shares of Common
Stock otherwise deliverable upon exercise by that number of shares which have a
then Fair Market Value equal to such purchase price. Previously owned shares of
Common Stock used to satisfy the exercise price of an Option under clauses (v)
and (vi) shall be valued at their Fair Market Value on the date of exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options.
(a) $100,000 Limit. To the extent that the aggregate "fair market
value" of stock with respect to which incentive stock options first become
exercisable by a
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Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as nonqualified stock options. For this purpose, the
"fair market value" of the stock subject to options shall be determined as of
the date the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction of simultaneously
granted options is necessary to meet the $100,000 limit, the Committee may, in
the manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.
(b) Option Period. Subject to Section 2.4, each Option and all
rights thereunder shall expire no later than ten years after the Award Date.
(c) Other Code Limits. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at the
time the Option is granted, owns (or is deemed to own under Section 424(d) of
the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 Option Repricing; Cancellation and Regrant; Waiver of Restrictions.
Subject to Section 1.4 and Section 5.6 and the specific limitations
on Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the exercise or purchase price, the number of shares subject
to, the restrictions upon or the term of, an Award granted under this Article by
cancellation of an outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of an outstanding Award, by waiver or by other
legally valid
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means. Such amendment or other action may result among other changes in an
exercise or purchase price which is higher or lower than the exercise or
purchase price of the original or prior Award, provide for a greater or lesser
number of shares subject to the Award, or provide for a longer or shorter
vesting or exercise period.
III. STOCK APPRECIATION RIGHTS.
3.1 Grants.
In its discretion, the Committee may grant to any Eligible Employee
Stock Appreciation Rights either concurrently with the grant of another Award or
in respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder.
3.2 Exercise of Stock Appreciation Rights.
(a) Exercisability. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) Effect on Available Shares. In the event that a Stock
Appreciation Right is exercised, the number of shares of Common Stock subject to
a related Award shall be charged against the maximum amount of Common Stock that
may be delivered pursuant to Awards under this Plan. The number of shares
subject to the Stock Appreciation Right and the related Option of the
Participant shall also be reduced by such number of shares.
(c) Stand-Alone SARs. A Stock Appreciation Right granted
independently of any other Award shall be exercisable pursuant to the terms of
the Award Agreement but in no event earlier than six months after the Award
Date, except in the case of death or Total Disability.
3.3 Payment.
(a) Amount. Unless the Committee otherwise provides, upon exercise
of a Stock Appreciation Right and surrender of an exercisable portion of any
related Award, the Participant shall be entitled to receive payment of an amount
determined by multiplying
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(i) the difference obtained by subtracting the exercise price
per share of Common stock under the related Award (if applicable)
or the initial share value specified in the Award from the Fair
Market Value of a share of Common Stock an the date of exercise of
the stock Appreciation Right, by
(ii) the number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(b) Form of Payment. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right), or partly in such shares and partly in cash, provided that the Committee
shall have determined that such exercise and payment are consistent with
applicable law. If the Committee permits the Participant to elect to receive
cash or shares (or a combination thereof) on such exercise, any such election
shall be subject to such conditions as the Committee may impose and, in the case
of any Section 16 Person, any election to receive cash shall be subject to any
applicable limitations under Rule 16b-3.
IV. RESTRICTED STOCK AWARDS.
4.1 Grants.
The Committee may, in its discretion, grant one or more Restricted
Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement
shall specify the number of shares of Common Stock to be issued to the
Participant, the date of such issuance, the consideration for such shares (but
not less than the minimum lawful consideration under applicable state law) by
the Participant and the restrictions imposed on such shares and the conditions
of release or lapse of such restrictions. Such restrictions shall not lapse
earlier than six months after the Award Date, except to the extent the Committee
may otherwise provide. Stock certificates evidencing shares of Restricted Stock
pending the lapse of the restrictions ("restricted shares") shall bear a legend
making appropriate reference to the restrictions imposed hereunder and shall be
held by the Corporation or by a third party designated by the Committee until
the restrictions on such shares shall have lapsed and the shares shall have
vested in accordance with the provisions of the Award and Section 1.7. Upon
issuance of the Restricted Stock Award, the Participant may be required
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to provide such further assurance and documents as the Committee may require to
enforce the restrictions.
4.2 Restrictions.
(a) Pre-Vesting Restraints. Except as provided in Section 1.9 and
4.1, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until such shares have vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividend and voting rights for all shares issued even
though they are not vested, provided that such rights shall terminate
immediately as to any restricted shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received
cash (including any dividends) in connection with the Restricted Stock Award,
the Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
4.3 Return to the Corporation.
Unless the Committee otherwise expressly provides, shares of
Restricted Stock that are subject to restrictions at the time of termination of
employment or are subject to other conditions to vest that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and an such terms as the
Committee shall therein provide.
V. OTHER PROVISIONS.
5.1 Rights of Eligible Employees, Participants And Beneficiaries
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) shall confer upon any
Eligible Employee or other Participant any right to continue in the employ or
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other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and no special
or separate reserve, fund or deposit shall be made to assure payment of such
Awards. No Participant, Beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including shares of Common
Stock, except as expressly otherwise provided) of the Company by reason of any
Award hereunder. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment pursuant to any
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
5.2 Adjustments; Acceleration.
(a) Adjustments. If the outstanding shares of Common Stock are
changed into or exchanged for cash, other property or a different number or kind
of shares or securities of the Corporation, or if additional shares or new or
different securities are distributed with respect to the outstanding shares of
the Common Stock, through a reorganization or merger in which the Corporation is
the surviving entity, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation, dividend or distribution of cash or property to the shareholders
of the Corporation, or if there shall occur any other extraordinary corporate
transaction or event in respect of the Common Stock or a sale of substantially
all the assets of the Corporation as an entirety which in the judgment of the
Committee materially affects the Common Stock, then the Committee shall, in such
manner and to such extent (if any) as it deems appropriate and equitable (1)
proportionately adjust any or all of (A) the number and kind of shares of Common
Stock or other consideration that is subject to or may be delivered under this
Plan and pursuant to outstanding Awards, (B) the consideration payable with
respect to Awards granted prior to any such change and the price, if any, paid
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in connection with Restricted Stock Awards; or (2) in the case of an
extraordinary dividend or other distribution, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event; provided, however, in each case, that with respect to
Awards of Incentive Stock Options, no such adjustment shall be made which would
cause the Plan to violate Section 422 or 424(a) of the Code or any successor
provisions thereto. Corresponding adjustments shall be made with respect to any
Stock Appreciation Rights based upon the adjustments made to the Options to
which they are related.
