<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
</TABLE>
PACIFIC GULF PROPERTIES INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): In
accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the aggregate of the cash and the value
of the securities and other property to be distributed to the
shareholders of Pacific Gulf Properties Inc.
(4) Proposed maximum aggregate value of transaction: $742,000,000.00
(5) Total fee paid: $148,400.00
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 9, 2000
-------------------------
To our Shareholders:
A special meeting of shareholders of Pacific Gulf Properties Inc. will be
held at the Center Club, 650 Town Center Drive, Costa Mesa, California 92626, on
November 9, 2000, beginning at 10:00 a.m. local time. At the meeting,
shareholders will act on the following matters:
(1) To consider and vote upon a proposal to approve the sale of our
industrial properties pursuant to a purchase agreement dated as of June
20, 2000, between Pacific Gulf and CalWest Industrial Properties, LLC,
as amended;
(2) To consider and vote upon a proposal, which will be conditioned on the
closing of the sale of our industrial properties, to approve the
proposed sale of our remaining assets and our liquidation and
subsequent dissolution, which will be conditioned on the sale of all of
our remaining assets and our liquidation; and
(3) To consider and vote upon any other matters that properly come before
the meeting.
All holders of record of shares at the close of business on October 13,
2000 are entitled to vote at the meeting or any postponements or adjournments of
the meeting.
We encourage you to read this proxy statement carefully. In addition, you
may obtain information about Pacific Gulf Properties from the documents that we
have filed with the SEC.
This notice and proxy statement was first mailed to shareholders on or
about October 19, 2000.
By order of the Board of Directors,
DONALD G. HERRMAN
Executive Vice President and Secretary
October 18, 2000
Newport Beach, California
YOUR VOTE IS IMPORTANT. PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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ABOUT THE MEETING........................................... 1
What is the Purpose of the Special Meeting?............... 1
When Will the Proposed Sale and Subsequent Liquidation
Occur?................................................. 1
What is the Current Status of the Proposed Sale?.......... 1
Who is Entitled to Vote at the Meeting?................... 1
Who Can Attend the Meeting?............................... 2
What Constitutes a Quorum?................................ 2
How Do I Vote?............................................ 2
Can I Change My Vote After I Return My Proxy Card?........ 2
What are the Board's Recommendations?..................... 2
What Vote is Required to Approve Each Proposal?........... 2
Who Can I Call with Questions?............................ 3
SUMMARY..................................................... 4
STOCK OWNERSHIP............................................. 12
Significant Shareholders.................................. 12
Officers and Directors.................................... 12
Common Shares Beneficially Owned.......................... 13
PROPOSAL 1 -- APPROVAL OF SALE OF INDUSTRIAL PROPERTIES
PURSUANT TO AGREEMENT OF PURCHASE AND SALE................ 14
General................................................... 14
Reasons for the Sale and the Liquidation Plan............. 14
Background of the Sale.................................... 15
Opinion of Morgan Stanley & Co. Incorporated.............. 16
The Purchase Agreement.................................... 19
Summary................................................ 19
Diligence Period; Deletion or Deferral of Properties... 20
Other Remediation Efforts.............................. 22
Third Party Consents................................... 23
Adjustments to Purchase Price.......................... 23
Closing................................................ 24
Representations and Warranties......................... 24
Covenants Regarding Conduct of Business Before the
Sale.................................................. 24
Conditions to the Completion of the Sale............... 25
Termination of the Purchase Agreement.................. 25
Deposit; Termination Fees and Expenses................. 26
No Solicitation; Covenant to Recommend................. 26
Amendment or Waiver of the Purchase Agreement.......... 27
Management Agreement................................... 27
Estimated Amounts Available for Distribution.............. 27
Past Transactions Between Pacific Gulf and CalWest........ 27
</TABLE>
i
<PAGE> 4
<TABLE>
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PAGE
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<S> <C>
PROPOSAL 2 -- APPROVAL OF SALE OF REMAINING ASSETS AND THE
LIQUIDATION OF PACIFIC GULF PROPERTIES.................... 28
General................................................... 28
Conditions to Liquidation and Dissolution................. 28
Possible Alternative Transactions......................... 28
Description of the Liquidation Plan....................... 28
Assets Subject to Liquidation Plan........................ 30
Distribution of Proceeds.................................. 31
Authority of Board of Directors and Officers.............. 31
FEDERAL INCOME TAX CONSIDERATIONS........................... 32
Background................................................ 32
Consequences to Pacific Gulf if Proposals 1 and 2 are
Approved............................................... 32
Consequences to Shareholders if Proposals 1 and 2 Are
Approved............................................... 33
Consequences to Pacific Gulf if Proposal 1 is Approved But
Proposal 2 Is Not Approved............................. 34
Consequences To Shareholders If Proposal 1 Is Approved But
Proposal 2 Is Not Approved............................. 34
Special Rules Applicable to Non-United States
Shareholders........................................... 35
Backup Withholding and Information Reporting Consequences
to Shareholders........................................ 36
State, Local and Foreign Income Tax....................... 36
CONDUCT OF BUSINESS OF PACIFIC GULF AFTER SALE OF INDUSTRIAL
PROPERTIES................................................ 37
Multifamily and Senior Properties......................... 37
Properties with Completed Diligence Periods............ 37
Properties Subject to Additional Diligence or Financing
Periods............................................... 37
Remaining Active Senior Properties........................ 38
Agreement to Manage Industrial Portfolio.................. 38
Management................................................ 38
New York Stock Exchange Listing........................... 38
INFORMATION ABOUT PACIFIC GULF PROPERTIES INC. ............. 38
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON..... 38
Employment Agreement...................................... 38
Change Of Control Agreements.............................. 39
Excise Taxes.............................................. 39
Benefits to Other Officers................................ 40
Employee Stock Options and Restricted Stock............... 40
Officers' Stock Options................................... 40
PROPOSALS FOR INCLUSION IN 2001 PROXY STATEMENT............. 41
OTHER MATTERS............................................... 41
WHERE YOU CAN FIND MORE INFORMATION......................... 42
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)................. F-1
EXHIBIT A -- Agreement of Purchase and Sale, as amended..... A-1
EXHIBIT B -- Opinion of Morgan Stanley & Co. Incorporated,
financial advisor to Pacific Gulf Properties.............. B-1
</TABLE>
ii
<PAGE> 5
PACIFIC GULF PROPERTIES INC.
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660
-------------------------
PROXY STATEMENT
-------------------------
This proxy statement contains information related to the special meeting of
shareholders of Pacific Gulf Properties Inc., to be held on November 9, 2000,
beginning at 10:00 a.m. at the Center Club, 650 Town Center Drive, Costa Mesa,
California 92626, and at any postponements or adjournments thereof.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At our special meeting, shareholders will act upon the matters outlined in
the notice of meeting on the cover page of this proxy statement, including the
approval of the proposed purchase agreement for our portfolio of industrial
properties, the approval of the sale of our remaining properties and the
approval of our liquidation plan and dissolution.
WHEN WILL THE PROPOSED SALE AND SUBSEQUENT LIQUIDATION OCCUR?
If the shareholders do not approve the sale of the industrial properties or
the sale is otherwise abandoned, then the proposed sale of the industrial
properties will not occur and the liquidation and dissolution proposed in
proposal number 2 will not be implemented.
If the shareholders approve the proposed sale of the industrial properties
and the conditions to the sale are satisfied or waived, then we intend to
consummate the sale of the industrial properties in the fourth quarter of 2000.
A portion of the net proceeds of the sale will be distributed to our
shareholders in the fourth quarter of 2000. If the shareholders approve the
liquidation plan, we currently expect that we will then sell or otherwise
dispose of our remaining multi-family apartments and active senior rental
housing operations, and one or more liquidating distributions will be made to
our shareholders thereafter. If we sell all of our assets, we will dissolve
Pacific Gulf.
WHAT IS THE CURRENT STATUS OF THE PROPOSED SALE?
We expect to sell 66 industrial properties, with more than 13.6 million
leasable square feet in the aggregate, to CalWest at the initial closing. The
aggregate purchase price for these properties, after consideration of all
reductions for properties that are not expected to be sold in the initial
closing and other price adjustments, is $847.5 million.
With respect to the six properties initially included in the 72 property
portfolio, we have consented to additional testing, and extended the diligence
period, at three properties. We are considering a similar extension of a fourth
property. We have agreed to perform remediation measures at a fifth property.
Finally, we are currently performing remediation, and both Pacific Gulf and
CalWest will perform additional testing at, a sixth property. To the extent this
remediation (or any other remediation required at any of the other five
properties) is completed before the initial closing, the remediated properties
will also be sold to CalWest at the initial closing.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only shareholders of record at the close of business on the record date,
October 13, 2000, are entitled to receive notice of the special meeting and to
vote the shares of common stock that they held on that
<PAGE> 6
date at the meeting, or any postponements or adjournments of the meeting. In
addition, the holders of our Class A preferred stock are entitled to vote with
the holders of the common stock on all matters. Each outstanding share of common
stock and Class A preferred stock is entitled to one vote on each matter to be
presented at the meeting.
WHO CAN ATTEND THE MEETING?
All shareholders of record on the record date, or their duly appointed
proxies, may attend the meeting. Registration will begin at 9:00 a.m., and the
meeting will begin at 10:00 a.m. Please note that if you hold your shares in
"street name" (that is, through a broker or other nominee), you will need to
bring a copy of a brokerage statement reflecting your stock ownership as of the
record date and check in at the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the aggregate number of shares of common stock and Class A preferred
stock outstanding on the record date will constitute a quorum, allowing us to
conduct the business of the meeting. As of the record date, 21,340,608 shares of
our common stock were outstanding, and 2,763,116 shares of our Class A preferred
stock were outstanding. Proxies received but marked as abstentions and broker
non-votes will be included in the calculation of the number of shares considered
to be present at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to Pacific Gulf, it will be voted as you direct. If you are a registered
shareholder and attend the meeting, you may deliver your completed proxy card in
person. "Street name" shareholders who wish to vote at the meeting will need to
obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by delivering to the Secretary of
Pacific Gulf either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the board of directors. The board's recommendation is set forth together with
the description of each proposal in this proxy statement. In summary, the board
recommends a vote:
-- FOR the approval of the proposed sale of the industrial properties
pursuant to the purchase agreement (See pages 14-27); and
-- FOR the approval of the proposed sale of our remaining assets and our
liquidation and dissolution (See pages 28-31).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the board of directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
The two proposals to be voted upon by our shareholders require the
affirmative vote of the holders of a majority of the shares entitled to vote on
the proposals. A properly executed proxy marked "ABSTAIN"
2
<PAGE> 7
with respect to such matter will not be voted, although it will be counted for
purposes of determining whether there is a quorum. Accordingly, an abstention
will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters although they will be counted in determining whether there is a quorum.
Such "broker non-votes" will have the effect of a negative vote.
We will bear the cost of soliciting proxies. In addition to solicitation by
mail, and without additional compensation for such services, proxies may be
solicited personally, or by telephone or telecopy, by our officers or employees.
We will also request that banking institutions, brokerage firms, custodians,
trustees, nominees, fiduciaries and other like parties forward the solicitation
materials to the beneficial owners of common shares held of record by such
persons, and we will upon request of such record holders reimburse forwarding
charges and expenses.
WHO CAN I CALL WITH QUESTIONS?
We have selected D.F. King & Co. Inc. as our Information Agent. You may
contact D.F. King at the following address:
D.F. KING & CO., INC.
77 Water Street, 20th Floor
New York, New York 10005
Call Collect: (212) 269-5550
CALL TOLL FREE: (800) 431-9633
3
<PAGE> 8
SUMMARY
This is a summary and it does not contain all the information that may be
important to you. Even though we have highlighted what we believe is the most
important information for you, we encourage you to read the entire proxy
statement for a complete understanding of the proposed transactions. See "Where
You Can Find More Information" on page 42.
Pacific Gulf Properties Inc... We are a real estate investment trust or REIT
that owns, develops and manages a portfolio of
industrial properties targeting small to
mid-size tenants in selected high-growth U.S.
western markets. Our industrial portfolio is
comprised of 72 properties encompassing more
than 14.9 million square feet of space. We also
have 1,631 units of traditional multifamily
apartments which are under contract for sale.
We also own a portfolio of properties designed
for the burgeoning population of active seniors
age 55 and older. These properties consist of
eight rental apartment communities comprised of
1,438 units and six properties on which we are
currently developing approximately 1,202 units.
We are headquartered in Newport Beach,
California. For more information, please visit
our web site at www.pacificgulf.com. References
to Pacific Gulf Properties' web site do not
incorporate by reference information contained
at that web site into this proxy statement.
Our address is:
Pacific Gulf Properties Inc.
4220 Van Karman, Second Floor
Newport Beach, CA 92660
(949) 223-5000
CalWest Industrial Properties,
LLC........................... CalWest Industrial Properties, LLC was created
in 1998 as a joint venture between CalPERS and
RREEF to invest exclusively in industrial
properties in the western United States. Upon
the closing of the sale of the industrial
properties contemplated hereby, CalWest's total
assets will approximate $2.0 billion.
California Public Employees Retirement System
(CalPERS) provides retirement and health
benefits to more than 1.1 million members,
including active workers and retirees, their
families and beneficiaries, and their
employers. The pension fund is headquartered in
Sacramento, California. For further
information, please visit CalPERS' web site at
www.calpers.ca.gov.
RREEF, a wholly owned subsidiary of RoProperty
Investment Management, N.V., is a full service
commercial real estate investment advisor with
$12.4 billion in assets currently under
management. Corporate offices are located in
San Francisco, Chicago, Dallas, and New York.
For more information visit www.rreef.com.
References to CalPERS' and RREEF's web sites do
not incorporate by reference information
contained at those web sites into this proxy
statement.
4
<PAGE> 9
Proposal 1: Approval of Sale
of Industrial Properties
Pursuant to Agreement of
Purchase and Sale........... General. On June 20, 2000, we entered into the
purchase agreement, attached to this proxy
statement as Exhibit A, to sell our portfolio
of industrial properties to CalWest Industrial
Properties, LLC. The transaction has been
unanimously approved by our board of directors.
At the special meeting, the shareholders of
Pacific Gulf Properties will be asked to
approve the sale of the industrial properties
pursuant to the proposed purchase agreement.
Reasons for the Sale and the Liquidation
Plan. We believe that the proposals submitted
for your approval in this proxy statement
present the best opportunity to maximize value
for our shareholders. By selling our properties
to interested real estate buyers and
distributing the proceeds to our shareholders,
we stand to realize the full market value of
these properties for our shareholders.
Opinion of Morgan Stanley & Co.
Incorporated. In deciding to approve the
proposed sale of the industrial properties
portfolio pursuant to the proposed purchase
agreement, our board of directors considered
the opinion of Morgan Stanley & Co.
Incorporated that, as of the date of the
opinion, the consideration to be received by
Pacific Gulf from CalWest was fair to us from a
financial point of view. A copy of the Morgan
Stanley opinion is attached hereto as Exhibit
B, which we encourage you to read carefully.
The Purchase Agreement. The purchase agreement
initially covered 72 of our industrial
properties. After we executed the purchase
agreement, CalWest performed diligence on these
properties and notified us of various defects.
The exact number of properties ultimately
purchased by CalWest may differ, as we may
defer the sale of, or delete from the sale, any
of the properties found to have defects. We
expect to sell 66 industrial properties, with
more than 13.6 million leasable square feet in
the aggregate, to CalWest at the initial
closing. The aggregate purchase price for these
properties, after consideration of all
reductions for properties that are not expected
to be sold in the initial closing and other
price adjustments, is $847.5 million.
With respect to the six properties initially
included in the 72 property portfolio, we have
consented to additional testing, and extended
the diligence period, at three properties. We
are considering a similar extension of a fourth
property. We have agreed to perform remediation
measures at a fifth property. Finally, we are
currently performing remediation, and both
Pacific Gulf and CalWest will perform
additional testing at, a sixth property. To the
extent this remediation (or any other
remediation required at any of the other five
properties) is completed before the initial
closing, the remediated properties will also be
sold to CalWest at the initial closing. The
aggregate allocated value of these six
properties is $80.3 million.
5
<PAGE> 10
The purchase agreement may be terminated by
mutual agreement of the parties or by one of
the parties upon the occurrence of conditions
enumerated in the purchase agreement. CalWest
has made a $25 million deposit, which may be
refunded under circumstances enumerated in the
purchase agreement. Pacific Gulf Properties may
be obligated to pay CalWest additional
termination fees if the purchase agreement is
terminated for certain enumerated reasons.
Estimated Amounts Available for
Distribution. After the consummation of this
transaction, we expect to make a cash
distribution to our shareholders. It is
impossible to determine at this time with any
precision the aggregate net proceeds from the
sale of industrial properties that may
ultimately be available for distribution to our
shareholders upon consummation of the sale.
That amount will depend upon a variety of
factors, including the timing of and the net
proceeds realized from the sale of the
portfolio of industrial properties, the
possible deletion of properties from the sale,
the ultimate amount of expenditures required to
remedy problems, if any, at the properties and
whether we are required to pay a
corporate-level tax in connection with the
sale.
Proposal 2: Approval of Sale
of Remaining Assets and the
Liquidation and Dissolution
of Pacific Gulf
Properties.................. General. After our management entered into
discussions with CalWest with respect to the
sale of the industrial properties, we began to
consider a plan of liquidation for our
remaining assets and the dissolution of Pacific
Gulf. At the special meeting, we will ask our
shareholders to approve the sale of our
remaining assets and our subsequent liquidation
and dissolution. Approval of Proposal 2 could
reduce our exposure to a corporate-level tax
liability as discussed in "Federal Income Tax
Considerations."
Description of the Liquidation Plan. After we
close the sale of our industrial properties, we
intend to wind up the business and affairs and
to dispose of, by sale, all of our remaining
assets. If the liquidation plan is implemented
as described in this proxy statement, no
further approvals by the shareholders will be
obtained. We currently expect to sell all of
our assets for cash, which will be distributed
to our shareholders after the payment of
existing debts and obligations. If we do sell
all of our remaining assets, we will then
dissolve Pacific Gulf by filing articles of
dissolution in Maryland.
Conditions to Liquidation and Dissolution. If
the shareholders do not approve the sale of the
industrial properties or the sale is otherwise
abandoned, then the proposed sale of the
remaining assets will not occur and the
liquidation will not be implemented. In
addition, if we do not sell our remaining
assets or we otherwise abandon the liquidation,
the proposed dissolution will not occur.
6
<PAGE> 11
Possible Alternative Transactions. It is
possible that we may receive an offer to
purchase, through a merger or otherwise, all of
the outstanding stock of Pacific Gulf. If that
occurs, our board of directors will consider
such an alternative based on the facts and
circumstances of any such offer. If the board
pursues such an offer, we will separately ask
for the approval of our shareholders, and would
not sell our remaining assets for cash.
Estimated Amounts Available for
Distribution. It is impossible to determine at
this time with any precision the aggregate net
proceeds from the sale of the remaining assets
that may ultimately be available for
distribution to our shareholders upon
liquidation. That amount will depend upon a
variety of factors, including the timing of and
the net proceeds realized from the sale of our
remaining assets, as well as the ultimate
amount of liquidation-related expenses and
other obligations and liabilities that must be
satisfied out of such remaining assets.
Federal Income Tax
Considerations................ If Proposal 1 and Proposal 2 are both approved,
cash received by a shareholder upon
distributions in our liquidation should first
be applied against and reduce the basis in the
shareholder's shares, and any distributions in
excess of the shareholder's basis in its shares
should be treated as capital gain if the shares
are held as capital assets. If Proposal 2 is
not approved, then distributions of the
proceeds of the sale of our industrial
properties may not be treated as distributions
in complete liquidation. The federal income tax
treatment of such distributions is complex. If
Proposal 2 is not approved, it is possible that
we will be subject to corporate-level tax on a
portion of our net capital gain from the sale
of the industrial properties, even if we
distribute all of the proceeds of the sale to
our shareholders. Please read the description
of federal income tax considerations in
"Federal Income Tax Considerations" in the body
of this proxy statement.
7
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth our summary historical and pro forma
financial and operating data. The following summary information should be read
in conjunction with the consolidated financial statements and related footnotes
included in our annual and quarterly reports incorporated by reference and our
pro forma condensed consolidated financial statements included elsewhere in this
proxy statement.
For the year ended December 31, 1999, the pro forma operating information
is presented as if the following transactions occurred as of the beginning of
the period: (i) the purchases and dispositions of certain industrial and
multifamily properties during 1999 and 2000 as more fully described in the pro
forma condensed consolidated financial statements, (ii) the redemption of $12
million of remaining convertible subordinated debentures in 1999 in exchange for
640,772 shares of our common stock, (iii) completion of the sales subsequent to
June 30, 2000 of four traditional multifamily properties located in California
and (iv) the completion of the sale of 66 of the 72 properties comprising our
industrial property portfolio to CalWest at the initial closing as described
herein under "Purchase Agreement -- Summary," including other transactions in
connection with such sale and the repayment of indebtedness utilizing proceeds
therefrom as more fully described in this proxy statement.
For the six months ended June 30, 2000, the pro forma operating information
is presented as if the following transactions occurred as of the beginning of
the period as more fully described in the pro forma condensed consolidated
financial statements included elsewhere in this proxy statement: (i) the
purchases and dispositions of certain properties during 2000 as more fully
described in the pro forma condensed consolidated financial statements, (ii) the
completion of the sales subsequent to June 30, 2000 of four traditional
multifamily properties located in California and (iii) the completion of the
sale of 66 of the 72 properties comprising our industrial property portfolio to
CalWest at the initial closing, including other transactions in connection with
such sale and the repayment of indebtedness utilizing proceeds therefrom as more
fully described in this proxy statement.
Pro forma balance sheet information is presented as if the acquisitions and
dispositions of certain properties subsequent to June 30, 2000, the sales of the
four traditional multifamily properties, and the sale of 66 of the 72 properties
to CalWest at the initial closing, including other transactions in connection
with such sale and the repayment of indebtedness utilizing proceeds therefrom as
more fully described in this proxy statement, had occurred as of June 30, 2000.
The pro forma financial information is not necessarily indicative of what
the actual financial position and results of operations would have been as of
the dates or for the periods indicated, nor does it purport to represent the
financial position and results of operations for any future period. The pro
forma financial information assumes that there will be no corporate-level income
tax payable on any of the sales. See "Federal Income Tax Considerations."
8
<PAGE> 13
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SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------------- --------------------------
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income
Industrial properties............... $ 53,480 $ 5,124 $ 98,288 $ 9,952
Multifamily properties
Family style...................... 8,014 4,546 15,303 8,523
Active senior..................... 5,503 5,503 10,577 10,577
---------- ---------- ---------- ----------
66,997 15,173 124,168 29,052
Fee income(2).......................... -- 2,805 -- 5,181
---------- ---------- ---------- ----------
Total revenues........................... 66,997 17,978 124,168 34,233
---------- ---------- ---------- ----------
Expenses
Rental property expenses
Industrial properties............... 11,566 1,286 21,570 2,349
Multifamily properties
Family style...................... 2,587 1,530 5,471 3,146
Active senior..................... 1,915 1,915 3,863 3,863
---------- ---------- ---------- ----------
16,068 4,731 30,904 9,358
Depreciation........................... 14,567 3,030 26,117 5,732
Interest (including amortization of
financing costs).................... 14,524 2,616 27,242 5,249
General and administrative expenses.... 3,650 3,650 7,165 7,165
Minority interest in earnings of
consolidated partnerships........... 604 121 1,342 238
---------- ---------- ---------- ----------
Total expenses........................... 49,413 14,148 92,770 27,742
---------- ---------- ---------- ----------
Income before gain on sales of real
estate and preferred dividends......... 17,584 3,830 31,398 6,491
Preferred dividend requirements.......... 2,529 -- 4,971 --
---------- ---------- ---------- ----------
INCOME BEFORE GAINS ON SALES OF REAL
ESTATE................................. $ 15,055 $ 3,830 $ 26,427 $ 6,491
========== ========== ========== ==========
INCOME PER SHARE BEFORE GAINS ON SALES OF
REAL ESTATE(3)......................... $ 0.73 $ 0.15 $ 1.31 $ 0.25
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING(3)......................... 20,694,000 25,561,236 20,216,704 25,514,387
========== ========== ========== ==========
FUNDS FROM OPERATIONS(4)................. $ 29,622 $ 6,860 $ 52,544 $ 12,223
========== ========== ========== ==========
</TABLE>
9
<PAGE> 14
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------
HISTORICAL PRO FORMA
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash........................................................ $ 8,598 $ 574,011
Real estate, net of accumulated depreciation
Industrial properties..................................... 675,516 62,279
Multifamily properties
Family style........................................... 83,355 46,589
Active senior.......................................... 65,094 65,094
Properties under development
Industrial properties.................................. 25,411 --
Multifamily-active senior.............................. 22,949 36,685
Total assets................................................ 905,787 801,938
Loans payable............................................... 297,807 105,114
Line of credit.............................................. 132,350 --
Accounts payable and accrued liabilities.................... 18,481 40,830
Minority interests.......................................... 18,126 5,785
Total equity................................................ 428,462 639,648
PROPERTY DATA
Total industrial properties(5).............................. 72 6
Industrial leasable area (sq. ft.)(5)....................... 14,900,000 1,236,372
Industrial leasable area occupied(5)........................ 96% 95%
Total apartment properties
Family-style.............................................. 10 6
Active senior(6).......................................... 8 8
Total apartment units
Family-style.............................................. 1,631 937
Active senior(6).......................................... 1,438 1,438
Apartment units occupied(7)
Family-style.............................................. 96% 96%
Active senior............................................. 95% 95%
</TABLE>
-------------------------
(1) See notes to our pro forma condensed consolidated financial information
included elsewhere in this proxy statement.
(2) Fee income, on a pro forma basis, consists primarily of management fees
based on 3.5% of the rental revenues generated by the 66 industrial
properties expected to be sold at the initial closing pursuant to a proposed
agreement with CalWest. Under this agreement, we will also be entitled to
fees on new and renewed leases related to the industrial properties.
Management operations are expected to be conducted through a taxable
subsidiary.
(3) Weighted average common shares outstanding used to calculate pro forma per
share data include: (i) 640,772 shares of common stock issued upon the
redemption of $12 million in convertible subordinated debentures in 1999;
and (ii) the following issuances of shares of common stock in connection
with the sale of 66 industrial properties to CalWest: (a) 548,341 shares of
common stock issued upon the conversion of limited partnership operating
units owned by minority partners in two properties included in the sale to
CalWest; (b) 2,763,116 shares of common stock issued in exchange for
2,763,116 shares of Class A Preferred Stock redeemed in connection with the
sale to CalWest; and (c) 1,528,467 shares of common stock for the
accelerated vesting of employee stock options.
10
<PAGE> 15
(4) Funds from operations, as defined by the National Association of Real Estate
Investment Trusts, or NAREIT is considered 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 less preferred dividend
requirements. 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.
(5) Represents three industrial properties undergoing continuing due diligence
by CalWest, one industrial property for which we are considering a request
by CalWest to extend the diligence period, one property on which we have
agreed to perform remediation and one additional property on which we have
agreed to both perform remediation and conduct additional testing. These
properties may or may not be sold to CalWest at the initial closing as
described herein under "Purchase Agreement -- Summary."
(6) Excludes 1,202 units under development at six active senior multifamily
properties.
(7) Occupancy percentages, on a pro forma basis, represent the percentage of
units occupied as of June 30, 2000 in traditional multifamily properties and
active senior multifamily properties that will remain after the
aforementioned sales transactions.
11
<PAGE> 16
STOCK OWNERSHIP
SIGNIFICANT SHAREHOLDERS
Except as set forth below, we know of no single person or group that is the
beneficial owner of more than 5% of our common stock.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER NATURE OF CLASS OWNERSHIP
------------------------------------ --------------- ----------
<S> <C> <C>
Five Arrows Realty Securities L.L.C.(1)..................... 2,763,116 11.8%
1251 Avenue of the Americas
44th Floor
New York, NY 10020
Morgan, Stanley Dean Witter & Co.(2)........................ 1,806,001 8.7%
1585 Broadway
New York, NY 10036
</TABLE>
-------------------------
(1) Five Arrows Realty Securities L.L.C. holds all of the our outstanding shares
of Series A preferred stock. The Series A preferred stock held by Five
Arrows is convertible at any time into common stock. Pursuant to our
charter, Five Arrows has the right to vote such shares at the special
meeting. The percentage of beneficial ownership with respect to Five Arrows
has been calculated assuming that all of the shares of Series A preferred
stock were converted into common stock.
(2) Information regarding ownership of common stock by Morgan Stanley Dean
Witter & Co. is included in reliance upon information set forth in an
Amended Schedule 13G filed by Morgan Stanley on February 7, 2000. Morgan
Stanley has indicated in such Schedule 13G that all shares are owned by
various investment advisory clients of Morgan Stanley and that Morgan
Stanley is deemed to be the beneficial owner of such shares pursuant to Rule
13d-3 of the Securities Exchange Act of 1934, as amended.
OFFICERS AND DIRECTORS
The following table shows the amount of our common stock beneficially owned
(unless otherwise indicated) by our directors, executive officers and directors
and executive officers as a group. Except as otherwise indicated, all
information is as of October 13, 2000.
12
<PAGE> 17
COMMON SHARES BENEFICIALLY OWNED
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF
SHARES ACQUIRABLE
BENEFICIALLY WITHIN 60 PERCENT OF
BENEFICIAL OWNER OWNED(1) DAYS(2) CLASS
---------------- ------------ ---------- ----------
<S> <C> <C> <C>
Glenn L. Carpenter......................................... 254,263(3) 23,600 1.2%
Donald G. Herrman.......................................... 145,786(4) 16,500 *
J.R. Wetzel................................................ 58,667(5) 5,000 *
Lonnie P. Nadal............................................ 98,116(6) 14,000 *
Robert A. Dewey............................................ 63,547(7) 10,200 *
Angela M. Wixted........................................... 56,015(8) 10,000 *
Kimberly G. Solbakk........................................ 49,433(9) 10,000 *
Peter L. Eppinga........................................... 33,296 0 *
Christina Garvey........................................... 15,000 15,000 *
Carl C. Gregory, III....................................... 25,500 0 *
John F. Kooken............................................. 36,800 0 *
Donald E. Lange............................................ 17,000 0 *
Robert E. Morgan........................................... 52,854 13,600 *
James E. Quigley, 3rd...................................... 19,500 9,000 *
Keith W. Renken............................................ 29,000 0 *
All officers and directors as a group (15 persons)......... 954,777 126,900 4.0%
</TABLE>
-------------------------
* Represents less than 1% of our outstanding common stock.
(1) The number of shares shown includes shares that (i) are individually or
jointly owned, as well as shares over which the individual has either sole
or shared investment or voting authority and (ii) could be purchased by the
exercise of options exercisable as of October 13, 2000 or within 60 days
thereafter under our stock option plans.
(2) The number of shares listed sets forth the number of shares that each person
may acquire pursuant to the exercise of options exercisable at October 13,
2000 or within 60 days thereafter. All options listed in this column were
granted under our 1993 Share Option Plan.
(3) Includes 56,987 shares of restricted stock granted under our 1993 Share
Option Plan, and 5,366 shares allocated to Mr. Carpenter in our Thrift Plan.
(4) Includes 24,476 shares of restricted stock granted under our 1993 Share
Option Plan, and 3,643 shares allocated to Mr. Herrman in our Thrift Plan.
(5) Includes 15,000 shares of restricted stock granted under our 1993 Share
Option Plan.
(6) Includes 10,683 shares of restricted stock granted under our 1993 Share
Option Plan.
(7) Includes 8,521 shares of restricted stock granted under our 1993 Share
Option Plan, and 817 shares allocated to Mr. Dewey in our Thrift Plan.
(8) Includes 5,246 shares of restricted stock granted under our 1993 Share
Option Plan, and 149 shares allocated to Ms. Wixted in our Thrift Plan.
(9) Includes 2,000 shares of restricted stock granted under our 1993 Share
Option Plan, and 360 shares allocated to Ms. Solbakk in our Thrift Plan.
13
<PAGE> 18
PROPOSAL 1 -- APPROVAL OF SALE OF INDUSTRIAL PROPERTIES PURSUANT TO AGREEMENT OF
PURCHASE AND SALE
GENERAL
On June 20, 2000, we entered into the purchase agreement to sell our
portfolio of industrial properties to CalWest. Pacific Gulf and CalWest have
amended the purchase agreement from time to time, and attached to this proxy
statement as Exhibit A is a complete version of the purchase agreement. The
transaction has been unanimously approved by our board of directors. At the
special meeting, we will ask our shareholders to approve the sale of the
industrial properties pursuant to the purchase agreement. Approval will require
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote.
Shareholders who do not vote in favor of this proposal are not entitled to
dissenters' appraisal rights under Maryland law.
REASONS FOR THE SALE AND THE LIQUIDATION PLAN
Over the past few years we have seen ongoing weakness in the public trading
prices of stocks in the REIT industry. As the market capitalizations of REITs
with healthy operations continued to deteriorate, many market analysts and
investors came to believe that some REITs were trading at market capitalizations
that were significantly less than their break-up values if they were to sell
their properties separately. At the same time that market capitalizations in the
REIT industry were declining, our robust economy was creating greater
competition for the acquisition of real properties, driving real estate prices
upward and implied capitalization rates on income producing properties downward.
As a result of these factors, we understand that most REITs have been unable to
access the public equity markets to raise capital for the acquisition of
additional properties at prices that would be accretive to funds from operations
per share, thereby limiting growth.
Despite the problems of the REIT industry in the public equity markets and
the increased competition for income-producing properties, our financial results
in recent years, as reflected in funds from operations and occupancy rates, have
been strong and growing. Nevertheless, the public trading price of our stock
languished at levels reflecting a market capitalization that we believe
materially undervalued the aggregate net market value of our assets. Moreover,
this undervaluation by the public securities markets has prevented us from
raising equity capital for property acquisitions that would be accretive to our
funds from operations per share. This situation has been a concern of our
management and directors and we have no reason to believe that these problems
will not persist for the foreseeable future.
Before approving the proposals set forth in this proxy statement, our board
of directors did consider alternatives, including continuing operations as an
independent publicly traded company or merging with another entity. Obviously,
continuing our operations as they have been conducted will not solve the
problems described above. In fact, our adverse circumstances could worsen in the
event of an economic downturn. A potential merger would not appear to improve
our prospects significantly. After consultation with our financial advisors, we
have concluded that the only likely merger partner for our company would be
another REIT, and any successor REIT from such a merger would face many of the
same obstacles and problems discussed above.
In view of the foregoing, we believe that the proposals submitted for your
approval in this proxy statement present the best opportunity to maximize value
for our shareholders. By selling our properties to interested real estate buyers
and distributing the proceeds to our shareholders, we stand to realize the full
market value of these properties for our shareholders without incurring any
discount to those values that may be implied by our undervaluation in the public
securities markets.
For these reasons, the board of directors of Pacific Gulf recommends that
you vote for the proposals submitted to you in this proxy statement.
14
<PAGE> 19
BACKGROUND OF THE SALE
On February 24, 2000, Glenn L. Carpenter, our Chairman and Chief Executive
Officer and J.R. Wetzel, our Executive Vice President of Operations, met with
Steve Steppe and Warren Otto of RREEF to discuss the possibility of forming a
joint venture to develop industrial real estate properties. In the course of
this meeting, Mr. Steppe indicated that RREEF and an investor, CalPERS, had an
interest in acquiring all or a portion of our portfolio of industrial real
estate assets. This meeting prompted Mr. Carpenter to contact Morgan Stanley
Dean Witter to explore the possibility of selling our industrial portfolio to
RREEF and CalPERS through their joint venture entity, CalWest.
Mr. Carpenter met with representatives of Morgan Stanley on March 6 to
discuss the steps to be taken to begin negotiations for the sale of the
industrial properties and to consider the possibilities available for
structuring such a transaction. On March 17, the same individuals met again to
further discuss the details of the transaction.
Pacific Gulf's board of directors met on March 28 to consider the proposed
sale of the industrial properties. Morgan Stanley made a presentation to the
board of the following alternatives for the board to consider:
- maintaining the status quo;
- merger of Pacific Gulf with another entity;
- sale of the industrial property portfolio, with Pacific Gulf continuing
to hold and operate the remaining assets;
- leveraged buyout opportunities;
- sale of the industrial property portfolio, with the remaining assets sold
or recapitalized into a new private entity; and
- a complete liquidation.
At that meeting, the board of directors authorized management to proceed with
further discussions with CalWest and to engage Morgan Stanley Dean Witter
regarding the proposed transaction. The board asked Morgan Stanley to identify
and contact, without identifying Pacific Gulf, potential cash buyers for the
industrial properties portfolio that would be competitive bidders for a
geographically concentrated property portfolio of this size and property type
based on price, timing and ability to consummate the transaction.
On March 30, Mr. Carpenter discussed with Steve Silk, a broker for RREEF,
additional details of the terms of the proposed sale. CalWest, RREEF and CalPERS
executed confidentiality and standstill agreements in mid-April.
On April 24, Mr. Carpenter received a written offer from CalWest to acquire
the industrial properties. Mr. Carpenter discussed the price and terms contained
in this proposal with Morgan Stanley the following day. Our board of directors
met on April 27 to review the CalWest proposal and determined that the price
offered was inadequate. The board authorized management to continue to pursue
and evaluate the sale of the industrial properties with this potential buyer.
After the April 27 board meeting, representatives of Pacific Gulf, Morgan
Stanley and CalWest had numerous discussions in an attempt to obtain a revised
proposal regarding the potential acquisition of our industrial portfolio.
Several representatives from Pacific Gulf, CalWest and Morgan Stanley,
including representatives from CalPERS, met on May 25 to discuss the proposal,
including the terms and price, and agreed to proceed with the drafting of a
purchase agreement.
On June 15, our board of directors met to consider the proposed transaction
and the proposed purchase agreement, the terms of which were previously
circulated to the board. At that meeting,
15
<PAGE> 20
members of our senior management and financial and legal advisors discussed the
following with the board:
- the status of the negotiations with respect to the proposed transaction;
- the principal terms and conditions of the purchase agreement;
- the potential benefits and risks associated with a sale of the industrial
properties;
- the valuation of the industrial portfolio:
- the timing of the transactions;
- alternative strategies for our remaining assets; and
- the fiduciary duties of our board of directors.
At that meeting, Morgan Stanley advised the board that it had contacted several
potential buyers for the industrial properties portfolio. Based on these
preliminary discussions which were consistent with the board's instructions to
Morgan Stanley to not identify Pacific Gulf or the specific geography of the
portfolio, none of the potential buyers contacted was interested in pursuing a
transaction for a portfolio with these characteristics on a rapid timetable at a
cash price that would be competitive with the CalWest offer. Following an
extensive discussion, our board of directors considered the proposed purchase
agreement with CalWest and authorized management to negotiate final terms for
such a transaction for consideration at the next board meeting.