(b) Acceleration of Awards Upon Change in Control. As to any or all
Eligible Employee Participants, the Committee may provide by express provision
in an Award Agreement or otherwise that upon or in anticipation of the
occurrence of a change in control (as that term is defined by the Committee),
benefits under Awards shall be accelerated to the extent permitted and subject
to such conditions as may be imposed by the Committee; provided, however, that
in no event shall any Award be accelerated as to any Section 16 Person to a date
less than six months after the Award Date of such Award.
(c) Possible Early Termination of Accelerated Awards. If any Option
or other right to acquire Common Stock under this Plan (other than under Article
VII) has not been exercised prior to (i) a dissolution or the Corporation, or
(ii) a reorganization event described in Section 5.2(a) that the Corporation
does not survive, and no provision has been made for the survival, substitution,
exchange or other settlement of such Option or right, such Option or right shall
thereupon terminate.
5.3 Effect of Termination of Employment.
The Committee shall establish in respect of each Award granted to
an Eligible Employee the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination, e.g., Retirement, early retirement, termination for cause,
disability or death. Notwithstanding any terms to the contrary in an Award
Agreement or this Plan, the Committee may decide in its complete discretion at
the time of termination (or within a reasonable time thereafter) to extend the
exercise period of an Award (although not beyond the period described in Section
2.3(b)) and the number of shares covered by the
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Award with respect to which the Award is exercisable or vested.
5.4 Compliance with Laws.
This Plan, the granting and vesting of Awards under this Plan and
the offer, issuance and delivery of shares of Common Stock and/or the payment of
money under this Plan or under Awards granted hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including, but not limited to, state and federal securities laws and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
5.5 Tax Withholding.
(a) Cash or Shares. Upon any exercise, vesting, or payment of
any Award, the Company shall have the right at its option to (i) require the
Participant (or Personal Representative or Beneficiary, as the case may be) to
pay or provide for payment of the amount of any taxes which the Company may be
required to withhold with respect to such transaction or (ii) deduct from any
amount payable in cash the amount of any taxes which the Company may be required
to withhold with respect to such cash amount. In any case where a tax is
required to be withheld in connection with the delivery of shares of Common
Stock under this Plan, the Committee may grant (either at the time of the Award
or thereafter) to the Participant the right to elect, pursuant to such rules and
subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation.
(b) Tax Loans. The Committee may, in its discretion, authorize a
loan to an Eligible Employee in the amount of any taxes which the Company may be
required to withhold with respect to shares of common stock received (or
disposed of, as the case may be) pursuant to a transaction described in
subsection (a) above. Such a loan shall be for a term, at a rate of interest and
pursuant to such other terms and conditions as the Committee, under applicable
law
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may establish and such loan need not comply with the provisions of Section 1.8.
5.6 Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Awards may be granted during any suspension of this Plan or after termination of
this Plan, but the Committee shall retain jurisdiction as to Awards then
outstanding in accordance with the terms of this Plan.
(b) Shareholder Approval. If any amendment would (i) materially
increase the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under this Plan,
or (iii) materially modify the requirements as to eligibility for participation
in this Plan, then to the extent then required by Rule 16b-3 to secure benefits
thereunder or to avoid liability under Section 16 of the Exchange Act (and Rules
thereunder) or required under Section 425 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to shareholder approval.
(c) Amendments to Awards. Without limiting any other express
authority of the Committee under but subject to the express limits of this Plan,
the Committee by agreement or resolution may waive conditions of or limitations
on Awards to Eligible Employees that the Committee in the prior exercise of its
discretion has imposed, without the consent of an Eligible Employee Participant,
and may make other changes to the terms and conditions of Awards that do not
affect in any manner materially adverse to the Eligible Employee Participant,
his or her rights and benefits under an Award.
(d) Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of the Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 5.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
5.6.
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5.7 Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership as
to any shares of Common Stock not actually delivered to and held of record by
him or her. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
5.8 Effective Date of the Plan.
This Plan shall be effective as of October 27, 1993, the date of
Board approval, subject to shareholder approval within 12 months thereafter.
5.9 Term of the Plan.
No Award shall be granted more than ten years after the effective
date of this Plan (the "termination date"). Unless otherwise expressly provided
in this Plan or in an applicable Award Agreement, any Award theretofore granted
may extend beyond such date, and all authority of the Committee with respect to
Awards hereunder shall continue during any suspension of this Plan and in
respect of outstanding Awards on such termination date.
5.10 Governing Law; Construction; Severability.
(a) Choice of Law. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California applicable to contracts made
and performed within such State, except as such laws may be supplanted by the
laws of the United States of America, which laws shall then govern its effect
and its construction to the extent they supplant California law.
(b) Severability. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) Plan Construction. It is the intent of the Corporation that
this Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16 of the Exchange
Act satisfies the applicable requirements of Rule 16b-3 so that such persons
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act and will not be subjected to avoidable liability
thereunder. If any provision of this Plan or of any Award or any prior action by
the Committee would otherwise
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frustrate or conflict with the intent expressed above, that provision to the
extent possible shall be interpreted and deemed amended so as to avoid such
conflict, but to the extent of any remaining irreconcilable conflict with such
intent as to such persons in the circumstances, such provision shall be deemed
void.
5.11 Captions.
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
5.12 Effect of Change of Subsidiary Status.
For purposes of this Plan and any Award hereunder, if an entity
ceases to be a Subsidiary, a termination of employment shall be deemed to have
occurred with respect to each employee of such Subsidiary who does not continue
as an employee of another entity within the Company.
5.13 Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant Awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
VI. DEFINITIONS.
6.1 Definitions.
(a) "Award" shall mean an award of any Option, Stock Appreciation
Right, Restricted Stock Award, or other right or security that would constitute
a "derivative security" under Rule 16a-l(c) of the Exchange Act, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
(b) "Award Agreement" shall mean any writing setting forth the
terms of an Award that has been authorized by the Committee.
(c) "Award Date" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award or, in the case of Awards under Article
VII, the applicable dates set forth therein.
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(d) "Award Period" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is identified and able to act under the circumstances.
(f) "Board" shall mean the Board of Directors of the Corporation.
(q) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Commission" shall mean the Securities and Exchange Commission.
(i) "Committee" shall mean a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, during such time as one or more Participants may
be subject to Section 16 of the Exchange Act, shall be a Disinterested and
Outside director; provided, however, that until such time as the Corporation has
a class of Common Stock which is registered under Section 12 of the Exchange
Act, the Board an a whole or any committee the Board may designate may serve as
the Committee.
(j) "Common Stock" shall mean the Common Stock of the Corporation
and such other securities or property as may become the subject of Awards, or
become subject to Awards, pursuant to an adjustment made under Section 5.2 of
this Plan.
(k) "Company" shall mean, collectively, the Corporation and its
Subsidiaries.
(1) "Corporation" shall mean Pacific Gulf Enterprises, Inc., a
Maryland corporation, and its successors.
(m) "Disinterested and Outside" shall mean "disinterested" within
the meaning of any applicable regulatory requirements, including Rule 16b-3, and
"outside" within the meaning of Section 162(m) of the code.
(n) "Eligible Employee" shall mean an officer (whether or not a
director) or any other employee of the
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Company, or any Other Eligible Person, as determined by the Committee in its
discretion.
(o) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
(p) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(q) "Fair Market Value" shall mean the closing price of the stock
on the Composite Tape, as published in the Western Edition of The Wall Street
Journal, of the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; provided, however, if the stock is not listed or admitted to trade on a
national securities exchange, the Committee may designate such other exchange,
market or source of data as it deems appropriate for determining such value for
Plan purposes.
(r) "Incentive Stock Option" shall mean an Option which is
designated as an incentive stock option within the meaning of Section 422 of the
Code and which contains such provisions as are necessary to comply with that
section.
(s) "Nonqualified Stock Option" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
(t) "Non-Employee Director" shall mean a member of the Board of
Directors of the Corporation who is not an officer or employee of the Company.
(u) "Non-Employee Director Participant" shall mean a Non-Employee
Director who has been granted an Award under the provisions of Article VII.
(v) "Option" shall mean an option to purchase Common Stock under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option. Options
granted under Article VII shall be Nonqualified Stock Options.
(w) "Other Eligible Person" shall mean any other person (including
significant agents and consultants) who
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performs substantial services for the Company of a nature similar to those
performed by key employees, selected to participate in this Plan by the
Committee from time to time; provided that in no event shall a Non-Employee
Director be selected as an Other Eligible Person.
(x) "Participant" shall mean an Eligible Employee who has been
granted an Award under this Plan and a Non-Employee Director who has received an
Award under Article VII of this Plan.
(y) "Personal Representative" shall mean the person or persons who,
upon the Total Disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.
(aa) "Plan" shall mean this 1993 Share Option Plan.
(bb) "QDRO" shall mean a qualified domestic relations order as
defined in Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to
the same extent as if this Plan were subject thereto), or the applicable rules
thereunder.
(cc) "Restricted Stock" shall mean shares of Common Stock awarded
to a Participant subject to payment of such consideration, if any, and such
conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(dd) "Retirement" shall mean retirement from active service as an
employee or officer of the Company on or after attaining age 65, or, in the case
of a Non-Employee Director, a retirement or resignation as a director after at
least ten years of service as a director.
(ee) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act.
(ff) "Section 16 Person" shall mean a person subject to Section
16(a) of the Exchange Act.
(gg) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(hh) "Stock Appreciation Right" shall mean a right to receive a
number of shares of Common Stock or an amount
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of cash, or a combination of shares and cash, the aggregate amount or value of
which is determined by reference to a change in the Fair Market Value of the
Common Stock that is authorized under this Plan.
(ii) "Subsidiary" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
(jj) "Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code and (except in
the case of a Non-Employee Director) such other disabilities, infirmities,
afflictions or conditions as the committee by rule may include.
VII. NON-EMPLOYEE DIRECTOR OPTIONS
7.1 Participation.
Awards under this Article VII shall be made only to Non-Employee
Directors.
7.2 Annual Option Grants.
(a) Initial Options. Persons who are Non-Employee Directors at the
time this Plan is first approved by the shareholders of the Corporation shall be
granted without further action an Option to purchase 2,500 shares of Common
Stock (the Award Date of which shall be the date of shareholder approval of this
Plan). After approval of this Plan by the shareholders of the Corporation, if
any person who is not then an officer or employee of the Corporation shall
become a Director of the Corporation, there shall be granted automatically to
such person (without any action by the Board or Committee) a Nonqualified Stock
Option (the Award Date of which shall be the date such person becomes a
Non-Employee Director) to purchase 2,500 shares of Common Stock.
(b) Subsequent Options. On each December 31 occurring during the
term of this Plan, commencing December 31, 1994, there shall be granted
automatically (without any action by the Committee or the Board) a Nonqualified
Stock Option to each Non-Employee Director then in office to purchase 500 shares
of Common Stock.