On June 19, our board of directors met telephonically to hear the
definitive final terms on the proposed transaction. Morgan Stanley delivered an
oral opinion, subsequently confirmed in writing as of the same date, to the
effect that, as of the date of the opinion and based upon and subject to the
matters stated in the opinion, the price provided for in the purchase agreement
was fair to Pacific Gulf from a financial point of view. The board unanimously
voted to approve the sale of our industrial properties portfolio pursuant to the
purchase agreement and to recommend that our shareholders approve the same.
Pacific Gulf and CalWest entered into the purchase agreement on June 20,
2000.
OPINION OF MORGAN STANLEY & CO. INCORPORATED
Morgan Stanley & Co. Incorporated was retained by Pacific Gulf to act as
its financial advisor in connection with the proposed purchase agreement for
Pacific Gulf's portfolio of industrial properties and related matters based upon
Morgan Stanley's experience and expertise. On June 19, 2000, Morgan Stanley
rendered to the Board of Directors of Pacific Gulf an oral opinion, confirmed in
writing as of such date, to the effect that, as of such date and based on and
subject to certain considerations stated therein, the consideration to be
received by Pacific Gulf in connection with the CalWest's proposal to acquire
the industrial portfolio pursuant to the purchase agreement was fair from a
financial point of view to Pacific Gulf. Morgan Stanley has consented to the use
of its name and the summary of the Morgan Stanley opinion in this proxy
statement.
THE FULL TEXT OF THE MORGAN STANLEY OPINION DATED JUNE 19, 2000, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS EXHIBIT B TO THIS PROXY STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF PACIFIC GULF COMMON STOCK AND PREFERRED STOCK
ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS
ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
PACIFIC GULF AND IS LIMITED TO THE FAIRNESS OF THE CALWEST INDUSTRIAL PROPERTIES
PROPOSED ACQUISITION PRICE FROM A FINANCIAL POINT OF VIEW TO PACIFIC GULF, AND
IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE ACQUISITION NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF PACIFIC GULF COMMON STOCK OR PREFERRED STOCK AS
TO HOW THEY SHOULD VOTE AT THE PACIFIC GULF SPECIAL MEETING. THE SUMMARY OF THE
MORGAN STANLEY OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
16
<PAGE> 21
In arriving at its opinion, Morgan Stanley: (i) reviewed certain publicly
available financial statements and other information of Pacific Gulf; (ii)
reviewed certain internal financial statements and other financial and operating
data concerning Pacific Gulf and the industrial portfolio prepared by the
management of Pacific Gulf; (iii) analyzed certain financial projections
prepared by the management of Pacific Gulf with respect to the transaction; (iv)
discussed the past and current operations and financial condition and the
prospects of Pacific Gulf, including certain financial, operational and
strategic benefits expected from the transaction, with senior executives of
Pacific Gulf; (v) reviewed the reported prices and trading activity for Pacific
Gulf Common Stock; (vi) compared the financial performance of Pacific Gulf and
the prices and trading activity of Pacific Gulf Common Stock with that of
certain other comparable publicly-traded companies and their securities; (vii)
reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; and (viii) performed such other analyses
and considered such other factors as Morgan Stanley deemed appropriate,
including discounted cash flow, net asset value, comparable transaction and
comparable companies analyses.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial estimates and projections prepared by Pacific Gulf, Morgan Stanley
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management personnel of Pacific
Gulf of the future financial performance of Pacific Gulf. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Pacific Gulf, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley also assumed that the proposed acquisition will be consummated in
accordance with the terms set forth in the purchase agreement. The Morgan
Stanley opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to Morgan Stanley as of, the
date thereof. In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, proposals from any party with respect to the
acquisition of Pacific Gulf, the industrial properties portfolio or any other of
Pacific Gulf's assets.
The following is a brief summary of all material analyses performed and
factors considered by Morgan Stanley and reviewed with the Board of Directors of
Pacific Gulf in connection with the preparation by Morgan Stanley of its oral
presentation to the Board of Directors of Pacific Gulf on June 15, 2000.
Public Market Overview. Morgan Stanley reviewed certain trading
information for Pacific Gulf, including market value, market capitalization and
institutional ownership. Morgan Stanley also reviewed historical and forward
trading multiples for Pacific Gulf.
Historical Stock Performance. Morgan Stanley reviewed the trading price of
the shares of Pacific Gulf Common Stock. This stock performance review indicated
that for Pacific Gulf's last twelve months ("LTM") ended June 9, 2000, the high
and low closing prices for shares of Pacific Gulf Common Stock were $23.44 and
$19.25, respectively. The Public Market Overview and the Historical Stock
Performance review were performed to provide background information and to add
context to the other analyses performed by Morgan Stanley as described below.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis to calculate a present value of the stand-alone unlevered free
cash flows for Pacific Gulf's industrial portfolio. With respect to Pacific
Gulf's industrial portfolio, Morgan Stanley analyzed certain financial forecasts
and contingencies prepared by Pacific Gulf's management. For the Pacific Gulf's
industrial portfolio analysis, Morgan Stanley discounted the estimated
unleveraged industrial portfolio free cash flows using a range of discount rates
from 10.5% to 11.0%. The discount rate range was selected based upon a weighted
average cost of capital analysis of Pacific Gulf's industrial portfolio. Morgan
Stanley added to the present values of the cash flows the present values of the
terminal values of Pacific Gulf's industrial portfolio in the year 2005 using
the same range of discount rates as was used to discount the unleveraged free
cash flows. The terminal value was calculated using the capitalization rate (or
cap rate) method, assuming a range of rates from 9.0% to 9.5%. Based on this
analysis, Morgan Stanley calculated a per share equity value of Pacific Gulf's
industrial portfolio ranging from $22.00 to $23.90. The results of this analysis
helped support Morgan Stanley's fairness opinion.
17
<PAGE> 22
Comparable Company Trading Analysis. Morgan Stanley performed a comparable
public company trading analysis, comparing Pacific Gulf's industrial operations
to publicly available financial and operating data, projections of future
financial performance and market statistics based upon the closing stock prices
on June 9, 2000 of Bedford Property Investors, Cabot Industrial Trust,
CenterPoint, Eastgroup Properties, First Industrial and PS Business Parks. These
companies were selected based upon their comparability in certain respects to
Pacific Gulf's industrial portfolio. Morgan Stanley compared the aggregate value
(consisting of market capitalization and total debt) as a multiple of estimated
2000 EBITDA and the market capitalization as a multiple of estimated 2000 funds
from operation (or FFO). For the selected comparable companies, such an analysis
indicated: (1) a median aggregate value to estimated 2000 EBITDA multiple of
10.4x; and (2) a median market capitalization to estimated 2000 FFO multiple of
8.7x. By comparison, the aggregate value of the industrial portfolio (purchase
price plus assumed debt) represents a 11.5x multiple of its estimated 2000
EBITDA and a 10.8x multiple of its estimated 2000 FFO. The result of this
analysis helped support Morgan Stanley's fairness opinion.
Static Net Asset Value Analysis: Morgan Stanley performed two static net
asset value ("NAV") analyses on the industrial portfolio: (1) based on cap
rates, and (2) based on value per square foot. The static NAV cap rate analysis
indicated a range of value per share for the industrial portfolio of $22.25 to
$24.21. The static NAV per square foot analysis indicated a range of value per
share for the industrial portfolio of $23.72 to $24.96. The result of this
analysis helped support Morgan Stanley's fairness opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Pacific Gulf's industrial portfolio.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Pacific Gulf. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of whether CalWest's proposed acquisition price of the industrial
portfolio is fair from a financial point of view to the holders of shares of
Pacific Gulf Common Stock and were provided to the Board of Directors of Pacific
Gulf in connection with the delivery of the Morgan Stanley opinion. The analyses
do not purport to be appraisals or to reflect the prices at which Pacific Gulf's
industrial portfolio might actually be sold. In addition, as described above,
the Morgan Stanley opinion, including Morgan Stanley's presentation to the Board
of Directors of Pacific Gulf, was one of many factors taken into consideration
by the Board of Directors of Pacific Gulf in making its determination to approve
the sale of industrial properties pursuant to the purchase agreement.
The Board of Directors of Pacific Gulf retained Morgan Stanley based upon
Morgan Stanley's experience and expertise. Morgan Stanley is an internationally
recognized investment banking and financial advisory firm. Morgan Stanley, as
part of its investment business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Morgan Stanley is a full-service securities firm engaged in
securities trading, asset management and brokerage activities, as well as
providing investment banking and financial advisory services. In the ordinary
course of its trading, asset management, brokerage and financing activities,
Morgan Stanley or its affiliates may at any time hold long or short positions,
and may trade or otherwise effect transactions, for its own account or the
accounts of customers, in debt or equity securities or senior loans of Pacific
Gulf. In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided advisory and financing services to California Public Employees'
Retirement System and certain of its affiliates and have received fees for the
rendering of these services. In addition, asset
18
<PAGE> 23
management affiliates of Morgan Stanley & Co. Incorporated beneficially own, in
the aggregate, approximately 7.4% of the Pacific Gulf's Common Stock. In the
past, Morgan Stanley and its affiliates have not provided financial advisory and
financing services to Pacific Gulf and its affiliates and have not received fees
for the rendering of these services.
Pursuant to the engagement letter agreement dated April 13, 2000 Morgan
Stanley provided financial advisory services and a financial opinion in
connection with the industrial portfolio transaction and is also providing
financial advisory services in connection with the disposition of Pacific Gulf's
remaining assets (other than the multifamily portfolio). Pacific Gulf has agreed
to pay Morgan Stanley a customary fee for its services in connection with the
industrial portfolio sale, almost all of which is contingent on the closing of
the sale. In addition, under certain circumstances, if the remaining assets of
Pacific Gulf are sold, Morgan Stanley will receive an additional fee based on a
percentage of the net cash proceeds to Pacific Gulf from such sale. Pacific Gulf
has also agreed to reimburse Morgan Stanley for its expenses, including fees and
expenses of counsel, and to indemnify Morgan Stanley for liabilities and
expenses arising out of the engagement and the transactions in connection
therewith, including liabilities under federal securities laws.
THE PURCHASE AGREEMENT
This is a description of the terms of the amended purchase agreement that
we believe are important. However, the description does not contain all the
terms of the amended purchase agreement, only those that we believe to be
material. A copy of the amended purchase agreement is attached as Appendix A to
this proxy statement and is incorporated herein by reference. We encourage you
to read the entire amended purchase agreement.
SUMMARY
The purchase agreement initially contemplated that we would sell 72
industrial properties located in California, Washington, Nevada, Arizona and
Oregon, with more than 14.9 million leasable square feet of space in the
aggregate, to CalWest. The industrial properties are leased to small and
mid-size business tenants in high-growth markets. The parties have allocated a
specific dollar amount of value to each of the properties in the portfolio. If
all of the industrial properties included in this portfolio were to be sold to
CalWest, the aggregate purchase price for these properties would be
approximately $928.7 million. See "-- Adjustments to Purchase Price."
Under the terms of the purchase agreement, which are described more
specifically below, we are entitled to delete from the sale, or defer the sale
of, individual properties based on defects that CalWest may identify during its
investigation of the properties. CalWest has submitted notices of various
defects to us and has also requested additional time to perform additional
testing on a number of the properties. In addition, we have agreed under the
purchase agreement to perform other remediation at a number of properties,
separate and apart from any defect notices.
After reviewing the defects alleged in the notices, the additional testing
requests and the separate remediation measures we have agreed to perform, we
expect the following to occur:
- the diligence period will be extended for three properties, after which
we will review any defects alleged by CalWest;
- we are considering a request to extend the diligence period on one
additional property;
- there will be a price reduction that will satisfy our obligation to cure
all alleged structural defects;
- we will perform remediation, separate from the environmental defect
notices, at one property, which property will be sold to CalWest at the
initial closing if the remediation is complete and sold at a later date
if it is not then complete; and
- we are currently performing remediation, separate from the environmental
defects, at one property, and both we and CalWest will perform additional
testing at this property.
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We have provided more information about these alleged defects, diligence
extensions and price reductions below under "Diligence Period; Deletion or
Deferral of Properties."
As a result, it is currently contemplated that we will sell 66 properties,
with more than 13.6 million leasable square feet of space in the aggregate, to
CalWest at the initial closing. The aggregate purchase price for these
properties, after consideration of all reductions for additional testing
properties and other price adjustments (as described below), is $847.5 million.
DILIGENCE PERIOD; DELETION OR DEFERRAL OF PROPERTIES
As contemplated by the purchase agreement, CalWest performed diligence on
the properties during the 90 days after the signing of the agreement. The 90 day
period was extended for limited periods of time with respect to some properties,
and has been extended to October 31, 2000 with respect to three properties, each
of which is described below.
The purchase agreement provides that after conducting its diligence,
CalWest was entitled to deliver notice to Pacific Gulf of defects CalWest may
have identified with respect to the properties. These defects may involve
environmental, structural, zoning or title issues, but may not include general
physical items that CalWest has already accepted. In accordance with the
purchase agreement, CalWest notified us of various defects it identified during
the diligence process. Generally, the identified defects consisted of structural
defects and environmental defects.
Structural Defects
CalWest alleged structural defects on twelve of the properties. With
respect to these alleged structural defects, the parties have agreed that the
aggregate purchase price will be reduced by approximately $950,000 in
satisfaction of our obligation to cure all of the alleged structural defects.
Accordingly, properties as to which a structural defect has been alleged will
not be deleted or deferred and will be purchased by CalWest at the initial
closing.
CalWest also alleged structural defects at the 611 Cerritos, Anaheim
property, which is an additional testing property, and The City of Industry
property, which is the property for which we are considering extending the
diligence period. The $950,000 adjustment does not address the alleged
structural defects at these properties, and if we sell either of those
properties to CalWest, we will have to respond to CalWest's alleged structural
defects.
Environmental Defects
CalWest alleged environmental defects on four of the properties and also
requested additional time to perform additional testing on these properties. The
following is a brief summary of the defects alleged on each of the properties.
- The City of Industry, California -- Under Consideration for Additional
Testing
CalWest has notified us that this property is located in a designated
Superfund area for ground water contamination. CalWest's advisors have
recommended that additional soil and ground water testing be performed at the
site in an effort to identify any potential contamination. We are evaluating
this request. If we do not approve the proposed request by October 20, 2000,
this property will be treated as a deleted property and the aggregate purchase
price for the portfolio will be reduced by the allocated value of the property.
Of course, we cannot give you any assurances that there are no
environmental remediation issues at The City of Industry property. If any such
issues do in fact exist, the nature and extent of any remedial measures that
will be necessary at this site, if any, are also uncertain at this time.
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- Miramar Commerce Park, San Diego, California -- Diligence Period Extended
CalWest has noted that a dry cleaning establishment and a printed circuit
board soldering operation were formerly tenants of this property. CalWest also
notified us that the soil vapor sampling completed on this site by CalWest's
consultants has produced inconclusive results as to the current condition of the
subsurface soils. CalWest has requested that additional testing be performed. We
have consented to the additional testing proposed by CalWest and have extended
the diligence period for this property until October 31, 2000. If CalWest
alleges defects prior to October 31, 2000, we must, by November 3, 2000, elect
to either delete the property from the sale or defer the property and remediate
the defect. It is unclear at this time if this property will be finally
determined to be included in the sale of industrial properties at the initial
closing, included in a later closing of the industrial properties or deleted
from the sale of industrial properties. We will market the property to other
buyers should the property be deleted from the sale. The nature and extent of
any remedial measures that will be necessary at this site, if any, are also
uncertain at this time.
- 611 Cerritos Avenue, Anaheim, California -- Diligence Period Extended
CalWest has notified us that its testing of soil samples has detected
concentrations of PCE and TCE in the soil at the site. CalWest has requested
that additional soil testing be performed at the site in an effort to identify
the lateral extent of the contamination and depth to first groundwater. We have
consented to the additional testing proposed by CalWest and have extended the
diligence period for this property until October 31, 2000. If CalWest alleges
defects prior to October 31, 2000, we must, by November 3, 2000, elect to either
delete the property from the sale or defer the property and remediate the
defect. It is unclear at this time if this property will be finally determined
to be included in the sale of industrial properties at the initial closing,
included in a later closing of the industrial properties or deleted from the
sale of industrial properties. We will market the property to other buyers
should the property be deleted from the sale. The nature and extent of any
remedial measures that will be necessary at this site, if any, are also
uncertain at this time.
- Sunnyvale, California -- Diligence Period Extended
CalWest has notified us that its testing of soil samples has detected
chlorinated solvents and fuel oxygenates. CalWest has requested that additional
soil testing be performed at the site in an effort to assess the possible
chemical impact to groundwater. We have consented to the additional testing
proposed by CalWest and have extended the diligence period for this property
until October 31, 2000. If CalWest alleges defects prior to October 31, 2000, we
must, by November 3, 2000, elect to either delete the property from the sale or
defer the property and remediate the defect. It is unclear at this time if this
property will be finally determined to be included in the sale of industrial
properties at the initial closing, included in a later closing of the industrial
properties or deleted from the sale of industrial properties. We will market the
property to other buyers should the property be deleted from the sale. The
nature and extent of any remedial measures that will be necessary at this site,
if any, are also uncertain at this time.
Procedures Applicable to Properties with Extended Diligence Periods
For Miramar Commercial Park in San Diego, California, 611 Cerritos Avenue
in Anaheim, California, and Sunnyvale, California, the three properties for
which the diligence period has been extended, the same procedures will apply if
CalWest notifies us of any defects. In addition, if we agree to the requested
additional testing at The City of Industry property, that property will also be
subject to such procedures.
Upon notice of an alleged defect, we will have two options. First, we may
delete the affected property from the deal, with a corresponding reduction in
the purchase price to be paid by CalWest based on the allocated value of the
property. Second, we may elect to treat the affected property as a deferred
property.
Generally, a deferred property is a property that the parties intend to be
sold to CalWest, at its allocated value, after Pacific Gulf remedies the
identified defect. The remedy may be effected prior to the initial closing, in
which case the affected property will be sold to CalWest, at its allocated
value, along
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with the remainder of the industrial portfolio, or the remedy could be effected
up to one year after the initial closing, in which case the sale of the deferred
property would occur at the time of the remedy.
Once CalWest identifies a defect, the parties are obligated to use their
respective good faith efforts to determine, taking into account, if reasonably
necessary, the effect of the defect upon the future tenancy of the affected
project, a plan to cure such defect. If, however, the parties do not agree upon
such a plan or the parties reasonably agree that the defect cannot be fully
cured prior to the projected first anniversary of the closing, the affected
property shall be treated as a deleted property.
On the other hand, if the parties do agree upon such a plan to remedy a
defect, we will be obligated to use our commercially reasonable efforts to
attempt to cure, in accordance with such plan, the defect during the period
ending on the first anniversary of the closing. If the parties agree that such
cure is successfully consummated in accordance with such plan, then CalWest
shall purchase the cured property at its allocated value. If the parties do not
agree that any such cure has been successfully consummated in accordance with
such plan, the parties shall refer the matter to arbitration for resolution.
We are responsible for the costs and expenses of the remedies, except in
the case of any structural defects. The parties have agreed to split the costs
of any structural defects.
OTHER REMEDIATION EFFORTS
We have agreed with CalWest to perform various remediation measures that
are separate from the environmental defects described above. While we expect the
aggregate costs of these measures will not exceed $500,000, we cannot assure you
that the actual costs will not exceed this amount, especially given the possible
additional remediation at the Sacramento property. The following is a brief
summary of these remediation efforts.
- Mountain Avenue
We will perform remediation and removal of hazardous materials left by a
tenant at a site at the Mountain Avenue, Upland, California property. We are
negotiating with CalWest on the scope of the remediation. At the conclusion of
the negotiations, we will undertake to effect the remediation. If the
remediation is effected by the initial closing, CalWest will be obligated to
purchase the property at its agreed upon allocated value. If the remediation is
not effected prior to the initial closing, we will sell the property separately
to CalWest at a later date, again at its allocated value. The allocated value
for this property is $6.2 million.
- San Diego Water Conservation
With respect to all of the properties located within the County of San
Diego, we will comply as necessary with the requirements of particular sections
of the San Diego municipal code dealing with water conservation measures, such
as the installation of low flush toilets. We do not expect these remediation
measures to cause any of the properties located within the County of San Diego
to be treated as a deleted property.
- ADA Remediation
We will perform relatively minor Americans with Disabilities Act
remediations, such as parking lot striping.
- Sacramento Commerce Park Remediation and Additional Testing
We have agreed to complete the remediation measures which we have commenced
for certain locations on the Sacramento Commerce Park property. Upon completion
of these remediation measures and the review by CalWest of testing results
and/or reports from our consultants in connection with possible mold, fungi or
other microbial/microbiological contaminants at the Sacramento Commerce Park
property, CalWest may determine the scope of reasonable additional testing
required and conduct the testing. If CalWest notifies us that it has determined
that additional remediation is necessary, we must elect to either delete the
property from the sale or defer the property and perform the additional
remediation. It is unclear at this time if this property will be finally
determined to be included in the sale
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of industrial properties at the initial closing, included in a later closing of
the industrial properties or deleted from the sale of industrial properties. We
will market the property to other buyers should the property be deleted from the
sale. The nature and extent of any additional remedial measures that will be
necessary at this site, if any, are also uncertain at this time.
THIRD PARTY CONSENTS
We must obtain the consent or approval of third parties before we may
transfer to CalWest a number of properties in the industrial portfolio. There
are three categories of these properties.
First, there are certain properties owned by limited partnerships of which
Pacific Gulf is the general partner and as to which the limited partners have
certain consent rights. Because these properties held by partnerships are held
of record by an entity other than Pacific Gulf, these properties were not
included in the purchase price initially agreed to in the agreement. Since the
signing of the purchase agreement, we have obtained the required consent for
these partnership properties, meaning that such properties have become subject
to the purchase agreement. Accordingly, the purchase price has been
correspondingly increased.
Second, there are certain properties subject to ground leases as to which
the lessor has a consent right. These properties were included in the agreed
upon purchase price because Pacific Gulf is the record owner of the properties.
We currently have obtained the required consents for all of these properties
other than the property in Tustin, California. While we expect to obtain this
consent, if we do not, the purchase price will be correspondingly decreased by
the allocated value of the Tustin property ($16.5 million).
Third, there are certain properties subject to rights of first refusal held
by third parties. These properties were included in the agreed upon purchase
price because Pacific Gulf is the record owner of the properties. Because we
have obtained all of the required consents with respect to this third category,
the purchase price will not be decreased.
ADJUSTMENTS TO PURCHASE PRICE
The purchase agreement provides for a base purchase price of $883.5 million
for the industrial properties other than those owned by two limited partnerships
in which Pacific Gulf is the general partner ($39.0 million) and other than
those that are under development (approximately $6.2 million) for an aggregate
purchase price of $928.7 million.
The base purchase price of $883.5 million is subject to the following
adjustments:
- reduction for the allocated value of any deleted property, including any
industrial properties that Pacific Gulf sells without obtaining the
approval of CalWest;
- increase for the allocated value of any property owned by a limited
partnership in which Pacific Gulf is the general partner and as to which
the limited partners have certain consent rights if such consents are
obtained ($39.0 million);
- reduction for the allocated value of any other property as to which a
required third party consent is not obtained;
- increase for certain properties included in the portfolio that are under
development (generally, the increase will consist of Pacific Gulf's
purchase price plus development costs and an agreed upon return)
(approximately $6.2 million);
- reduction if the portfolio does not achieve certain agreed upon targets
for tenant occupancy at closing; and
- reduction of $950,000 in satisfaction of structural defects alleged by
CalWest.
Under the terms of the purchase agreement, we will not technically adjust
the purchase price for the six properties that we do not expect to sell to
CalWest at the initial closing unless and until such properties are actually
deleted from the sale. While no technical adjustment to the purchase price has
yet
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occurred for these six properties, CalWest will not, of course, pay us for these
six properties at the initial closing.
We may or may not sell to CalWest these six properties, namely the three
properties (611 Cerritos, Miramar and Sunnyvale) as to which the diligence
period has been extended to October 31, 2000, the one property (City of
Industry) as to which we are considering CalWest's request for additional
testing, the one property (Sacramento Commerce Park) as to which we are
conducting remediation and performing additional testing and the one property
(Mountain Avenue) as to which we are negotiating the scope of the necessary
remediation. The aggregate allocated value of these six properties is $80.3
million.
Based on the above described adjustments and the fact that we do not expect
to receive the allocated values for these six properties at the initial closing,
we believe that the aggregate purchase price for the 66 properties we expect to
sell to CalWest in the initial closing will be approximately $847.5 million.
CLOSING
The closing of the sale of our portfolio of industrial properties to
CalWest shall occur seven business days after the satisfaction or waiver of all
conditions to closing, or such other time as we and CalWest may mutually agree
upon in writing.
REPRESENTATIONS AND WARRANTIES
We have made certain customary representations and warranties to CalWest,
including as to:
<TABLE>
<S> <C>
- financial ability, - certain contracts and arrangements,
- corporate citizenship, - environmental and zoning matters,
- corporate authorization, - litigation,
- non-contravention, - corporate existence, and
- corporate power, - consents/waivers required.
</TABLE>
The representations and warranties contained in the purchase agreement will
survive the initial closing for a period of six months and will survive for six
months after the closing of any property whose sale is deferred until after the
initial closing. In no event will our liability for all breaches of
representations and warranties exceed $12.5 million with respect to the
properties sold at the initial closing. In addition, we may be liable for
additional amounts for the subsequent sale of a deferred property after the
initial closing in an amount up to the greater of $250,000 or 2% of the
allocated value of the deferred property.
COVENANTS REGARDING CONDUCT OF BUSINESS BEFORE THE SALE
We have agreed to maintain and operate the industrial properties in the
ordinary course of business consistent with past practices at its sole cost and
expense. In particular, we have agreed, subject to enumerated exceptions,:
- to not sell or refinance any property;
- to not incur out-of-pocket third party costs for the development of
selected properties;
- to not enter into new tenant leases on terms less favorable to the lessor
than those acceptable by CalWest;
- to notify CalWest of any new environmental and zoning proceedings,
notices of violations of law, litigation and any matters that would make
any of its representations and warranties untrue;
- to maintain insurance currently in effect on the properties;
- to deliver copies of operating statements prepared in the ordinary course
of business to CalWest; and
- to not enter into any new leasing, brokerage or service contract with
respect to the properties.
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CONDITIONS TO THE COMPLETION OF THE SALE
Pacific Gulf and CalWest will complete the sale of industrial properties
only if the conditions specified in the purchase agreement are either satisfied
or waived. The conditions include:
- approval of the transaction by our shareholders;
- there being no law or court order prohibiting the transaction;
- absence of a material uncured breach of the representations and
warranties made by CalWest in the purchase agreement;
- absence of a material uncured breach of the covenants and obligations
made by CalWest in the purchase agreement;
- the representations and warranties made by us in the purchase agreement
remaining accurate;
- Pacific Gulf having performed in all material respects all of its
covenants and obligations under the purchase agreement; and
- the receipt of a title insurance policy by CalWest.
TERMINATION OF THE PURCHASE AGREEMENT
The purchase agreement may be terminated under the following circumstances:
- by mutual consent;
- by either CalWest or us if the closing has not occurred by December 15,
2000;
- by us if:
- the conditions above have not been met by CalWest;
- its board of directors has received and is prepared to accept a
superior proposal;
- the remediation costs for environmental, title and zoning defects,
whether related to deleted or deferred properties, exceeds $25 million
in the aggregate;
- the aggregate of the amount of diminutions in value of the properties
due to condemnation and the costs to repair defects that occur after
the diligence period expires or to cure damage or destruction to the
properties exceeds $25 million in the aggregate, exclusive of certain
items;
- the aggregate of the remediation costs for environmental, title and
zoning defects, of the amount of diminutions in value of the
properties due to condemnation and the costs to repair defects that
occur after the diligence period expires or to cure damage or
destruction to the properties exceeds $40 million in the aggregate,
exclusive of certain items;
- the remediation costs for structural defects and defects related to
improvements not meeting applicable standards exceeds $20 million or
some proportionately lesser amount if properties are deleted from the
portfolio sale; or
- the value of properties that have been deemed to be deleted properties
because the parties could not agree upon a plan to remedy a defect
affecting such property equals or exceeds $90 million.
- by CalWest if:
- the conditions above have not been met by us;
- our board of directors has accepted a superior proposal or has
withdrawn or adversely modified its approval or recommendation of the
purchase agreement; or
- the aggregate square footage of the deleted properties exceeds 5
million square feet.
In addition, the sale of any deferred property may be terminated after the
closing based on similar circumstances as those described above.
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DEPOSIT; TERMINATION FEES AND EXPENSES
CalWest has made a deposit of $25 million into an escrow account, which may
be refunded only if:
(i) we terminate the purchase agreement because our board of directors
has received and is prepared to accept a superior proposal;
(ii) CalWest terminates the purchase agreement because our board of
directors has accepted a superior proposal or has withdrawn or
adversely modified its approval or recommendation of the purchase
agreement;
(iii) either party terminates the purchase agreement because of an order,
decree, ruling or injunction issued or entered against Pacific Gulf;
(iv) either party terminates the purchase agreement because of failure to
obtain approval for the transaction from our shareholders;
(v) we terminate the purchase agreement because the value of properties
that have been deemed to be deleted properties because the parties
could not agree upon a plan to remedy a defect affecting such
property equals or exceeds $90 million;
(vi) CalWest terminates the purchase agreement because of breaches of
representations and warranties or covenants by us;
(vii) the purchase agreement is terminated by mutual consent;
(viii) we terminate the purchase agreement because of excessive remediation
costs as described above under "Termination of the Purchase
Agreement;"
(ix) CalWest terminates the purchase agreement because the aggregate
square footage of the deleted properties exceeds 5 million square
feet; or
(x) either party terminates the purchase agreement because a title policy
has not been received by CalWest by December 15, 2000.
In addition, we will pay to CalWest as a termination fee an additional $25
million in the circumstances described in items (i) and (ii) listed above. We
will also pay to CalWest as reimbursement for expenses an additional $6 million
in the circumstances described in the items (iii) through (vi) listed above.
Finally, if CalWest terminates the purchase agreement because we breach our
covenant to deliver this proxy statement to our shareholders or to hold a
meeting of our shareholders and within 6 months of such termination we enter
into another agreement for the sale of our portfolio of industrial properties,
then we will pay an additional termination fee to CalWest of $19 million, unless
the $25 million termination fee discussed in the first sentence of this
paragraph has already been paid.
NO SOLICITATION; COVENANT TO RECOMMEND
The purchase agreement prevents us from negotiating or otherwise engaging
in discussions with, or furnishing information to, a third party regarding a
merger, acquisition or similar transaction involving our industrial properties
portfolio as a whole unless:
- we receive an unsolicited bona fide proposal from that third party to
purchase all or a substantial portion of the industrial properties having
at least 75% of the value of the portfolio;
- our board of directors determines in good faith that that the third party
proposal would result in a superior proposal; and
- we have notified CalWest about the proposal.
Subject to fiduciary duties under applicable law, the board of directors of
Pacific Gulf has agreed to recommend the approval and adoption of the purchase
agreement to our shareholders.
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AMENDMENT OR WAIVER OF THE PURCHASE AGREEMENT
The parties may amend the purchase agreement or waive its terms and
conditions before the closing, but after our shareholders have approved the
purchase agreement, no such amendment will be made except as allowed under
applicable law. To date, the purchase agreement has been amended four times as
set forth in Appendix A hereto.
MANAGEMENT AGREEMENT
The parties have agreed to use commercially reasonable efforts to enter
into a management agreement with respect to CalWest's retention of Pacific Gulf
as manager of the industrial properties after the closing of the sale.
ESTIMATED AMOUNTS AVAILABLE FOR DISTRIBUTION
After the consummation of this transaction, we expect to make a cash
distribution to our shareholders. It is impossible to determine at this time
with any precision the aggregate net proceeds from the sale of industrial
properties that may ultimately be available for distribution to our shareholders
upon consummation of the sale of the portfolio. That amount will depend upon a
variety of factors, including the timing of and the net proceeds realized from
the sale of the portfolio of industrial properties, the possible deletion of
properties from the sale, the ultimate amount of expenditures required to remedy
problems at the properties and whether we are required to pay a corporate-level
tax in connection with the sale.
As of June 30, 2000, Pacific Gulf had outstanding $132.4 million under a
$150.0 million unsecured revolving credit agreement. After the consummation of
this transaction, it is anticipated that we will repay the debt outstanding
under the credit agreement.
PAST TRANSACTIONS BETWEEN PACIFIC GULF AND CALWEST
On December 23, 1998, Pacific Gulf acquired six industrial properties from
RREEF Performance Partnership I -- L.P., an affiliate of CalWest, for a gross
purchase price of $69.6 million.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
SALE OF THE INDUSTRIAL PROPERTIES PURSUANT TO THE PROPOSED AGREEMENT OF PURCHASE
AND SALE, AS AMENDED.
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PROPOSAL 2 -- APPROVAL OF SALE OF REMAINING ASSETS AND
THE LIQUIDATION AND DISSOLUTION OF PACIFIC GULF PROPERTIES
GENERAL
As previously announced, our board of directors decided last year to
dispose of our multifamily properties, and we are in the process of disposing of
all of those properties. With the pending sale of our industrial properties, our
board decided that shareholder interests would best be served by a sale of all
of our remaining assets. This plan to sell or otherwise dispose of our remaining
assets, to subsequently make one or more cash distributions to our shareholders
will be referred to in this proxy statement as our liquidation plan. At the
special meeting, we will ask our shareholders to approve the liquidation plan,
which will be conditioned on the closing of the sale of our industrial
portfolio, and to approve the dissolution of Pacific Gulf, which will be
conditioned on the sale of all of our remaining assets. Approval of the
liquidation plan will require the affirmative vote of the holders of at least a
majority of the outstanding shares entitled to vote. The board of directors
believes that the liquidation plan is in the best interests of Pacific Gulf and
our shareholders and recommends that shareholders vote FOR this proposal. The
information that is set forth below is furnished in connection with the
proposal.
Shareholders who do not vote in favor of this proposal are not entitled to
dissenters' appraisal rights under Maryland law.
CONDITIONS TO LIQUIDATION AND DISSOLUTION
If the shareholders do not approve the sale of the industrial properties or
the sale is otherwise abandoned, then the proposed sale of the remaining assets
will not occur and the liquidation will not be implemented. In addition, if we
do not sell our remaining assets or we otherwise abandon the liquidation, the
proposed dissolution will not occur.
POSSIBLE ALTERNATIVE TRANSACTIONS
It is possible that we may receive an offer to purchase, through a merger
or otherwise, all of the outstanding stock of Pacific Gulf. If that occurs, our
board of directors will consider such an alternative based on the facts and
circumstances of any such offer. If the board pursues such an offer, we will
separately ask for the approval of our shareholders, and would not sell our
remaining assets for cash.
DESCRIPTION OF THE LIQUIDATION PLAN
The following is a brief summary of the liquidation plan, which must be
approved by the holders of at least a majority of the shares entitled to vote.
Upon the receipt of such approval, we will take such actions as are deemed
necessary or appropriate by the board of directors to wind up the business and
affairs and to dispose of, by sale, all of our remaining assets. The liquidation
plan provides that our remaining assets will be converted into cash, which may
be conveniently distributed to our shareholders, and Pacific Gulf will be
dissolved. If we implement our liquidation plan as described in this proxy
statement, no further approvals by the shareholders will be obtained. It is
currently expected that all of our assets will be sold for cash.
To date, although we have received indications of interest in our active
seniors properties and held discussions with respect to their sale, we have not
executed any definitive agreements or binding letters of intent. Sales of our
remaining assets could occur in one transaction or through a series of
transactions. See "Conduct of Business of Pacific Gulf After Industrial Sale."
Although we do not expect to sell our remaining properties under the plan of
liquidation to any persons deemed to be our affiliates, it is possible that one
or more of our shareholders (such as Five Arrows Realty Securities L.L.C., the
beneficial holder of 11.8% of Pacific Gulf common stock, or another affiliate of
Rothschild Realty Inc.) who could be deemed our "affiliates" could purchase
properties by virtue of submitting the highest bids in respect of such
properties. It is also possible that one or more members of our management might
invest in, or be subsequently employed by, a successful bidder for some or all
of our remaining assets.
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Each offer to purchase our assets must be acted upon by the board of
directors. In each case, the board of directors must determine that the proceeds
received by Pacific Gulf for any property sale will equal or exceed the fair
market value of such property as determined by a sophisticated real estate
appraiser or investment bank. Appraisals of our remaining assets will be
performed or updated such that the appraisals reflect the fair market value of
any properties sold as of the time a definitive agreement for the sale of such
properties has been reached or within 90 days before the closing of the sale of
such properties. In determining the fair market value of any particular
property, the real estate appraiser or investment bank will value the property
without regard to any debt encumbering the property. The net proceeds to Pacific
Gulf will of course be net of any costs incurred to prepay any debt encumbering
the property or any discounts incurred in selling such property subject to such
debt.
As part of the liquidation plan, existing debts and obligations of Pacific
Gulf will be satisfied from existing cash balances and the proceeds of the sale
of our assets. Among these obligations is a requirement that we indemnify our
executives for potential excise taxes that may be imposed upon them due to
severance benefits to which they are entitled. See "Interest of Certain Persons
in Matters to be Acted Upon." In addition, reserves may be established, as the
board of directors deems necessary, for liabilities or expenses, contingent or
otherwise, that may arise. We are considering purchasing insurance or
establishing a liquidating trust in order to satisfy these obligations. The
remaining proceeds will be distributed on a schedule established by the board of
directors, on a pro rata basis, to our shareholders as full payment for the
shares held by each shareholder. See "Distributions to Shareholders."
Upon the sale of particular properties, the complete liquidation of Pacific
Gulf and distribution of our assets to or for the benefit of our shareholders,
the appropriate officers of Pacific Gulf will execute, acknowledge and file
Articles of Transfer and/or Articles of Dissolution with the Maryland State
Department of Assessments and Taxation. Our officers may also execute other
documents or make other governmental filings as appropriate to carry out the
disposition of the remaining assets, effectuate the distributions to
shareholders and dissolve Pacific Gulf. It is difficult to predict the timing of
the sale of our remaining assets and, consequently, the timing of liquidating
distributions to shareholders since to date no definitive agreements or binding
letters of intent have been signed for the sale of the remaining assets. See
"Distributions to Shareholders." Although it is expected that we will continue
to qualify as a REIT for the period prior to the distribution of our assets to
shareholders, no assurance can be given that we will not lose or terminate our
status as a REIT as a result of unforeseen circumstances. See "Federal Income
Tax Considerations -- Consequences to Pacific Gulf Properties if Proposals 1 and
2 Are Approved," and "-- Consequences to Pacific Gulf if Proposal 1 is Approved
But Proposal 2 is Not Approved."
If we are unable to sell all of our remaining assets within 24 months of
the adoption of the liquidation plan or if it is otherwise appropriate or
advantageous to do so, we may establish a liquidating trust to which we could
distribute in kind our unsold assets. We may also set aside funds in the
liquidating trust in order to satisfy any of our contingent debts or
obligations. Approval by our shareholders of the sale of our remaining assets
and the liquidation plan will also constitute approval of the liquidating trust,
any agreement to establish such a trust and appointment of a trustee thereunder.
See "Federal Income Tax Considerations" for further discussion of the
consequences to shareholders of the establishment of a liquidating trust.
29
<PAGE> 34
ASSETS SUBJECT TO LIQUIDATION PLAN
The liquidation plan gives our board of directors the power to sell any and
all of our assets (other than the industrial properties, the two active senior
properties and ten multifamily properties that are already in the process of
being sold) without further approval by the shareholders, provided that such
actions are consistent with the terms of the liquidation plan as described in
this proxy statement. We intend to conduct the sale of our remaining assets in
an orderly manner, and will seek offers for specific pools of assets, although
individual sales of assets may be effected and offers for the entire portfolio
of investments may be sought. The following table sets forth our remaining
assets:
<TABLE>
<CAPTION>
NET BOOK
VALUE AT DEBT
NUMBER OF 6/30/00 AT 6/30/00
PROPERTY(1) LOCATION UNITS (IN 000'S) (IN 000'S)
----------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Active Senior Properties(2)
Inn at Laguna Hills Laguna Hills, CA 140 7,324 4,522
The Fountains Rancho Santa Margarita, CA 166 8,596 6,237
Tyler Springs Riverside, CA 273 12,938 8,923
Terrace Gardens Escondido, CA 225 9,632 7,783
Morning View Terrace Escondido, CA 326 14,578 10,568
Sunnyside I San Dimas, CA 164 6,382 5,414
Development Properties
The Fountains Anaheim Hills, CA 259 13,009 4,939
The Fountains Temecula, CA 244 8,135 1,993
The Fountains Sacramento, CA 166 1,806 --
The Fountains(3) Laguna Niguel, CA 190 -- --
The Fountains(4) Pasadena, CA 72 -- --
The Fountains(5) Huntington Beach, CA 190 -- --
Corporate Offices
Corporate Offices Newport Beach, CA 28,000 sq. ft 4,236 --
</TABLE>
-------------------------
(1) The properties reflected in the table as part of our liquidation plan do not
include the industrial properties and the two active senior properties and
ten multifamily properties that are already in the process of being sold. If
any industrial properties are deleted from the CalWest sale, they will
become part of our liquidation plan.
(2) Rental revenues less rental property expenses for the six active senior
properties for the periods ended June 30, 2000 and December 31, 1999 were
$3,358,000 and $6,322,000 respectively.
(3) Property purchased subsequent to June 30, 2000 for $3,967,000. There is no
outstanding debt.
(4) Property purchased subsequent to June 30, 2000 for $2,237,000. There is no
outstanding debt.
(5) Property purchased subsequent to June 30, 2000 for $7,532,000. There is no
outstanding debt.
In the course of the implementation of the liquidation plan, we reserve the
right to make a distribution to our shareholders on a pro-rata basis of one or
more subsidiary corporations. Such a spinoff could consist, for example, of
Pacific Gulf's property management subsidiary and one or more qualified REIT
subsidiary corporations which hold certain properties.
30
<PAGE> 35
DISTRIBUTION OF PROCEEDS
Following the proposed sale of our remaining assets and our satisfaction,
through payment, establishment of reserves or implementation of insurance
policies, of all of our liabilities and obligations, including the expenses of
liquidation, we will distribute to our shareholders on a pro-rata basis the
balance of available liquidation proceeds. No assurances can be made as to the
actual timing of such sales and subsequent distributions which could be made
over a substantial period of time. To date, although discussions have occurred
and negotiations have been entered into with prospective buyers with respect to
some of the remaining assets and we have received indications of interest for
other assets, no definitive agreements or letters of intent have been signed to
date.
It is impossible to determine at this time with any precision the aggregate
net proceeds that may ultimately be available for distribution to our
shareholders upon liquidation. That amount will depend upon a variety of
factors, including the timing of and the net proceeds realized from the sale of
our remaining assets, as well as the ultimate amounts of liquidation-related
expenses and other obligations and liabilities that must be satisfied out of
such remaining assets. There can be no assurance as to the amount or nature of
our contingent liabilities, if any.
The prices at which we will seek to sell our remaining assets will be
determined by our management and our board of directors. The assets could be
sold to one or more purchasers, in one or more transactions over a period of
time, in which case we would continue to operate until all investments are sold.
The amount of proceeds received from the disposition of individual assets is
dependent on a number of conditions, many of which are beyond our power to
control, including the condition of the real estate and financial markets.
Distributions to shareholders will be made at such times and upon such
terms as determined by the board of directors. We may from time to time fix a
date in respect of any distribution for the determination of the persons to be
treated as shareholders of record entitled to receive such distributions.
Shareholders will be advised at the time of any such distribution as to the
details of the mechanics of distribution and the procedures as to dissolution.
Before the final distribution of our remaining assets to our shareholders
and our dissolution under applicable law, the shares will continue to be
transferable and shareholders will continue to have such rights as applicable
law confers upon shareholders.
AUTHORITY OF BOARD OF DIRECTORS AND OFFICERS
The directors and officers of Pacific Gulf will be given broad powers to
take whatever action is necessary or desirable in order to carry out the
provisions of the liquidation plan, to effect the complete liquidation of
Pacific Gulf and to dissolve Pacific Gulf.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE SALE OF OUR REMAINING ASSETS, OUR SUBSEQUENT LIQUIDATION AND OUR
DISSOLUTION.
31
<PAGE> 36
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion addresses the United States federal income tax
considerations that should be taken into account in determining whether to vote
for or against Proposals 1 and 2. As discussed below, the tax rules applicable
to the proposals are complex, and shareholders should consult their individual
tax advisors in order to determine the precise consequences to them if both
Proposals 1 and 2 are approved or if only Proposal 1 is approved. In addition,
this discussion does not address state, local or foreign income tax
considerations, and does not address taxes other than income taxes.
BACKGROUND
We are a "real estate investment trust," or "REIT," subject to special tax
rules under the Internal Revenue Code, which we refer to as the Code. Under the
REIT rules in the Code, a REIT that meets certain requirements is generally not
subject to federal income tax with respect to income it distributes to its
shareholders. In order to maintain our status as a REIT, we must, among other
things, continue to derive our income from qualified sources, principally rents
from real property, interest from mortgages on real property and gains from the
sale or exchange of real estate assets. In addition, our principal assets must
continue to be real estate assets. Moreover, our deduction for dividends paid
during any taxable year must equal at least 95% (90% for any taxable year
beginning on or after January 1, 2001) of our taxable income for that year,
determined without regard to net capital gain or the deduction for dividends
paid.
Even if we maintain our qualification as a REIT, we will be subject to
corporate tax (determined without regard to our deduction for dividends paid) on
our taxable income in excess of our deduction for dividends paid. In addition,
any net gain from sales of property held primarily for sale to customers in the
ordinary course of a trade or business will be subject to a 100% tax. Whether a
real estate asset is property held primarily for sale to customers in the
ordinary course of a trade or business, the sale of which would be a prohibited
transaction for a REIT, is a highly factual determination.
While we expect to continue to qualify as a REIT under the Code, no
assurance can be given that we will not lose or terminate our status as a REIT
as a result of unforeseen circumstances. Should we lose our status as a REIT,
either inadvertently or because the board of directors deem such loss to be in
the best interests of our shareholders, we would be taxable as a corporation for
federal income tax purposes and would be liable for federal income taxes at the
corporate rate with respect to our taxable income, including income from
operations and from sales of assets.
CONSEQUENCES TO PACIFIC GULF IF PROPOSALS 1 AND 2 ARE APPROVED
We believe that if Proposal 1 is approved and the purchase agreement is
consummated, the sale of property under that agreement will not be subject to
the 100% tax mentioned above. Likewise, we believe that if Proposal 2 is
approved and the balance of our properties are sold pursuant to a plan of
complete liquidation of Pacific Gulf, sales of properties pursuant to that plan
will not be subject to the 100% tax.
Distributions made within 24 months after adoption of a plan of liquidation
will, to the extent of our earnings and profits for the taxable year, be treated
as dividends paid for purposes of determining our deduction for dividends paid.
Since we anticipate that distributions of the proceeds from the sales of the
industrial properties will exceed our income for the year of the sale, provided
we continue to meet the requirements for qualification as a REIT, we will not be
subject to federal income tax on gain recognized in connection with sales of the
industrial properties. Pursuant to the purchase agreement, assuming Proposal 2
is approved, we anticipate that proceeds from the sale of our other assets
distributed to our shareholders will exceed our income during the year of the
sale, and thus that we will not be subject to federal income tax on the gain
recognized in connection with the sale of those other properties. Moreover, if
we transfer assets to a liquidating trust as described below, while we would
recognize income to the extent assets transferred to the liquidating trust have
a value that exceeds our tax basis in those assets, we would be entitled to a
deduction as a result of such transfer in an amount equal to or greater than the
amount of that income.
32
<PAGE> 37
As noted above, in order to continue to qualify as a REIT, we must continue
to derive our income from qualified sources. Following the sale of the
industrial properties, we expect to derive income from the management agreement
described in "The Purchase Agreement -- Management Agreement," which income will
not qualify as rents from real property or other qualified income. Therefore, it
is possible that we would not be able to maintain our status as a REIT if we
continued to earn management income under the management agreement following the
sale of the industrial properties.
Pursuant to recent changes to the Code, beginning on January 1, 2001, a
REIT may own up to 100% of the securities of a "taxable REIT subsidiary"
(subject to the limitation that the securities of all "taxable REIT
subsidiaries" owned by the REIT do not represent more than 20% of the value of
the REIT's assets). A "taxable REIT subsidiary" is any subsidiary owned by the
REIT if the REIT and the subsidiary elect to treat the subsidiary as a "taxable
REIT subsidiary." A taxable REIT subsidiary is taxed as a corporation. We intend
to transfer the Management Agreement to a taxable REIT subsidiary after January
1, 2001 if we feel that the transfer is necessary to enable us to continue to
comply with the income tests applicable to REITs. In that event, any net income
earned under the management agreement will be subject to tax at corporate income
tax rates.
If we are not able to dispose of all of our remaining properties within 24
months after adopting the liquidation plan, or if it is otherwise advantageous
or appropriate to do so (such as if we believe that it is necessary to retain
reserves for the payment of contingent liabilities beyond the 24 month period),
we may establish a liquidating trust to which we could distribute our remaining
assets in order to complete the liquidation. Distributions to a liquidating
trust are treated for tax purposes as distributions to shareholders, and are
eligible for the deduction for dividends paid to the same extent as if the
distributions were made directly to the shareholders. A trust will be treated
for tax purposes as a liquidating trust if it is established for the primary
purpose of liquidating and distributing the assets transferred to it, and if its
activities are reasonably necessary to, and consistent with, the accomplishment
of that purpose. In the event we establish a trust for these purposes, we intend
to comply with the Internal Revenue Service guidelines for establishing a
liquidating trust or otherwise to ensure that the trust will qualify for federal
income tax treatment as a liquidating trust.
CONSEQUENCES TO SHAREHOLDERS IF PROPOSALS 1 AND 2 ARE APPROVED
If both the purchase agreement and the plan of liquidation are approved and
the proceeds of the sales of our assets and other cash are distributed, the cash
received by a shareholder should first be applied against and reduce the basis
in such shareholders' shares, and any distributions in excess of the
shareholder's basis in its shares should be treated as a capital gain, assuming
the shares are held as a capital asset. If the sum of all liquidating
distributions is less than a shareholder's basis in its shares, the difference
will constitute a capital loss, assuming the shares are held as a capital asset.
Such capital gain or loss will be long-term or short-term, depending on whether
such shares have been held for more than one year. The determination of the tax
consequences of the distributions is made separately with respect to each share
of stock owned by the shareholder. Thus, for example, gain may be recognized
with respect to some shares prior to the time gain is recognized with respect to
other shares if the shareholder's tax basis in each of his or her shares is not
identical. Likewise, the character of any gain or loss as short-term or
long-term capital gain or loss may differ if the shareholder acquired the shares
at different times.
As noted above, we may transfer assets to a liquidating trust as part of
our complete liquidation. A trust treated as a liquidating trust for tax
purposes will not be subject to taxation on the receipt of a distribution of our
assets, nor on the income generated by such assets. Instead, a distribution to a
liquidating trust is treated as a distribution directly to shareholders. Each
shareholder will be treated as receiving a liquidating distribution equal to its
share of the amount of cash and the fair market value of the assets distributed
to the trust. Therefore, a shareholder may recognize gain if the value of the
liquidating distribution exceeds its remaining basis in its stock, although the
shareholder will not receive a current distribution of cash with which to pay
the resulting tax liability. In addition, the shareholders will be treated as
the owners of the liquidating trust. Each shareholder will therefore be required
to take into account its ratable share of the liquidating trust's items of
income and loss when computing its own taxable income. An individual
33
<PAGE> 38
shareholder who itemizes deductions may deduct his or her pro rata share of fees
and expenses of the liquidating trust only to the extent that such amount,
together with the shareholder's other miscellaneous deductions, exceeds 2% of
his or her adjusted gross income. When the liquidating trust makes distributions
to shareholders, the shareholders will recognize no additional gain or loss.
If the trust established to receive liquidating distributions fails to
qualify as a liquidating trust for tax purposes, the tax consequences of the
transfer of assets to and from the trust will depend on the reason for the
failure to qualify, but it is most likely that the trust will be taxable as a
corporation, rather than as a trust. If the liquidating trust is taxable as a
corporation, the trust itself will be subject to tax, and the shareholders could
be subject to tax both upon the receipt of the interest in the trust and the
receipt of distributions from the trust. As noted above, if we establish a
liquidating trust, we intend to cause the trust to qualify for treatment as a
liquidating trust for federal income tax purposes.
CONSEQUENCES TO PACIFIC GULF IF PROPOSAL 1 IS APPROVED BUT PROPOSAL 2 IS NOT
APPROVED
If the liquidation plan is not adopted, and we continue operating our
remaining properties, the distribution to our shareholders of all or a portion
of the net proceeds from the sale of the industrial properties may constitute a
"partial liquidation" for federal income tax purposes. As noted above, in order
to continue to qualify as a REIT, our deduction for dividends paid must equal a
specified percentage of our taxable income, excluding net capital gain, each
year. If the liquidation plan is not adopted and we are treated as making
distributions in partial liquidation when we distribute the proceeds of the sale
of the industrial properties, we may have to treat a portion of those
distributions as a return of capital for which we would not receive a deduction
for dividends paid. While the law in this area is unclear, if the distribution
of proceeds from the sale of our industrial properties is treated as a
distribution in partial liquidation, we may not receive a deduction for
dividends paid sufficient to offset all of our taxable income, although we
believe that our deduction for dividends paid would be sufficient to enable us
to maintain our status as a REIT under the Code. Thus, if Proposal 2 is not
approved, we could incur a corporate-level tax on our undistributed net capital
gains, even if we have distributed all of the proceeds of the sale of the
industrial properties to our shareholders. If we incur a corporate-level tax, we
could be forced to borrow funds or sell other assets in order to pay the tax.
Given the uncertainty surrounding the application of the relevant Code
provisions to our situation, we cannot estimate with any degree of certainty the
amount of the potential tax liability if Proposal 2 is not approved. While we
believe that we would be able to obtain the cash necessary to pay the tax, there
can be no assurance that such cash will be available. Moreover, any
corporate-level tax would reduce the amount that our shareholders ultimately
receive from us with respect to their stock, and the need to obtain financing to
pay the tax could affect our ability to maximize the value of our assets
following the sale of our industrial properties.
CONSEQUENCES TO SHAREHOLDERS IF PROPOSAL 1 IS APPROVED BUT PROPOSAL 2 IS NOT
APPROVED
In the event that the plan of liquidation is not approved, and we do not
adopt a liquidation plan before distributing the proceeds of the sale of the
industrial properties, then distributions of those proceeds to our shareholders
will not be treated as distributions in complete liquidation as described in
"Consequences to Shareholders if Proposals 1 and 2 Are Approved" above. Instead,
except as discussed below, any amounts distributed to shareholders (other than
amounts we designate as capital gain dividends) will be treated as ordinary
distributions to shareholders. Distributions (other than capital gain dividends)
paid by a REIT to its shareholders, to the extent such distributions are paid
out of current or accumulated earnings and profits, are taxed as ordinary income
and are not eligible for the dividends received deduction for corporate
shareholders. Distributions (other than capital gain dividends) that exceed the
REIT's current and accumulated earnings and profits are not income to the
shareholder until the distributions exceed the shareholder's basis in his or her
shares. Assuming the shares are held as capital assets, distributions in excess
of that basis are treated as long-term capital gain or short-term capital gain,
depending on the shareholder's holding period for the shares.
To the extent of the net capital gain we recognize in the year of the sale,
we can designate distributions to our shareholders as capital gain dividends.
Capital gain dividends received by shareholders
34
<PAGE> 39
of a REIT are treated as long-term capital gain, regardless of how long the
shareholder has held his or her shares. If the liquidation plan is not adopted,
we intend to designate the distributions of proceeds from the sale of the
industrial properties as capital gain dividends to the extent of our net capital
gain for the year of the sale. Any distributions in excess of the designated
capital gain dividends for the year will be treated as described in the
preceding paragraph.
As discussed above, if the liquidation plan is not adopted and we continue
operating our remaining properties, the sale of the industrial properties may
constitute a "partial liquidation" for tax purposes. Distributions to
non-corporate shareholders in a partial liquidation are not treated as ordinary
distributions as described above, but instead are treated as distributions in
exchange for shares held by the non-corporate shareholder. The non-corporate
shareholder should not be taxed on the portion of the distribution that is
treated as a return of capital, and the amount of the distribution in excess of
any return of capital should be treated as a capital gain (short-term or
long-term depending on whether such shares have been held for more than a year).
The determination of what portion of the distribution will be treated as a
return of capital is complex, and the treatment of the distributions may not be
known until the end of the year in which they are made. In addition, if any
portion of our distributions are treated as distributions in partial
liquidation, we may be treated as having retained a portion of our net capital
gains, and we would have to pay tax on that amount as described above. If we are
treated as retaining net capital gains, each shareholder must include in its
U.S. federal income tax return its ratable portion of the amount we are deemed
to have retained. In that case, each shareholder would be entitled to a credit
for its ratable share of the tax we pay on the capital gains that we are deemed
to have retained.
SPECIAL RULES APPLICABLE TO NON-UNITED STATES SHAREHOLDERS
For purposes of the following discussion, a non-U.S. shareholder is a
holder of our shares who (for United States federal income tax purposes) is not
(1) a citizen or resident of the United States, (2) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (3) an estate the income of which is
subject to U.S. federal income taxation regardless of its source or (4) a trust
of which a court within the United States is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all substantial decisions. The rules governing United
States federal income taxation of distributions received by our non-U.S.
shareholders are complex, and no attempt is made herein to provide more than a
brief summary of these rules. Accordingly, the discussion does not address all
aspects of United States federal income tax law and does not address state,
local or foreign tax consequences that may be relevant to a non-U.S. shareholder
in light of its particular circumstances.
As noted above, distributions in complete liquidation or distributions in
partial liquidation to non-corporate shareholders are treated as payments in
exchange for the shareholder's shares. A non-U.S. shareholder should not be
subject to taxation on such distributions if we qualify as a "domestically-
controlled REIT." A domestically-controlled REIT is a REIT in which at all times
during the applicable testing period, which is generally five years preceding
the date of the distribution, less than 50% of the value of the REIT's shares
are held directly or indirectly by non-U.S. shareholders. We believe that we are
a domestically-controlled REIT, but we cannot provide assurance that we will
continue to be a domestically-controlled REIT in the future. Even if we are a
domestically-controlled REIT, a non-U.S. shareholder will be subject to U.S.
federal income tax on payments in exchange for its shares if its investment in
our shares is effectively connected with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the non-U.S. shareholder) or if the non-U.S. shareholder is a nonresident alien
individual present in the United States for 183 or more days during the year of
the distribution and certain other conditions apply. If we are not a
domestically-controlled REIT, so long as our shares are publicly traded, a
non-U.S. shareholder will be taxed on distributions paid in exchange for our
shares only if the non-U.S. shareholder directly or indirectly owns, or has
owned within the five year testing period, more than 5% of the total fair market
value of our outstanding shares.
If Proposal 2 is not approved and we do not adopt a plan of complete
liquidation, distributions of the proceeds from the sale of our industrial
properties will not be treated as liquidating distributions (subject
35
<PAGE> 40
to the discussion of partial liquidations above), and therefore will not be
treated as paid in exchange for our stock. Distributions to a non-U.S.
shareholder that are attributable to gain from sales by us of U.S. real property
interests, and are not treated as paid in exchange for shares of our stock, will
be treated as income that is effectively connected with a U.S. trade or business
of the non-U.S. shareholder. Non-U.S. shareholders will thus generally be taxed
on such distributions at the same rates applicable to U.S. shareholders (subject
to a special alternative minimum tax in the case of nonresident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in the
hands of a corporate non-U.S. shareholder that is not entitled to a treaty
exemption or rate reduction. We are required to withhold 35% of any such
distribution, and the withheld amount is creditable against the non-U.S.
shareholder's U.S. federal income tax liability and refundable if it exceeds the
U.S. tax liability of the non-U.S. shareholder.
BACKUP WITHHOLDING AND INFORMATION REPORTING CONSEQUENCES TO SHAREHOLDERS
Generally, we must report to the Internal Revenue Service and to our
shareholders the amount of distributions paid and treated as paid during each
calendar year, and the amount of any tax withheld.
Under certain circumstances, a U.S. shareholder may be subject to backup
withholding at a 31% rate on distributions on, or proceeds of a sale of, our
stock. Backup withholding will not apply if the shareholder is a corporation or
other exempt entity or the shareholder furnishes a correct taxpayer
identification number and certifies that the shareholder is not subject to
backup withholding on Internal Revenue Service Form W-9 or an appropriate
substitute form; or otherwise complies with applicable requirements of the
backup withholding rules.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to non-U.S. shareholders, and non-U.S. shareholders
should consult their own advisors regarding the application and effect of the
information reporting and backup withholding rules to them, including changes to
these rules that will become effective after December 31, 2000.
STATE, LOCAL AND FOREIGN INCOME TAX
Shareholders may also be subject to state or local taxes with respect to
distributions received by them and should consult their tax advisor regarding
such taxes.
THE ABOVE DISCUSSION OF FEDERAL INCOME TAX CONSIDERATIONS DOES NOT ATTEMPT
TO COMMENT ON ALL TAX MATTERS THAT MAY AFFECT PACIFIC GULF PROPERTIES OR THE
SHAREHOLDERS IN THE COURSE OF THE SALE, THE SUBSEQUENT CASH DISTRIBUTION OR THE
LIQUIDATION. THE DISCUSSION ALSO DOES NOT CONSIDER VARIOUS TAX RULES OR
LIMITATIONS APPLICABLE TO PARTICULAR SHAREHOLDERS SUBJECT TO SPECIAL RULES,
INCLUDING, WITHOUT LIMITATION, TAX EXEMPT ENTITIES, INSURANCE COMPANIES,
FINANCIAL INSTITUTIONS OR DEALERS, FOREIGN SHAREHOLDERS (EXCEPT AS PROVIDED
ABOVE), SHAREHOLDERS WHO OWN THEIR SHARES AS PART OF A HEDGE, STRADDLE OR OTHER
RISK REDUCTION OR CONVERSION TRANSACTION AND SHAREHOLDERS WHO DO NOT OWN THEIR
SHARES AS CAPITAL ASSETS. SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PROPOSALS,
PARTICULARLY WITH RESPECT TO THE APPLICATION AND EFFECT OF TAX LAWS OF ANY STATE
OR OTHER JURISDICTION IN WHICH THEY ARE SUBJECT TO TAX AND THE EFFECT OF TAX
LAWS OTHER THAN INCOME TAX LAWS.
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<PAGE> 41
CONDUCT OF BUSINESS OF PACIFIC GULF AFTER SALE OF INDUSTRIAL PROPERTIES
MULTIFAMILY AND SENIOR PROPERTIES
We intend to continue to pursue our previously announced plan to dispose of
our multifamily properties. We have entered into or soon expect to enter into
definitive contracts for the sale of a majority of our ten traditional
multifamily apartment properties. The tables below summarizes the status of such
transactions.
PROPERTIES WITH COMPLETED DILIGENCE PERIODS
We have executed definitive contracts and received non-refundable deposits
for the properties listed below. All diligence and financing periods have
expired. The aggregate net book value of these properties is $37 million. We
expect to receive net proceeds from the sales of approximately $49 million in
the aggregate, after repayment of secured indebtedness of $11 million. We expect
to close the sale of these properties by November 30, 2000.
<TABLE>
<CAPTION>
PROPERTY LOCATION NUMBER OF UNITS
-------- -------- ---------------
<S> <C> <C>
Applewood Santa Ana, CA 406
Daisy 12 San Dimas, CA 102
Daisy 17 San Dimas, CA 156
Lariat San Dimas, CA 30
</TABLE>
PROPERTIES SUBJECT TO ADDITIONAL DILIGENCE OR FINANCING PERIODS
We have also entered into definitive contracts for the sale of the
properties listed below. Based on the contract purchase prices, we estimate net
sale proceeds of approximately $35 million, after repayment of secured
indebtedness of $47 million. These estimates could change, however, based upon
the results of the diligence periods referred to below. The net book value of
these properties at June 30, 2000 was $54 million. The table summarizes the
status of such transactions.
<TABLE>
<CAPTION>
NUMBER
PROPERTY LOCATION OF UNITS STATUS
-------- -------- -------- ------
<S> <C> <C> <C>
Daisy 16 West Covina, CA 250 Definitive contract signed. Deposit
received. Due diligence waived except for
title and survey.
Daisy 5 Covina, CA 38 Definitive contract signed. Subject to
diligence and financing.
Daisy 7 Diamond Bar, CA 204 Definitive contract signed. Deposit
received. Subject to title, survey and
executive committee approval.
Daisy 19 Ontario, CA 125 Definitive contract signed. Due diligence
complete. Subject to approval of
assumption of financing.
Daisy 20 Ontario, CA 155 Definitive contract signed. Due diligence
complete. Subject to approval of
assumption of financing.
Raintree Ontario, CA 165 Definitive contract signed. Due diligence
complete. Subject to approval of
assumption of financing.
Sunnyside II Ontario, CA 60 Definitive contract signed. Due diligence
complete. Subject to approval of
assumption of financing.
Sunnyside III Ontario, CA 84 Definitive contract signed. Due diligence
complete. Subject to approval of
assumption of financing.
</TABLE>
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<PAGE> 42
REMAINING ACTIVE SENIOR PROPERTIES
Whether or not proposal number 2 is adopted by our shareholders, we intend
to continue to actively manage and expand our active senior housing operations.
If proposal number 2 is approved, we currently expect to attempt to seek a buyer
for our active senior housing operations as an on-going business in a attempt to
capture the value from those operations in excess of the aggregate individual
market values of those properties; if we are unable to sell those properties as
an on-going business, then we currently expect to sell our active senior housing
properties in an individual property basis to capture their individual values.
AGREEMENT TO MANAGE INDUSTRIAL PORTFOLIO
Pursuant to the purchase agreement, Pacific Gulf and CalWest may enter into
an agreement for Pacific Gulf to manage the operations of the industrial
properties after their sale to CalWest. Although a definitive agreement has not
been entered into at this time, negotiations have been in progress and we
anticipate that an agreement will be signed by the closing of the sale of the
industrial properties.
MANAGEMENT
It is anticipated that our current officers and directors will continue to
serve in their current capacities until we deem that their services are no
longer necessary. We have not entered into severance and/or change of control
agreements with key executives in order to retain their continued service
following the sale of the industrial properties.
NEW YORK STOCK EXCHANGE LISTING
It is our intention to maintain the listing of our common shares on the New
York Stock Exchange or NYSE until such time as the NYSE causes our common shares
to be delisted.
INFORMATION ABOUT PACIFIC GULF PROPERTIES INC.
Additional information regarding Pacific Gulf is contained in our filings
with the SEC. For information on how you can obtain copies of such filings,
please see the section entitled "Where You Can Find More Information" on page 42
of this proxy statement.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
When considering the recommendation of our board of directors to approve
the proposals submitted in this proxy statement, you should be aware that our
officers have interests in the proposed sale and liquidation that are different
from, or are in addition to, your interests.
We have entered into an employment agreement or change of control
agreements with our executives as described below. These agreements entitle them
to certain benefits upon a change of control of Pacific Gulf. Our board of
directors has previously determined that, if and when our shareholders vote to
approve our sale of the industrial properties pursuant to the purchase agreement
as described in this proxy statement, a change of control will have occurred
under both the employment agreement and under these change of control
agreements. Our board of directors has also determined that, upon consummation
of the sale of the industrial properties pursuant to the proposed purchase
agreement, each of the executives will have good reason to terminate his or her
employment due to a reduction in duties, responsibilities or salary from the
substantial sale of our assets. These executives will therefore terminate their
employment with the company at the closing of the sale of the industrial
properties, thereby entitling them to the benefits described below, and they may
then be immediately rehired by Pacific Gulf.
EMPLOYMENT AGREEMENT
We have entered into an employment agreement with Mr. Carpenter. The
following summary of the material terms of such agreement is qualified in its
entirety by reference to the full text of the
38
<PAGE> 43
Employment Agreement, a copy of which has been filed as an exhibit to Pacific
Gulf Properties' Quarterly Report on Form 10-Q filed with the Commission on
November 13, 1998.
Mr. Carpenter's employment agreement provides that, upon our sale of the
industrial portfolio, Mr. Carpenter will become entitled to the following: (i)
the immediate vesting of all restricted stock, stock options (subject to certain
reductions under our 1999 Long Term Stock Compensation Plan) and other awards
issued by Pacific Gulf to Mr. Carpenter and all unvested employer contributions
in Mr. Carpenter's 401(k) account, (ii) a cash severance payment equal to three
times the sum of (A) Mr. Carpenter's base salary then in effect and (B) the
highest annual bonus received by Mr. Carpenter during the five fiscal years
ended prior to his termination date, (iii) medical, dental and hospitalization
benefits, and life, disability and accident insurance coverage for Mr. Carpenter
and his dependents and beneficiaries, at our expense, for 36 months after the
sale, unless such coverage is sooner replaced by a new employer, (iv) payments
in respect of excise taxes to which Mr. Carpenter may be subject, as described
below, and (v) certain other benefits including outplacement services.
CHANGE OF CONTROL AGREEMENTS
We have entered into change of control agreements with the following
executive officers: Mr. Herrman, Mr. Wetzel, Mr. Nadal, Mr. Dewey, Ms. Solbakk
and Ms. Wixted. The following summary of the material terms of such agreements
is qualified in its entirety by reference to the full text of the Form of Change
of Control Agreement, a copy of which has been filed as an exhibit to our Annual
Report on Form 10-K filed with the Commission on March 30, 1998.
Under the change of control agreements, upon our sale of the industrial
portfolio, each of these executives will become entitled to the following: (i)
the immediate vesting of all restricted stock, stock options (subject to certain
reductions under our 1999 Long Term Stock Compensation Plan) and other awards
issued by Pacific Gulf and all unvested employer contributions in their 401(k)
accounts, (ii) a cash severance payment equal to two times the sum of (A) the
executive's annual base salary plus (B) the executive's annual bonus for the
fiscal year immediately preceding the change of control, (iii) medical, dental
and hospitalization benefits for the executive and his or her dependents and
beneficiaries, at our expense, for 24 months after the sale, unless such
coverage is sooner replaced by a new employer, (iv) payments in respect of
excise taxes to which the executive may be subject, as described below, and (v)
certain other benefits including outplacement services.
EXCISE TAXES
Mr. Carpenter's employment agreement and the change of control agreements
also contain an excise tax gross-up provision that requires Pacific Gulf to
reimburse each executive for any excise tax imposed under Section 4999 of the
Internal Revenue Code, any interest and penalties thereon, and any income taxes
or excise taxes imposed on the gross-up payments. This provision is intended to
put the executive in the same position as if no excise tax had been imposed. The
gross-up provision applies to any payments to the executives with respect to
Pacific Gulf, whether or not such payments are made pursuant to Mr. Carpenter's
employment agreement or the change of control agreements.
The excise tax is equal to 20% of any "excess parachute payment." A payment
to an employee is an excess parachute payment to the extent that total
"parachute payments" to such employee exceed his or her "base amount," except
that the excise tax is not imposed unless the total parachute payments to such
employee exceed three times such employee's base amount. "Parachute payments"
are compensatory payments contingent on a change in ownership or effective
control of Pacific Gulf or a substantial portion of its assets, and the "base
amount" for any employee is equal to his or her average annual compensation for
the five-year period preceding the year of the triggering event (or such shorter
period as the individual has been employed by Pacific Gulf).
Severance payments and certain other payments under Mr. Carpenter's
employment agreement and the change of control agreements will constitute
parachute payments for purposes of the excise tax. In addition, acceleration of
vesting under our option, restricted stock and other plans, whether the
39
<PAGE> 44
acceleration occurs pursuant to such plans or pursuant to the change of control
agreements, would be treated as parachute payments to the extent of the value of
the acceleration.
Payments we are required to make to our executive officers in respect of
excise taxes incurred by them are expected to be as much as $5.2 million.
BENEFITS TO OTHER OFFICERS
On June 14, 2000, the compensation committee of our board of directors
granted benefits packages to all of our vice presidents who are not a party to
change of control agreements, who remain in our employ until the date of the
closing of the sale of the industrial properties. Upon the closing of the
transaction, these employees will receive a retention payment equal to the sum
of (i) the employee's annual base salary and (ii) the employee's annual bonus
for the 1999 fiscal year. All of these employee's unvested stock options and
restricted stock will also vest upon the closing of the transaction. Finally, a
cash payment in the amount of one-half of an employee's annual base salary will
be made if such employee is employed for 30 days after the closing of the
transaction, but is then terminated without cause.
EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK
The compensation committee of our board of directors has determined that
the sale of the industrial properties pursuant to the proposed purchase
agreement would constitute a change of control under our 1993 Share Option Plan.
Further, it has determined that all stock options and restricted stock issued to
employees under the terms of such plan will immediately vest as of the date of
the closing of such sale.
OFFICERS' STOCK OPTIONS
The compensation committee of our board of directors has determined that
the approval by the shareholders of the sale of the industrial properties
pursuant to the proposed purchase agreement would constitute a change of control
under our 1999 Long Term Stock Compensation Plan. This plan provides for the
immediate vesting of stock options issued under the plan if within 24 months of
a change of control, the executive terminates his employment for good cause (in
some cases a formula based on our financial performance will determine the
number of options that will vest). The compensation committee of our board of
directors has previously determined that upon consummation of the sale of the
industrial properties pursuant to the proposed purchase agreement, each of the
executives will have good reason to terminate his employment due to a reduction
in duties, responsibilities and salary from the substantial sale of our assets.
As such, an executive who holds stock options issued under this plan who
terminates his employment after the consummation of the industrial properties
sale will receive the benefits discussed above.
40
<PAGE> 45
The following table sets forth, for each of our officers, (i) the current
value of stock options (excess of market price of shares subject to options over
aggregate exercise price of options) which will immediately vest, (ii) the
current value of restricted stock that will immediately vest, and (iii)
severance payments due upon the closing of this transaction:
<TABLE>
<CAPTION>
VALUE OF VALUE OF RESTRICTED
OPTIONS SUBJECT STOCK SUBJECT TO
TO ACCELERATED ACCELERATED SEVERANCE
OFFICER VESTING(1) VESTING(1) PAYMENTS
------- --------------- ------------------- ----------
<S> <C> <C> <C>
Glenn L. Carpenter...................... $1,813,000 $ 876,000 $1,882,000
Donald G. Herrman....................... 1,084,000 169,000 738,000
J.R. Wetzel............................. 1,041,000 266,000 763,000
Lonnie P. Nadal......................... 685,000 52,000 590,000
Robert A. Dewey......................... 636,000 61,000 530,000
All Officers as a Group................. 6,986,000 1,794,000 5,767,000
</TABLE>
-------------------------
(1) Represents current value of options (excess of market price of shares
subject to options over aggregate exercise price of options) and restricted
stock based on the share price as of October 17, 2000 of 26.625 per share.
PROPOSALS FOR INCLUSION IN 2001 PROXY STATEMENT
Any proposal by a shareholder intended to be presented at the 2001 annual
meeting of shareholders and included in our proxy statement must be received by
Pacific Gulf at our principal executive offices not later than December 18, 2000
for inclusion in our proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
We are not aware of any business or matter other than those indicated above
which may properly be presented at the special meeting. If, however, any other
matter properly comes before the special meeting, the proxy holders will, in
their discretion, vote thereon in accordance with their best judgment.
41
<PAGE> 46
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC under
the Securities Exchange Act. You may read and copy this information at the
following public reference rooms of the SEC:
<TABLE>
<S> <C> <C>
WASHINGTON, D.C. NEW YORK, NEW YORK LOS ANGELES, CALIFORNIA
450 Fifth Street, N.W. 7 World Trade Center 5670 Wilshire Boulevard
Room 1024 Suite 1300 11th floor
Washington, D.C. 20549 New York, NY 10048 Los Angeles, CA 90036
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at (800) SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers like Pacific Gulf, which file
electronically with the SEC. The address of that site is http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that important information may be disclosed to you by
referring you to another document filed separately with the SEC. The information
of Pacific Gulf incorporated by reference is deemed to be part of this proxy
statement, except for information superseded by information in, or incorporated
by reference in, this proxy statement. This proxy statement incorporates by
reference the documents set forth below that have been previously filed with the
SEC. The following documents contain important information about us and our
financial condition and operating results and are hereby incorporated by
reference:
- Current Report on Form 8-K dated January 7, 1999;
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Current Report on Form 8-K dated June 26, 2000; and
- Current Report on Form 8-K dated October 6, 2000.
We are also incorporating by reference additional documents that we may
file with the SEC under the Exchange Act between the date of this proxy
statement and the date of our special meeting of shareholders.
You may have been sent some of the documents incorporated by reference, but
you can obtain any of them through the SEC or Pacific Gulf. Documents
incorporated by reference are available from Pacific Gulf, excluding any
exhibits which are not specifically incorporated by reference as exhibits to
this proxy statement, at the following address:
Pacific Gulf Properties Inc.
4220 Von Karman, Second Floor
Newport Beach, California 92660-2002
Attention: Secretary
If you would like to request documents from Pacific Gulf, please do so
immediately to receive them before the special meeting.
42
<PAGE> 47
You should rely only on the information in this document or to which we
have referred you. We have not authorized anyone to provide you with information
that is different. The information contained in this document speaks only as of
the date of this document unless the information specifically indicates that
another date applies.