(c) Maximum Number of Shares. Annual grants that would otherwise
exceed the maximum number of shares under Section 1.4(a) shall be prorated
within such limitation among the number of Non-Employee Directors entitled
thereto. A Non-Employee Director shall not receive
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more than one Nonqualified Stock Option under this Section 7.2 in any calendar
year and no more than 7,000 shares on exercise of all Options awarded under this
Section 7.2.
7.3 Option Price.
The purchase price per share of the Common Stock covered by each
Option granted pursuant to Section 7.2 hereof shall be 100 percent of the Fair
Market Value of the Common Stock on the Award Date. The exercise price of any
Option granted under this Article shall be paid in full at the time of each
purchase in cash or by check or in shares of Common Stock valued at their Fair
Market Value on the date of exercise of the Option, or partly in such shares and
partly in cash, provided that any such shares used in payment shall have been
owned by the Participant at least six months prior to the data of exercise.
7.4 Option Period and Exercisability.
Each Option granted under this Article VII and all rights or
obligations thereunder shall commence on the Award Date and expire ten years
thereafter and shall be subject to earlier termination as provided below. Each
Option granted under Section 7.2 shall be immediately exercisable after the
Award Date.
7.5 Effect of Termination of Service.
If a Non-Employee Director's services as a member of the Board of
Directors terminate by reason of death, Total Disability or Retirement, an
Option granted pursuant to this Article held by such Participant shall remain
exercisable for two years after the date of such termination or until the
expiration of the stated term at such Option, whichever first occurs. If a
Non-Employee Director's services as a member of the Board of Directors terminate
for any other reason, an Option granted pursuant to this Article held by such
Participant shall remain exercisable for three months after the date of such
termination or until the expiration of the stated term, whichever first occurs.
7.6 Adjustments.
Options granted under this Article VII shall be subject to
adjustment as provided in Section 5.2, but only to the extent that (a) such
adjustment and the Committee's actions in respect thereof satisfy applicable
criteria under Rule 16b-3, and (b) such adjustment is consistent with
adjustments to Options held by persons other than executive officers or
directors of the Corporation.
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7.7 Limitation on Amendments.
The provisions of this Article VII shall not be amended more than
once every six months (other than as may be necessary to conform to any
applicable changes in the Code or the rules thereunder), unless such amendment
would be consistent with the provisions of Rule 16b-3(c)(2)(ii) (or any
successor provision).
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EXHIBIT 10.16
PACIFIC GULF PROPERTIES INC.
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT dated as of the day of , , is
between Pacific Gulf Properties Inc., a Maryland corporation (the "Corporation")
and (the "Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Corporation has adopted the Pacific Gulf Properties Inc.
1993 Share Option Plan (the "Plan") in order to retain, motivate and reward
employees of the Corporation by providing incentives related to equity interests
in and the financial performance of the Corporation; and
WHEREAS, pursuant to the Plan, the Corporation has determined to grant
to the Employee effective as of the day of , , (the "Award
Date") an award of restricted shares of common stock of the Corporation, $0.01
par value, upon the terms and conditions set forth herein and in the Plan; and
WHEREAS, Employee is willing to accept such restricted common stock
upon the terms and conditions set forth herein and in the Plan.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
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2. Grant of Award As additional compensation, the Corporation
hereby grants to the Employee the right to purchase, and Employee hereby agrees
to purchase, within sixty (60) days of the Award Date and pursuant to the terms
and conditions set forth herein and in the Plan, an aggregate of FIVE THOUSAND
(5,000) shares of common stock of the Corporation (the "Bonus Shares") for a
price (the "Purchase Price") equal to the par value of the Bonus Shares
calculated at $0.01 per share. The Employee shall pay the Purchase Price in cash
or by check at the office of the Corporation's Chief Financial Officer. To the
extent that Employee fails to pay the Purchase Price in the foregoing manner
within sixty (60) days of the Award Date, Employee's right to purchase the Bonus
Shares under this Agreement shall lapse.
3. Restrictions on Bonus Shares.
(a) The Bonus Shares so purchased and any additional shares
or securities attributable thereto received by Employee as a result of any stock
dividend, stock split, recapitalization, merger, reorganization or any other
similar event (which additional shares and securities shall also be treated as
Bonus Shares) shall be subject to the restrictions set forth in this Section 3.
During the Restricted Period as hereinafter defined, except as permitted by this
Agreement or the Plan, the Bonus Shares and the rights and privileges conferred
hereby are not transferable or assignable and may not be offered, sold, pledged,
hypothecated or otherwise disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment, garnishment, levy
or similar process.
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(b) Except as earlier permitted by or pursuant to the Plan
or by resolution of the Committee adopted after the date hereof, the Restricted
Period shall commence on the Award Date and shall terminate on the FIFTH
anniversary of the Award Date. The Bonus Shares vest equally over a FIVE-YEAR
period with the FIRST VESTING to occur ON , , and annually
thereafter. Upon termination of the Restricted Period, all of the Bonus Shares
shall become free of all restrictions contained in this Section 3.
(c) Notwithstanding any contrary provision contained in
Subsection 3(b) hereof:
(1) If the Corporation terminates the Employee's
employment for other than Cause prior to the fifth anniversary of the Award
Date, then upon such termination the Restricted Period with respect to all of
the Bonus Shares held by Employee shall terminate and all such shares shall then
become free from the restrictions contained in this Section 3. For purposes of
this Agreement, "Cause" shall mean (i) an act or acts of dishonesty (including
but not limited to conviction of a felony) taken by Employee which materially
injures or damages the Corporation or (ii) Employee's willful failure to
substantially perform Employee's duties where such willful failure results in
demonstrable material injury and damage to the Corporation.
(2) If Employee terminates his employment with the
Corporation because of Employee's death or Total Disability, the Restricted
Period with respect to all of the Bonus Stock held by Employee under this
Agreement shall end on the date of such termination and all of such shares shall
then become free from the restrictions contained in this Section 3.
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4. Corporation Right of Reacquisition.
(a) Employee hereby agrees that the Corporation shall have
the right and option to reacquire the Bonus Shares, or any portion thereof, if
Employee's employment with the Corporation is terminated during the Restricted
Period (i) for Cause (a "For Cause Termination") or (ii) for any other reason
other than the death of Employee, the Total Disability of Employee or the
Qualified Termination of Employee as described in Section 11 hereof (a
"Nonqualified Termination"). In the event of a For Cause Termination or a
Nonqualified Termination, the Corporation may exercise its right and option to
reacquire all or any portion of the Bonus Shares for a price equal to the price
that Employee paid for such shares as appropriately adjusted for any stock
dividend, stock split or any other similar transaction which has occurred with
respect to the Bonus Shares subsequent to the Award Date (the "Reacquisition
Price"). No additional consideration shall be payable by the Corporation in
connection with such reacquisition. Such right and option shall be exercised by
giving written notice of exercise to Employee and tendering the Reacquisition
Price in cash or by check of the Corporation to Employee within 180 days of the
date of such termination of employment.
(b) If the Corporation exercises its right and option to
reacquire Bonus Shares, stock certificates representing such shares shall be
promptly transferred to the Corporation. In that connection, Employee authorizes
the Corporation and its officers to effect such transfer by completing the stock
power with respect to such reacquired Bonus Shares which Employee has deposited
with the Corporation pursuant to Section 5 hereof in favor of the Corporation or
its nominee and to take all other action necessary to complete such transfer.
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(c) If the Corporation fails to exercise its option to
reacquire any of the Bonus Shares or tender the Reacquisition Price within such
180-day period, the Restricted Period with respect to the Bonus Shares which are
not so reacquired shall terminate on the last day of the 180-day period and such
non-reacquired shares shall then become free of all of the restrictions
contained in Section 3 hereof.
(d) References to the Corporation in this Agreement shall
include each Subsidiary of the Corporation. A transfer of Employee's employment
between Subsidiaries of the Corporation, or between any Subsidiary and the
Corporation, shall not be considered a termination of employment for purposes of
this Agreement. If Employee is employed by an entity which ceases to be a
Subsidiary, such event shall be deemed for purposes of this Section 4 to be a
Nonqualified Termination with respect to Employee. Absence from work caused by
military service or authorized sick leave shall not be considered as a
termination of employment for purposes of this Agreement.
5. Stock Certificates.
(a) Upon the purchase of the Bonus Shares by Employee, stock
certificates issued with respect to such Bonus Shares shall be registered in the
name of Employee on the books of the Corporation and shall be deposited by
Employee with the Corporation, together with a stock power endorsed in blank in
the form attached as Attachment 1.
(b) All stock certificates representing shares of Bonus
Shares during the Restricted Period shall bear the following legend:
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"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
contained in a Restricted Stock Award Agreement entered into
between the registered owner and Pacific Gulf Properties Inc. A
copy of such Agreement is on file in the office of the Secretary
of Pacific Gulf Properties Inc., 4220 Von Karman, Second Floor,
Newport Beach, California 92660."
(c) With regard to any shares of Bonus Shares which cease to
be subject to the restrictions contained in Section 3 hereof, the Corporation
shall, within sixty (60) days of the date that such shares cease to be subject
to such restrictions, deliver a stock certificate representing such Bonus Shares
free of the foregoing legend to Employee or, in the event of such Employee's
death, to Employee's personal representative, heir or successor, in exchange for
the legended stock certificate which previously represented such Bonus Shares.
6. Shareholder's Rights. Subject to the terms of this Agreement,
including but not limited to the transfer restrictions contained in Subsection
3(a) hereof, during the Restricted Period the Employee shall have all of the
rights of a shareholder of the Corporation with respect to the Bonus Shares,
including the right to vote all of such shares and the right to receive all cash
dividends paid with respect to all of the Bonus Shares.
7. Regulatory Compliance. The issue and sale of all of the Bonus
Shares shall be subject to full compliance with all then applicable requirements
of law and
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the requirements of any stock exchange upon which the Bonus Shares may be
listed.
8. Withholding Tax. Employee agrees that, in the event that the
purchase of the Bonus Shares or the expiration of restrictions thereon results
in Employee's realization of income which is subject to withholding of tax at
source by Employee's employer for federal, state or local income tax purposes,
either (a) Employee will pay to such Employee's employer an amount in cash or
previously owned shares of the Corporation (valued at their Fair Market Value at
the time of payment) equal to such withholding tax or (b) such employer on
behalf of the Corporation may withhold such amount from Employee's salary. In
addition, and notwithstanding any other provision of this Agreement which may be
construed to the contrary, if permitted by applicable law, to the extent that
withholding is required at the time of the expiration of restrictions contained
in Section 3 hereof, withholding may at the election of Employee be satisfied by
the reduction of the number of Bonus Shares to be delivered to Employee at the
time such restrictions lapse and the transfer to the Corporation of Bonus Shares
with a Fair Market Value at the time of such transfer equal to such withholding
tax. Notwithstanding any provision of this Agreement which may be construed to
the contrary, Company agrees to loan Employee sufficient funds to pay such
withholding tax if the Employee is unable to sell Bonus Shares sufficient to pay
such withholding tax due to any of the following: (i) such shares may not be
sold by Employee because Employee possesses material non-public information with
respect to the Company at the time that such restrictions lapse; (ii) Employee
is precluded from advantageously selling such shares because of Rule 16b-3
promulgated by the Securities and Exchange Commission; or (iii) if for any other
reason
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the Company requests Employee not to sell such shares. The term of any loan
required to be made to Employee hereunder shall be for a one-year period or, if
the reason precluding the sale of the Bonus Shares has not ceased by the end of
that one-year term, three months subsequent to the date of the cessation of such
precluding reason. Such loan shall bear interest at the prime rate in existence
at the time that the loan is granted.