By Order of the Board of Directors
DONALD G. HERRMAN
Executive Vice President
Chief Financial Officer and Secretary
October 18, 2000
43
<PAGE> 48
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of June
30, 2000.................................................. F-5
Pro Forma Condensed Consolidated Statement of Operations For
the Year Ended December 31, 1999.......................... F-6
Pro Forma Condensed Consolidated Statement of Operations for
the Six Months Ended June 30, 2000........................ F-7
Notes to Pro Forma Condensed Consolidated Financial
Statements................................................ F-8
</TABLE>
F-1
<PAGE> 49
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Pacific Gulf Properties Inc. (the "Company") was incorporated in Maryland
in 1993 and operates as a real estate investment trust under the Internal
Revenue Code of 1986, as amended. The Company owns, develops and manages (i) a
portfolio of industrial properties comprised of 72 properties encompassing more
than 14.9 million square feet of space, (ii) 10 traditional multifamily
apartments containing 1,631 units which are currently under contract for sale,
and (iii) a portfolio of active senior apartments which consists of eight rental
apartment communities comprised of 1,438 units and six properties on which we
are currently developing approximately 1,202 units.
On June 20, 2000, pursuant to a definitive purchase agreement, the Company
contracted to sell its portfolio of 72 industrial properties (the "Industrial
Property Portfolio") to CalWest Industrial Properties LLC ("CalWest"). The
transaction has been unanimously approved by the Company's board of directors
but is subject to shareholder approval. Pursuant to the purchase agreement,
CalWest has performed due diligence on the 72 industrial properties comprising
the industrial property portfolio. As a result of this process, it is currently
contemplated that 66 industrial properties will be sold to CalWest at an initial
closing subject to remediation of defects by the Company. In addition, CalWest
has identified four industrial properties on which it has notified the Company
it will require continuing due diligence. The Company has consented to testing
at three of these properties and is considering the request with respect to the
fourth. The results of this testing, and whether the Company consents to testing
of the fourth property, may defer the closing date of any of these four
properties or delete any of these properties from the sale. In addition, the
Company has separately agreed to perform remediation at a fifth property and has
agreed to both perform remediation and conduct additional testing at a sixth
property. If the remediation and/or testing are completed by the initial
closing, these properties will be included in the initial closing. The 66
industrial properties approved by CalWest to be sold at the initial closing are
herein collectively referred to as the "Approved Industrial Properties." In
addition, in accordance with the purchase agreement, the Company and CalWest
expect to enter into a separate agreement for the Company to manage the
operations of the industrial properties after the sale to CalWest. It is
anticipated that a separate management agreement will be signed by the initial
closing date.
As of October 17, 2000, the Company and the buyers have completed the
necessary due diligence investigation on four of the traditional multifamily
apartments under contract for sale: Applewood, Daisy 12, Daisy 17 and Lariat
(together the "Four Family Style Apartments"). The sales transactions, affecting
these four multifamily properties have been approved by the Company's board of
directors and do not require shareholder approval.
If the aforementioned sales of the Four Family Style Apartments and the
Approved Industrial Properties are consummated, the Company's real estate
portfolio will consist of the six industrial properties excluded from the
initial closing (although any of these six could be sold to CalWest at the
initial closing or at a later date), six traditional multifamily apartments
containing 937 units which are under contract for sale, and 14 rental apartment
communities designed for active seniors comprising 2,640 units, including 1,202
units at six communities which are currently under development.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 2000 is based on the unaudited historical financial statements of
the Company and has been prepared as if each of the following transactions had
occurred as of June 30, 2000: (i) the acquisition of three land parcels in
Laguna Niguel, Pasadena and Huntington Beach, California for development of
three active senior rental apartment communities; (ii) the sale of 12029
Regentview, an industrial building containing approximately 90,000 leasable
square feet located in Downey, California subsequent to June 30, 2000; (iii)
completion of the sales of the Four Family Style Apartments; and (iv) completion
of the sale of the Approved Industrial Properties to CalWest, including other
transactions in connection with such sale and the repayment of indebtedness
utilizing proceeds from the sale as more fully described in this proxy
statement.
F-2
<PAGE> 50
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1999 is based on the historical
financial statements of the Company and have been prepared as if each of the
following transactions had occurred as of January 1, 1999:
(i) the following acquisitions of industrial properties during 1999
(collectively referred to as the "1999 Acquisitions"): (a) Geneva
Industrial Park, an industrial property containing approximately
68,000 leasable square feet located in Tempe, Arizona purchased in
August 1999 (b) PGDC-Las Vegas, an industrial property containing
approximately 79,000 leasable square feet located in Las Vegas, Nevada
purchased in November 1999 and (c) Broadwood Industrial Park, an
industrial property containing approximately 156,000 leasable square
feet located in Mesa, Arizona purchased in November 1999;
(ii) the following dispositions of industrial properties during 1999
(collectively referred to as the "1999 Dispositions"): (a) PGDS
Anaheim, an industrial property containing approximately 91,000
leasable square feet located in Anaheim, California sold in June
1999; (b) Seattle Industrial, an industrial property containing
approximately 42,000 leasable square feet located in Seattle,
Washington sold in August 1999; (c) Goldenwest-Etiwanda, an
industrial building containing approximately 301,000 leasable square
feet located in Ontario, California sold in October 1999; and (d)
Contra-Costa Diablo Business Park, an industrial building containing
approximately 17,000 leasable square feet located in Concord,
California sold in December 1999;
(iii) the acquisition of three land parcels in Laguna Niguel, Pasadena and
Huntington Beach, California for development of three rental
apartment communities for active seniors subsequent to June 30, 2000
(collectively referred to as the "2000 Acquisitions").
(iv) the following dispositions of industrial properties during 2000
(collectively referred to as the "2000 Dispositions") (a) PGBC
Irvine, an industrial building containing approximately 12,000
leasable square feet located in Lake Forest, California sold in March
2000; (b) PGBP -- Lake Forest, an industrial building containing
approximately 25,000 leasable square feet located in Lake Forest,
California sold in March 2000; (c) PGBP -- Riverview, an industrial
property containing approximately 107,000 leasable square feet
located in San Bernardino, California sold in May 2000; (d)
PGPB -- Bell Ranch, an industrial building containing approximately
129,000 leasable square feet located in Santa Fe Springs, California
sold in June 2000 and (e) 12029 Regentview, an industrial building
containing approximately 90,000 leasable square feet located in
Downey, California sold subsequent to June 30, 2000;
(v) the completion of the sales of the Four Family Style Apartments; and
(vi) the redemption of $12 million of remaining convertible subordinated
debentures in 1999 in exchange for 640,772 shares of the Company's
common stock;
(vii) the completion of the sale of the Approved Industrial Properties to
CalWest, including other transactions in connection with such sale
and the repayment of indebtedness utilizing proceeds from the sale as
more fully described in this proxy statement.
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 2000 is based on the unaudited
historical financial statements of the Company and has been prepared as if each
of the following transactions had occurred as of January 1, 1999:
(i) completion of the 2000 Acquisitions;
(ii) completion of the 2000 Dispositions;
(iii) completion of the sales of the Four Family Style Apartments; and
(iv) completion of the sale of the Approved Industrial Properties to
CalWest, including other transactions in connection with such sale and
the repayment of indebtedness utilizing proceeds from the sale as more
fully described in this proxy statement.
F-3
<PAGE> 51
The pro forma condensed consolidated financial statements do not reflect
any anticipated distributions to shareholders from the above sales. In addition,
the following pro forma information is not necessarily indicative of what the
Company's financial position or results of operations would have been assuming
the completion of the described transactions as of the beginning of the periods
indicated, nor does it purport to project the Company's financial position or
results of operations at any future date or for any future period. The pro forma
financial information assumes that there will be no corporate-level income tax
payable on any of the sales. In addition, the historical operating results for
the six months ended June 30, 2000 are not necessarily indicative of the results
to be obtained by the Company for the year ending December 31, 2000. The
following information should be read in conjunction with the Company's annual
report on Form 10-K, the Company's Quarterly Reports for the quarters ended June
30, 2000 and March 31, 2000 and all of the financial information and notes
thereto contained elsewhere in this proxy statement, or incorporated herein by
reference.
F-4
<PAGE> 52
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR FAMILY SALE OF
STYLE APPROVED
ACQUISITIONS/ APARTMENTS INDUSTRIAL
HISTORICAL DISPOSITIONS SUBTOTAL SALES SUBTOTAL PROPERTIES PRO FORMA
---------- ------------- -------- ----------- -------- ---------- ---------
(A) (B) (C)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate assets
Operating properties
Industrial properties... $675,516 $ (3,203) $672,313 $ -- $672,313 $(610,034) $ 62,279
Multifamily
Family style.......... 83,355 -- 83,355 (36,766) 46,589 -- 46,589
Active senior......... 65,094 -- 65,094 -- 65,094 -- 65,094
Properties under
development
Industrial properties... 25,411 -- 25,411 -- 25,411 (25,411) --
Multifamily -- active
senior................ 22,949 13,736 36,685 -- 36,685 -- 36,685
Cash........................ 8,598 (10,564) (1,966) 49,023 47,057 526,954 574,011
Other assets................ 24,864 -- 24,864 (271) 24,593 (7,313) 17,280
-------- -------- -------- -------- -------- --------- --------
$905,787 $ (31) $905,756 $ 11,986 $917,742 $(115,804) $801,938
======== ======== ======== ======== ======== ========= ========
LIABILITIES
Loans payable............... $297,807 $ -- $297,807 $(11,207) $286,600 $(181,486) $105,114
Line of credit.............. 132,350 -- 132,350 -- 132,350 (132,350) --
Accounts payable and accrued
liabilities............... 18,481 (28) 18,453 (320) 18,133 (6,734)(D) 40,830
29,431(E)
Dividends payable........... 10,561 -- 10,561 -- 10,561 -- 10,561
-------- -------- -------- -------- -------- --------- --------
459,199 (28) 459,171 (11,527) 447,644 (291,139) 156,505
Minority interest in
consolidated
partnerships.............. 18,126 -- 18,126 -- 18,126 (12,341)(F) 5,785
SHAREHOLDERS' EQUITY
Preferred shares............ 28 -- 28 -- 28 (28)(G) --
Common shares............... 212 -- 212 -- 212 33(F)(G) 245
Less notes receivable issued
for common shares......... (9,708) -- (9,708) -- (9,708) 985(H) (8,723)
Additional paid in
capital................... 434,248 -- 434,248 -- 434,248 12,336(F) 446,584
Retained earnings........... 3,682 (3) 3,679 23,513 27,192 174,350 201,542
-------- -------- -------- -------- -------- --------- --------
428,462 (3) 428,459 23,513 451,972 187,676 639,648
-------- -------- -------- -------- -------- --------- --------
$905,787 $ (31) $905,756 $ 11,986 $917,742 $(115,804) $801,938
======== ======== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes
F-5
<PAGE> 53
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOUR FAMILY
STYLE
ACQUISITIONS/ APARTMENTS
HISTORICAL DISPOSITIONS SUBTOTAL SALES SUBTOTAL
----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties.............................. $ 98,288 $ 7,192(I) $105,480 $ -- $105,480
Multifamily properties
Family style..................................... 15,303 (179)(I) 15,124 (6,601)(M) 8,523
Active senior.................................... 10,577 -- 10,577 -- 10,577
----------- ------- -------- ------- --------
124,168 7,013 131,181 (6,601) 124,580
Fee income........................................... -- -- -- -- --
----------- ------- -------- ------- --------
Total revenues....................................... 124,168 7,013 131,181 (6,601) 124,580
----------- ------- -------- ------- --------
EXPENSES
Rental property expenses
Industrial properties.............................. 21,570 1,442(I) 23,012 -- 23,012
Multifamily properties
Family style..................................... 5,471 (128)(I) 5,343 (2,197)(M) 3,146
Active senior.................................... 3,863 -- 3,863 -- 3,863
----------- ------- -------- ------- --------
30,904 1,314 32,218 (2,197) 30,021
Depreciation......................................... 26,117 (810)(J) 25,307 (989)(N) 24,318
Interest............................................. 27,242 (1,138)(K) 26,104 (808)(N) 25,296
General and administrative........................... 7,165 -- 7,165 -- 7,165
Minority interest.................................... 1,342 -- 1,342 -- 1,342
----------- ------- -------- ------- --------
Total expenses....................................... 92,770 (634) 92,136 (3,994) 88,142
----------- ------- -------- ------- --------
INCOME BEFORE GAIN ON SALES AND PREFERRED
DIVIDENDS.......................................... 31,398 7,647 39,045 (2,607) 36,438
Preferred dividends.................................. 4,971 -- 4,971 -- 4,971
----------- ------- -------- ------- --------
INCOME BEFORE GAIN ON SALES OF REAL ESTATE (X)....... $ 26,427 $ 7,647 $ 34,074 $(2,607) $ 31,467
=========== ======= ======== ======= ========
Weighted average common shares outstanding (W)....... 20,216,704
===========
Income per share before gains on sale of real
estate(W).......................................... $ 1.31
===========
<CAPTION>
SALE OF
APPROVED
INDUSTRIAL
PROPERTIES PRO FORMA
---------- -----------
<S> <C> <C>
REVENUES
Rental income
Industrial properties.............................. $(95,528)(O) $ 9,952
Multifamily properties
Family style..................................... -- 8,523
Active senior.................................... -- 10,577
-------- -----------
(95,528) 29,052
Fee income........................................... 5,181(P) 5,181
-------- -----------
Total revenues....................................... (90,347) 34,233
-------- -----------
EXPENSES
Rental property expenses
Industrial properties.............................. (20,663)(O) 2,349
Multifamily properties
Family style..................................... -- 3,146
Active senior.................................... -- 3,863
-------- -----------
(20,663) 9,358
Depreciation......................................... (18,586)(Q) 5,732
Interest............................................. (20,047)(L)(R) 5,249
General and administrative........................... -- 7,165
Minority interest.................................... (1,104)(S) 238
-------- -----------
Total expenses....................................... (60,400) 27,742
-------- -----------
INCOME BEFORE GAIN ON SALES AND PREFERRED
DIVIDENDS.......................................... (29,947) 6,491
Preferred dividends.................................. (4,971)(T) --
-------- -----------
INCOME BEFORE GAIN ON SALES OF REAL ESTATE (X)....... $(24,976) $ 6,491
======== ===========
Weighted average common shares outstanding (W)....... 25,514,387
===========
Income per share before gains on sale of real
estate(W).......................................... $ .25
===========
</TABLE>
See accompanying notes
F-6
<PAGE> 54
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOUR FAMILY
STYLE
ACQUISITIONS/ APARTMENTS
HISTORICAL DISPOSITIONS SUBTOTAL SALES SUBTOTAL
----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties............................ $ 53,480 $ (858)(U) $52,622 $ -- $52,622
Multifamily properties
Family style................................... 8,014 -- 8,014 (3,468)(M) 4,546
Active senior.................................. 5,503 -- 5,503 -- 5,503
----------- ------- ------- ------- -------
66,997 (858) 66,139 (3,468) 62,671
Fee income......................................... -- -- -- -- --
----------- ------- ------- ------- -------
Total revenues..................................... 66,997 (858) 66,139 (3,468) 62,671
----------- ------- ------- ------- -------
EXPENSES
Rental property expenses
Industrial properties............................ 11,566 (156)(U) 11,410 -- 11,410
Multifamily properties
Family style................................... 2,587 -- 2,587 (1,057)(M) 1,530
Active senior.................................. 1,915 -- 1,915 -- 1,915
----------- ------- ------- ------- -------
16,068 (156) 15,912 (1,057) 14,855
Depreciation....................................... 14,567 (216)(V) 14,351 (517)(N) 13,834
Interest........................................... 14,524 (710)(V) 13,814 (404)(N) 13,410
General and administrative......................... 3,650 -- 3,650 -- 3,650
Minority interest.................................. 604 -- 604 -- 604
----------- ------- ------- ------- -------
Total Expenses..................................... 49,413 (1,082) 48,331 (1,978) 46,353
----------- ------- ------- ------- -------
INCOME BEFORE GAIN ON SALES AND PREFERRED
DIVIDENDS........................................ 17,584 224 17,808 (1,490) 16,318
Preferred dividends................................ 2,529 -- 2,529 -- 2,529
----------- ------- ------- ------- -------
INCOME BEFORE GAIN ON SALES ON REAL ESTATE (Y)..... $ 15,055 $ 224 $15,279 $(1,490) $13,789
=========== ======= ======= ======= =======
Weighted average common shares outstanding(W)...... 20,694,000
===========
Income per share before gains on sale of real
estate(W)........................................ $ .73
===========
<CAPTION>
SALE OF
APPROVED
INDUSTRIAL
PROPERTIES PRO FORMA
---------- -----------
<S> <C> <C>
REVENUES
Rental income
Industrial properties............................ $(47,498)(O) $ 5,124
Multifamily properties
Family style................................... -- 4,546
Active senior.................................. -- 5,503
-------- -----------
(47,498) 15,173
Fee income......................................... 2,805(P) 2,805
-------- -----------
Total revenues..................................... (44,693) 17,978
-------- -----------
EXPENSES
Rental property expenses
Industrial properties............................ (10,124)(O) 1,286
Multifamily properties
Family style................................... -- 1,530
Active senior.................................. -- 1,915
-------- -----------
(10,124) 4,731
Depreciation....................................... (10,804)(Q) 3,030
Interest........................................... (10,794)(R) 2,616
General and administrative......................... -- 3,650
Minority interest.................................. (483)(S) 121
-------- -----------
Total Expenses..................................... (32,205) 14,148
-------- -----------
INCOME BEFORE GAIN ON SALES AND PREFERRED
DIVIDENDS........................................ (12,488) 3,830
Preferred dividends................................ (2,529)(T) --
-------- -----------
INCOME BEFORE GAIN ON SALES ON REAL ESTATE (Y)..... $ (9,959) $ 3,830
======== ===========
Weighted average common shares outstanding(W)...... 25,561,236
===========
Income per share before gains on sale of real
estate(W)........................................ $ .15
===========
</TABLE>
See accompanying notes
F-7
<PAGE> 55
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(A) Includes the following: (i) acquisitions of three land parcels for
development of active senior multifamily communities in Laguna Niguel,
Pasadena and Huntington Beach, California at an aggregate purchase price,
plus closing and other costs, of $13,736 or $3,967, $2,237 and $7,532,
respectively, and (ii) disposition of 12029 Regentview with an aggregate net
book value of $3,203. Net proceeds from the sale of 12029 Regentview total
$3,172 after selling expenses ($250) and the assumption by buyer of security
deposit liabilities ($28).
(B) Disposition of the Four Family Style Apartments with an aggregate net book
value of $36,766. Net proceeds from the sales total $49,023, after
repayment of secured indebtedness ($11,207) and assumption by buyer of
security deposit liabilities ($320). In connection with the sale, $271 of
related other assets will be charged to operations.
(C) Disposition of the Approved Industrial Properties to CalWest with an
aggregate net book value of $635,445 ($610,034 of operating properties and
$25,411 of properties under development). Assumes an aggregate sales price
of $847,524 for the Approved Industrial Properties sold to CalWest. The
ultimate number of properties sold may differ as more fully discussed in
this proxy statement.
Net proceeds from the sale total $526,954, after assumption of security
deposit liabilities ($6,734) the repayment of secured indebtedness
($77,283), the assumption by CalWest of secured indebtedness ($104,203) and
the repayment of the outstanding balance of the Company's line of credit
($132,350). In connection with the sale, $7,313 of related other assets will
be charged to operations.
(D) Assumption of security deposit liabilities by CalWest in connection with the
sale of the Approved Industrial Properties ($6,734).
(E) Accrual of costs in connection with the sale of the Approved Industrial
Properties to CalWest including: employee severance payments and additional
compensation ($17,411); broker fees ($5,632); loan prepayment, assumption
fees and transfer taxes ($2,113), and legal, accounting and other costs
($4,275).
(F) Conversion of the minority interests of two limited partnerships into
548,341 shares of common stock (aggregate par value $5; additional
paid-in-capital $12,336) as a result of the sale of the Approved Industrial
Properties. The partnership interests were converted into common stock at
their historical carrying value of $12,341.
(G) Conversion of Class A Preferred Stock (aggregate par value $28) into
2,763,116 shares of Common Stock in connection with the sale of the Approved
Industrial Properties.
(H) Accelerated vesting of restricted stock and related unearned compensation
expense ($985) in connection with the sale of the Approved Industrial
Properties.
F-8
<PAGE> 56
(I) Adjustment to reflect revenues and certain expenses of the following
industrial and multifamily properties comprising the 1999 Acquisitions for
the period prior to their acquisition by the Company (adjusted to reflect
increased property taxes based on the properties' acquisition cost and
current property tax rates), and revenues and certain expenses of the
properties comprising the 1999 Dispositions and the 2000 Dispositions for
the period prior to their disposal by the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------
1999 1999 2000
ACQUISITIONS DISPOSITIONS DISPOSITIONS TOTAL
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
Rental income
Industrial properties................ $11,925 $(3,102) $(1,631) $7,192
Multifamily properties
Family style...................... -- (179) -- (179)
Active senior..................... -- -- -- --
------- ------- ------- ------
11,925 (3,281) (1,631) 7,013
Rental property expenses
Industrial properties................ 2,157 (412) (303) 1,442
Multifamily properties
Family style...................... -- (128) -- (128)
Active senior..................... -- -- -- --
------- ------- ------- ------
2,157 (540) (303) 1,314
------- ------- ------- ------
$ 9,768 $(2,741) $(1,328) $5,699
======= ======= ======= ======
</TABLE>
(J) Reduction in depreciation expense of $810 resulting from an increase of
$486 relating to the purchase of the 1999 Acquisitions, net of a decrease
of $1,296 due to the 1999 Dispositions and the 2000 Dispositions (the
actual depreciation relating to the 1999 Dispositions and the 2000
Dispositions during the year ended December 31, 1999). The depreciation
expense related to the purchase of the 1999 Acquisitions for the period
prior to their acquisition was computed utilizing estimated remaining
useful lives of 35 years and the depreciable basis of the properties as
follows:
<TABLE>
<CAPTION>
DEPRECIABLE DEPRECIATION
PROPERTY TOTAL COST BASIS EXPENSE
-------- ---------- ----------- ------------
<S> <C> <C> <C>
1999 Acquisitions
Geneva.......................................... $ 3,237 $ 1,717 $ 32
PGDC -- Las Vegas............................... 18,738 12,588 313
Broadwood Business Center....................... 7,973 5,640 141
------- ------- -----
29,948 19,945 486
1999 Dispositions................................. (923)
2000 Dispositions................................. (373)
-----
$(810)
=====
</TABLE>
F-9
<PAGE> 57
(K) Net decrease in interest expense of $1,138 consisting of the following:
(i) increase in interest expense of $965 on the borrowings utilized to
finance the purchase of operating properties comprising the 1999
Acquisitions, for the period prior to their purchase, calculated based
on the actual interest rates of the specific new borrowings;
(ii) reduction in interest expense of $1,087 resulting from the sale of the
1999 Dispositions and the 2000 Dispositions (the actual interest
relating to the 1999 Dispositions and the 2000 Dispositions during
1999);
(iii) reduction associated with the capitalization of interest totaling
$1,016 in connection with the development of the 2000 Acquisitions.
The qualifying asset-balance totals $13,736 and the effective
capitalization rate is 7.4%, representing the weighted average
interest rate on the Company's total borrowings.
The net decrease in interest expense is summarized as follows:
<TABLE>
<CAPTION>
INTEREST INTEREST
PROPERTY DEBT RATE EXPENSE
-------- ------ -------- --------
<S> <C> <C> <C>
1999 Acquisitions
PGDC -- Las Vegas...................................... $4,366 8.38% $ 319
Broadwood Business Center.............................. 6,500 8.15% 462
Fountains -- Anaheim Hills............................. 2,620 8.03% 184
-------
965
1999 Dispositions........................................ (687)
2000 Dispositions........................................ (400)
-------
(1,087)
Interest Capitalized..................................... (1,016)
-------
$(1,138)
=======
</TABLE>
(L) Includes a reduction in interest expense of $615 associated with the
redemption of $12,000 of convertible subordinated debentures in 1999 in
exchange for 640,772 shares of the Company's common stock.
(M) Adjustment to eliminate the revenues and certain expenses of the multifamily
properties comprising the Four Family Style Apartments sales for the
following periods:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
Rental income.......................................... $ 6,601 $ 3,468
Rental property expenses............................... (2,197) (1,057)
------- -------
$ 4,404 $ 2,411
======= =======
</TABLE>
(N) Reduction in depreciation and interest expense due to the completion of the
Four Family Style Apartments sales (the actual depreciation and interest
relating to the Four Family Style Apartments for the periods indicated):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
Depreciation........................................... $989 $517
==== ====
Interest............................................... $808 $404
==== ====
</TABLE>
F-10
<PAGE> 58
(O) Adjustment to eliminate the revenues and certain expenses of the properties
comprising the sale of the Approved Industrial Properties for the following
periods:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
Rental income.......................................... $ 95,528 $ 47,498
Rental property expenses............................... (20,663) (10,124)
-------- --------
$ 74,865 $ 37,374
======== ========
</TABLE>
(P) Fee income consisting of management and leasing fees totaling $5,181 and
$2,805 for the year ended December 31, 1999 and the six months ended June
30, 2000, respectively. Management fees are based on 3.5% of the rental
revenues of the Approved Industrial Properties pursuant to an agreement
with CalWest. Management operations are expected to be conducted through a
taxable subsidiary.
(Q) Reduction in depreciation expense due to the sale of the Approved Industrial
Properties (the actual depreciation relating to the Approved Industrial
Properties for the periods indicated):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
$18,586 $10,804
======= =======
</TABLE>
(R) Reduction in interest expense due to the sale of the Approved Industrial
Properties, including the repayment of specific debt, the assumption by
CalWest of indebtedness secured by the Approved Industrial Properties and
the repayment of the Company's Line of Credit as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
Secured debt....................................... $13,385 $ 6,921
Line of credit..................................... 6,047 3,873
------- -------
$19,432 $10,794
======= =======
</TABLE>
The reduction in interest expense represents the actual interest incurred
on the secured debt related to the Approved Industrial Properties and line
of credit borrowings for the periods indicated.
(S) Reduction in minority interest resulting from the conversion of limited
partnership interests in two industrial properties into 548,341 shares of
common stock as of the beginning of the periods presented.
(T) Elimination of preferred dividend requirements as of the beginning of the
periods presented resulting from the conversion of the Class A Preferred
Stock into 2,763,116 shares of common stock, at a conversion ratio of 1:1,
in connection with the sale of the Approved Industrial Properties.
(U) Adjustment to eliminate the revenues and certain expenses of the industrial
properties comprising the 2000 Dispositions for the period prior to their
disposal by the Company:
<TABLE>
<S> <C>
Rental income............................................... $ 858
Rental property expenses.................................... (156)
-----
$ 702
=====
</TABLE>
(V) Includes the following:
(i) reduction in depreciation and interest expense of $216 and $202,
respectively, due to the 2000 Dispositions (the actual depreciation and
interest expense relating to the 2000 Dispositions during the six months
ended June 30, 2000).
(ii) reduction in interest expense due to the capitalization of interest
totaling $508 in connection with the development of the 2000
Acquisitions. The qualifying asset balance totals $13,736 and
effective capitalization rate is 7.4%, representing the weighted
average interest rate on the Company's total borrowings.
F-11
<PAGE> 59
(W) Per share data is calculated using the weighted average of common shares
outstanding during the periods presented. Pro forma weighted average common
shares include the following common stock issuances as of the beginning of
the periods presented: (i) 640,772 shares of common stock issued by the
Company in conjunction with the redemption of $12 million of convertible
subordinated debentures in 1999; (ii) 548,341 shares of common stock issued
upon the conversion of limited partnership units held by minority partners
in two properties included in the sale of the Approved Industrial
Properties; (iii) 2,763,116 shares of common stock issued in exchange for
2,763,116 shares of Class A Preferred Stock redeemed in connection with the
sale of the Approved Industrial Properties and (iv) 1,528,467 shares of
common stock for the accelerated vesting of employee stock options.
(X) Excludes a $8,472 nonrecurring gain from the 1999 Dispositions.
(Y) Excludes a $3,415 nonrecurring gain from the 2000 Dispositions.
F-12
<PAGE> 60
EXHIBIT A
AGREEMENT OF PURCHASE AND SALE, AS AMENDED
<PAGE> 61
AGREEMENT OF PURCHASE AND SALE
DATED JUNE 20, 2000
BETWEEN
PACIFIC GULF PROPERTIES INC.
AND
CALWEST INDUSTRIAL PROPERTIES, LLC
<PAGE> 62
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF PROPERTY..................................... A-1
Section 1.1 Sale........................................................ A-1
Section 1.2 Deposit; Purchase Price..................................... A-2
Section 1.3 Adjustments to Purchase Price............................... A-3
Section 1.4 Material Adverse Matters.................................... A-4
Section 1.5 Partnership Properties...................................... A-5
Section 1.6 Ground Leases............................................... A-6
Section 1.7 Right of First Refusal Properties........................... A-6
Section 1.8 Deferred Properties......................................... A-7
ARTICLE II REPRESENTATIONS AND WARRANTIES; BUYER'S EXAMINATION.............. A-8
Section 2.1 Representations and Warranties of the Seller................ A-8
Section 2.2 Representations and Warranties of the Buyer................. A-10
Section 2.3 Survival of Representations and Warranties; Limitations..... A-10
Section 2.4 The Buyer's Independent Investigation....................... A-11
Section 2.5 Release..................................................... A-13
Section 2.6 Release Related to General Physical Items and ADA........... A-13
Section 2.7 Survival.................................................... A-14
ARTICLE III TITLE........................................................... A-14
Section 3.1 Conditions of Title......................................... A-14
Section 3.2 Evidence of Title........................................... A-15
Section 3.3 Cost of Title and Other Closing Costs....................... A-15
ARTICLE IV RISK OF LOSS; INSURANCE PROCEEDS; SUBSEQUENT MATERIAL ADVERSE
MATTERS.......................................................... A-16
Section 4.1 Minor Loss.................................................. A-16
Section 4.2 Major Loss.................................................. A-16
Section 4.3 Minor Loss -- Subsequent Material Adverse Matter............ A-16
Section 4.4 Major Loss -- Subsequent Material Adverse Matter............ A-17
Section 4.5 Certain Procedures.......................................... A-17
ARTICLE V BROKERS AND EXPENSES.............................................. A-17
Section 5.1 Brokers..................................................... A-17
Section 5.2 Expenses.................................................... A-17
ARTICLE VI COVENANTS........................................................ A-18
Section 6.1 Maintenance, Leasing and Sale of the Properties............. A-18
Section 6.2 Assumption of Mortgages..................................... A-19
Section 6.3 Service Contracts........................................... A-19
Section 6.4 Tenant Notices; Estoppels................................... A-20
Section 6.5 Solicitation; Negotiations.................................. A-20
Section 6.6 Proxy Statement; Meeting of Stockholders.................... A-20
Section 6.7 No Employees................................................ A-21
Section 6.8 Management Agreement........................................ A-21
</TABLE>
i
<PAGE> 63
<TABLE>
<S> <C> <C>
ARTICLE VII CLOSING AND ESCROW.............................................. A-21
Section 7.1 Escrow Instructions......................................... A-21
Section 7.2 Closing..................................................... A-21
Section 7.3 Deposit of Documents........................................ A-22
Section 7.4 Further Efforts............................................. A-23
Section 7.5 Prorations.................................................. A-23
ARTICLE VIII CONDITIONS TO CLOSING.......................................... A-24
Section 8.1 Conditions to Each Party's Obligations to Effect the
Closing..................................................... A-24
Section 8.2 Conditions to the Obligations of the Seller................. A-25
Section 8.3 Conditions to the Obligations of the Buyer.................. A-25
ARTICLE IX TERMINATION...................................................... A-26
Section 9.1 Termination................................................. A-26
Section 9.2 Effect of Termination....................................... A-27
Section 9.3 Fees and Expenses........................................... A-27
Section 9.4 Termination after the Closing............................... A-29
Section 9.5 Effect of Termination after the Closing..................... A-30
ARTICLE X MISCELLANEOUS..................................................... A-31
Section 10.1 Notices..................................................... A-31
Section 10.2 Entire Agreement............................................ A-32
Section 10.3 Entry and Indemnity......................................... A-32
Section 10.4 Time........................................................ A-33
Section 10.5 Attorneys' Fees............................................. A-33
Section 10.6 Assignment.................................................. A-33
Section 10.7 Counterparts................................................ A-33
Section 10.8 Governing Law............................................... A-33
Section 10.9 Confidentiality and Return of Documents..................... A-33
Section 10.10 Interpretation of Agreement................................. A-34
Section 10.11 Limited Liability........................................... A-34
Section 10.12 Amendments.................................................. A-34
Section 10.13 No Recording................................................ A-34
Section 10.14 Drafts Not an Offer to Enter Into a Legally Binding
Contract.................................................... A-34
Section 10.15 No Partnership.............................................. A-34
Section 10.16 Survival.................................................... A-34
Section 10.17 Oregon Statutory Disclaimer................................. A-34
Section 10.18 Survival of Article X....................................... A-34
Section 10.19 Delivery Items.............................................. A-34
Section 10.20 Intent to Transfer Industrial Portfolio..................... A-35
Section 10.21 Defined Terms............................................... A-35
</TABLE>
ii
<PAGE> 64
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale ("Agreement"), dated June 20, 2000, is
between Pacific Gulf Properties Inc. (the "Seller"), and CalWest Industrial
Properties, LLC (the "Buyer"). The definition of certain capitalized terms used
herein, as well as the location of the definition of other capitalized terms
used herein, are set forth in Section 10.19 hereof.
ARTICLE I
PURCHASE AND SALE OF PROPERTY
SECTION 1.1 Sale.
(a) The Seller agrees to sell to the Buyer, and the Buyer agrees to
purchase from Seller, subject to the terms, covenants and conditions set forth
herein:
(i) certain parcels of real property, together with any and all
rights, privileges and easements appurtenant thereto owned by the Seller,
which includes, without limitation, the ground lessee's interest in certain
ground leases therein, as described on Exhibit B (each, a "Ground Lease,"
and collectively the "Ground Leases") and all improvements, buildings,
systems, fixtures, water and water rights located therein or thereon owned
by the Seller, which real property is more particularly described in
Exhibit A attached hereto (the legal descriptions included in Exhibit A
being subject to the Buyer's review and confirmation during the Diligence
Period) and made a part hereof (each, a "Real Property" and collectively
the "Real Properties"); provided, however, that in the case of Real
Properties subject to Ground Leases, the term Real Property shall refer to
the Seller's ground leasehold interest in the real property covered thereby
and the Seller's fee simple interest in the improvements on such real
property);
(ii) The Seller's interest in all tenant leases and any other
occupancy agreements (including, without limitation, any telecommunications
licenses or agreements, signage agreements or billboard agreements
applicable to the Properties and any subleases under the Ground Leases)
(each, a "Lease" and collectively the "Leases") affecting the right to
occupy any portion of the Real Properties;
(iii) The Seller's interest in any intangible personal property now or
hereafter used in connection with the operation, maintenance, management,
or occupancy of the Real Properties, including, without limitation, (a) the
Seller's interest in all permits, approvals, development rights, air rights
and entitlements, if any, with respect to the foregoing, (b) the Seller's
interest in all permits and approvals, if any, with respect to the
Development Properties (as defined below), (c) the Seller's interest in any
and all warranties and guaranties relating the Properties, (d) the Seller's
interest in any stock, warrants or rights to purchase stock or other
ownership interests arising out of telecommunication licenses or
agreements, and (e) the Seller's interest in any trade names and trademarks
associated with the Real Property, provided that the Seller makes no
absolutely representation that it has any rights whatsoever with respect to
trade names or trademarks and provided that in no event will the Buyer
acquire any rights in or to the Seller's name or logo (collectively, the
"Intangible Property"); and
(iv) The Seller's interest in any personal property owned by the
Seller, if any, located on the Real Property and used exclusively in the
operation or maintenance of the Real Properties including, without
limitation all water rights that are personal property under Arizona law,
including without limitation all type 2 nonirrigation grandfathered rights
(if applicable), all irrigation rights, all ditch rights, right to
irrigation district stock, all contracts for effluent, all contracts for
Central Arizona Project water, and all other contractual rights to water in
or relating to or used in connection with the Properties and all shares of
stock evidencing any such water right, but excluding any personal property
owned by the Seller and used in the leasing or management offices of the
Real Properties (including, without limitation, any vehicles), located on
the Real Properties, as the same may be further
A-1
<PAGE> 65
described in any list which is in the Seller's possession and is furnished
to the Buyer within the Diligence Period as defined in Section 1.4(a) below
(the "Personal Property").
Each Real Property, the related Leases and the related Intangible Property and
Personal Property to be transferred to the Buyer is referred to herein as a
"Property," and all are collectively referred to herein as the "Properties."
(b) The parties agrees that, within a commercially reasonable time after
the Closing (as defined below), the Buyer, at its cost, shall remove from the
Properties any name or logo of the Seller (other than in connection with the
Seller's role, if any, with respect to the management of the Properties). If the
Buyer does not timely remove such names or logos, the Seller shall have the
right to enter the Properties, remove such names and logos from the Properties
and the Buyer shall be obligated to reimburse the Seller for its expenses
related thereto.
SECTION 1.2 Deposit; Purchase Price.
(a) Within two (2) business days after the execution and delivery of this
Agreement by the Buyer and the Seller, the Buyer shall deposit into escrow with
First American Title Insurance Company, 1850 Mt. Diablo Boulevard, Suite 300,
Walnut Creek, California 94596, Attention: John Wilson, fax number (510)
927-2180 (the "Title Company") an all-cash payment in immediately available
funds in the amount of Twenty-Five Million Dollars ($25,000,000) (the
"Deposit"). The Deposit shall be invested in investments reasonably approved by
both parties and pursuant to escrow instructions consistent with the terms
hereof.
(b) The purchase price of the Properties is Eight Hundred Eighty-Three
Million Five Hundred Thousand Dollars ($883,500,000), subject to adjustment as
set forth in Section 1.3 hereof (after giving effect to such adjustments, if
any, the "Purchase Price"); the portion of the Purchase Price attributable to
each Property (the "Allocated Values") are set forth on Exhibit A-1 attached
hereto.