9. Investment Representation. Employee represents and agrees that
if Employee purchases any Bonus Shares at a time when there is not in effect
under the Securities Act of 1933 a registration statement relating to such
shares and there is not available for delivery a prospectus meeting the
requirements of section 10(a)(3) of said Act, (a) Employee will acquire such
shares upon such purchase for the purpose of investment and not with a view to
their resale or distribution; (b) upon such purchase, Employee will furnish to
the Corporation an investment letter in form and substance satisfactory to the
Corporation; (c) if and when Employee proposes to publicly offer or sell any of
such Bonus Shares, Employee shall notify the Corporation prior to any such
offering or sale and shall abide by the opinion of counsel to the Corporation as
to whether and under what conditions and circumstances, if any, Employee may
offer and sell such Bonus Shares; and (d) the certificate or certificates
representing the Bonus Shares shall bear a legend referring to the foregoing
matters and any limitations under the Act and state securities laws with respect
to the transfer of such Bonus Shares, and the Corporation may impose stop
transfer instructions to implement such limitations, if applicable.
10. Federal Income Tax Election. Employee hereby acknowledges
receipt of advice that pursuant to current federal income tax laws, (a) Employee
has 30
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days in which to elect to be taxed in the current taxable year on the Fair
Market Value of the Bonus Shares in excess of the Purchase Price paid by
Employee for such shares in accordance with the provisions of Section 83(b) of
the Code or any successor thereto; and (b) if no such election is made, a
taxable event will occur when the Bonus Shares cease to be subject to the
Corporation's right of repurchase, and that taxable income tax will then be
incurred by Employee in the amount by which the Fair Market Value of the Bonus
Shares on the date of the taxable event exceeds the Purchase Price paid by
Employee for such shares.
11. Special Rules if a Change of Control Occurs.
(a) If there is a Change in Control Event and a Qualifying
Termination with respect to Employee occurs on or prior to the fifth anniversary
of the date of the Change in Control Event, the Restricted Period for all shares
of Bonus Shares owned by the Employee shall expire on the date of the Qualifying
Termination and all of such shares shall thereupon become free of all of the
restrictions contained in Section 3 hereof. Such acceleration of the expiration
of the Restricted Period shall comply with applicable regulatory requirements,
including, without limitation, Rule 16b-3 promulgated by the Securities and
Exchange Commission. For purposes of this Section 11 only, Committee shall mean
the Committee of the Corporation as constituted immediately prior to the Change
in Control Event.
(b)(1) Notwithstanding any provision of Subsection 11(a)
hereof to the contrary, the Restricted Period shall not expire on account of a
Qualifying Termination to the extent that the Committee determines that such
expiration would cause the deduction
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limitations of Section 28OG of the Code to come into effect. In the event that
the Restricted Period does not expire for any of the Bonus Shares, the Employee
may request independent verification of the Committee's calculations with
respect to the application of Section 280G. In such case, the Committee will
provide to the Employee within 15 business days after such a request an opinion
from a nationally recognized accounting firm selected by Employee (the
"Accounting Firm"). The opinion shall state the Accounting Firm's opinion that
the limitation on the expiration of the Restricted Period hereunder is necessary
to avoid the limits of Section 28OG and contain supporting calculations. The
cost of such opinion shall be paid for by the Corporation. To the extent that
such opinion concludes that the expiration of the Restricted Period with respect
to all or some of the Bonus Shares would not cause the limits of Section 280G to
come into effect, the Restricted Period with respect to such shares shall
thereupon terminate and such shares shall then become free of all of the
restrictions contained in Section 3 hereof.
(2) To the extent that the Corporation and the Employee
enter into an Employment Agreement which provides for certain severance payments
in the event of a Qualified Termination after a Change in Control Event, and to
the extent that such Employment Agreement provides limitations on the amount of
such severance payments if such severance payments, together with all other
"parachute payments" (as defined in the Employment Agreement), would cause the
deduction limitations of Section 28OG of the Code to come into effect, if the
Employee so chooses, Employee may elect that the Restricted Period not expire
with respect to all or part of a Bonus Shares prior to any reductions of
payments under the Employment Agreement.
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(c) For purposes of this Agreement, a "Change in Control Event"
shall mean any of the following events:
(1) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then outstanding shares
of common stock of the Corporation or any successor thereto (the "Outstanding
Common Stock") or (B) the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control Event: (A) any
acquisition directly from the Corporation (except that an acquisition by virtue
of the exercise of a conversion privilege shall not be considered within this
clause (A) unless the converted security was itself acquired directly from the
Corporation); (B) any acquisition by the Corporation; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation; or (D) any
acquisition by any corporation pursuant to a reorganization, merger or
consolidation if, following such reorganization, merger or consolidation, the
conditions described in clauses (A) and (B) of Subsection 11(c)(3) hereof are
satisfied; or
(2) The cessation for any reason of the individuals who, as
of the date hereof, constitute the Board (the "Incumbent Board") to continue to
constitute at least a majority of the Board; provided, however, that any
individual who becomes a director subsequent to the Award Date whose election,
or nomination for
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election by the Corporation's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation (a "transaction"), unless, following
such transaction in each case, (A) more than 80% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
transaction and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such transaction and (B) no Person (excluding
the Corporation, any employee benefit plan (or related trust) of the Corporation
or such corporation resulting from such transaction, and any Person beneficially
owning, immediately prior to such transaction, directly or indirectly, 20% or
more of the Outstanding Common Stock or Outstanding Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
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the corporation resulting from such transaction or the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors; or
(4) Approval by the shareholders of the Corporation of (A) a
complete liquidation or dissolution of the Corporation or (B) the sale or other
disposition of all or substantially all of the assets of the Corporation, unless
such assets are sold to a corporation and following such sale or other
disposition, the conditions described in clauses (A) and (B) of Subsection
11(c)(3) hereof are satisfied.