(c) The Purchase Price shall be paid as follows:
(i) Upon the consummation of the purchase and sale of the Properties
(other than Deferred Properties) contemplated hereunder (the "Closing"),
the Buyer shall receive a credit towards the Purchase Price in the amount
of the sum of (1) an amount equal to the product of (A) a fraction, the
numerator of which is the aggregate Allocated Values for all Properties to
be purchased at such Closing and the denominator of which is the remainder
that results when the aggregate of the Allocated Values of all Deferred
Properties that are not purchased at the Closing is subtracted from the
aggregate of the Allocated Values of all Properties (giving effect to
Section 1.8(c), which provides that Deleted Properties cease to be
Properties) and (B) the Deposit, plus interest on such product from the
date of placement of the Deposit into escrow to the Closing Date, and (2)
the aggregate unpaid principal balance as of the date of Closing of all
loans secured by a lien on any of the Properties (a list of all such loans
is set forth on Exhibit C hereto (the "Loans")) to the extent such Loan is
assumed by the Buyer pursuant to Section 6.2 hereof (the parties agree that
substantially similar credits will be applied to the purchase price of any
Deferred Property that is to be purchased after the Closing using the
principles of the foregoing formula).
(ii) The balance of the Purchase Price, except for the Allocated Value
of any Deferred Property that is not being purchased by the Buyer at the
Closing, shall be paid by the Buyer to the Seller by wire transfer in
immediately available funds to the Title Company at the Closing.
(iii) The Allocated Value of each Deferred Property that is not
purchased by the Buyer at the Closing shall be paid upon the closing of the
purchase of such Deferred Property using the closing procedures set forth
in Section 1.8 hereof, including application of the portion of the Deposit
applicable thereto.
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SECTION 1.3 Adjustments to Purchase Price. In addition to the prorations
and credits contemplated by Section 7.5 below, the Purchase Price shall be
increased or decreased as follows:
(a) the Purchase Price shall be decreased by the aggregate amount of
the Allocated Values of any Deleted Properties;
(b) the Purchase Price shall be increased by the purchase price, as
set forth on Exhibit A-2 (each, a "Partnership Property Price"), of each
Partnership Property that becomes a Property under the terms of Section 1.5
hereof;
(c) the Purchase Price shall be increased, with respect to each of the
properties identified on Exhibit A hereto as "Development Properties" that
are not otherwise Deleted Properties or Deferred Properties, by the sum of
the following: (i) the purchase price paid by the Seller for each such
Development Property (such purchase prices, as agreed by the Buyer and the
Seller, are set forth on Exhibit D hereto), (ii) the Seller's out-of-pocket
third party costs (a summary of such costs to date is set forth on Exhibit
D hereto), whether expensed or capitalized for financial reporting
purposes, for the development of such Development Properties, plus (iii) an
amount that would accrue on the amounts set forth in preceding clauses (i)
and (ii) at the rate of eleven percent (11%) interest per annum, not
compounded, from the date hereof or, if later, the date of expenditure of
such costs, through the Closing Date.
(d) with respect to the Properties identified on Exhibit A hereto as
"Fully-Leased Properties" (defined as properties identified on Exhibit A
hereto as "Fully-Leased Properties" that are not otherwise Deleted
Properties or Deferred Properties), if at Closing there exists any rentable
square footage that is not subject to a Fully-Paying Executed Lease, then
the Purchase Price shall be adjusted as follows (in each case other than
any such amounts for which the Buyer has been compensated under Section
4.1, 4.2, 4.3 or 4.4):
(i) first, with respect to any Non-Paying Lease in effect at
Closing at a Fully-Leased Property, the Purchase Price shall be
decreased by the amount of the Payment Reduction that will apply with
respect to periods after the Closing Date, but in no event more than six
(6) months; and
(ii) second, with respect to any rentable square footage at a
Fully-Leased Property that is not subject to a Fully-Paying Executed
Lease or a Non-Paying Lease at Closing, the Purchase Price shall be
decreased by the sum of the following items from Exhibit E applicable to
any of such square footage: (A) pro forma tenant improvements per square
foot, (B) leasing commissions per square foot, and (C) six (6) months
pro forma base rent per square foot, operating expenses, taxes and
assessments that would otherwise be payable by a tenant of such space.
(e) with respect to the Property identified on Exhibit A hereto as the
"Spectrum" (the "Spectrum") (as long as such property is not otherwise a
Deleted Property or a Deferred Property), if at Closing the aggregate
square footage subject to a Fully-Paying Executed Lease is less than 95% of
the total rentable square footage at the Spectrum (such shortfall, the
"Spectrum Leased Space Shortfall" (e.g., if the square footage subject to a
Fully-Paying Executed Lease is 91% of the total rentable square footage,
the Spectrum Leased Space Shortfall shall be 4% of the total rentable
square footage)), then the Purchase Price shall be adjusted as follows (in
each case other than any such amounts for which the Buyer has been
compensated under Section 4.1, 4.2, 4.3 or 4.4):
(i) first, with respect to any square footage, up to the number of
square feet in the Spectrum Leased Space Shortfall, that is subject to a
Non-Paying Lease in effect at Spectrum at Closing, the Purchase Price
shall be decreased by the amount of the Payment Reduction attributable
to such square footage that will apply with respect to periods after the
Closing Date, but in no event more than six (6) months; and
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(ii) second, if the square footage subject to Non-Paying Leases is
less than the Spectrum Leased Space Shortfall (such shortfall, the
"Spectrum Vacant/Delinquent Space" (e.g., if, as noted above, the
Spectrum Leased Space Shortfall is 4% of total rentable square footage
and the square footage subject to Non-Paying Leases is 3% of the total
rentable square footage, the Spectrum Vacant/Delinquent Space shall be
1% of the total rentable square footage)), then the Purchase Price shall
be decreased by the sum of the following items from Exhibit E applicable
to the Spectrum Vacant/Delinquent Space: (A) pro forma tenant
improvements per square foot, (B) leasing commissions per square foot,
and (C) six (6) months pro forma base rent per square foot, operating
expenses, taxes and assessments that would otherwise be payable by a
tenant of such space.
(f) with respect to any of the Properties being purchased by the Buyer
at the Closing other than the Fully-Leased Properties and the Spectrum (the
"Partially-Leased Properties"), if at Closing the aggregate square footage
subject to a Fully-Paying Executed Lease is less than 92% of the total
rentable square footage at the Partially-Leased Properties (such shortfall,
the "Partially-Leased Space Shortfall"), then the Purchase Price shall be
adjusted as follows (in each case other than any such amounts for which the
Buyer has been compensated under Section 4.1, 4.2, 4.3 or 4.4):
(i) first, with respect to any square footage, up to the number of
square feet in the Partially-Leased Space Shortfall, that is subject to
a Non-Paying Lease in effect at a Partially-Leased Property at Closing,
the Purchase Price shall be decreased by the amount of the Payment
Reduction attributable to such square footage that will apply with
respect to periods after the Closing Date, but in no event more than six
(6) months; and
(ii) second, if the square footage subject to Non-Paying Leases is
less than the Partially-Leased Space Shortfall (such shortfall, the
"Partially-Leased Vacant/Delinquent Space"), then the Purchase Price
shall be decreased by $5 for each square foot of Partially-Leased
Vacant/ Delinquent Space.
(g) the Purchase Price shall be decreased by the aggregate amount of
the Allocated Values of any Sold Properties (as defined in Section 6.1).
(h) if and to the extent that the Seller has failed to timely comply
with its obligations under Section 2.6(c), the Purchase Price shall be
decreased by the reasonable cost of the aggregate amount of remediation
that was required, under Section 2.6(c), to be performed on the Properties
by the Seller but was not performed.
SECTION 1.4 Material Adverse Matters.
(a) On or prior to the date ninety (90) days from the date hereof (such
period, the "Diligence Period"), the Buyer may deliver to the Seller a written
notice or notices, any such notice to specifically state that such notice
constitutes a "Defect Letter" hereunder, specifying any Material Adverse Matters
(a "Defect Letter"). A Defect Letter may consist of a written report or notice,
provided that it is in accordance with the terms of the preceding sentence, from
one of the Buyer's members, officers, employees, advisors, attorneys or
consultants. The Buyer's failure to deliver to the Seller on or prior to the
close of the Diligence Period a Defect Letter shall be deemed conclusively as
the Buyer's confirmation of the absence of any Material Adverse Matters, and the
Buyer shall be deemed to be satisfied with, and to have waived objection to, any
Code Defect, Environmental Defect, Structural Defect, Title Defect or Zoning
Defect other than those specifically set forth in a Defect Letter and other than
as contemplated in Sections 4.3 and 4.4.
(b) If a Defect Letter is delivered identifying any Material Adverse
Matters, the Defect Letter shall set forth: (i) the identity of any Properties
as to which the Buyer has identified any Material Adverse Matters, (ii) the
nature of the Material Adverse Matters and (iii) a reasonably detailed
description of the existence of such Material Adverse Matters.
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(c) For each Property having a Material Adverse Matter, the Seller shall
have the option, exercisable by written notice to the Buyer within ten (10)
business days of the Seller's receipt of the Defect Letter, either (i) to treat
such Property as a Deleted Property, in which case it shall cease to be a
Property, or (ii) to treat such Property as a Deferred Property, in which event
the procedures set forth in Section 1.8 shall apply.
(d) In the case of Deferred Properties having an Environmental Defect, a
Title Defect or a Zoning Defect, subject to Section 9.1(c)(v) and (vii), the
Seller shall bear all costs of remediation of such Material Adverse Matter. In
the case of Deferred Properties having a Structural Defect or a Code Defect,
subject to Section 9.1(c)(viii), the Buyer and the Seller shall each contribute
equal amounts to the remediation of such Material Adverse Matter up to the
Shared Remediation Maximum (except for any Structural Defect or Code Defect
identified under Sections 4.1 or 4.2, for which the Buyer shall have no
obligation to contribute), and the Seller shall bear all remediation costs in
excess thereof.
SECTION 1.5 Partnership Properties.
(a) The Buyer and the Seller acknowledge that the parcels of real estate
identified on Exhibit A-2 hereto as "Partnership Properties") are owned by
partnerships of which the Seller is the general partner and that, as set forth
on Exhibit L hereto, the consent of the limited partners of such partnerships is
required to effect the sale of such Partnership Properties. Subject to Section
1.5(b) through (d), between the date hereof and thirty (30) days after the date
hereof, the Seller shall use commercially reasonable efforts to obtain all such
required consents and to cause such partnerships to sell such Partnership
Properties to the Buyer on the terms provided herein. When any Partnership
Property becomes a Property under the terms hereof, the Seller shall cause any
such partnership to sell such Partnership Property to the Buyer on, and subject
to, the terms hereof.
(b) Within thirty (30) days after the date hereof, the Seller may give
written notice to the Buyer that the Seller has obtained the required consents
(such consents to be reasonably satisfactory to the Buyer) with respect to a
particular Partnership Property, that such Partnership Property is to become a
Property and that the Buyer may begin its diligence with respect to such
Partnership Property. If the Seller delivers such a notice with respect to a
particular Partnership Property, such Partnership Property shall become a
Property to be purchased by the Buyer hereunder at its Partnership Property
Price, subject to such Partnership Property being deemed a Deleted Property or a
Deferred Property and subject to the other terms and conditions hereof.
(c) If, within such thirty (30) days, the Seller does not deliver such a
notice with respect to a particular Partnership Property, such Partnership
Property shall not become a Property.
(d) If the Seller has delivered such a notice with respect to a particular
Partnership Property, but such required consents are terminated, cancelled or
otherwise negated such that the Seller cannot deliver such Partnership Property
for sale to the Buyer prior to the termination hereof, then (i) such Partnership
Property shall cease to be a Property, and (ii) the Seller shall reimburse the
Buyer for its actual out-of-pocket third party costs with respect to the
diligence conducted on such Partnership Property, plus the sum of Ten Thousand
Dollars ($10,000) for each such Partnership Property to cover legal and other
costs.
(e) Notwithstanding the fact that a particular Partnership Property will
not constitute a Property unless and until such Partnership Property becomes a
Property under Section 1.5(b) hereof, the term "Property" shall be deemed to
include the Partnership Properties for purposes of the Seller's representations,
warranties, covenants and agreements herein; provided that if at Closing such
Partnership Property has not become a Property under Section 1.5(b) hereof, the
term "Property" shall not include such Partnership Property and such Partnership
Property shall not be deemed to be a Deleted Property, a Category A Deleted
Property or a Category B Deleted Property.
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SECTION 1.6 Ground Leases.
(a) The Buyer and the Seller acknowledge that the Properties identified on
Exhibit A hereto as Ground Lease Properties consist of the Seller's interest as
a lessee in the Ground Leases and the improvements thereon and that, as set
forth on Exhibit L hereto, certain ground lessors under such Ground Leases have
the right to object to a transfer of the Ground Leases and/or to acquire the
Seller's interest in the Ground Lease and the improvements thereon in the event
of a proposed sale of such interests by the Seller. Between the date hereof and
thirty (30) days after the date hereof, the Seller shall use commercially
reasonable efforts to obtain consents and/or waivers of all such rights of first
refusal.
(b) If, within such thirty (30) days, the Seller obtains the consents
and/or waivers of rights of first refusal (such consents and/or waivers to be
reasonably satisfactory to the Buyer) with respect to a particular Ground Lease,
the Seller will give written notice to the Buyer that such Ground Lease will
continue to constitute Property and will be included in the Properties
transferred hereunder, subject to such Property being deemed a Deleted Property
or a Deferred Property and subject to the other terms and conditions hereof.
(c) If, within such thirty (30) days, the Seller does not obtain the
consents and/or waivers of rights of first refusal with respect to a particular
Ground Lease Property and does not so notify the Buyer, (i) such Ground Lease
Property shall be deemed to be a Category A Deleted Property, and (ii) the
Seller shall reimburse the Buyer for its actual out-of-pocket third party costs
with respect to the diligence conducted on such Ground Lease Property, plus the
sum of Ten Thousand Dollars ($10,000) for each such Ground Lease Property to
cover legal and other costs.
(d) The parties acknowledge and agree that if one of the two Ground Lease
Properties located in Tustin, California becomes a Deleted Property, the other
Ground Lease Property so located shall likewise be a Deleted Property.
SECTION 1.7 Right of First Refusal Properties.
(a) The Buyer and the Seller acknowledge that the Properties identified on
Exhibit A hereto as Right of First Refusal Properties consist of Properties as
to which the Seller has granted a right of first refusal or option to purchase
to a tenant or otherwise and that, as set forth on Exhibit L hereto, such
tenants or other parties may have the right to object to a transfer of the Right
of First Refusal Properties and/or to acquire the Seller's interest in the Right
of First Refusal Properties in the event of a proposed sale of such interests by
the Seller. Subject to Section 1.7(b) through (d), between the date hereof and
thirty (30) days after the date hereof, the Seller shall use commercially
reasonable efforts to obtain consents and/or waivers in a form reasonably
approved by the Buyer and the Title Company of all such rights of first refusal
or options to purchase.
(b) Within thirty (30) days after the date hereof, the Seller may give
written notice to the Buyer that the Seller has obtained the required consents
and/or waivers (such consents and/or waivers to be reasonably satisfactory to
the Buyer) with respect to a particular Right of First Refusal Property, that
such Right of First Refusal Property is to remain a Property and that the Buyer
may begin its diligence with respect to such Right of First Refusal Property. If
the Seller delivers such a notice with respect to a particular Right of First
Refusal Property and such Right of First Refusal Property shall be purchased by
the Buyer hereunder at its Allocated Value, subject to such Right of First
Refusal Property being deemed a Deleted Property or a Deferred Property and
subject to the other terms and conditions hereof.
(c) If, within such thirty (30) days, the Seller does not deliver such a
notice with respect to a particular Right of First Refusal Property, such Right
of First Refusal Property shall be deemed to be a Category A Deleted Property.
(d) If the Seller has delivered such a notice with respect to a particular
Right of First Refusal Property, but such required consents and/or waivers are
terminated, cancelled or otherwise negated such that the Seller cannot deliver
such Right of First Refusal Property for sale to the Buyer prior to the
termination hereof, then (i) such Right of First Refusal Property shall be
deemed to be a Category A
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Deleted Property, and (ii) the Seller shall reimburse the Buyer for its actual
out-of-pocket third party costs with respect to the diligence conducted on such
Right of First Refusal Property, plus the sum of Ten Thousand Dollars ($10,000)
for each such Right of First Refusal Property to cover legal and other costs.
SECTION 1.8 Deferred Properties.
(a) In the event a Property is proposed by the Seller to be designated as a
Deferred Property, the Seller and the Buyer shall use their respective good
faith efforts to determine, taking into account, if reasonably necessary, the
effect of the Material Adverse Matter upon the future tenancy of the Property
subject to the Material Adverse Matter, a plan to cure such Material Adverse
Matter (a "Plan"). Each Plan proposed by the Buyer or the Seller shall be
reasonably detailed in scope given the nature and extent of the Material Adverse
Matter, and shall include any anticipated governmental approvals or closures
required and the estimated costs of implementation of such Plan, including the
costs of obtaining any required governmental approvals or closures. If the
parties do not agree upon such a Plan within ten (10) business days of the
receipt by the Buyer of the Seller's election to treat the Property as a
Deferred Property under the terms hereof, the Property subject to the Material
Adverse Matter shall be treated as a Deleted Property and shall be deemed to be
a Category B Deleted Property (with respect to Sections 9.1(c)(v), (vi), (vii)
and (viii), the remediation costs for any Material Adverse Matter as to which
the parties cannot agree upon a Plan shall be the costs set forth in the
Seller's proposed Plan). If the parties reasonably agree that the Material
Adverse Matter cannot be fully cured prior to the projected first anniversary of
the Closing, the Property subject to the Material Adverse Matter shall be deemed
to be a Deleted Property. If the parties do agree upon such a Plan, the Seller
shall use commercially reasonable efforts to attempt to cure, in accordance with
such Plan, the Material Adverse Matter affecting such Deferred Property during
the period ending on the first anniversary of the Closing. If the parties agree
that such cure is successfully consummated in accordance with such Plan, then,
within thirty (30) days of such cure, but no earlier than the Closing, the Buyer
shall be obligated to purchase the cured Deferred Property at its Allocated
Value in accordance with the procedures set forth herein (other than timing). If
the parties do not agree that any such cure has been successfully consummated in
accordance with such Plan, the parties shall refer the matter to arbitration for
resolution. The arbitration shall be conducted in Los Angeles, California by
three neutral arbitrators acting by majority vote (the "Panel") selected by
agreement of the parties or, failing such agreement, appointed pursuant to the
commercial arbitration rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator so selected becomes unable
to serve, his or her successors shall be similarly selected or appointed. The
arbitration shall be conducted pursuant to such procedures as the Buyer and the
Seller may agree, or, in the absence of or failing such agreement, pursuant to
the AAA Rules for large commercial arbitrations. The award shall be in writing
and shall specify the factual and legal basis for the award. The Panel shall
apportion all costs and expenses of arbitration, including the Panel's fees and
expenses and fees and expenses of experts, between the prevailing and
non-prevailing party as the Panel deems fair and reasonable. Any arbitration
award shall be binding and enforceable against the parties hereto and judgment
may be entered thereon in any court of competent jurisdiction.
(b) During the period after the Closing, all of the terms and conditions
herein shall apply to the extent related to the Deferred Property. In
furtherance and not in limitation of the foregoing:
(i) Subject to the Maximum Post-Closing Exposure, the Seller's
representations and warranties set forth in Section 2.1 (only insofar as
they relate to such Deferred Property) shall survive for a period of six
(6) months from the date of closing of the Buyer's purchase of such
Deferred Property;
(ii) with respect to the period between the designation of a Property
as a Deferred Property and the closing of the Buyer's purchase of such
Deferred Property, the covenants set forth herein, including without
limitation Article IV and VI, shall apply to the extent related to such
Deferred Property;
(iii) all of the conditions to closing set forth in Section 8 shall
apply to the extent related to such Deferred Property; and
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(iv) at any closing of the purchase of a Deferred Property, the
adjustments to the Purchase Price set forth in Section 1.3(d), (e), (f) and
(h) shall apply to the purchase of the Deferred Property as if such
Deferred Property were being acquired by the Buyer at the Closing together
with all other Properties that have been acquired by the Buyer; provided
that the occupancy rates and payment terms of such Deferred Property at the
time of its purchase by the Buyer shall be aggregated with the occupancy
rates and rent payment terms in effect at the closing(s) of all of other
Properties purchased by the Buyer prior thereto.
(c) If a Property becomes a Deleted Property, (i) it shall cease to be a
Property or a Real Property, (ii) the Buyer and the Seller shall have no further
obligation to purchase or sell, respectively, the Deleted Property, and (iii)
the Buyer and the Seller shall remain obligated to purchase and sell,
respectively, all other Properties in accordance with the terms hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; BUYER'S EXAMINATION
SECTION 2.1 Representations and Warranties of the Seller. Subject to the
provisions of Section 2.3 below, the Seller hereby makes the following
representations and warranties with respect to the Properties, provided that the
Seller makes no representations or warranties with respect to the matters (the
"Disclosure Items") which are set forth in Schedule 1 attached hereto and made a
part hereof. Notwithstanding anything to the contrary contained herein or in any
document delivered in connection herewith, the Seller makes no representations
or warranties with respect to the Disclosure Items other than as set forth in
Schedule 1 (any covenants, representations or warranties set forth in Schedule 1
shall be deemed to be covenants, representations or warranties, as the case may
be, under this Section 2.1 and shall survive as set forth in Section 2.3).
Nothing herein shall prohibit the Buyer from raising an Environmental Defect, a
Title Defect, a Code Defect, a Zoning Defect or a Structural Defect with respect
to the Disclosure Items. The Seller shall indemnify, hold harmless and defend
the Buyer from and against any and all claims, losses, liabilities, damages,
costs and expenses (including, without limitation, reasonable attorneys' fees
and costs) with respect to any claims, liabilities, damages, losses and expenses
arising out of any litigation disclosed in Schedule 1 which is an exception to
Section 2.1(j) and with respect to any additional litigation filed prior to
Closing against the Properties or the Seller as owner of the Properties or the
partnerships as owners of the Partnership Properties (unless any such litigation
relates to actions of the Buyer). The foregoing indemnity shall survive the
Closing. For purposes of this Agreement and any document delivered at Closing,
whenever the phrase "to the best of the Seller's knowledge" or the "knowledge"
of the Seller or words of similar import are used, they shall be deemed to refer
to the current actual knowledge of Glenn L. Carpenter, the Seller's Chairman of
the Board, President and Chief Executive Officer, Donald G. Herrman, the
Seller's Executive Vice President, Chief Financial Officer and Secretary, J.R.
Wetzel, the Seller's Executive Vice President of Operations and Chief Operating
Officer, Robert A. Dewey, the Seller's Senior Vice President of Industrial
Operations and Angela M. Wixted, the Seller's Senior Vice President and
Treasurer, at the times indicated only and not any implied, imputed or
constructive knowledge, without any independent investigation having been made
or any implied duty to investigate.
(a) The Seller has not (i) made a general assignment for the benefit
of creditors, (ii) filed any voluntary petition in bankruptcy or suffered
the filing of any involuntary petition by the Seller's creditors, (iii)
suffered the appointment of a receiver to take possession of all, or
substantially all, of the Seller's assets, (iv) suffered the attachment or
other judicial seizure of all, or substantially all, of the Seller's
assets, (v) admitted in writing its inability to pay its debts as they come
due, or (vi) made an offer of settlement, extension or composition to its
creditors generally.
(b) The Seller is not a "foreign person" as defined in Section 1445 of
the Internal Revenue Code of 1986, as amended (the "Code") and any related
regulations.
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(c) This Agreement and all documents executed by the Seller which are
to be delivered at the Closing (i) have been or will be duly authorized,
executed and delivered by the Seller, and (ii) except as set forth on
Schedule 1, do not or will not violate any provision of any material
agreement or judicial order to which the Seller is a party or to which the
Seller or the Properties are subject. Assuming the due authorization,
execution and delivery of such documents by the Buyer, this Agreement
constitutes (and all other documents executed by the Seller which are to be
delivered at the Closing will constitute) the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with
its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally or to general principles of equity.
(d) Subject to the requisite vote of the Seller's stockholders, the
Seller has the power and authority to enter into this Agreement and to
perform its obligations hereunder.
(e) Copies of the documents evidencing the Loans (the "Loan
Documents"), the Leases, Ground Leases and contracts delivered to the Buyer
by the Seller are true and accurate copies of such items.
(f) The only tenant Leases and amendments thereto in force for the
Properties as of June 15, 2000 are listed on Exhibit F attached hereto and
made a part hereof (such Exhibit F being materially consistent with
documentation previously delivered by the Seller to the Buyer or the
Buyer's representatives). The only tenant Leases executed by the Seller
since June 15, 2000 have been in the ordinary course of business. The only
Ground Leases and amendments thereto in force for the Properties as of the
date hereof are listed on Exhibit B attached hereto and made a part hereof.
The only Loan Documents and amendments thereto in force for the Properties
as of the date hereof are listed on Exhibit C attached hereto and made a
part hereof.
(g) To the best of the Seller's knowledge and except as set forth on
Schedule 1, the Seller has received no written notice that the Properties
or their current use and operation are in material violation of any
applicable law.
(h) To the best of the Seller's knowledge, the documents which have
been or will be delivered by the Seller to the Buyer or have been made or
will be made available by the Seller to the Buyer for the Buyer's
inspection and copying are true and complete copies of all documents in the
Seller's possession related to the Properties except for the Seller's
internal economic memoranda and reports, attorney-client privileged
materials and the Seller's appraisals of the Properties, if any.
(i) To the best of the Seller's knowledge and except as set forth on
Schedule 1, the Seller has received no written notice of any (i)
condemnation, environmental, zoning or other land-use proceedings,
instituted or threatened, against the Properties or (ii) special assessment
proceedings affecting the Properties.
(j) To the best of the Seller's knowledge, the Seller has received no
written notice of any material litigation or arbitration, instituted or
intended to be instituted, against the Properties or against the Seller as
owner of the Properties except as set forth on Schedule 1.
(k) To the best of the Seller's knowledge, the Seller has received no
written notice that any tenant of a Property has either filed or been the
subject of any filing of a petition under any federal or state bankruptcy
or insolvency laws except as set forth on Schedule 1.
(l) The Seller has received no written notice of any defaults by the
Seller under any of the Loan Documents, the Leases or Ground Leases except
as set forth on Schedule 1. Except as set forth on Schedule 1 and except
for notices of defaults with respect to insurance certificate requirements,
the Seller has given no written notice to any tenant of the Properties of
any material defaults under its Lease which has not been cured, the Seller
has given no written notice to any ground lessor of the Ground Lease
Properties of any defaults under its Ground Lease which has not been cured
and the
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Seller has given no written notice to any lender under the Loan Documents
of any defaults thereunder which has not been cured.
(m) The Seller has received no written notice of any defaults by the
Seller which have not been cured under the service contracts, guaranties,
or warranties which will be binding on the Buyer, after the Closing.
(n) The Seller is duly formed, validly existing and in good standing
under the laws of the State of Maryland and is qualified to do business as
a foreign corporation in the jurisdictions where such qualification is
required, except for any such jurisdiction where the failure to be so
qualified would not have a material adverse effect on the Seller.
(o) Exhibit L sets forth a complete list of the consents and/or
waivers required with respect to the consummation of the transactions
contemplated hereby to the extent related to the Partnership Properties,
the Excluded Ground Leases and the Right of First Refusal Properties and
describes all rights of first refusal or options to purchase any Property,
portion thereof or interest therein.
(p) The only contracts or agreements affecting the Real Properties
that will be binding upon a Buyer after the Closing are the Ground Leases,
the Leases, the Loan Documents (to the extent assumed under Section 6.2
hereof) and other customary service contracts entered into by the Seller in
the ordinary course of business.
SECTION 2.2 Representations and Warranties of the Buyer. Subject to
the provisions of Section 2.3 below, the Buyer represents and warrants to
the Seller as follows:
(a) The Buyer represents and warrants to the Seller that this
Agreement and all documents executed by the Buyer which are to be delivered
to the Seller at Closing do not and at the time of Closing will not violate
any provision of any material agreement or judicial order to which the
Buyer is a party or to which the Buyer is subject.
(b) The Buyer represents and warrants to the Seller that the Buyer has
not (i) made a general assignment for the benefit of creditors, (ii) filed
any voluntary petition in bankruptcy or suffered the filing of any
involuntary petition by the Buyer's creditors, (iii) suffered the
appointment of a receiver to take possession of all, or substantially all,
of the Buyer's assets, (iv) suffered the attachment or other judicial
seizure of all, or substantially all, of the Buyer's assets, (v) admitted
in writing its inability to pay its debts as they come due, or (vi) made an
offer of settlement, extension or composition to its creditors generally.
(c) The Buyer is duly formed, validly existing and in good standing
under the laws of the State of California. The Buyer has duly authorized,
executed and delivered this Agreement. Assuming the due authorization,
execution and delivery of such documents by the Seller, this Agreement
constitutes (and all other documents executed by the Buyer which are to be
delivered at the Closing will constitute) the legal, valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with
its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally or to general principles of equity.
(d) The Buyer had a tangible net worth (the book value of all tangible
assets minus the book value of all liabilities), based on a balance sheet
prepared in accordance with generally accepted accounting principles
consistently applied with prior periods, of at least Two Hundred Fifty
Million Dollars ($250,000,000).
SECTION 2.3 Survival of Representations and Warranties; Limitations.
(a) The representations and warranties of the Seller set forth in Section
2.1, together with the Seller's liability for any breach before Closing of any
of the Seller's interim operating covenants under Section 6.1, will survive the
Closing for a period of six (6) months (as set forth in Section 1.8(b)(i), with
respect to the purchase of a Deferred Property, such representations, warranties
and covenants (only insofar as they relate to such Deferred Property) shall
survive for six (6) months after such purchase).
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The Buyer will not have any right to bring any action against the Seller as a
result of any untruth or inaccuracy of such representations and warranties, or
any such breach, unless and until the aggregate amount of all liability and
losses arising out of any such untruth or inaccuracy, or any such breach,
exceeds (with respect to the Closing and all subsequent purchases of Deferred
Properties) One Hundred Thousand Dollars ($100,000), and then the Buyer may
bring an action for all such amounts; provided that in no event will the
Seller's liability for all such breaches exceed, in the aggregate (i) with
respect to the Closing, Twelve Million Five Hundred Thousand Dollars
($12,500,000) (the "Maximum Post-Closing Exposure") and (ii) with respect to
purchases of Deferred Properties after the Closing, the greater of Two Hundred
and Fifty Thousand Dollars ($250,000) and 2% of the Allocated Value of such
Deferred Property (the "Individual Deferred Property Maximum Exposure"). The
Seller agrees to maintain reasonable access to funds (which funds shall be kept
available in cash and cash equivalents, the availability of which shall be
confirmed by Morgan Stanley Dean Witter & Co. to the Buyer on a monthly basis)
in an amount necessary to satisfy (i) with respect to the six (6) months after
the Closing, the Maximum Post-Closing Exposure, and (ii) with respect to the six
(6) months after the purchase of a Deferred Property, the Individual Deferred
Property Maximum Exposure. Furthermore, the Seller agrees to maintain, during
the pendency of any claim timely made by the Buyer hereunder, an amount
sufficient to satisfy such claim (subject to the Maximum Post-Closing Exposure
and the Individual Deferred Property Maximum Exposure). The Seller shall have no
liability with respect to any of the Seller's representations, warranties and
covenants herein if, prior to the Closing (or, with respect to the subsequent
purchase of a Deferred Property, prior to the purchase thereof), the Buyer has
actual knowledge of any breach of a representation, warranty or covenant of the
Seller herein, or the Buyer obtains actual knowledge (from whatever source,
including, without limitation, any tenant or ground lessor estoppel
certificates, as a result of the Buyer's due diligence or written disclosure by
the Seller or the Seller's agents and employees) that contradicts any of the
Seller's representations and warranties herein, and the Buyer nevertheless
consummates the transaction contemplated by this Agreement. Sections 5.1, 10.5
and 10.9 will survive Closing without limitation unless a specified period is
otherwise provided in this Agreement. All other representations, warranties,
covenants and agreements made or undertaken by the Seller under this Agreement,
unless otherwise specifically provided herein, will not survive the Closing
Date.
(b) The representations and warranties of the Buyer set forth in Section
2.2 will survive the Closing for a period of six (6) months. The Seller will not
have any right to bring any action against the Buyer as a result of any untruth
or inaccuracy of such representations and warranties, or any such breach, unless
and until the aggregate amount of all liability and losses arising out of any
such untruth or inaccuracy, or any such breach, exceeds One Hundred Thousand
Dollars ($100,000), and then the Seller may bring an action for all such
amounts; provided that in no event will the Buyer's liability for all such
breaches exceed, in the aggregate, Twelve Million Five Hundred Thousand Dollars
($12,500,000). The Buyer shall have no liability with respect to any of the
Buyer's representations, warranties and covenants herein if, prior to the
Closing, the Seller has actual knowledge of any breach of a representation,
warranty or covenant of the Buyer herein, or the Seller obtains actual knowledge
(from whatever source, including, without limitation, any tenant or ground
lessor estoppel certificates, as a result of the Seller's due diligence or
written disclosure by the Buyer or the Buyer's agents and employees) that
contradicts any of the Buyer's representations and warranties herein, and the
Seller nevertheless consummates the transaction contemplated by this Agreement.
Sections 5.1, 10.5 and 10.9 will survive Closing without limitation unless a
specified period is otherwise provided in this Agreement. All other
representations, warranties, covenants and agreements made or undertaken by the
Buyer under this Agreement, unless otherwise specifically provided herein, will
not survive the Closing Date.
SECTION 2.4 The Buyer's Independent Investigation.
(a) The Buyer acknowledges and agrees that it has been given or will be
given before the end of the Diligence Period, a full opportunity to inspect and
investigate each and every aspect of the Properties, either independently or
through agents of the Buyer's choosing, including, without limitation:
(1) All matters relating to title, together with all governmental and
other legal requirements such as taxes, assessments, zoning, use permit
requirements and building codes.
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(2) The physical condition and aspects of the Properties, including,
without limitation, the interior, the exterior, the square footage within
the improvements on the Real Properties and within each tenant space
therein, the structure, seismic aspects of the Properties, the paving, the
utilities, and all other physical and functional aspects of the Properties.
Such examination of the physical condition of the Properties shall include
an examination for the presence or absence of Hazardous Materials, as
defined below, which shall be performed or arranged by the Buyer at the
Buyer's sole expense. For purposes of this Agreement, "Hazardous Materials"
shall mean inflammable explosives, radioactive materials, asbestos,
polychlorinated biphenyls, lead, lead-based paint, under and/or above
ground tanks, hazardous materials, hazardous wastes, hazardous substances,
oil, or related materials, which are listed or regulated in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Sections 6901, et seq.), the Resources
Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.),
the Clean Water Act (33 U.S.C. Section 1251, et seq.), the Safe Drinking
Water Act (14 U.S.C. Section 1401, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801, et seq.), the Toxic Substance
Control Act (15 U.S.C. Section 2601, et seq.), the California Hazardous
Waste Control Law (California Health and Safety Code Section 25100, et
seq.), the Porter-Cologne Water Quality Control Act (California Water Code
Section 13000, et seq.), the Safe Drinking Water and Toxic Enforcement Act
of 1986 (California Health and Safety Code Section 25249.5, et seq.), the
Arizona Environmental Quality Act, A.R.S. sec. 49-201, et seq.; the Arizona
"State Superfund" provisions, A.R.S. sec. 49-281, et seq.; the Arizona
Solid Waste Management provisions, A.R.S. sec. 49-701, et seq.; the Arizona
Hazardous Waste Management Act, A.R.S. sec. 49-921, et seq.; and the
Arizona Underground Storage Tank provisions, A.R.S. sec. 49-1001, and any
other applicable federal, state or local laws and regulations.
(3) Any easements and/or access rights affecting the Properties.
(4) The leases and all matters in connection therewith, including,
without limitation, the ability of the tenants to pay the rent and the
economic viability of the tenants.
(5) The service contracts and any other documents or agreements of
significance affecting the Properties.
(6) All economic and financial matters relating to the Properties.
(7) All other matters of material significance affecting the
Properties.
(b) THE BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT THE SELLER IS
SELLING AND BUYER IS PURCHASING THE PROPERTIES ON AN "AS IS WITH ALL FAULTS"
BASIS AND THAT THE BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF
ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS AS
TO ANY MATTERS CONCERNING THE PROPERTIES EXCEPT AS EXPRESSLY SET FORTH IN
SECTION 2.1 ABOVE OR IN THE CLOSING DOCUMENTS, INCLUDING WITHOUT LIMITATION: (i)
the quality, nature, adequacy and physical condition and aspects of the
Properties, including, but not limited to, the structural elements, seismic
aspects of the Properties, foundation, roof, appurtenances, access, landscaping,
parking facilities and the electrical, mechanical, HVAC, plumbing, sewage, and
utility systems, facilities and appliances, the square footage within the
improvements on the Real Properties and within each tenant space therein, (ii)
the quality, nature, adequacy, and physical condition of soils, geology and any
groundwater, (iii) the existence, quality, nature, adequacy and physical
condition of utilities serving the Properties, (iv) the development potential of
the Properties, and the Properties' use, habitability, merchantability, or
fitness, suitability, value or adequacy of the Properties for any particular
purpose, (v) the zoning or other legal status of the Properties or any other
public or private restrictions on use of the Properties, (vi) the compliance of
the Properties or its operation with any applicable codes, laws, regulations,
statutes, ordinances, covenants, conditions and restrictions of any governmental
or quasi-governmental entity or of any other person or entity, (vii) the
presence of Hazardous Materials on, under or about the Properties or the
adjoining or neighboring property, (viii) the quality of any labor and materials
used in any
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improvements on the Real Properties, (ix) the condition of title to the
Properties, (x) the leases, service contracts, or other agreements affecting the
Properties and (xi) the economics of the operation of the Properties.
SECTION 2.5 Release.
(a) Without limiting the above, and subject to the representations and
warranties of the Seller contained in Section 2.1 hereof and the terms and
conditions hereof and the other covenants of the Seller contained herein or in
the Closing Documents, the Buyer on behalf of itself and its successors and
assigns waives its right to recover from, and forever releases and discharges,
the Seller, the Seller's affiliates, the Seller's investment manager, the
partners, trustees, beneficiaries, shareholders, members, directors, officers,
employees and agents of each of them, and their respective heirs, successors,
personal representatives and assigns (collectively, the "Seller Related
Parties"), from any and all demands, claims, legal or administrative
proceedings, losses, liabilities, damages, penalties, fines, liens, judgments,
costs or expenses whatsoever (including, without limitation, attorneys' fees and
costs), whether direct or indirect, known or unknown, foreseen or unforeseen,
that may arise on account of or in any way be connected with (i) the physical
condition of the Properties including, without limitation, all structural and
seismic elements, all mechanical, electrical, plumbing, sewage, heating,
ventilating, air conditioning and other systems, the environmental condition of
the Properties and Hazardous Materials on, under or about the Properties, and
(ii) any law or regulation applicable to the Properties, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Sections 6901, et seq.), the Resources
Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, et seq.), the
Clean Water Act (33 U.S.C. Section 1251, et seq.), the Safe Drinking Water Act
(14 U.S.C. Section 1401, et seq.), the Hazardous Materials Transportation Act
(49 U.S.C. Section 1801, et seq.), the Toxic Substance Control Act (15 U.S.C.
Section 2601, et seq.), the California Hazardous Waste Control Law (California
Health and Safety Code Section 25100, et seq.), the Porter-Cologne Water Quality
Control Act (California Water Code Section 13000, et seq.), and the Safe
Drinking Water and Toxic Enforcement Act of 1986 (California Health and Safety
Code Section 25249.5, et seq.), the Arizona Environmental Quality Act, A.R.S.
sec. 49-201, et seq.; the Arizona "State Superfund" provisions, A.R.S.
sec. 49-28 1, et seq.; the Arizona Solid Waste Management provisions, A.R.S.
sec. 49-701, et seq.; the Arizona Hazardous Waste Management Act, A.R.S.
sec. 49-921, et seq.; and the Arizona Underground Storage Tank provisions,
A.R.S. sec. 49-1001, and any other applicable federal, state or local laws and
regulations.
(b) In connection with Section 2.5(a) above, the Buyer expressly waives the
benefits of Section 1542 of the California Civil Code, which provides as
follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
SECTION 2.6 Release Related to General Physical Items and ADA. The Buyer
acknowledges and agrees that, as of the date hereof, it has approved of and
consented to (i) any non-compliance (to the extent any such non-compliance
exists) of the Properties with the Americans With Disabilities Act of 1990,
other than any such non-compliance that has been specifically identified and
cited to the Seller by a governmental entity, and (ii) all General Physical
Items. The Buyer and the Seller further acknowledges that:
(a) notwithstanding Section 2.3 hereof, the Seller shall have no
liability, and the Buyer may not bring an action to recover against the
Seller, with respect to (i) any non-compliance of the Properties with the
Americans With Disabilities Act of 1990, other than any such non-compliance
that has been specifically identified and cited to the Seller by a
governmental entity, or (ii) any General Physical Items;
(b) for purposes of the conditions to the obligations of the Buyer set
forth in Section 8.3 hereof, (i) any non-compliance of the Properties with
the Americans With Disabilities Act of 1990, other than any such
non-compliance that has been specifically identified and cited to the
Seller by a
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governmental entity, and (ii) any General Physical Items shall not render
the representations and warranties of the Seller contained in Section
2.1(g) to be untrue or incorrect; and
(c) prior to Closing, the Seller shall, at the Seller's cost and to
the reasonable satisfaction of the Buyer, cure any non-compliance of the
Properties with the Americans With Disabilities Act of 1990 to the extent
that the Seller has received, on or prior to the date hereof, written
notice from a governmental entity of such specific item of non-compliance,
along with a demand to remedy the same. Written notice from such
governmental entity of its satisfaction (unconditional except with respect
to ongoing inspection) with such cure or unconditional written clearance
(unconditional except with respect to ongoing inspection) from such
governmental entity of such non-compliance shall be deemed to satisfy the
Buyer hereunder, provided that, such written notice or clearance shall be
in a form reasonably approved by the Buyer.
SECTION 2.7 Survival. The provisions of this Article II shall survive the
Closing subject to the limitations and qualifications contained in such
provisions.
ARTICLE III
TITLE
SECTION 3.1 Conditions of Title.
(a) At the Closing, the Seller shall convey title to the Properties to the
Buyer by grant deed for those Real Properties in California, in the form
attached hereto as Exhibit G-1, by statutory bargain and sale deed for those
Real Properties in Washington, in the form attached hereto as Exhibit G-2, by
grant bargain and sale deed for those Real Properties located in Nevada, in the
form attached hereto as Exhibit G-3, by special warranty deeds, in the form
attached hereto as Exhibit G-4, for those Real Properties located in Arizona,
and by special warranty deeds, in the form attached hereto as Exhibit G-5, for
those Real Properties located in Oregon (collectively the "Deeds"), subject to
no exceptions other than:
(i) Interests of tenants in possession without any rights of first
refusal or options to purchase a Property, portion thereof or interest
thereon which have not been waived;
(ii) Non-delinquent liens for real estate taxes and assessments; and
(iii) Any exceptions disclosed by (A) the preliminary title reports or
title commitments issued by the Title Company for the Properties delivered
to the Buyer during the Diligence Period, and (B) the survey obtained by
the Buyer for each of the Properties during the Diligence Period.
(b) Excluding those matters objected to in any Defect Letter, the foregoing
exceptions shall be collectively referred to as the "Conditions of Title." If,
after the Diligence Period, any additional exceptions to title are disclosed in
a supplemental or updated title report or title commitment issued by the Title
Company with respect to the Properties (a "Supplemental Title Report"), the
Buyer shall have fifteen (15) business days after the delivery by the Title
Company or the Seller of such Supplemental Title Report to the Buyer to deliver
a Defect Letter to the Seller specifying any Material Adverse Matters. The
Buyer's failure to deliver to the Seller within said fifteen (15) business day
period a Defect Letter shall be deemed conclusively as the Buyer's confirmation
that none of such new exceptions to title constitutes a Material Adverse Matter.
In the event that the Buyer delivers a Defect Letter to the Seller pursuant to
this Section 3.1, the provisions set forth in Section 1.4 and Section 1.8 shall
apply thereto.
(c) Notwithstanding anything to the contrary contained herein, the Seller
shall pay off all liens and encumbrances on the Properties prior to Closing,
other than those liens with respect to any Loans the Buyer is assuming at
Closing and liens for non-delinquent real estate taxes and assessments, and the
Buyer shall have no obligation to give the Seller a Defect Letter with respect
to such liens and encumbrances.
(d) By acceptance of the Deed and the Closing of the purchase and sale of
the Properties, (i) the Buyer agrees it is assuming for the benefit of the
Seller all of the obligations of the Seller with respect to
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the Conditions of Title but only to the extent such obligations arise from and
after the Closing, and (ii) the Buyer agrees that the Seller shall have
conclusively satisfied its obligations with respect to title to the Properties.
The provisions of this Section 3.1 shall survive the Closing.
SECTION 3.2 Evidence of Title. Delivery of title in accordance with the
foregoing shall be evidenced by the willingness of the Title Company to issue,
at Closing, its ALTA extended coverage Owner's Policy of Title Insurance (Form
B, rev. 10/17/70) (provided that a leasehold policy shall be issued for Real
Properties subject to Ground Leases) in the amount of the Purchase Price showing
title to the Real Properties vested in the Buyer, subject to the Conditions of
Title and with the following CLTA endorsements (or equivalent thereof): 100.2
(modified for an owner); 101.4; 103.1, 103.4 or 103.6; 103.4 or 103.7 (as
applicable); 116; 116.1; 116.4 (if applicable); 116.7; 123.2 (modified to
include parking); creditors' rights endorsement; separate tax parcel
endorsement; tie-in endorsement (including said endorsements, the "Title
Policy"), or the equivalent, but only to the extent that the Buyer shall confirm
in writing with the Title Company prior to the end of the Diligence Period that
the Title Company will issue the aforesaid endorsements at Closing and the Buyer
shall, prior to the end of the Diligence Period, provide the Seller with a copy
of such confirmation. The Seller is under no obligation to provide any indemnity
or other agreement or undertaking to the Title Company in order for Title
Company to issue the foregoing endorsements. The Buyer shall have prepared, at
the Buyer's cost, the ALTA survey of the Properties necessary to support the
issuance of the Title Policy; provided that if the Buyer does not so obtain an
ALTA survey and if the Title Company is unable to issue the form of Title Policy
described above (including endorsements) without the survey, a CLTA policy of
title insurance shall satisfy the requirements of this Section 3.2. The Title
Policy shall contain reinsurance and co-insurance as reasonably required by the
Buyer. The Buyer shall be entitled to request that the Title Company provide
such additional endorsements (or amendments) (other than the endorsements whose
numbers are specifically set forth above) to the Title Policy as the Buyer may
reasonably require, provided that (a) such additional endorsements (or
amendments) shall be at no cost to, and shall impose no additional liability on,
the Seller, (b) the Buyer's obligations under this Agreement shall not be
conditioned upon the Buyer's ability to obtain such endorsements and, if the
Buyer is unable to obtain such endorsements, the Buyer shall nevertheless be
obligated to proceed to close the transaction contemplated by this Agreement
without reduction of or set off against the Purchase Price, and (c) the Closing
shall not be delayed as a result of the Buyer's request.
SECTION 3.3 Cost of Title and Other Closing Costs. The Seller shall pay
(a) one-half of the Escrow Agent's escrow fee, (b) the premium for the CLTA
portion of the Title Policy (including any sales tax thereon), (c) recording
fees in connection with any reconveyance requested hereby, (d) all state,
county, city, local and other transfer taxes, excise taxes, documentary stamp
taxes and sales taxes, if any, (e) all costs of re-insurance and co-insurance
(to the extent allocated to portion of the Title Policy paid for by the Seller)
and (f) any additional costs and charges customarily charged to the Sellers in
accordance with common escrow practices in the county in which the Property is
located, other than those costs and charges specifically required to be paid by
the Buyer hereunder. The Buyer shall pay (a) one-half of the Escrow Agent's
escrow fee, (b) the premium for the ALTA portion of the Title Policy (including
any sales tax thereon) and the costs of any endorsements the Buyer may require
in accordance with Section 3.2 and all costs of re-insurance and co-insurance
(to the extent allocated to portion of the Title Policy and endorsements paid
for by the Buyer) (c) the recording fees required in connection with the
transfer of the Property to the Buyer, and (d) any additional costs and charges
customarily charged to the Buyers in accordance with common escrow practices in
the county in which the Property is located, other than those costs and charges
specifically required to be paid by the Seller hereunder. In addition to the
foregoing, the Buyer shall be responsible for any costs of updating the Surveys
of the Property or otherwise conforming the Surveys to the requirements for
issuance of such Title Policy or for any new survey that may be required for
issuance of such Title Policy.
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ARTICLE IV
RISK OF LOSS; INSURANCE PROCEEDS; SUBSEQUENT
MATERIAL ADVERSE MATTERS
SECTION 4.1 Minor Loss. The Buyer shall be bound to purchase, and the
Seller shall be bound to sell, a Property for the full Allocated Value (or
Partnership Property Price, as applicable) thereof as required by the terms
hereof, without regard to the occurrence or effect of any damage to such
Property or destruction of any improvements thereon or condemnation of any
portion of such Property, provided that: (a) the aggregate cost to repair any
such damage or destruction plus the diminution in the value of such Property as
a result of condemnation does not exceed One Hundred Thousand Dollars ($100,000)
and (b) upon the Closing, the Seller shall, in respect of such Property as a
result of any such damage or destruction or condemnation, (i) assign to the
Buyer (A) any insurance proceeds to be collected and (B) any condemnation awards
to be collected and (ii) deliver or pay to the Buyer (A) any insurance proceeds
collected by the Seller to date, (B) any condemnation awards collected by the
Seller to date, (C) the amount of any deductible payable by the Seller under any
such insurance, (D) the amount of any uninsured losses incurred by the Seller
and (E) the amount of any rent abatements allowed to tenants, except in each
case to the extent needed to reimburse the Seller for sums expended to repair or
restore such Property reasonably approved by the Buyer.
SECTION 4.2 Major Loss.
(a) If, with respect to any Property, the aggregate cost to repair any such
damage or destruction plus the diminution in the value of such Property as a
result of condemnation equals or exceeds One Hundred Thousand Dollars
($100,000), then, with respect to each such Property, the Buyer may, at its
option to be exercised within five (5) business days of the Buyer's receipt of
the Seller's notice of the occurrence of the damage or destruction or the
commencement of condemnation proceedings (which notice shall include a statement
by the Seller as to the effectiveness and coverage amounts of any insurance
policy with respect thereto), either (i) request that the Seller cure or restore
such Property (a "Major Loss Cure Election") or (ii) elect to consummate the
purchase of such Property at its Allocated Value (or Partnership Property Price,
as applicable).
(b) If the Buyer fails to notify the Seller within such 5 business day
period of its Major Loss Cure Election for a particular Property, the parties
will be obligated to consummate the sale and purchase of such Property at its
Allocated Value (or Partnership Property Price, as applicable) at the Closing,
in which case the Seller shall, in respect of such Property as a result of any
such damage or destruction or condemnation, (i) assign to the Buyer (A) any
insurance proceeds to be collected and (B) any condemnation awards to be
collected and (ii) deliver or pay to the Buyer (A) any insurance proceeds
collected by the Seller to date, (B) any condemnation awards collected by the
Seller to date, (C) the amount of any deductible payable by the Seller under any
such insurance and (D) the amount of any rent abatements allowed to tenants,
except in each case to the extent needed to reimburse the Seller for sums
expended to repair or restore such Property reasonably approved by the Buyer.
(c) If the Buyer timely delivers a Major Loss Cure Election for a
particular Property, then, subject to Sections 9.1(c), the Seller may, at its
option to be exercised within five (5) business days of the Seller's receipt of
the Buyer's Major Loss Cure Election, either: (i) treat such Property as a
Deleted Property, or (ii) treat such Property as a Deferred Property, in which
case the procedures set forth in Section 1.4 and 1.8 shall apply (provided that
any cure of a Deferred Property shall include payment to the Buyer of any
applicable condemnation awards).
SECTION 4.3 Minor Loss -- Subsequent Material Adverse Matter. The Buyer
shall be bound to purchase, and the Seller shall be bound to sell, a Property
for the full Allocated Value (or Partnership Property Price, as applicable)
thereof as required by the terms hereof, without regard to a Subsequent Material
Adverse Matter with respect to such property, provided that: (a) the aggregate
cost to repair any such Subsequent Material Adverse Matter does not exceed One
Hundred Thousand Dollars ($100,000) and (b) upon the Closing, the Seller shall,
in respect of such Property as a result of any such Subsequent
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Material Adverse Matter, (i) assign to the Buyer any insurance proceeds to be
collected and (ii) deliver or pay to the Buyer (A) any insurance proceeds
collected by the Seller to date, (B) the amount of any deductible payable by the
Seller under any such insurance, (C) the amount of any uninsured losses incurred
by the Seller and (D) the amount of any rent abatements allowed to tenants,
except in each case to the extent needed to reimburse the Seller for sums
expended to repair or restore such Property reasonably approved by the Buyer.
SECTION 4.4 Major Loss -- Subsequent Material Adverse Matter.
(a) If, with respect to any Property, the aggregate cost to repair any such
Subsequent Material Adverse Matter equals or exceeds One Hundred Thousand
Dollars ($100,000), then, with respect to each such Property, the Seller may, at
its option to be exercised by written notice to the Buyer, either: (i) treat
such Property as a Deleted Property, or (ii) treat such Property as a Deferred
Property, in which case the procedures set forth in Section 1.4 and 1.8 shall
apply.
SECTION 4.5 Certain Procedures. The Seller shall promptly notify the Buyer
after the Seller obtains knowledge of any material damage, destruction or
condemnation action with respect to the Properties or of any Subsequent Material
Adverse Matter with respect to the Properties. The aggregate cost to repair any
such Subsequent Material Adverse Matter, damage or destruction of all Deferred
Properties and Deleted Properties plus the diminution in the value of all
Deferred Properties and Deleted Properties as a result of condemnation is
referred to herein as the "Value Diminution."
ARTICLE V
BROKERS AND EXPENSES
SECTION 5.1 Brokers.
(a) The Seller represents and warrants to the Buyer that the Seller
engaged, retained or hired no broker or finder with respect to this transaction
except for Morgan Stanley Dean Witter & Co. ("Seller's Broker"). At Closing, the
Seller shall pay the commission due, if any, to the Seller's Broker, which shall
be paid pursuant to separate agreements between the Seller and the Seller's
Broker. If any other person brings a claim for a commission or finder's fee
based upon any contact, dealings or communication with the Seller or the
Seller's Broker, then the Seller shall defend the Buyer from such claim, and
shall indemnify the Buyer and hold the Buyer harmless from any and all costs,
damages, claims, liabilities or expenses (including without limitation,
reasonable attorneys' fees and disbursements) incurred by the Buyer in defending
against the claim.
(b) The Buyer represents and warrants to the Seller that the Buyer engaged,
retained or hired no broker or finder with respect to this transaction except
for Secured Capital ("Buyer's Broker"). At Closing, the Buyer shall pay the
commission due, if any, to the Buyer's Broker, which shall be paid pursuant to
separate agreements between the Buyer and the Buyer's Broker. If any other
person brings a claim for a commission or finder's fee based upon any contact,
dealings or communication with the Buyer or the Buyer's Broker, then the Buyer
shall defend the Seller from such claim, and shall indemnify the Seller and hold
the Seller harmless from any and all costs, damages, claims, liabilities or
expenses (including without limitation, reasonable attorneys' fees and
disbursements) incurred by the Seller in defending against the claim.
(c) The provisions of this Section 5.1 shall survive the Closing or, if the
purchase and sale is not consummated, any termination of this Agreement.
SECTION 5.2 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
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ARTICLE VI
COVENANTS
SECTION 6.1 Maintenance, Leasing and Sale of the Properties. Between the
date hereof and the Closing, the Seller shall maintain and operate the
Properties, including without limitation, enter into new leases and perform
tenant improvements, in the ordinary course of business consistent with past
practices, in each case at the Seller's sole cost and expense. In furtherance of
the foregoing, between the date hereof and the Closing (except as set forth in
clause (vi) below):
(i) The Seller shall not sell or refinance any Real Property, or enter
into any agreement to sell or refinance any Real Property without first
obtaining the Buyer's approval in Buyer's sole discretion (all such Real
Property that is sold or to be sold in accordance with the foregoing, the
"Sold Properties"). If the Buyer fails to give the Seller notice of its
approval of any such proposed sale or refinance within five (5) business
days after the Seller notifies the Buyer of the Seller's desire to take
such action, then the Buyer shall be deemed to have disapproved of such
action.
(ii) Without the prior consent of the Buyer in Buyer's sole
discretion, the Seller will not incur out-of-pocket third party costs,
whether expensed or capitalized for financial reporting purposes, for the
development of the Development Properties.
(iii) The Seller will provide the Buyer with prior written notice
before entering into any new tenant leases for any of the Properties if the
terms of such new tenant leases are materially less favorable to the
lessor, on the whole, than the parameters of terms for new tenant lease
terms set forth on Exhibit E hereto; provided, however, if after the date
hereof, the Buyer delivers written notice to the Seller that leases with
respect to at least twenty-five percent (25%) of the square footage of
Properties leased by the Seller after the date hereof are not, on the
whole, within or more favorable than such parameters, and the Seller cannot
within three (3) business days disprove the facts asserted in such notice,
then the Seller shall not enter into any such new leases without the
Buyer's prior written consent in the Buyer's sole discretion. In addition,
the Seller shall not, without the prior written consent of the Buyer in its
sole discretion, enter into any new lease with a term longer than 5 years
(except for the proposed lease with Shimoda in the Miramar Facility).
(iv) The Seller shall promptly notify the Buyer of (A) any
condemnation, environmental, zoning or other land-use regulation
proceedings of which the Seller obtains knowledge, (B) any notices of
violations of any applicable federal, state or local law, regulation or
ordinances relating to the Properties of which the Seller obtains
knowledge, (C) any litigation of which the Seller obtains knowledge that
arises out of the ownership of the Properties, and (D) any matters of which
the Seller obtains knowledge, which would make any of the Seller's
representations and warranties contained herein untrue.
(v) The Seller shall maintain or cause to be maintained, at the
Seller's sole cost and expense, all policies of insurance currently in
effect with respect to the Properties (or comparable replacements thereof).
(vi) The Seller shall deliver to the Buyer copies of all operating
statements prepared in the ordinary course of business within fifteen (15)
days after the Seller's preparation thereof relating to periods prior to
Closing, even if prepared after Closing. The Seller shall also deliver to
the Buyer copies of any bills for real estate taxes and personal property
taxes and copies of any notices pertaining to real estate taxes or
assessments applicable to the Properties that are received by the Seller
after the date hereof, even if received after Closing. The obligations set
forth in this Paragraph 6.1(vi) shall survive the Closing.
(vii) Without the prior consent of the Buyer, which consent shall not
be unreasonably withheld, the Seller shall not enter into any new leasing,
brokerage or service contract with respect to the Properties that will be
binding upon the Buyer for a period in excess of three (3) months after
Closing and the Seller shall not enter into any other contract or agreement
(other than as set forth in
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clause (iii) above) that will be binding upon the Buyer for any period of
time after Closing without the Buyer's consent in its sole discretion.
SECTION 6.2 Assumption of Mortgages. The Buyer will assume the Loans;
provided that it shall be a condition precedent to the Buyer's obligation to
assume any Loan encumbering a Property that the following terms and conditions
are satisfied at the Closing:
(a) Subject to the terms of this Section 6.2 and Section 10.21 below,
at the Closing, the Buyer and the Seller will execute and deliver an
Assumption Agreement reasonably approved by the Buyer with respect to each
Loan being assumed by the Buyer, along with such other reasonable
documentation reasonably approved by the Buyer as necessary or appropriate,
or as reasonably required by any Mortgage Lender, to cause the Buyer to
assume such Loan. Each such Assumption Agreement shall confirm the amounts
outstanding under the applicable Loan, shall confirm the Loan Documents,
and shall contain a representation that to the best of the Lender's
knowledge, there are no defaults by the borrower thereunder.
Notwithstanding the foregoing, the Buyer shall not be required to assume
any of the Seller's obligations under the Loans and Loan Documents arising
prior to the Closing Date. Notwithstanding anything to the contrary
contained herein, under no circumstances shall the Loan Documents,
Assumption Agreement or such other reasonable documentation contain any
provision which provides recourse against California Public Employee
Retirement System or any entity other than the Buyer.
(b) In connection with the Buyer's assumption of Loans at Closing, the
Buyer and the Seller shall each pay fifty percent (50%) of all commercially
reasonable assumption fees and other commercially reasonable costs and
expenses to be paid to the Mortgage Lender under the applicable Loan
Documents for such assumption (including the Mortgage Lender's legal fees,
if required to be paid under the Loan Documents), and any title, recording,
escrow, transfer fees and closing costs related thereto.
(c) Notwithstanding anything to the contrary contained herein, at the
Closing, the Buyer shall not be required to assume any Loan which (i)
encumbers any property which is not described on Exhibit A, Exhibit A-2 or
Exhibit B attached hereto, (ii) encumbers any property which is not being
acquired by the Buyer at such Closing, or (iii) is cross-defaulted with any
other loan or agreements affecting any property not being acquired by the
Buyer at the Closing.
(d) In the event that any of the conditions or terms set forth in
Sections 6.2(a) through Section 6.2(c) are not satisfied prior the Closing,
the Seller shall repay the Loan or Loans for which such conditions or terms
are not satisfied at the Closing, including, without limitation, any
prepayment penalty or fee in connection therewith.
(e) If the terms of a Loan related to a particular Property prohibit
prepayment by the Seller and the lender(s) under such Loan do not consent
to the assumption of such Loan by the Buyer, then such Property shall be
deemed to be a Category A Deleted Property.
SECTION 6.3 Service Contracts. Not later than sixty (60) days after the
commencement of the Diligence Period, the Buyer may deliver a written notice to
the Seller instructing the Seller which property management, brokerage and
leasing contracts and servicing contracts the Buyer wishes to be terminated upon
Closing. If the Buyer delivers such a timely notice, then, unless otherwise
agreed by the Seller and the Buyer, (i) the Seller will terminate, prior to the
Closing, all such identified property management, brokerage and leasing
contracts (subject to customary obligations under such contracts to pay
commissions if the leasing agent secures a tenant from a designated list of
possible tenants within a specified period of time (not more than ninety (90)
days) after termination, which the Buyer will assume); and (ii) and the Seller
will notify third parties under all such service contracts of the Seller's
intent to terminate such service contracts at the earliest possible termination
date (but no earlier than Closing, unless the Seller elects to do so). The
Seller shall pay any termination fees incurred by the Seller with respect to any
such cancellation.
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SECTION 6.4 Tenant Notices; Estoppels.
(a) At the Closing, the Seller shall furnish the Buyer with a signed notice
to be given to each tenant of the Properties. The notice shall disclose that the
Property has been sold to the Buyer, that, after the Closing, all rents should
be paid to the Buyer at an address to be supplied by the Buyer and that the
Buyer shall be responsible for all the tenant's security deposit. The form of
the notice and the amount of each tenant's security deposit listed therein shall
be otherwise reasonably acceptable to the parties.
(b) Between the date hereof and the Closing, the Seller shall use
commercially reasonable efforts to obtain estoppel certificates, substantially
in the form of Exhibit H hereto, from tenants of the Properties.
(c) Between the date hereof and the Closing, the Seller shall use
commercially reasonable efforts to obtain ground lessor estoppel certificates,
in form reasonably satisfactory to the Buyer, or on such other form as may be
required by the applicable lessors, from lessors under the Ground Leases.
SECTION 6.5 Solicitation; Negotiations.
(a) Subject to Section 6.5(b), unless and until this Agreement shall have
been terminated in accordance with its terms, the Seller agrees and covenants
that (i) neither the Seller nor any of its respective subsidiaries or
affiliates, shall, and each of them shall direct and cause their respective
officers, directors and employees, and shall use commercially reasonable efforts
to cause their agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
subsidiaries), not to, directly or indirectly, initiate, solicit or encourage
any inquiries or the making or implementation of any proposal or offer with
respect to a merger, acquisition, or similar transaction involving the direct or
indirect purchase of all or any material portion of the Properties or of the
Seller (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any person
relating to, an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal.
(b) Notwithstanding anything set forth in this Agreement to the contrary,
the Board of Directors of the Seller (the "Seller Board") may furnish
information to or enter into discussions or negotiations with any person that
makes an unsolicited bona fide proposal to purchase all or a portion of the
Properties having an aggregate Allocated Value of at least seventy-five percent
(75%) of the Purchase Price, whether, directly or indirectly, by merger,
purchase of stock, purchase of assets, consolidation or otherwise (a
"Proposal"), if the Seller Board determines in good faith that the Proposal, if
consummated as proposed, would result in a transaction more favorable to the
Seller's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Proposal being referred to herein as a
"Superior Proposal"). If the Seller Board is prepared to accept the Superior
Proposal, then the Seller shall give the Buyer 48 hours notice that the Seller
Board is prepared to accept the Superior Proposal, provided that the Seller may
not definitively accept a Superior Proposal unless the Seller concurrently
therewith terminates this Agreement pursuant to Section 9.1(c)(iv) and, promptly
after such termination, makes any payments required by Section 9.3.
SECTION 6.6 Proxy Statement; Meeting of Stockholders.
(a) Promptly after the execution hereof and no later than thirty (30) days
before the Final Date (but in no event earlier than may be required, under the
circumstances of the transactions contemplated hereby and any other related
transactions, for such proxy statement to comply with applicable law), the
Seller shall prepare and file with the Securities and Exchange Commission (the
"SEC") the proxy statement for the solicitation of a vote of the Seller's
stockholders to approve the transactions contemplated hereby, which, subject to
the fiduciary duty of the Seller Board, shall include the recommendation of the
Seller Board that stockholders of the Seller vote in favor of the approval and
adoption of this Agreement (the "Proxy Statement"). The Seller shall use all
reasonable efforts to have the Proxy Statement cleared by the SEC as promptly as
practicable after such filing, and promptly thereafter mail the Proxy Statement
to the stockholders of the Seller. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the Seller
will promptly inform the Buyer of such occurrence and
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cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders of the Seller, such amendment or supplement.
(b) The Seller shall take all actions necessary in accordance with Maryland
law, its Certificate of Incorporation and bylaws to duly call, give notice of,
convene and hold a meeting of its stockholders as promptly as practicable to
consider and vote upon the adoption and approval of this Agreement and the
transactions contemplated hereby (the "Meeting"). The stockholder vote required
for the adoption and approval of the transactions contemplated by this Agreement
shall be the vote required by Maryland law, the Seller's Certificate of
Incorporation and bylaws. Notwithstanding anything to the contrary contained in
this Agreement, the Seller may adjourn or postpone (i) the Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement is provided to the Seller's stockholders in advance of a vote on the
transactions contemplated by this Agreement or (ii) the time for which the
Meeting is originally scheduled (as set forth in the Proxy Statement), if there
are insufficient shares represented, either in person or by proxy, to constitute
a quorum necessary to conduct the business of the Meeting.
(c) The Seller will promptly inform the Buyer of the results of the Meeting
and the satisfaction or non-satisfaction of the condition set forth in Section
8.1(a).
SECTION 6.7 No Employees. In no event will the transactions contemplated
hereby be deemed to render employees of the Seller to be employees of the Buyer,
and the Buyer shall have no obligations with respect to such employees.
SECTION 6.8 Management Agreement. The Buyer and the Seller hereby covenant
to use commercially reasonable efforts to enter into a management agreement with
respect to the Buyer's retention of the Seller as the manager of the Properties
after the Closing. Notwithstanding the foregoing or any other terms contained
herein, neither the execution or non-execution of such management agreement nor
the satisfaction or nonsatisfaction of the obligations of either party hereto
under this Section 6.8 shall be a condition to the respective obligations of the
parties to effect the Closing and, if the parties do not enter into any such
management agreement, neither party will have any further obligation to the
other with respect to such management agreement.
ARTICLE VII
CLOSING AND ESCROW
SECTION 7.1 Escrow Instructions. Upon execution of this Agreement, the
parties hereto shall deposit an executed counterpart of this Agreement with the
Title Company, and this instrument shall serve as the instructions to the Title
Company as the escrow holder for consummation of the purchase and sale
contemplated hereby. The Seller and the Buyer agree to execute such reasonable
additional and supplementary escrow instructions as may be appropriate to enable
the Title Company to comply with the terms of this Agreement; provided, however,
that in the event of any conflict between the provisions of this Agreement and
any supplementary escrow instructions, the terms of this Agreement shall
control.
SECTION 7.2 Closing. Subject to Article VIII hereof, the Closing hereunder
shall be held and delivery of all items to be made at the Closing under the
terms of this Agreement shall be made at the offices of the Title Company on the
date which is seven (7) business days after the satisfaction or waiver of all
conditions to Closing, and before 9:00 a.m. local time, or such other earlier
date and time as the Buyer and the Seller may mutually agree upon in writing
(the "Closing Date"). Except as expressly provided in this Agreement, such date
and time may not be extended without the prior written approval of both the
Seller and the Buyer. All funds of the Buyer to be deposited in escrow for the
Closing shall be deposited by the Buyer in escrow no later than the last
business day prior to the Closing Date.
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SECTION 7.3 Deposit of Documents.
(a) At or before the Closing, the Seller shall deposit into escrow the
following items:
(1) the duly executed and acknowledged Deeds conveying the Real
Properties to be purchased at the Closing (but not the Real Properties
subject to Ground Leases, provided, the Buyer may require a Deed to it
conveying the Seller's interest as owner of buildings and improvements on
such Ground Leased Property) to the Buyer subject to the Conditions of
Title;
(2) four (4) duly executed counterparts of the Bill of Sale in the
form attached hereto as Exhibit I (the "Bill of Sale"), with Exhibit C to
said Bill of Sale listing the Conditions of Title;
(3) four (4) duly executed counterparts of an Assignment and
Assumption of Leases, Service Contracts and Warranties in the form attached
hereto as Exhibit J pursuant to the terms of which the Buyer shall assume
all of the Seller's obligations under the Leases, equipment leases, service
contracts, leasing commission agreements and tenant improvement agreements
affecting the Properties to the extent set forth in said Exhibit J (the
"Assignment of Leases"), with Exhibit D to said document listing the
Conditions of Title;
(4) four (4) duly executed counterparts of an Assignment and
Assumption of Ground Leases in forms to be agreed by the parties pursuant
to the terms of which the Buyer shall assume all of the Seller's
obligations under the Ground Leases which accrue from and after the date of
Closing (the "Assignment of Ground Leases");
(5) four (4) duly executed counterparts of an Assumption Agreement for
each Loan being assumed pursuant to Section 6.2 hereof pursuant to the
terms of which the Buyer shall assume all of the Seller's obligations under
the Loans which accrue from and after the date of Closing, which Assumption
Agreements must be reasonably acceptable to the Buyer and conform to the
provisions of Section 6.2 above (each, an "Assumption Agreement");
(6) an affidavit pursuant to Section 1445(b)(2) of the Federal Code,
and on which the Buyer is entitled to rely, that the Seller is not a
"foreign person" within the meaning of Section 1445(f)(3) of the Federal
Code and any other comparable state certificates;
(7) good standing letters reasonably satisfactory to the Buyer from
the Arizona Department of Revenue ("DOR") and all other appropriate state,
county and/or municipal taxing authorities in Arizona (collectively the
"Arizona Taxing Authorities") stating that Seller has paid all applicable
rental taxes, transaction privilege (sales) taxes, personal property taxes,
use taxes and similar excise taxes due in connection with the Properties
located in Arizona and the operation of the Seller's business at the
Properties located in Arizona;
(8) An Affidavit of Property Value for each of the Real Properties
located in Arizona allocating the value of said Real Properties in
accordance with Exhibit A-1;
(9) A Washington real estate excise tax affidavit in the form required
by the Title Company for each of the Real Properties located in Washington
allocating the value of said Real Properties in accordance with Exhibit
A-1;
(10) Four (4) duly executed counterparts of a closing statement in
form and content satisfactory to the Buyer and the Seller (the "Closing
Statement") duly executed by the Seller.
(b) At or before Closing, the Buyer shall deposit into escrow the following
items:
(1) funds necessary to close this transaction;
(2) four (4) duly executed counterparts of the Bill of Sale;
(3) four (4) duly executed counterparts of the Assignment of Leases;
(4) An Affidavit of Property Value for each of the Real Properties
located in Arizona allocating the value of said Real Properties in
accordance with Exhibit A-1; and
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(5) A Washington real estate excise tax affidavit in the form required
by the Title Company for each of the Real Properties located in Washington
allocating the value of said Real Properties in accordance with Exhibit
A-1;
(6) four (4) duly executed counterparts of the Closing Statement.
(7) four (4) duly executed counterparts of the Assignment of Ground
Leases; and
(8) four (4) duly executed counterparts of an Assumption Agreement for
each Loan being assumed pursuant to Section 6.2 hereof.
(c) The Buyer and the Seller shall each deposit such other instruments as
are reasonably required by the Title Company or otherwise required to close the
escrow and consummate the purchase and sale of the Properties in accordance with
the terms hereof, including, without limitation, an agreement (the "Designation
Agreement") designating Title Company as the "Reporting Person" for the
transaction pursuant to Section 6045(e) of the Federal Code and the regulations
promulgated thereunder, and executed by the Seller, the Buyer and Title Company.
The Designation Agreement shall appear in the Seller's and the Buyer's escrow
instructions and shall be in a form reasonably acceptable to the parties, and,
in any event, shall comply with the requirements of Section 6045(e) of the
Federal Code and the regulations promulgated thereunder.
(d) The Seller shall deliver to the Buyer originals of the leases, copies
of the tenant correspondence files (for the three (3) most recent years of the
Seller's ownership of the Properties only), and originals of any other items
which the Seller was requested to furnish the Buyer copies of or make available
at the Properties, except for the Seller's general ledger and other internal
books or records which shall be retained by the Seller, within five (5) business
days after the Closing Date. The Seller shall deliver to the Buyer keys to the
Properties on the Closing Date.
(e) The Seller shall deliver possession of the Properties to the Buyer upon
the Closing, subject to the Conditions of Title.
SECTION 7.4 Further Efforts. Subject to the terms and conditions herein
provided, including Section 6.5, each of the parties hereto agrees to use all
reasonable efforts to take or cause to be taken all action and to do or cause to
be done all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, including using
all reasonable efforts to do the following, (i) obtain consents of all third
parties and governmental entities necessary, proper, advisable or reasonably
requested by the Buyer or the Seller, for the consummation of the transactions
contemplated by this Agreement; (ii) use all reasonable efforts to take or cause
to be taken all action and to do or cause to be done all things reasonably
necessary, proper or advisable in order for the conditions to closing set forth
in Article VIII hereof to be satisfied; and (iii) execute any additional
instruments necessary to consummate the transactions contemplated hereby.
SECTION 7.5 Prorations.
(a) Except as set forth herein, the Seller shall pay for all tenant
improvement costs, leasing commissions and Tenant Inducements for leases
executed prior to the Closing. Rents, including, without limitation, percentage
rents, if any, and any additional charges and expenses payable under tenant
Leases or licenses, including without limitation telecommunications licenses,
all as and when actually collected (whether such collection occurs prior to, on
or after the Closing Date); rents payable by the Seller on the Ground Leases,
interest payable under the Loans, real property taxes and assessments; water,
sewer and utility charges; personal property taxes, if any; amounts payable
under any service contracts; annual permits and/or inspection fees (calculated
on the basis of the period covered); any other expenses of the operation and
maintenance of the Properties; and the above market portions of tenant
improvement costs and leasing commissions related to the Properties in the event
the parties, in their sole discretion, agree in writing, after written prior
notice thereof from the Seller to the Buyer, that any such tenant improvements
or leasing commissions are for amounts that are above market rates, shall all be
prorated as of 12:01 a.m. on the date the Deed is recorded, on the basis of a
365-day year. Any sums collected by the Buyer from
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tenants after the Closing shall be promptly paid to the Seller to the extent of
any rents and other sums which were delinquent at Closing, after first applying
all such amounts collected to current obligations. The Buyer shall use
reasonable efforts to collect such delinquent rents but shall not be obligated
to expend any sums, commence any litigation, terminate any lease or threaten to
terminate any lease to do so. The Seller retains the rights to collect any such
delinquent rents from tenants after Closing provided that the Seller shall use
personnel independent of any personnel who may be performing management services
for the Buyer to do so and provided that the Seller shall not commence any legal
or equitable proceedings in the nature of an unlawful detainer, eviction or
other proceeding which would have the effect of interfering with any tenant's
quiet enjoyment of its leased premises or result in a lien or encumbrance on
such leased premises. The amount of any security deposits (but not letters of
credit in lieu thereof, which shall be transferred by the Seller in accordance
with the provisions of Section 7.5(b) below) under tenant Leases shall be
credited against the Purchase Price and the Buyer shall assume all liabilities
thereunder. The Seller shall receive credits at Closing for the amount of any
utility or other deposits with respect to the Properties, in which case all such
deposits for which the Seller receives credit shall remain in place for the
benefit of the Buyer and the Seller shall execute and deliver such documents as
shall be necessary to assign such deposits to the Buyer. The Buyer shall use
reasonable efforts to cause all utilities and letters of credit to be
transferred into the Buyer's name and account at the time of Closing. The Seller
and the Buyer hereby agree that if any of the aforesaid prorations and credits
cannot be calculated accurately on the Closing Date, then the same shall be
calculated as soon as reasonably practicable after the Closing Date and either
party owing the other party a sum of money based on such subsequent proration(s)
or credits shall promptly pay said sum to the other party. The Seller and the
Buyer shall jointly prepare and approve a preliminary Closing Statement on the
basis of the Leases and other sources of income and expenses, and shall deliver
such computation to the Title Company prior to the Closing.