(d) If, subsequent to a Change in Control Event and during the
period described in Section 11(a) hereof, Employee's employment terminates, such
termination shall be considered a "Qualifying Termination" if either of the
following events occurs:
(1) Employee voluntarily terminates employment for Good
Reason. For purposes of this Section, "Good Reason" shall mean the occurrence of
one of the following events without Employee's consent:
(i) The assignment to Employee of any duties
inconsistent in any material respect with the Employee's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as they existed in their most significant form during the 90
days preceding the Change in Control Event or any other action by the
Corporation which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Corporation promptly after receipt of notice thereof given by the Employee;
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(ii) Any reduction in Employee's total compensation not
agreed to by Employee, which reduction shall be deemed to occur if there is a
reduction in (I) Employee's base salary or (II) Employee's ability to
participate in employee benefit plans, receive expense reimbursements, receive
other fringe benefits, receive office and support staff, or receive paid
vacation, on the same terms as such benefits were applicable during the 90 days
preceding the Change in Control Event, provided that, (aa) an isolated,
insubstantial, and inadvertent failure not occurring in bad faith and which is
promptly remedied after notice by the Employee shall not be deemed a violation
of this Subsection 11(d)(1)(ii) and (bb) a reduction in one element of
Employee's total compensation shall not be deemed a violation of this Subsection
11(d)(1)(ii) if a counterbalancing increase in another element of Employee's
total compensation occurs (the determination of whether the increase is
counterbalancing shall be determined by Employee in good faith); or
(iii) The transfer of Employee's job location to a site
which is more than 30 miles away from his or her place of employment prior to
the Change in Control Event of the Corporation, unless the transfer is to the
headquarters of Pacific Gulf Properties Inc.
(2) Employee is involuntarily terminated without "Cause" as
defined in Subsection 3(c)(1) hereof.
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(e) In the event that a Change in Control Event occurs before
Employee's termination from the Corporation, the following rules shall apply:
(1) Because it is agreed that time will be of the essence in
determining the extent to which the Bonus Shares become free of the restrictions
contained in Section 3 hereof, Employee or his or her Beneficiary may, if he or
she desires, submit any claim for payment under this Agreement or dispute
regarding the interpretation of this Agreement to arbitration. This right to
select arbitration shall be solely that of Employee or his or her Beneficiary
and Employee or his or her Beneficiary may decide whether or not to arbitrate in
his or her discretion. The "right to select arbitration" is not mandatory on
Employee or on his or her Beneficiary and Employee or his or her Beneficiary may
choose in lieu thereof to bring an action in an appropriate civil court. Once an
arbitration is commenced, however, it may not be discontinued without the mutual
consent of both parties to the arbitration. During the lifetime of the Employee
only he or she can use the arbitration procedure set forth in this Subsection
11(e).
(2) Any claim for arbitration may be submitted as follows:
if Employee or Employee's Beneficiary disagrees with the Corporation regarding
the interpretation of this Agreement and the claim is finally denied by the
Corporation in whole or in part, such claim may be filed in writing with an
arbitrator of Employee's or Employee's Beneficiary's choice who is selected by
the method described in the next four sentences. The first step of the selection
shall consist of Employee or Employee's Beneficiary submitting a list of five
potential arbitrators to the Corporation. Each of the five arbitrators must be
either (i) a member of the National Academy of Arbitrators located in the State
of California or (ii) a retired California superior Court or Appellate Court
judge. Within one week after receipt of the list, the Corporation shall select
one of the five
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arbitrators as the arbitrator for the dispute in question. If the Corporation
fails to select an arbitrator in a timely manner, Employee or Employee's
Beneficiary shall then designate one of the five arbitrators as the arbitrator
for the dispute in question.
(3) The arbitration hearing shall be held within seven days
(or as soon thereafter as possible) after the picking of the arbitrator. No
continuance of said hearing shall be allowed without the mutual consent of
Employee or Employee's Beneficiary and the Corporation. Absence from or
nonparticipation at the hearing by either party shall not prevent the issuance
of an award. Hearing procedures which will expedite the hearing may be ordered
at the arbitrators discretion, and the arbitrator may close the hearing in his
or her sole discretion when he or she decides he or she has heard sufficient
evidence to satisfy issuance of an award.
(4) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than one week after the close of
the hearing. In the event the arbitrator finds that the Corporation has breached
this Agreement, he or she shall order the Corporation to immediately take the
necessary steps to remedy the breach. The award of the arbitrator shall be final
and binding upon the parties. The award may be enforced in any appropriate court
as soon as possible after its rendition. If an action is brought to confirm the
award, both the Corporation and Employee agree that no appeal shall be taken by
either party from any decision rendered in such action.
(5) Solely for purposes of determining the allocation of the
costs described in this Subsection, the Corporation will be considered the
prevailing party in a dispute if the arbitrator determines (i) that the
Corporation has not breached this
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Agreement and (ii) the claim by Employee or Employee's Beneficiary was
frivolous; otherwise, Employee or Employee's Beneficiary will be held to be the
prevailing party. In the event that the Corporation is the prevailing party, the
fee of the arbitrator and all necessary expenses of the hearing (excluding any
attorneys' fees incurred by the Corporation) including stenographic reporter, if
employed, shall be paid by the other party. In the event that Employee or
Employee's Beneficiary is the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (including all attorneys' fees incurred by
Employee or Employee's Beneficiary in pursuing his or her claim), including the
fees of a stenographic reporter if employed, shall be paid by the Corporation.
(6) If the arbitrator determines that (i) the Corporation
has breached this Agreement and (ii) the Corporation was unjustified in failing
to make the Bonus Shares free of restrictions as required under this Agreement
for the benefit of Employee or Employee's Beneficiary, Corporation shall pay to
Employee or Employee's Beneficiary, as liquidated damages and not as a penalty,
an additional amount equal to 10% of the amount involved in the arbitration with
respect to this Agreement.