(b) In connection with the transfer of the Property to the Buyer, the
Seller shall use commercially reasonable efforts to have each letter of credit
security deposit or other noncash security deposit (collectively, the "Noncash
Deposits") for those tenants of the Properties which have Noncash Deposits
reissued in favor of the Buyer upon the Closing. In the event that the Seller is
unable to have all of the Noncash Deposits reissued in favor of the Buyer upon
the Closing, then the Seller shall use commercially reasonable efforts to have
the Noncash Deposits promptly reissued in favor of the Buyer after the Closing.
Until all of the Noncash Deposits are reissued in favor of the Buyer, in the
event that the Buyer is entitled to draw down a Noncash Deposit or otherwise
realize upon a Noncash Deposit pursuant to a tenant's lease, then the Seller
shall reasonably cooperate with the Buyer as reasonably requested by the Buyer
to facilitate such draw down or realization.
(c) The provisions of Sections 7.4 and 7.5 shall survive the Closing.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Each Party's Obligations to Effect the
Closing. The respective obligations of each party hereto to effect the Closing
are subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Seller; and
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
governmental entity that prohibits or enjoins the consummation of the
Closing.
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SECTION 8.2 Conditions to the Obligations of the Seller. The obligation of
the Seller to effect the Closing is subject to the satisfaction at or prior to
the Closing Date of the following conditions:
(a) there shall not have been a breach of any representations and
warranties on the part of the Buyer set forth in this Agreement that
materially adversely affects (or materially delays) the ability of the
Buyer to consummate the Closing, except for any such breach that the Buyer
has cured within five (5) business days after notice by the Seller thereof,
and, at the Closing, the Buyer shall have delivered to the Seller a
certificate to that effect, executed by an executive officer of the Buyer;
(b) there shall not have occurred a breach by the Buyer of any of its
covenants and obligations hereunder that materially adversely affects (or
materially delays) the ability of the Buyer to consummate the Closing,
except for any such breach that the Buyer has cured within five (5)
business days after notice by the Seller thereof, and, at the Closing, the
Buyer shall have delivered to the Seller a certificate to that effect,
executed by an executive officer of the Buyer; and
(c) The Buyer shall have delivered the documents set forth in Sections
7.3(b) and (c) and as otherwise required hereby.
(d) The Seller shall have received a copy of the resolutions of the
Buyer, certified by an appropriate officer of the Buyer, reflecting the
Buyer's authority to consummate the transactions contemplated hereby,
including the authority of the Buyer to consummate the purchase of Deferred
Properties, if any.
SECTION 8.3 Conditions to the Obligations of the Buyer. The obligations of
the Buyer to effect the Closing are subject to the satisfaction at or prior to
the Closing Date of the following conditions (provided that, with respect to any
event, circumstance or condition that is both a Material Adverse Matter and a
breach of a representation, warranty, covenant or agreement of the Seller, such
event, circumstance or condition shall be treated as a Material Adverse Matter
and not as a breach of a representation, warranty, covenant or agreement of the
Seller):
(a)(i) the representations and warranties of the Seller contained in
this Agreement (other than those set forth in Sections 2.1(e), (f), (l) and
(h) (to the extent (h) relates to Leases, Ground Leases or other
income-producing assets related to the Properties)) shall be true and
correct at and as of the Closing with the same effect as if made at and as
of the Closing and, at the Closing (except to the extent the aggregate of
all such breaches, together with breaches of the covenants and obligations
of the Seller to be performed at or before the Closing pursuant to the
terms of this Agreement, do not result in damages or losses incurred or to
be incurred by the Buyer that equal or exceed Five Hundred Thousand Dollars
($500,000) and with respect to Section 2.1(f) except for Leases entered
into in compliance with Section 6.1(iii)); and
(ii) the representations and warranties of the Seller set forth in
Sections 2.1(e), (f), (l) and (h) (to the extent (h) relates to Leases,
Ground Leases or other income-producing assets related to the Properties)
of this Agreement shall be true and correct at and as of the Closing with
the same effect as if made at and as of the Closing, except with respect to
Section 2.1(f) for Leases entered into in compliance with Section 6.1(iii),
and, with respect to each of clauses (i) and (ii), the Seller shall have
delivered to the Buyer a certificate to that effect, executed by an
executive officer of the Seller;
(b) each of the covenants and obligations of the Seller to be
performed at or before the Closing pursuant to the terms of this Agreement
shall have been duly performed at or before the Closing (except to the
extent the aggregate of all such breaches, together with breaches of the
representations and warranties of the Seller contained in this Agreement,
do not result in damages or losses incurred or to be incurred by the Buyer
that equal or exceed Five Hundred Thousand Dollars ($500,000)) and, at the
Closing, the Seller shall have delivered to the Buyer a certificate to that
effect, executed by an executive officer of the Company;
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(c) The Seller shall have delivered the documents set forth in
Sections 7.3(a) and (c) and as otherwise required hereby;
(d) The Buyer shall have received a copy of the resolutions of the
Seller's Board of Directors, certified by an appropriate officer of the
Seller, reflecting the authorization of the transactions contemplated
hereby; and
(e) the Title Company shall have delivered the Title Policy to the
Buyer.
ARTICLE IX
TERMINATION
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval and adoption of this
Agreement by the Seller's stockholders:
(a) by mutual written consent of the Buyer and the Seller;
(b) by the Buyer or the Seller if the Closing has not been consummated
by December 15, 2000 (the "Final Date"); provided, however, that no party
may terminate this Agreement pursuant to this Section 9.1(b) if such
party's failure to fulfill any of its obligations under this Agreement
shall have been a principal reason that the Closing shall not have occurred
on or before said date;
(c) by the Seller if:
(i) there shall have been a breach of any representations or
warranties on the part of the Buyer set forth in this Agreement that
materially adversely affects (or materially delays) the ability of the
Buyer to consummate the Closing, and the Buyer has not cured such breach
within five (5) business days after notice by the Seller thereof,
provided that the Seller has not breached any of its obligations
hereunder in any material respect;
(ii) there shall have been a breach by the Buyer of any of its
covenants or agreements hereunder that materially adversely affects (or
materially delays) the ability of the Buyer to consummate the Closing,
and the Buyer has not cured such breach within five (5) business days
after notice by the Seller thereof, provided that the Seller has not
breached any of its obligations hereunder in any material respect;
(iii) the Seller shall have convened the Meeting and shall have
failed to obtain the requisite vote of its stockholders at the Meeting
(including any adjournments thereof) to approve this Agreement and the
transactions contemplated hereby;
(iv) the Seller Board has received and is prepared to accept a
Superior Proposal and has complied with the provisions of Section 6.5;
provided that no such termination shall be effective until the Seller
shall have made the termination payment set forth in Section 9.3(a);
(v) the remediation costs (net of insurance proceeds received by
the Seller related to such remediation costs, exclusive of Breach Costs
and exclusive of a maximum of One Million Five Hundred Thousand Dollars
in remediation costs (if any), for Environmental Defects directly
related to the Tayfor leased space at the Mountain Avenue facility) for
Environmental Defects, Title Defects and Zoning Defects (whether related
to Deferred Properties or Deleted Properties) exceeds Twenty-Five
Million Dollars ($25,000,000) in the aggregate;
(vi) the aggregate Value Diminution (net of insurance proceeds and
condemnation awards received by the Seller related to such Value
Diminution and exclusive of Breach Costs) (whether related to Deferred
Properties or Deleted Properties) exceeds Twenty-Five Million Dollars
($25,000,000);
(vii) the sum of remediation costs (net of insurance proceeds
received by the Seller related to such remediation costs, exclusive of
Breach Costs and exclusive of a maximum of One Million
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Five Hundred Thousand Dollars in remediation costs (if any), for
Environmental Defects directly related to the Tayfor leased space at the
Mountain Avenue facility) for Environmental Defects, Title Defects and
Zoning Defects plus the aggregate Value Diminution (net of insurance
proceeds and condemnation awards received by the Seller related to such
Value Diminution) (in each case whether related to Deferred Properties
or Deleted Properties) exceeds Forty Million Dollars ($40,000,000) in
the aggregate;
(viii) the remediation costs (net of insurance proceeds received by
the Seller related to such remediation costs and exclusive of Breach
Costs) for Structural Defects and Code Defects (whether related to
Deferred Properties, Deleted Properties or Properties as to which the
Seller elects to cure any Material Adverse Matter) exceeds the Shared
Remediation Maximum; or
(ix) the aggregate Allocated Values for all Category B Deleted
Properties equals or exceeds Ninety Million Dollars ($90,000,000);
provided, however, with respect to clauses (v), (vi), (vii) and (viii), the
remediation costs for a particular matter shall not count both as
remediation costs and Value Diminution (with the intent that amounts are
not double counted).
(d) by the Buyer if:
(i) there shall have been a breach of any representations or
warranties on the part of the Seller set forth in this Agreement such
that the condition set forth in Section 8.3(a) would be incapable of
being satisfied by the Final Date, and the Seller has not cured such
breach within five (5) business days after notice by the Buyer thereof,
provided that the Buyer has not breached any of its obligations
hereunder in any material respect;
(ii) there shall have been a breach by the Seller of any of its
covenants or agreements hereunder such that the condition set forth in
Section 8.3(b) would be incapable of being satisfied by the Final Date,
and the Seller has not cured such breach within five (5) business days
after notice by the Buyer thereof, provided that the Buyer has not
breached any of its obligations hereunder in any material respect;
(iii) the Seller shall have convened the Meeting and shall have
failed to obtain the requisite vote of its stockholders at the Meeting
(including any adjournments thereof) to approve this Agreement and the
transactions contemplated hereby;
(iv) the Seller Board has accepted a Superior Proposal or has
withdrawn or adversely modified its approval or recommendation of this
Agreement; or
(v) the aggregate square footage of the Deleted Properties exceeds
Five Million (5,000,000) square feet.
SECTION 9.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders;
provided that the provisions of this Section 9.2 and Sections 9.3, 9.4, 10.5,
10.8, 10.9 and 10.10 shall survive any such termination. Nothing contained in
this Section 9.2 shall relieve any party from liability for any breach of any
covenant in this Agreement prior to such termination.
SECTION 9.3 Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to
Section 9.1(c)(iv) or 9.1(d)(iv), the Title Company shall promptly (within two
(2) business days) return the Deposit to the Buyer, with interest from the date
of placement of the Deposit into escrow, and the Seller shall promptly (within
two (2) business days) pay to the Buyer as a termination fee an additional
Twenty-Five Million Dollars ($25,000,000).
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(b) IN THE EVENT THAT THIS AGREEMENT SHALL BE TERMINATED PURSUANT TO
SECTION 9.1(b) AS A RESULT OF A FAILURE TO SATISFY THE CONDITION SET FORTH IN
SECTION 8.1(b) DUE TO AN ORDER, DECREE, RULING OR INJUNCTION ISSUED OR ENTERED
AGAINST THE SELLER OR PURSUANT TO SECTION 9.1(c)(iii), 9.1(c)(ix), 9.1(d)(i),
9.1(d)(ii) OR 9.1(d)(iii), THEN, AS THE BUYER'S SOLE REMEDY, THE TITLE COMPANY
SHALL PROMPTLY (WITHIN TWO (2) BUSINESS DAYS) RETURN THE DEPOSIT TO THE BUYER,
WITH INTEREST FROM THE DATE OF PLACEMENT OF THE DEPOSIT INTO ESCROW, AND THE
SELLER SHALL PROMPTLY (WITHIN TWO (2) BUSINESS DAYS) PAY TO THE BUYER THE AMOUNT
OF SIX MILLION DOLLARS ($6,000,000) AS REIMBURSEMENT FOR THE OUT-OF-POCKET
COSTS, FEES AND EXPENSES INCURRED BY THE BUYER OR ON ITS BEHALF IN CONNECTION
WITH THIS AGREEMENT AND AS LIQUIDATED DAMAGES IMMEDIATELY UPON THE OCCURRENCE OF
THE EVENT DESCRIBED IN THIS SECTION 9.3(b) GIVING RISE TO SUCH DAMAGES. IT IS
SPECIFICALLY AGREED THAT THE AMOUNTS TO BE PAID PURSUANT TO THIS SECTION 9.3(b)
REPRESENT LIQUIDATED DAMAGES AND NOT A PENALTY. THE SELLER HEREBY WAIVES ANY
RIGHT TO SET-OFF OR COUNTERCLAIM AGAINST SUCH AMOUNT. AFTER NEGOTIATION, THE
PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE
OF THIS AGREEMENT, THE AMOUNTS SET FORTH IN THIS SECTION 9.3(b) ARE A REASONABLE
ESTIMATE OF THE DAMAGES THAT THE BUYER WOULD INCUR IN SUCH EVENT. BY PLACING
THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE
STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL
WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS
LIQUIDATED DAMAGES PROVISION.
INITIALS: THE SELLER ____________ THE BUYER ____________
(c) In the event that this Agreement shall be terminated pursuant to
Section 9.1(a), 9.1(c)(v), 9.1(c)(vi), 9.1(c)(vii), 9.1(c)(viii) or 9.1(d)(v) or
pursuant to Section 9.1(b) as a result of a failure to satisfy the condition set
forth in Section 8.3(e), the Title Company shall promptly (within two (2)
business days) return the Deposit to the Buyer, with interest from the date of
placement of the Deposit into escrow.
(d) IN THE EVENT THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 9.1(c)(i)
OR 9.1(c)(ii) OR IN THE EVENT THIS AGREEMENT HAS BEEN TERMINATED UNDER SECTION
9.1(b) AS A RESULT OF A FAILURE TO SATISFY THE CONDITION SET FORTH IN SECTION
8.1(b) DUE TO AN ORDER, DECREE, RULING OR INJUNCTION ISSUED OR ENTERED AGAINST
THE BUYER, THEN, AS THE SELLER'S SOLE REMEDY, THE TITLE COMPANY SHALL PROMPTLY
(WITHIN TWO (2) BUSINESS DAYS) DELIVER THE DEPOSIT, TOGETHER WITH ANY INTEREST
THEREON FROM THE DATE OF PLACEMENT OF THE DEPOSIT INTO ESCROW, TO THE SELLER AND
THE SELLER SHALL BE ENTITLED TO RETAIN SUCH FUNDS. IT IS SPECIFICALLY AGREED
THAT THE AMOUNT TO BE PAID PURSUANT TO THIS SECTION 9.3(d) REPRESENTS LIQUIDATED
DAMAGES AND NOT A PENALTY. THE BUYER HEREBY WAIVES ANY RIGHT TO SET-OFF OR
COUNTERCLAIM AGAINST SUCH AMOUNT. AFTER NEGOTIATION, THE PARTIES HAVE AGREED
THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT,
THE AMOUNTS SET FORTH IN THIS SECTION 9.3(d) ARE A REASONABLE ESTIMATE OF THE
DAMAGES THAT THE SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS
BELOW, EACH PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE
ABOVE AND THE FACT THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT
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THE TIME THIS AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES
PROVISION.
INITIALS: THE SELLER ____________ THE BUYER ____________
(e) In the event this Agreement has been terminated under Section
9.1(d)(ii) as a result of the Seller's breach of its covenants and agreements
set forth in Section 6.6 and, within six (6) months of the termination of this
Agreement, the Seller shall enter into an agreement under which a third party
would acquire, directly or indirectly, by merger or acquisition of stock or
assets, all or substantially all of the Properties, then the Seller shall
promptly (within two (2) business days) pay to the Buyer an additional
termination fee of Nineteen Million Dollars ($19,000,000) (unless the
termination fee of Twenty-Five Million Dollars ($25,000,000) set forth in
Section 9.3(a) has already been paid).
SECTION 9.4 Termination after the Closing. The obligations to purchase and
sell a particular Deferred Property after the Closing may be terminated at any
time after the Closing:
(a) by mutual written consent of the Buyer and the Seller;
(b) by the Buyer or the Seller if the cure for such Deferred Property,
agreed upon under the terms hereof, has not been effected, under the terms
hereof, prior to the first anniversary of the Closing or if the purchase
and sale of such Deferred Property has not been consummated by the date
that is thirteen months after the Closing (such date, the "Deferred
Property Final Date"); provided, however, that no party may terminate its
obligations with respect to such Deferred Property pursuant to this Section
9.4(b) if such party's failure to fulfill any of its obligations under this
Agreement shall have been a principal reason that the purchase and sale of
such Deferred Property shall not have occurred on or before said date;
(c) by the Seller if:
(i) there shall have been a breach of any representations or
warranties on the part of the Buyer set forth in this Agreement that
materially adversely affects (or materially delays) the ability of the
Buyer to consummate the purchase and sale of such Deferred Property, and
the Buyer has not cured such breach within five (5) business days after
notice by the Seller thereof, provided that the Seller has not breached
any of its obligations hereunder in any material respect; or
(ii) there shall have been a breach by the Buyer of any of its
covenants or agreements hereunder that materially adversely affects (or
materially delays) the ability of the Buyer to consummate the purchase
and sale of such Deferred Property, and the Buyer has not cured such
breach within five (5) business days after notice by the Seller thereof,
provided that the Seller has not breached any of its obligations
hereunder in any material respect.
(d) by the Buyer if:
(i) there shall have been a breach of any representations or
warranties on the part of the Seller set forth in this Agreement such
that the condition set forth in Section 8.3(a) would be incapable of
being satisfied by the Deferred Property Final Date, and the Seller has
not cured such breach within five (5) business days after notice by the
Buyer thereof, provided that the Buyer has not breached any of its
obligations hereunder in any material respect;
(ii) there shall have been a breach by the Seller of any of its
covenants or agreements hereunder such that the condition set forth in
Section 8.3(b) would be incapable of being satisfied by the Deferred
Property Final Date, and the Seller has not cured such breach within
five (5) business days after notice by the Buyer thereof, provided that
the Buyer has not breached any of its obligations hereunder in any
material respect.
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SECTION 9.5 Effect of Termination after the Closing.
(a) In the event that the obligations with respect to a particular Deferred
Property are terminated pursuant to Section 9.4(a), the Title Company shall
promptly return to the Buyer the Deferred Property Deposit with respect to such
Deferred Property.
(b) IN THE EVENT THAT THE OBLIGATIONS WITH RESPECT TO A PARTICULAR DEFERRED
PROPERTY ARE TERMINATED UNDER SECTION 9.4(d) OR UNDER SECTION 9.4(b) AS A RESULT
OF A FAILURE TO SATISFY THE CONDITIONS SET FORTH IN SECTION 8.1(b) DUE TO AN
ORDER, DECREE, RULING OR INJUNCTION ISSUED OR ENTERED AGAINST THE SELLER, THEN,
AS THE BUYER'S SOLE REMEDY, THE BUYER MAY EITHER (i) ELECT TO ENFORCE SPECIFIC
PERFORMANCE OF THIS AGREEMENT WITH RESPECT TO SUCH DEFERRED PROPERTY OR (ii)
ELECT TO TERMINATE ITS OBLIGATIONS WITH RESPECT TO SUCH DEFERRED PROPERTY IN
WHICH CASE THE TITLE COMPANY SHALL PROMPTLY RETURN TO THE BUYER AN AMOUNT EQUAL
TO THE DEFERRED PROPERTY DEPOSIT WITH RESPECT TO SUCH DEFERRED PROPERTY, AND THE
SELLER SHALL PROMPTLY PAY TO THE BUYER AN AMOUNT EQUAL TO THE PRODUCT OF (A) SIX
MILLION DOLLARS ($6,000,000) AND (B) A FRACTION, THE NUMERATOR OF WHICH IS THE
ALLOCATED VALUE OF SUCH DEFERRED PROPERTY AND THE DENOMINATOR OF WHICH IS THE
AGGREGATE ALLOCATED VALUES OF ALL PROPERTIES. SUCH AMOUNT SHALL BE REIMBURSEMENT
FOR THE OUT-OF-POCKET COSTS, FEES AND EXPENSES INCURRED BY THE BUYER OR ON ITS
BEHALF IN CONNECTION WITH SUCH DEFERRED PROPERTY AND AS LIQUIDATED DAMAGES
IMMEDIATELY UPON THE OCCURRENCE OF THE EVENT DESCRIBED IN THIS SECTION 9.5(b)
GIVING RISE TO SUCH DAMAGES. IN THE EVENT THE BUYER ELECTS TO TERMINATE ITS
OBLIGATION WITH RESPECT TO SUCH DEFERRED PROPERTY PURSUANT TO THE TERMS OF THIS
SECTION 9.5(b), IT IS SPECIFICALLY AGREED THAT THE AMOUNTS TO BE PAID PURSUANT
TO THIS SECTION 9.5(b) REPRESENT LIQUIDATED DAMAGES AND NOT A PENALTY. THE
SELLER HEREBY WAIVES ANY RIGHT TO SET-OFF OR COUNTERCLAIM AGAINST SUCH AMOUNT.
AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT, CONSIDERING ALL THE
CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE AMOUNTS SET FORTH IN
THIS SECTION 9.5(b) ARE A REASONABLE ESTIMATE OF THE DAMAGES THAT THE BUYER
WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY
SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT
THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS
AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION.
INITIALS: SELLER ____________ BUYER ____________
(c) IN THE EVENT THAT THE OBLIGATIONS WITH RESPECT TO A PARTICULAR DEFERRED
PROPERTY ARE TERMINATED UNDER SECTION 9.4(c) OR UNDER SECTION 9.4(b) AS A RESULT
OF A FAILURE TO SATISFY THE CONDITIONS SET FORTH IN SECTION 8.1(b) DUE TO AN
ORDER, DECREE, RULING OR INJUNCTION ISSUED OR ENTERED AGAINST THE BUYER, THEN,
AS THE SELLER'S SOLE REMEDY, THE TITLE COMPANY SHALL PROMPTLY DELIVER TO THE
SELLER AN AMOUNT EQUAL TO THE DEFERRED PROPERTY DEPOSIT WITH RESPECT TO SUCH
DEFERRED PROPERTY, AND THE SELLER SHALL BE ENTITLED TO RETAIN SUCH FUNDS. IT IS
SPECIFICALLY AGREED THAT THE AMOUNT TO BE PAID PURSUANT TO THIS SECTION 9.5(c)
REPRESENTS LIQUIDATED DAMAGES AND NOT A PENALTY. THE BUYER HEREBY WAIVES ANY
RIGHT TO SET-OFF OR COUNTERCLAIM AGAINST SUCH AMOUNT. AFTER NEGOTIATION, THE
PARTIES HAVE AGREED THAT, CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE
OF THIS AGREEMENT, THE AMOUNTS SET
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FORTH IN THIS SECTION 9.5(c) ARE A REASONABLE ESTIMATE OF THE DAMAGES THAT THE
SELLER WOULD INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY
SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT
THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS
AGREEMENT WAS MADE, THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION.
INITIALS: SELLER __________ BUYER __________
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Notices. Any notices required or permitted to be given
hereunder shall be given in writing and shall be delivered (a) in person, (b) by
certified mail, postage prepaid, return receipt requested, (c) by facsimile with
confirmation of receipt, or (d) by a commercial overnight courier that
guarantees next day delivery and provides a receipt, and such notices shall be
addressed as follows:
<TABLE>
<S> <C>
To the Buyer: CalWest Industrial Properties, LLC
c/o The RREEF Funds
101 California Street, 26th Floor
San Francisco, California 94111
Attention: Scott Stuckman
Telephone: 415-781-3300
Fax No.: 415-781-2229
with a copy to: Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
Attention: Michael H. Liever, Esq.
Telephone: 415 773-5808
Fax No.: 415-773-4285
To the Seller: Pacific Gulf Properties Inc.
4220 Von Karman, 2nd Floor
Newport Beach, California 92660-2002
Attention: Chief Executive Officer
Telephone: 949-223-5000
Fax No.: 949-223-5034
with a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Dhiya El-Saden, Esq.
Telephone: 213-229-7196
Fax No.: 213-229-6196
</TABLE>
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<TABLE>
<S> <C>
To Title Company: First America Title Insurance Co. of
Walnut Creek, California
1850 Mt. Diablo Boulevard, Suite 300
Walnut Creek, California 94596
Attention: John Wilson
Telephone:
Fax No.: 510-927-2180
</TABLE>
or to such other address as either party may from time to time specify in
writing to the other party. Any notice shall be effective only upon delivery.
SECTION 10.2 Entire Agreement. This Agreement, together with the Exhibits
hereto, contains all representations, warranties and covenants made by the Buyer
and the Seller and constitutes the entire understanding between the parties
hereto with respect to the subject matter hereof. Any prior correspondence,
memoranda or agreements are replaced in total by this Agreement together with
the Exhibits hereto.
SECTION 10.3 Entry and Indemnity. In connection with any entry by the
Buyer, or its agents, employees or contractors onto the Properties, the Buyer
shall give the Seller reasonable advance notice of such entry and shall conduct
such entry and any inspections in connection therewith so as to minimize, to the
extent reasonably possible, interference with the Seller's business and the
business of the Seller's tenants and otherwise in a manner reasonably acceptable
to the Seller. Without limiting the foregoing, prior to any entry to perform any
on-site testing, the Buyer shall give the Seller oral or written notice thereof,
including the identity of the company or persons who will perform such testing
and the proposed scope of the testing. The Seller shall approve or disapprove
the drilling aspects of any proposed testing within two (2) business days after
receipt of such notice; provided that if the Seller disapproves of, and prevents
the Buyer from performing, any such proposed drilling, the Property subject to
such proposed drilling shall be deemed to be a Deleted Property and provided
further that any proposed testing other than drilling shall be at the Buyer's
discretion. If the Seller fails to respond within such two (2) business day
period, the Seller shall be deemed to have disapproved the proposed testing. If
the Buyer or its agents, employees or contractors take any sample from the
Properties in connection with any such approved testing, the Buyer, at the
request of the Seller, shall provide to the Seller a portion of such sample
being tested to allow the Seller, if it so chooses, to perform its own testing.
The Seller or its representative may be present to observe any testing or other
inspection performed on the Properties. After any such testing, the Buyer shall,
at its cost and to the reasonable satisfaction of the Seller after consideration
of industry standards, restore each Property to its condition prior to any such
testing. The Buyer shall provide the Seller with reasonable prior notice. If the
Buyer intends to contact any governmental authority with respect to any
environmental matter relating to the Properties and the Seller, at the Seller's
election, shall be entitled to have a representative on any phone or other
contact made by the Buyer to a governmental authority and present at any meeting
by the Buyer with a governmental authority. In the event the Buyer contacts any
governmental authority with respect to any matter other than environmental
matters relating to the Properties, the Buyer shall provide the Seller with
prior notice of such contact. The Buyer shall provide the Seller with reasonable
prior notice If the Buyer intends to contact any tenant of the Properties and
the Seller, at the Seller's election, shall be entitled to have a representative
on any phone or other contact made by the Buyer to a tenant and present at any
meeting by the Buyer with a tenant. The Buyer shall maintain, and shall assure
that each of its contractors maintain, public liability and property damage
insurance in amounts (minimum coverage of One Million Dollars ($1,000,000) per
occurrence and Five Million Dollars ($5,000,000) in the aggregate) and in form
and substance adequate (with the Seller named as an additional insured) to
insure against all liability of the Buyer and its agents, employees or
contractors, arising out of any entry or inspections of the Properties pursuant
to the provisions hereof, and the Buyer shall provide the Seller with evidence
of such insurance coverage upon request by the Seller. The Buyer shall indemnify
and hold the Seller harmless from and against any costs, damages, liabilities,
losses, expenses, liens or claims (including, without limitation, reasonable
attorney's fees) arising out of or relating to any entry on the Properties by
the Buyer, its agents, employees or contractors in the course of
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performing the inspections, testings or inquiries provided for in this
Agreement; provided that the Buyer shall not be liable for pre-existing
conditions that are discovered, and not caused, by the Buyer's inspection or
testing. The foregoing indemnity shall survive beyond the Closing, or, if the
sale is not consummated, beyond the termination of this Agreement.
SECTION 10.4 Time. Time is of the essence in the performance of each of
the parties' respective obligations contained herein.
SECTION 10.5 Attorneys' Fees. If either party hereto fails to perform any
of its obligations under this Agreement or if any dispute arises between the
parties hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such
dispute, as the case may be, shall pay any and all costs and expenses incurred
by the other party on account of such default and/or in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorneys' fees and disbursements. Any such attorneys' fees and
other expenses incurred by either party in enforcing a judgment in its favor
under this Agreement shall be recoverable separately from and in addition to any
other amount included in such judgment, and such attorneys' fees obligation is
intended to be severable from the other provisions of this Agreement and to
survive and not be merged into any such judgment. As used in this Agreement, the
term "attorneys' fees" or "expenses" (or similar references to attorneys' fees
and costs or expenses) shall include, without limitation, all attorneys' and
paralegals' fees and expenses, whether in action or proceeding, upon appeal
therefrom, or in connection with any petition for review or action to rescind
this Agreement, or in a case or proceeding under the Bankruptcy Code or
successor statute, or in connection with any other action to enforce any
provision of this Agreement.
SECTION 10.6 Assignment. Prior to Closing, the Buyer's rights and
obligations hereunder shall not be assignable without the prior written consent
of the Seller. Notwithstanding the foregoing, the Seller's consent shall not be
required for any assignment by the Buyer to an entity of which the Buyer has
majority ownership and control. The Buyer shall in no event be released from any
of its obligations or liabilities hereunder in connection with any assignment.
Subject to the provisions of this Section, this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
SECTION 10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 10.9 Confidentiality and Return of Documents. The Buyer and the
Seller shall each maintain as confidential any and all material obtained about
the other or, in the case of the Buyer, about the Properties, this Agreement or
the transactions contemplated hereby, and shall not disclose such information to
any third party other than (i) each party's respective consultants and
professionals in connection with their review, evaluation, negotiation and
closing of the subject transaction, (ii) the parties' actual and prospective
lenders and investors, or (iii) the parties' officers, directors, employees,
agents, contractors, affiliates and representatives (collectively, the
"Representatives"), provided that all such parties shall keep such information
confidential as provided herein. The parties agree to keep, and to use all
reasonable efforts to cause the Representatives to keep, any information and
documents received from the other party (or based upon the party's evaluation of
the Properties) confidential, except to the extent (a) such information was
known by the party prior to the date hereof on the basis of information provided
to the party by persons other than the other party or its agents, (b) such
information was of general public knowledge prior to the date hereof, or (c)
disclosure is required by law or court order or is used in connection with any
litigation between the parties hereto. This provision shall survive the Closing
or any termination of this Agreement.
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SECTION 10.10 Interpretation of Agreement. The article, section and other
headings of this Agreement are for convenience of reference only and shall not
be construed to affect the meaning of any provision contained herein. Where the
context so requires, the use of the singular shall include the plural and vice
versa and the use of the masculine shall include the feminine and the neuter.
The term "person" shall include any individual, partnership, joint venture,
corporation, trust, unincorporated association, any other entity and any
government or any department or agency thereof, whether acting in an individual,
fiduciary or other capacity.
SECTION 10.11 Limited Liability. The obligations of the Seller are
intended to be binding only on the property of the Seller and shall not be
personally binding upon, nor shall any resort be had to, the private properties
of any of its trustees, officers, beneficiaries, directors, members, or
shareholders, or of its investment manager, the general partners, officers,
directors, members, or shareholders thereof, or any employees or agents of the
Seller or its investment manager. The obligations of the Buyer are intended to
be binding only on the property of the Buyer and shall not be personally binding
upon, nor shall any resort be had to, the private properties of any of its
trustees, officers, beneficiaries, directors, members, or shareholders, or of
its investment manager, the general partners, officers, directors, members, or
shareholders thereof, or any employees or agents of the Buyer.
SECTION 10.12 Amendments. This Agreement may be amended or modified only
by a written instrument signed by the Buyer and the Seller.
SECTION 10.13 No Recording. Neither this Agreement or any memorandum or
short form thereof may be recorded by the Buyer.
SECTION 10.14 Drafts Not an Offer to Enter Into a Legally Binding
Contract. The parties hereto agree that the submission of a draft of this
Agreement by one party to another is not intended by either party to be an offer
to enter into a legally binding contract with respect to the purchase and sale
of the Properties. The parties shall be legally bound with respect to the
purchase and sale of the Properties pursuant to the terms of this Agreement only
if and when the parties have been able to negotiate all of the terms and
provisions of this Agreement in a manner acceptable to each of the parties in
their respective sole discretion, including, without limitation, all of the
Exhibits and Schedules hereto, and both the Seller and the Buyer have fully
executed and delivered to each other a counterpart of this Agreement, including,
without limitation, all Exhibits and Schedules hereto.
SECTION 10.15 No Partnership. The relationship of the parties hereto is
solely that of the Seller and the Buyer with respect to the Properties and no
joint venture or other partnership exists between the parties hereto. Neither
party has any fiduciary relationship hereunder to the other.
SECTION 10.16 Survival. Except as expressly set forth to the contrary
herein, no representations, warranties, covenants or agreements of the Seller
contained herein shall survive the Closing.
SECTION 10.17 Oregon Statutory Disclaimer. THE PROPERTY DESCRIBED IN THIS
INSTRUMENT MAY NOT BE WITHIN A FIRE PROTECTION DISTRICT PROTECTING STRUCTURES.
THE PROPERTY IS SUBJECT TO LAND USE LAWS AND REGULATIONS, WHICH, IN FARM OR
FOREST ZONES, MAY NOT AUTHORIZE CONSTRUCTION OR SITING A RESIDENCE AND WHICH
LIMIT LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930 IN
ALL ZONES. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE
TITLE TO THIS PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING
DEPARTMENT TO VERIFY APPROVED USES AND EXISTENCE OF FIRE PROTECTION FOR
STRUCTURES.
SECTION 10.18 Survival of Article X. The provisions of this Article X
shall survive the Closing.
SECTION 10.19 Delivery Items.
(a) To the extent not previously delivered to Buyer and to the extent
reasonably within Seller's control and possession, the Seller shall promptly
(and in no event later than ten (10) business days of the
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date hereof) make available or deliver to the Purchaser at the Seller's sole
cost and expense, the following: (i) copies of all existing and proposed
easements, covenants, restrictions, agreements or other documents which affect
title to each of the Properties that are actually known by the Seller and that
would not typically be disclosed by a preliminary title report; (ii) all surveys
of each of the Real Properties; (iii) copies of the most recent property tax
bills for each of the Properties; (iv) copies of all documents relating to
actions, suits, and legal or administrative proceedings affecting each of the
Properties; (v) regularly-prepared financial information concerning income and
expenses relating to the ownership and operation of each of the Properties for
the prior three (3) years; (vi) copies of the Leases and financial information
pertaining to the tenants under the Leases; and (vii) all environmental,
structural, soils, seismic and other reports, studies or memoranda relating to
the Properties, and all other contracts, agreements, or documents of material
significance for the Properties.
(b) In the event that there are any additional income producing agreements,
other than those delivered to the Buyer pursuant to Section 10.20(a) above,
solely relating to the operation of the Properties (i) of which the Seller or
the Buyer becomes aware prior to the Closing, the Seller shall promptly deliver
such agreements to the Buyer for the Buyer's review and reasonable approval
prior to Closing, or (ii) of which the Seller or the Buyer becomes aware after
the Closing, the Seller shall promptly delivery such agreements to the Buyer for
the Buyer's review and reasonable approval. In the event that the Buyer approves
of any such agreements pursuant to subsection (ii) above, then the Seller agrees
to transfer its interest in such agreements to the Buyer pursuant to and
assignment and assumption agreement approved by both parties.
SECTION 10.20 Intent to Transfer Industrial Portfolio.
The Seller acknowledges that its intent hereunder is to transfer to the
Buyer all of the industrial properties it currently owns except for the 128,640
square foot building located at 9770 Bell Ranch Road, Santa Fe Springs,
California, the 89,760 square foot building located at 12029 Regent View Road,
Downey, California, the Seller's corporate headquarters building in Newport
Beach, California, and the Seller's non-industrial assets.
SECTION 10.21 Defined Terms.
(a) As used herein, the following terms have the following meanings:
"Assumption Agreement" shall mean a reasonable form of assumption agreement
as may be required by any Mortgage Lender (including such covenants,
representations and warranties as are customarily required by institutional
lenders), which form shall be subject to the Buyer's reasonable approval,
pursuant to which, in the case of each Loan being assumed by the Buyer, the
Buyer shall assume all of the obligations of the Seller under the subject Loan
arising on or after the Closing Date, and the Mortgage Lender shall consent to
the sale of the subject Property to the Buyer and the assumption of the Loan by
the Buyer.
"Breach Costs" shall mean the remediation costs arising solely out of a
breach of a representation or warranty of the Seller made herein.
"Category A Deleted Property" shall mean a Deleted Property the Allocated
Value of which shall not count towards the sums set forth in Section 9.1(c)(v),
(vi), (vii) and (viii).
"Category B Deleted Property" shall mean a Deleted Property the Allocated
Value of which shall count towards the sums set forth in Section 9.1(c)(ix) as
set forth in Section 1.8(a).
"Code Defects" shall mean the failure of the improvements located on a
Property to be in compliance (after consideration of applicable "grandfather"
clauses) with applicable federal, state or local law, regulation or ordinances
relating to the construction of improvements or operation or use thereof or to
health, safety, or access (including, without limitation, building codes, fire
sprinklerization requirements and the Americans With Disability Act of 1990)
(Title 24 of the California Health and Safety Codes), but excluding any Zoning
Defects.
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"Closing Documents" shall mean all of the documents to be delivered by the
parties pursuant to Section 7.3 above.
"Deferred Property" shall mean each Property with respect to which the
Seller has elected, pursuant to the terms hereof, to cure or restore a Material
Adverse Matter or an event or condition giving rise to a Value Diminution,
whether such cure or restoration is effected before or after the Closing and
whether the sale and purchase of such Deferred Property occurs at or after the
Closing.
"Deferred Property Deposit" shall mean, with respect to a particular
Deferred Property, the amount equal to the product of (i) of the Deposit then
retained by the Title Company and (ii) a fraction, the numerator of which is the
Allocated Value of such Deferred Property and the denominator of which is the
aggregate Allocated Value of all Deferred Properties that have then not been
purchased by the Buyer, together with interest on such product from the date of
placement of the Deposit into escrow.