12. Continuance of Employment. Nothing contained herein or in the
Plan shall confer upon Employee any right with respect to the continuation of
Employee's employment by the Corporation or any Subsidiary or interfere in any
way with the right of the Corporation or of any Subsidiary at any time to
terminate such employment or to increase or decrease the compensation of
Employee from the rate in existence at any time.
13. Notices. Any notice, request, demand, instruction, other
document or tender to be given hereunder or pursuant hereto to any party shall
be in writing and shall
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either be personally delivered (in which event such notice or tender shall be
deemed effective only upon such delivery), delivered by facsimile transmission
or delivered by mail, sent by registered or certified mail, postage prepaid,
return receipt requested to Employee or Employee's Beneficiary at the address
set forth beneath Employee's signature hereto and, if to the Corporation, to the
address set forth below:
Pacific Gulf Properties Inc.
4220 Von Karman, Second Floor
Newport Beach, California 92660
Attention: Chief Executive Officer
Mailed notices and tenders shall be deemed to have been given three (3)
days after the deposit of same in any United States mail, postage prepaid,
addressed as set forth above. A party's notice and tender address may be changed
for purposes of this Agreement by giving written notice of such change in the
manner herein provided for giving notice. Unless and until such written notice
is received, the last address stated by written notice, or as provided herein if
no written notice of change has been sent or received, shall be deemed to
continue in effect for all purposes hereunder. Notice given by facsimile
transmission ("FAX") shall be deemed given only if the Employee Signature Page
sets forth a FAX number or the Employee to whom such notice is given has
provided a FAX number to the Corporation, and such notice shall be deemed
delivered upon receipt by the Corporation of a FAX confirmation or other form of
confirmation that the FAX sent was in fact received by the addressee.
14. Plan. This award and all rights of Employee thereunder are
subject to, and the Employee agrees to be bound by, all of the terms and
conditions of the
Page 18
<PAGE> 19
provisions of the Plan, incorporated herein by this reference, to the extent
such provisions are applicable to restricted stock awards granted to Eligible
Employees. The Employee acknowledges receipt of a copy of the Plan, which is
incorporated herein and made a part hereof by this reference, and agrees to be
bound by the terms thereof. Unless otherwise expressly provided in other
Sections of this Agreement, provisions of the Plan that confer discretionary
authority on the Committee do not (and shall not be deemed to) create any rights
in the Employee unless such rights are expressly set forth herein or are
otherwise in the sole discretion of the Committee so conferred by appropriate
action of the Committee under the Plan after the date hereof.
Page 19
<PAGE> 20
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer as of the date first above
written and the Employee has hereunto set his or her hand.
PACIFIC GULF PROPERTIES INC.
(a Maryland corporation)
By:
----------------------------------------
Donald G. Herrman
Executive Vice President,
Chief Financial Officer and Secretary
EMPLOYEE
--------------------------------------------
(Signature)
--------------------------------------------
(Typed Name of Employee)
--------------------------------------------
(Address)
--------------------------------------------
(City, State, Zip Code)
Page 20
<PAGE> 21
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Restricted Stock
Award Agreement by Pacific Gulf Properties Inc., I, ____________________, the
spouse of the Employee herein named, do hereby join with my spouse in executing
the foregoing Restricted Stock Award Agreement and do hereby agree to be bound
by all of the terms and provisions thereof and of the Plan.
DATED: , 19 .
------------- ---- -----------------------------------
Signature of Spouse
Page 21
<PAGE> 22
ATTACHMENT 1
STOCK ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, does hereby sell, assign and
transfer unto PACIFIC GULF PROPERTIES INC. ( ) Shares of the
Common Stock of PACIFIC GULF PROPERTIES INC. (the "Corporation") standing in his
name on the books of said Corporation and represented by Certificate Number CH
_______ herewith, and does hereby irrevocably constitute and appoint Cox, Castle
& Nicholson, attorneys, to transfer the said stock on the books of the within
named Corporation with full power of substitution in the premises.
Dated: , 19 .
------------------- ---- -----------------------------------
IN PRESENCE OF:
-----------------------------------
-----------------------------------
(Type or Print Name)
Page 22
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (1) the Registration Statements
(Form S-3 No. 333-23611 dated April 10, 1997 and No. 333-45597 dated February 4,
1998) and the related Prospectuses of Pacific Gulf Properties Inc. (the
"Company") for the registration of $250,000,000 and $300,000,000, respectively,
of the Company's common stock, preferred stock, debt securities and warrants;
and (2) the Registration Statement (Form S-8, No. 33-73688) pertaining to the
Pacific Gulf Properties Inc. 1993 Share Option Plan, and the Registration
Statement (Form S-3 No. 33-92082) pertaining to the Pacific Gulf Properties Inc.
Dividend Reinvestment Plan of our report dated February 10, 2000, with respect
to the consolidated financial statements and related financial statement
schedule of Pacific Gulf Properties Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG, LLP
Newport Beach, California
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,177
<SECURITIES> 0
<RECEIVABLES> 4,005
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,182
<PP&E> 942,827
<DEPRECIATION> 72,715
<TOTAL-ASSETS> 891,921
<CURRENT-LIABILITIES> 27,610
<BONDS> 418,343
0
28
<COMMON> 207
<OTHER-SE> 427,656
<TOTAL-LIABILITY-AND-EQUITY> 891,921
<SALES> 0
<TOTAL-REVENUES> 124,168
<CGS> 0
<TOTAL-COSTS> 65,311
<OTHER-EXPENSES> 1,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,242
<INCOME-PRETAX> 31,398
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,398
<DISCONTINUED> 0
<EXTRAORDINARY> 8,472
<CHANGES> 0
<NET-INCOME> 34,899
<EPS-BASIC> 1.73
<EPS-DILUTED> 1.71
</TABLE>