"Environmental Defect" shall mean any of the following: (i) a condition on,
under or about the Property by reason of which such Property is not in
compliance with a federal, state or local law, ordinance or regulation
applicable to such Property and relating to the existence, storage, disposal,
release, emission or discharge of Hazardous Materials or to the protection of
human health or the environment (collectively "Environmental Laws"), (ii) the
presence of Hazardous Materials on the Property which are likely to cause Buyer
to incur future material costs, which would not otherwise be incurred absent
such condition, to abate or mitigate the presence of such Hazardous Materials
during the course of development or other construction or demolition, in any of
the following respects, in a manner that institutional buyers (including without
limitation publicly-traded REITs) of properties similar to the Property would
require such remediation: (A) remediation of contamination by Hazardous
Materials of soil or groundwater on, under or about the Properties at
concentrations which do not require immediate action under Environmental Laws,
(B) remediation of underground storage tank systems or other underground
installations (including, without limitation, sumps, vaults and piping)
containing or formerly containing Hazardous Materials and (C) remediation of
asbestos-containing building materials, whether in a friable condition or not;
and (iii) Properties occupied by one or more long-term (i.e. holding a lease
with three or more years remaining) tenants engaged in one or more of the
following activities or businesses: (A) dry cleaning establishments utilizing
perchloroethylene (PCE) or similar chlorinated solvents or other businesses
utilizing the same substances, (B) operations involving the bulk storage of
Hazardous Materials, (C) operations classified under Environmental Laws as Large
Quantity Generators of hazardous waste, and (D) operations that primarily relate
to transportation, or the logistics or repair of vehicles used in
transportation, where refueling or regular vehicle maintenance is routinely
performed on the Property (e.g., where the refueling or maintenance typically
takes place on the Property, and not elsewhere), but excluding automotive and
truck repair operations.
"Fully-Paying Executed Lease" means all tenant leases in effect at Closing
other than Non-Paying Leases and other than tenant leases as to which the tenant
is more than sixty (60) days delinquent in the payment of rent or other amounts
due under such lease.
"General Physical Items" shall mean, with respect to the Properties, the
roof (consisting of the membrane of the roof, but excluding damage to the
plywood if such damage is caused by a Structural Defect), painting, landscaping,
parking facilities, windows, doors, seals and the HVAC system, electrical
system, lighting system, plumbing system and the non-structural defects elements
of the loading facilities.
"Loan Documents" shall mean, collectively, with respect to each Loan, the
loan documents set forth on Exhibit C attached hereto.
"Material Adverse Matters" shall mean (i) Environmental Defects, (ii) Code
Defects; (iii) Structural Defects, (iv) Title Defects and (iii) Zoning Defects;
provided that in no event will Material Adverse Matters include (A) any
non-compliance of the Properties with the Americans With Disabilities Act of
1990, other than any such non-compliance that has been specifically identified
and cited to the Seller by a governmental entity, or (B) any General Physical
Items.
"Mortgage Lenders" shall mean the lenders under the Loans described on
Exhibit C attached hereto.
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"Non-Paying Lease" means a tenant lease having a Payment Reduction in
effect at Closing other than a tenant lease as to which such tenant is more than
sixty (60) days delinquent in the payment of rent or other amounts due under
such lease.
"Payment Reduction" means, with respect to a Non-Paying Lease, the
aggregate amount of reduction in regular rent, operating expenses, taxes and
assessments that would be payable by the tenant under such Non-Paying Lease and
that is attributable to any post-Closing period, of up to six (6) months, that
is afforded to a tenant (i) during an initial period under its lease due to a
free rent period, (ii) as a result of a rent abatement, (ii) during the pendency
of tenant improvements or (iv) due to the fact that under such lease the tenant
does not take possession until a date later than Closing.
"Shared Remediation Maximum" shall mean an amount equal to the product of
(i) $20,000,000 multiplied by (ii) a fraction, the numerator if which is the
difference of Eight Hundred Eighty-Three Million Five Hundred Thousand Dollars
($883,500,000) minus the aggregate Allocated Values of all Deleted Properties,
and the denominator of which is Eight Hundred Eighty-Three Million Five Hundred
Thousand Dollars ($883,500,000).
"Structural Defect" shall mean a defect in the structure of a Property,
including, without limitation, a condition of or defect in the structure of the
improvements on a Property or condition of or a defect in the soil. "Structure"
for the purpose of the foregoing definition means the foundation, soil, exterior
walls, interior bearing walls, roof structure, hangers, purlins, beams, other
structural members, including, without limitation, braces and other similar
items, and structural components and supports for electrical, plumbing, water,
and HVAC systems and operating systems. By way of example, "Structural Defect"
shall not include, without limitation, (a) the failure of any component of the
structure to be suitable for a use for which it was intended when built or
installed (provided it is suitable for its current use); (b) any condition which
exists by reason of normal wear and tear; or (c) any condition that is a Code
Defect, Environmental Defect, Title Defect, General Physical Item or Zoning
Defect.
"Subsequent Material Adverse Matter" shall mean any event, condition or
other matter occurring solely after the Diligence Period that would properly
have been the subject of a Defect Letter if such event, condition or other
matter had existed and been discovered by the Buyer during the Diligence Period.
"Tenant Inducements" shall mean all costs paid or obligations incurred in
connection with inducing a tenant to enter into a lease at a Property,
including, without limitation, any moving costs, costs in connection with the
assumption of a tenants' lease obligations at a location other than the Property
and the obligations under such lease, and other payments to or on behalf of a
tenant.
"Title Defect" shall mean a condition of title to a Property reflecting
that the Seller does not hold a fee simple interest therein (other than with
respect to a Ground Lease Property) or that the Seller's title is encumbered by
liens or encumbrances or other title exceptions having an adverse effect on the
value, use, operation or ownership of such Property that would not be acceptable
to a reasonably prudent institutional buyer (including, without limitation,
publicly-traded REITs) in an arms-length sale at fair market value. In
accordance with the foregoing sentence, Title Defect may include, without
limitation, an objection based on the legal description, survey with respect to
the Property or any condition or exception which causes the Title Company to
conclude that it cannot issue any of the endorsements whose numbers are
specifically set forth in Section 3.2.
"Zoning Defect" shall mean the failure of a Property to be in compliance
with federal, state or local laws, rules, regulations or ordinances relating to
zoning or land-use matters, including, without limitation, the ability of an
owner or occupant of a Property to develop and make a particular use of same;
provided, however, that a Property shall not have a Zoning Defect if the
improvements (or proposed improvements) thereon and/or use thereof is the
subject of a conditional use permit or variance permitting same and the
conditions to any such conditional use permit or variance are currently
satisfied.
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(b) The following capitalized terms are defined in the corresponding
locations:
<TABLE>
<S> <C>
Acquisition Proposal..... Section 6.5(a)
Agreement................ Preamble
Allocated Values......... Section 1.2(b)
Arizona Taxing
Authorities............ Section 7.3(a)(7)
Assignment of Ground
Leases................. Section 7.3(a)(4)
Assignment of Leases..... Section 7.3(a)(3)
Assumption Agreement..... Section 7.3(a)(5)
Bill of Sale............. Section 7.3(a)(2)
Buyer.................... Preamble
Buyer's Broker........... Section 5.1(b)
Closing.................. Section 1.2(c)
Closing Date............. Section 7.2
Closing Statement........ Section 7.3(a)(10)
Code..................... Section 2.1(b)
Conditions of Title...... Section 3.1(b)
Deeds.................... Section 3.1(a)
Defect Letter............ Section 1.4(a)
Deposit.................. Section 1.2(a)
Designation Agreement.... Section 7.3(c)
....................... Section 7.3(c)
Development Properties... Section 1.3(c)
Diligence Period......... Section 1.4(a)
Disclosure Items......... Section 2.1
DOR...................... Section 7.3(a)(7)
Final Date............... Section 9.1(b)
Fully-Leased
Properties............. Section 1.3(d)
Hazardous Materials...... Section 2.4(a)(2)
Individual Deferred
Property Maximum
Exposure............... Section 2.3(a)
Intangible Property...... Section 1.1
Lease.................... Section 1.1
Leases................... Section 1.1
Loan Documents........... Section 2.1(e)
Loans.................... Section 1.2(c)(1)
Major Loss Cure
Election............... Section 4.2(a)
Maximum Post-Closing
Exposure............... Section 2.3(a)
Meeting.................. Section 6.6(b)
Noncash Deposits......... Section 7.5(b)
Partially-Leased
Properties............. Section 1.3(f)
Partially-Leased Space
Shortfall.............. Section 1.3(f)
Partially-Leased Vacant/
Delinquent Space....... Section 1.3(f)(ii)
Partnership Properties... Section 1.5
Personal Property........ Section 1.1
Plan..................... Section 1.8(a)
Properties............... Section 1.1
Property................. Section 1.1
Proposal................. Section 6.5(b)
Proxy Statement.......... Section 6.6(a)
Purchase Price........... Section 1.2(b)
Real Properties.......... Section 1.1
Real Property............ Section 1.1
Representatives.......... Section 10.9
SEC...................... Section 6.6(a)
Seller Board............. Section 6.5(b)
Seller Related Parties... Section 2.5(a)
Seller's Broker.......... Section 5.1(a)
Sold Properties.......... Section 6.1(i)
Spectrum................. Section 1.3(e)
Spectrum Leased Space
Shortfall.............. Section 1.3(e)
Spectrum Vacant/
Delinquent Space....... Section 1.3(e)(ii)
Superior Proposal........ Section 6.5(b)
Supplemental Title
Report................. Section 3.1(b)
Title Company............ Section 1.2(a)
Title Policy............. Section 3.2
Value Diminution......... Section 4.5
</TABLE>
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<PAGE> 102
The parties hereto have executed this Agreement as of the respective dates
written below.
The Buyer: CALWEST INDUSTRIAL PROPERTIES, LLC
a California limited liability company
By: RREEF America L.L.C.
a Delaware limited liability
company
Its: Manager
By: /s/ SCOTT STUCKMAN
----------------------------------
Name: Scott Stuckman
Title: an Authorized
Representative
Date: June 20, 2000
The Seller: PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
------------------------------------
Its: Chief Executive Officer
Date: June 20, 2000
By: /s/ DONALD G. HERRMAN
------------------------------------
Its: Chief Financial Officer
Date: June 20, 2000
By: /s/ J.R. WETZEL
------------------------------------
Its: Chief Operating Officer
Date: June 20, 2000
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<PAGE> 103
COUNTERPART SIGNATURE PAGE TO
AGREEMENT OF PURCHASE AND SALE
DATED AS OF , 2000
(TITLE COMPANY)
Title Company agrees to act as escrow holder and title company in
accordance with the terms of this Agreement and to act as the Reporting Person
in accordance with Section 6045(e) of the Internal Revenue Code and the
regulations promulgated thereunder.
FIRST AMERICAN TITLE INSURANCE
COMPANY OF WALNUT CREEK, CALIFORNIA
By:
---------------------------------------
Its:
---------------------------------------
Date: ________________, 2000
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<PAGE> 104
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Real Property Description
Exhibit A-1 Allocated Values
Exhibit A-2 Partnership Property Prices
Exhibit B List of Ground Leases
Exhibit C Loans
Exhibit D Agreed Upon purchase price for Development Properties;
Summary of Development Costs
Exhibit E Pro Forma Rent, Term, Leasing Commission and Tenant
Improvement Summary
Exhibit F List of Tenant Leases
Exhibit G-1 California Grant Deed
Exhibit G-2 Washington Special Warranty Deed
Exhibit G-3 Nevada Special Warranty Deed
Exhibit G-4 Arizona Special Warranty Deed
Exhibit G-5 Oregon Special Warranty Deed
Exhibit H Tenant Estoppel Certificate
Exhibit I Bill of Sale
Exhibit J Assignment of Leases, Service Contracts and Warranties
SCHEDULES
Schedule 1 Disclosure Items
</TABLE>
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<PAGE> 105
AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
THIS AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this "Amendment") is
dated as of July 19, 2000, and is being entered into between PACIFIC GULF
PROPERTIES INC., a Maryland corporation (the "Seller"), and CALWEST INDUSTRIAL
PROPERTIES, LLC, a California limited liability company (the "Buyer").
RECITALS
WHEREAS, the Seller and the Buyer are parties to that certain Agreement of
Purchase and Sale dated as of June 20, 2000 (the "Agreement");
WHEREAS, the parties hereto desire to enter into this Amendment to amend
and restate Sections 1.5, 1.6(b) and 1.7 of the Agreement in their entirety;
WHEREAS, pursuant to Section 10.12 of the Agreement, the Agreement may be
amended in writing and upon execution by both the Seller and the Buyer; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1.5 of the Agreement is hereby amended and restated in its entirety
and is replaced by the following paragraph:
SECTION 1.5 Partnership Properties.
(a) The Buyer and the Seller acknowledge that the parcels of real
estate identified on Exhibit A-2 hereto as "Partnership Properties") are
owned by partnerships of which the Seller is the general partner and that,
as set forth on Exhibit L hereto, the consent of the limited partners of
such partnerships is required to effect the sale of such Partnership
Properties. Subject to Section 1.5(b) and (c), between June 20, 2000 and
sixty (60) days after June 20, 2000, the Seller shall use commercially
reasonable efforts to obtain all such required consents and to cause such
partnerships to sell such Partnership Properties to the Buyer on the terms
provided herein. When any Partnership Property becomes a Property under the
terms hereof, the Seller shall cause any such partnership to sell such
Partnership Property to the Buyer on, and subject to, the terms hereof.
(b) If within such sixty (60) days, the Seller obtains the required
consents (such consents to be reasonably satisfactory to the Buyer) with
respect to a particular Partnership Property, the Seller will give written
notice to the Buyer that such Partnership Property will constitute a
Property and will be included in the Properties transferred hereunder,
subject to such Property being deemed a Deleted Property or a Deferred
Property and subject to the other terms and conditions hereof.
(c) If, within such sixty (60) days, the Seller does not obtain the
consents with respect to a particular Partnership Property and does not so
notify the Buyer, (i) such Partnership Property shall be deemed to not be a
Property, and (ii) the Seller shall reimburse the Buyer for its actual
out-of-pocket third party costs with respect to the diligence conducted on
such Partnership Property, plus the sum of Ten Thousand Dollars ($10,000)
for each such Partnership Property to cover legal and other costs.
(d) Notwithstanding the fact that a particular Partnership Property
will not constitute a Property unless and until such Partnership Property
becomes a Property under Section 1.5(b) hereof, the term "Property" shall
be deemed to include the Partnership Properties for purposes of the
Seller's representations, warranties, covenants and agreements herein;
provided that if at Closing such Partnership Property has not become a
Property under Section 1.5(b) hereof, the term "Property" shall not include
such Partnership Property and such Partnership Property shall not be deemed
to be a Deleted Property, a Category A Deleted Property or a Category B
Deleted Property.
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<PAGE> 106
Section 1.6 of the Agreement is hereby amended and restated in its entirety
and is replaced by the following paragraph:
SECTION 1.6 Ground Leases.
(a) The Buyer and the Seller acknowledge that the Properties
identified on Exhibit A hereto as Ground Lease Properties consist of the
Seller's interest as a lessee in the Ground Leases and the improvements
thereon and that, as set forth on Exhibit L hereto, certain ground lessors
under such Ground Leases have the right to object to a transfer of the
Ground Leases and/or to acquire the Seller's interest in the Ground Lease
and the improvements thereon in the event of a proposed sale of such
interests by the Seller. Between June 20, 2000 and sixty (60) days after
June 20, 2000, the Seller shall use commercially reasonable efforts to
obtain consents and/or waivers of all such rights of first refusal.
(b) If, within such sixty (60) days, the Seller obtains the consents
and/or waivers of rights of first refusal (such consents and/or waivers to
be reasonably satisfactory to the Buyer) with respect to a particular
Ground Lease, the Seller will give written notice to the Buyer that such
Ground Lease will continue to constitute Property and will be included in
the Properties transferred hereunder, subject to such Property being deemed
a Deleted Property or a Deferred Property and subject to the other terms
and conditions hereof.
(c) If, within such sixty (60) days, the Seller does not obtain the
consents and/or waivers of rights of first refusal with respect to a
particular Ground Lease Property and does not so notify the Buyer, (i) such
Ground Lease Property shall be deemed to be a Category A Deleted Property,
and (ii) the Seller shall reimburse the Buyer for its actual out-of-pocket
third party costs with respect to the diligence conducted on such Ground
Lease Property, plus the sum of Ten Thousand Dollars ($10,000) for each
such Ground Lease Property to cover legal and other costs.
(d) The parties acknowledge and agree that if one of the two Ground
Lease Properties located in Tustin, California becomes a Deleted Property,
the other Ground Lease Property so located shall likewise be a Deleted
Property.
Section 1.7 of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
SECTION 1.7 Right of First Refusal Properties.
(a) The Buyer and the Seller acknowledge that the Properties
identified on Exhibit A hereto as Right of First Refusal Properties consist
of Properties as to which the Seller has granted a right of first refusal
or option to purchase to a tenant or otherwise and that, as set forth on
Exhibit L hereto, such tenants or other parties may have the right to
object to a transfer of the Right of First Refusal Properties and/or to
acquire the Seller's interest in the Right of First Refusal Properties in
the event of a proposed sale of such interests by the Seller. Subject to
Section 1.7(b) and (c), between June 20, 2000 and sixty (60) days after
June 20, 2000, the Seller shall use commercially reasonable efforts to
obtain consents and/or waivers in a form reasonably approved by the Buyer
and the Title Company of all such rights of first refusal or options to
purchase.
(b) If, within such sixty (60) days, the Seller obtains the required
consents and/or waivers (such consents and/or waivers to be reasonably
satisfactory to the Buyer) with respect to a particular Right of First
Refusal Property, the Seller will give written notice to the Buyer that
such Right of First Refusal Property will continue to constitute Property
and will be included in the Properties transferred hereunder, subject to
such Property being deemed a Deleted Property or a Deferred Property and
subject to the other terms and conditions hereof.
(c) If, within such sixty (60) days, the Seller does not obtain the
consents and/or waivers with respect to a particular Right of First Refusal
Property and does not so notify the Buyer, (i) such Right of First Refusal
Property shall be deemed to be a Category A Deleted Property, and (ii) the
Seller shall reimburse the Buyer for its actual out-of-pocket third party
costs with respect to the
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diligence conducted on such Right of First Refusal Property, plus the sum
of Ten Thousand Dollars ($10,000) for each such Right of First Refusal
Property to cover legal and other costs.
Except as modified herein, the Agreement is affirmed by the parties hereto
in its entirety and shall remain in full force and effect. This Amendment may be
executed in two or more counterparts, each of which shall be an original and all
of which, taken together, shall be deemed to be one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 108
IN WITNESS WHEREOF, the parties have caused this Amendment to Agreement of
Purchase and Sale to be duly executed and delivered by their authorized
representatives as of the date first written above.
The Buyer: CALWEST INDUSTRIAL PROPERTIES, LLC,
a California limited liability company
By: RREEF America L.L.C.
a Delaware limited liability
company
Its: Manager
By: /s/ CRAIG S. DAVEY
------------------------------------
Name: Craig S. Davey
Title: Vice President
The Seller: PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
--------------------------------------
Its: Chief Executive Officer
By: /s/ DONALD G. HERRMAN
--------------------------------------
Its: Chief Financial Officer
By: /s/ J.R. WETZEL
--------------------------------------
Its: Chief Operating Officer
A-45
<PAGE> 109
SECOND AMENDMENT
September 18, 2000
VIA FACSIMILE
(213) 229-7100 C 72764-00033
Michael H. Liever, Esq.
Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
Re: Agreement of Purchase and Sale, dated June 20, 2000, between Pacific
Gulf Properties, Inc. ("PGP"), and CalWest Industrial Properties,
LLC (the "Purchase Agreement")
Dear Mike:
The following letter confirms that PGP has agreed to extend the Diligence
Period (as defined in the Purchase Agreement) to 1:00 p.m., Pacific time, on
September 19, 2000.
Please call me with any questions.
Very truly yours,
/s/ TIMOTHY J. HART
--------------------------------------
Timothy J. Hart
TJH/dt
cc: Glenn Carpenter
Don Herrman
J.R. Wetzel
Scott Stuckman
Dhiya El-Saden
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<PAGE> 110
THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
THIS THIRD AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this "Amendment")
is dated as of September 19, 2000, and is being entered into between PACIFIC
GULF PROPERTIES INC., a Maryland corporation (the "Seller"), and CALWEST
INDUSTRIAL PROPERTIES, LLC, a California limited liability company (the
"Buyer").
R E C I T A L S
WHEREAS, the Seller and the Buyer are parties to that certain Agreement of
Purchase and Sale dated as of June 20, 2000, as amended by that certain
Amendment to Agreement of Purchase and Sale, dated as of July 19, 2000, and that
certain letter dated as of September 18, 2000 (as amended, the "Agreement");
WHEREAS, the parties hereto desire to enter into this Amendment to further
amend the Agreement as set forth below;
WHEREAS, pursuant to Section 10.12 of the Agreement, the Agreement may be
amended in writing and upon execution by both the Seller and the Buyer; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Section 1.4(a) of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
"(a) On or prior to 9:00 a.m. Los Angeles time on September 20, 2000
(such period, the "Diligence Period"), the Buyer may deliver to the Seller
a written notice or notices, any such notice to specifically state that
such notice constitutes a "Defect Letter" hereunder, specifying any
Material Adverse Matters (a "Defect Letter"). A Defect Letter may consist
of a written report or notice, provided that it is in accordance with the
terms of the preceding sentence, from one of the Buyer's members, officers,
employees, advisors, attorneys or consultants. The Buyer's failure to
deliver to the Seller on or prior to the close of the Diligence Period a
Defect Letter shall be deemed conclusively as the Buyer's confirmation of
the absence of any Material Adverse Matters, and the Buyer shall be deemed
to be satisfied with, and to have waived objection to, any Code Defect,
Environmental Defect, Structural Defect, Title Defect or Zoning Defect
other than those specifically set forth in a Defect Letter and other than
as contemplated in Sections 4.3 and 4.4. Notwithstanding the foregoing, (i)
the Diligence Period with respect to those Properties listed on Exhibit A-1
attached hereto shall end on September 25, 2000; provided that any Defect
Letter delivered from the Buyer to the Seller from 9:01 a.m. Los Angeles
time on September 20, 2000 through September 25, 2000 relating to such
Properties may consist only of Material Adverse Matters identified in the
Phase I and Phase II environmental studies in progress on such Properties
as of September 18, 2000 and (ii) the Diligence Period with respect to
those Properties listed on Exhibit A-2 attached hereto shall end on October
3, 2000; provided that any Defect Letter delivered from the Buyer to the
Seller from 9:01 a.m. Los Angeles time on September 20, 2000 through
October 3, 2000 relating to such Properties may consist only of Material
Adverse Matters identified in the Phase I and Phase II environmental
studies in progress on such Properties as of September 18, 2000."
2. Notwithstanding the terms and conditions of Section 1.4(a), the parties
agree that the Diligence Period with respect to the Pending Properties (as
defined in Paragraph 4 below) may be extended pursuant to the terms and
conditions of Paragraph 4 below; provided that any Defect Letter delivered from
the Buyer to the Seller during such extended Diligence Period shall be limited
to Material Adverse Matters identified in the results from the proposed drilling
and related testing referred to in Paragraph 4.
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<PAGE> 111
3. Section 1.4(c) of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
"(c) For each Property having a Material Adverse Matter, the Seller
shall have the option, exercisable by written notice to the Buyer on or
prior to October 17, 2000, either (i) to treat such Property as a Deleted
Property, in which case it shall cease to be a Property, or (ii) to treat
such Property as a Deferred Property, in which event the procedures set
forth in Section 1.8 shall apply."
4. The parties acknowledge that Section 10.3 of the Agreement provides,
among other things, that the Buyer may give notice of on-site testing, including
drilling, of the Properties, and that the Seller shall approve or disapprove the
drilling aspects of any proposed testing within two (2) business days after
receipt of such notice; provided that if the Seller disapproves of, and prevents
the Buyer from performing, any such proposed drilling, the Property subject to
such proposed drilling shall be deemed to be a Deleted Property. The Buyer has
proposed certain drilling and related testing on the Properties set forth on
Exhibits A-1, Exhibits A-2 and the Properties identified as "PGD City of
Industry (16633-16725 and 16801 Gale Avenue)," "611 Cerritos Ave.-Anaheim" and
"PG Comm. Miramar (7550-7636 Miramar Road)" (collectively, the "Pending
Properties") and the Seller has not approved or disapproved of such proposed
drilling and related testing. Notwithstanding the terms and conditions of
Section 10.3, the parties agree that no Pending Property shall be deemed to be a
Deleted Property by reason of Section 10.3 unless (i) the Buyer does not
withdraw its request for such drilling and testing and (ii) the Seller does not
approve of such proposed drilling and related testing on or prior to October 17,
2000. The parties further agree that if the Seller does approve of such proposed
drilling and related testing on one or more Pending Properties on or prior to
October 17, 2000, the Seller will grant the Buyer a reasonable extension of the
Diligence Period with respect to any such Pending Property in order for Buyer to
conduct and analyze such drilling and related testing and to deliver a Defect
Letter with respect thereto.
5. Section 1.5 of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
"SECTION 1.5 PARTNERSHIP PROPERTIES.
(a) The Buyer and the Seller acknowledge that the parcels of real
estate identified on EXHIBIT A-2 hereto as "Partnership Properties") are
owned by partnerships of which the Seller is the general partner and that,
as set forth on EXHIBIT L hereto, the consent of the limited partners of
such partnerships is required to effect the sale of such Partnership
Properties. Subject to Section 1.5(b) and (c), between June 20, 2000 and
ninety (90) days after June 20, 2000, the Seller shall use commercially
reasonable efforts to obtain all such required consents and to cause such
partnerships to sell such Partnership Properties to the Buyer on the terms
provided herein. When any Partnership Property becomes a Property under the
terms hereof, the Seller shall cause any such partnership to sell such
Partnership Property to the Buyer on, and subject to, the terms hereof.
(b) If within such ninety (90) days, the Seller obtains the required
consents (such consents to be reasonably satisfactory to the Buyer) with
respect to a particular Partnership Property, the Seller will give written
notice to the Buyer that such Partnership Property will constitute a
Property and will be included in the Properties transferred hereunder,
subject to such Property being deemed a Deleted Property or a Deferred
Property and subject to the other terms and conditions hereof.
(c) If, within such ninety (90) days, the Seller does not obtain the
consents with respect to a particular Partnership Property and does not so
notify the Buyer, (i) such Partnership Property shall be deemed to not be a
Property, and (ii) the Seller shall reimburse the Buyer for its actual
out-of-pocket third party costs with respect to the diligence conducted on
such Partnership Property, plus the sum of Ten Thousand Dollars ($10,000)
for each such Partnership Property to cover legal and other costs.
(d) Notwithstanding the fact that a particular Partnership Property
will not constitute a Property unless and until such Partnership Property
becomes a Property under Section 1.5(b) hereof, the term
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<PAGE> 112
"Property" shall be deemed to include the Partnership Properties for
purposes of the Seller's representations, warranties, covenants and
agreements herein; provided that if at Closing such Partnership Property
has not become a Property under Section 1.5(b) hereof, the term "Property"
shall not include such Partnership Property and such Partnership Property
shall not be deemed to be a Deleted Property, a Category A Deleted Property
or a Category B Deleted Property."
6. Section 1.6 of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
"SECTION 1.6 GROUND LEASES.
(a) The Buyer and the Seller acknowledge that the Properties
identified on EXHIBIT A hereto as Ground Lease Properties consist of the
Seller's interest as a lessee in the Ground Leases and the improvements
thereon and that, as set forth on EXHIBIT L hereto, certain ground lessors
under such Ground Leases have the right to object to a transfer of the
Ground Leases and/or to acquire the Seller's interest in the Ground Lease
and the improvements thereon in the event of a proposed sale of such
interests by the Seller. Between June 20, 2000 and ninety (90) days after
June 20, 2000, the Seller shall use commercially reasonable efforts to
obtain consents and/or waivers of all such rights of first refusal.
(b) If, within such ninety (90) days, the Seller obtains the consents
and/or waivers of rights of first refusal (such consents and/or waivers to
be reasonably satisfactory to the Buyer) with respect to a particular
Ground Lease, the Seller will give written notice to the Buyer that such
Ground Lease will continue to constitute Property and will be included in
the Properties transferred hereunder, subject to such Property being deemed
a Deleted Property or a Deferred Property and subject to the other terms
and conditions hereof.
(c) If, within such ninety (90) days, the Seller does not obtain the
consents and/or waivers of rights of first refusal with respect to a
particular Ground Lease Property and does not so notify the Buyer, (i) such
Ground Lease Property shall be deemed to be a Category A Deleted Property,
and (ii) the Seller shall reimburse the Buyer for its actual out-of-pocket
third party costs with respect to the diligence conducted on such Ground
Lease Property, plus the sum of Ten Thousand Dollars ($10,000) for each
such Ground Lease Property to cover legal and other costs.
(d) The parties acknowledge and agree that if one of the two Ground
Lease Properties located in Tustin, California becomes a Deleted Property,
the other Ground Lease Property so located shall likewise be a Deleted
Property."
7. Section 1.7 of the Agreement is hereby amended and restated in its
entirety and is replaced by the following paragraph:
"SECTION 1.7 RIGHT OF FIRST REFUSAL PROPERTIES.
(a) The Buyer and the Seller acknowledge that the Properties
identified on EXHIBIT A hereto as Right of First Refusal Properties consist
of Properties as to which the Seller has granted a right of first refusal
or option to purchase to a tenant or otherwise and that, as set forth on
EXHIBIT L hereto, such tenants or other parties may have the right to
object to a transfer of the Right of First Refusal Properties and/or to
acquire the Seller's interest in the Right of First Refusal Properties in
the event of a proposed sale of such interests by the Seller. Subject to
Section 1.7(b) and (c), between June 20, 2000 and ninety (90) days after
June 20, 2000, the Seller shall use commercially reasonable efforts to
obtain consents and/or waivers in a form reasonably approved by the Buyer
and the Title Company of all such rights of first refusal or options to
purchase.
(b) If, within such ninety (90) days, the Seller obtains the required
consents and/or waivers (such consents and/or waivers to be reasonably
satisfactory to the Buyer) with respect to a particular Right of First
Refusal Property, the Seller will give written notice to the Buyer that
such Right of First Refusal Property will continue to constitute Property
and will be included in the Properties
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<PAGE> 113
transferred hereunder, subject to such Property being deemed a Deleted
Property or a Deferred Property and subject to the other terms and
conditions hereof.
(c) If, within such ninety (90) days, the Seller does not obtain the
consents and/or waivers with respect to a particular Right of First Refusal
Property and does not so notify the Buyer, (i) such Right of First Refusal
Property shall be deemed to be a Category A Deleted Property, and (ii) the
Seller shall reimburse the Buyer for its actual out-of-pocket third party
costs with respect to the diligence conducted on such Right of First
Refusal Property, plus the sum of Ten Thousand Dollars ($10,000) for each
such Right of First Refusal Property to cover legal and other costs."
8. Notwithstanding the provisions of Section 1.6, the parties hereto agree
that all references in Section 1.6 to "ninety (90) days)" shall be changed to
"one hundred twenty (120) days" with respect to the two Ground Lease Properties
located in Tustin, California.
9. The parties hereto agree that with respect to all of the Properties
located within the County of San Diego, prior to Closing the Seller will comply
as necessary with the requirements set forth in the San Diego Municipal Code,
Section 93.0208 et. seq. and/or the equivalent section(s), if any, in the
ordinances or code sections for the County of San Diego or other applicable
cities within the County of San Diego relating to similar water conservation
measures set forth in the San Diego Municipal Code, Section 93.0208 et. seq.
Notwithstanding the foregoing, if Seller is unable to comply with said
requirements prior to Closing, Buyer shall receive a reduction in the Purchase
Price at Closing, in an amount necessary to comply with said requirements as
reasonably determined by Buyer and Seller, and Buyer shall take action to comply
with said requirements after the Closing.
Except as modified herein, the Agreement is affirmed by the parties hereto
in its entirety and shall remain in full force and effect. This Amendment may be
executed in two or more counterparts, each of which shall be an original and all
of which, taken together, shall be deemed to be one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 114
IN WITNESS WHEREOF, the parties have caused this Third Amendment to
Agreement of Purchase and Sale to be duly executed and delivered by their
authorized representatives as of the date first written above.
THE BUYER: CALWEST INDUSTRIAL PROPERTIES, LLC,
a California limited liability company
By: RREEF America L.L.C.
a Delaware limited liability
company
Its: Manager
By: /s/ SCOTT STUCKMAN
--------------------------------------
Name: Scott Stuckman
Title: An Authorized Representative
THE SELLER: PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
--------------------------------------
Its: Chief Executive Officer
By: /s/ DONALD G. HERRMAN
--------------------------------------
Its: Chief Financial Officer
By: /s/ J.R. WETZEL
--------------------------------------
Its: Chief Operating Officer
A-51
<PAGE> 115
FOURTH AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
THIS FOURTH AMENDMENT TO AGREEMENT OF PURCHASE AND SALE (this "Amendment")
is dated as of October 18, 2000, and is being entered into between PACIFIC GULF
PROPERTIES INC., a Maryland corporation (the "Seller"), and CALWEST INDUSTRIAL
PROPERTIES, LLC, a California limited liability company (the "Buyer").
R E C I T A L S
WHEREAS, the Seller and the Buyer are parties to that certain Agreement of
Purchase and Sale dated as of June 20, 2000 (as amended, the "Agreement"), as
amended by that certain Amendment to Agreement of Purchase and Sale, dated as of
July 19, 2000, that certain letter dated as of September 18, 2000, and that
certain Third Amendment to Agreement of Purchase and Sale, dated as of September
19, 2000 (the "Third Amendment");
WHEREAS, the parties hereto desire to enter into this Amendment to further
amend the Agreement as set forth below;
WHEREAS, pursuant to Section 10.12 of the Agreement, the Agreement may be
amended in writing and upon execution by both the Seller and the Buyer; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A. APPROVAL OF PROPOSED TESTING AND EXTENSION OF DILIGENCE PERIOD FOR CERTAIN
PROPERTIES
1. The parties acknowledge that the Buyer has proposed certain drilling and
related testing on the Properties identified as "611 Cerritos Ave., Anaheim,"
"PG Comm. Miramar (7550-7636 Miramar Road)" and "Comm. Park Sunnyvale (1030-1095
East Duane Avenue)" (collectively, the "Testing Properties") pursuant to a
Defect Letter dated September 19, 2000 and a second Defect Letter dated
September 25, 2000 (collectively, the "Testing Properties Defect Letters")
delivered from the Buyer to the Seller specifying Material Adverse Matters with
respect to the Testing Properties. Seller hereby approves the drilling and
related testing proposed to be performed on the Testing Properties, but only to
the extent that such drilling and related testing has been proposed and
described in the Testing Properties Defect Letters or the proposals of the
Buyer's consultants that have been separately delivered to the Seller.
2. Notwithstanding the terms and conditions of Section 1.4(a) of the
Agreement, the Diligence Period with respect to the Testing Properties shall end
on October 31, 2000; provided that any Defect Letter delivered from the Buyer to
the Seller from 9:01 a.m. Los Angeles time on the date hereof through October
31, 2000 relating to the Testing Properties may consist only of Material Adverse
Matters identified in the results from the proposed drilling and related testing
referred to in Paragraph 1 of this Amendment.
3. Notwithstanding Section 1.4(c) of the Agreement (as amended by the Third
Amendment), with respect to any Testing Property and to any related Testing
Properties Defect Letter delivered by Buyer, Seller shall have the option,
exercisable by written notice to the Buyer on or prior to November 3, 2000,
either (i) to treat such Testing Property as a Deleted Property, in which case
it shall cease to be a Property, or (ii) to treat such Testing Property as a
Deferred Property, in which event the procedures set forth in Section 1.8 shall
apply.
B. SATISFACTION OF STRUCTURAL DEFECTS
1. The Seller hereby acknowledges that Buyer has delivered a Defect Letter
with respect to alleged Structural Defect(s) located on the Properties
identified on Exhibit A attached hereto (the "Exhibit A Properties").
Notwithstanding Sections 1.4 and 1.8 of the Agreement, in complete satisfaction
of, and waiver of objection to, the Structural Defect(s) alleged to be located
on the Exhibit A Properties by the Buyer, the parties hereby agree to reduce the
Purchase Price by Nine Hundred Fifty Thousand One
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<PAGE> 116
Hundred Nine Dollars ($950,109). Notwithstanding Sections 1.4 and 1.8 of the
Agreement, the parties further agree that the Exhibit A Properties shall not be
treated as Deferred Properties or Deleted Properties as a result of such
Structural Defects.
C. CITY OF INDUSTRY
1. The parties acknowledge that Section 10.3 of the Agreement provides,
among other things, that the Buyer may give notice of on-site testing, including
drilling, of the Properties, and that the Seller shall approve or disapprove the
drilling aspects of any proposed testing within two (2) business days after
receipt of such notice; provided that if the Seller disapproves of, and prevents
the Buyer from performing, any such proposed drilling, the Property subject to
such proposed drilling shall be deemed to be a Deleted Property. The Buyer has
proposed certain drilling and related testing on the Property identified as "PGD
City of Industry (16633-16725 and 16801 Gale Avenue)" (the "Pending Property")
and the Seller has not approved or disapproved of such proposed drilling and
related testing. Pursuant to Paragraph 4 of the Third Amendment, Buyer and
Seller agreed to defer the acceptance or disapproval by Seller of the proposed
drilling and related testing on the Pending Property to a date no later than
October 17, 2000. Notwithstanding the terms and conditions of Section 10.3 of
the Agreement and Paragraph 4 of the Third Amendment, the parties agree that the
Pending Property shall not be deemed to be a Deleted Property by reason of
Section 10.3 of the Agreement or Paragraph 4 of the Third Amendment unless (i)
the Buyer does not withdraw its request for such drilling and testing and (ii)
the Seller does not approve of such proposed drilling and related testing on or
prior to October 20, 2000. The parties further agree that if the Seller does
approve of such proposed drilling and related testing on the Pending Property on
or prior to October 20, 2000, the Seller will grant the Buyer a reasonable
extension of the Diligence Period with respect to any such Pending Property in
order for Buyer to conduct and analyze such drilling and related testing and to
deliver a Defect Letter with respect thereto.
D. TREATMENT OF TENANT IMPROVEMENTS ON NEW LEASES
1. The first sentence of Section 7.5(a) of the Agreement is hereby amended
and restated in its entirety and is replaced by the following sentence:
"Except as set forth herein, the Seller shall pay for all tenant
improvement costs, leasing commissions and Tenant Inducements for leases
executed and having commencement dates prior to November 1, 2000 and the
Buyer shall pay for all tenant improvement costs, leasing commissions and
Tenant Inducements for leases executed and having commencement dates on or
after November 1, 2000."
E. REMEDIATION PLAN FOR MOUNTAIN AVENUE
1. The parties hereby agree to use their respective good faith efforts to
determine, on or prior to October 31, 2000, a Plan for the Property identified
as "Mountain Avenue Business Park, Upland" and to resolve any differences on the
plan proposed by the Seller. If the parties do not agree upon such a Plan by
such date, the ten (10) business day period set forth in the third sentence of
Section 1.8(a) shall be deemed expired and the Property will be subject to the
terms and conditions of such Section 1.8(a).
F. SACRAMENTO
1. As promptly as reasonably practicable, Seller shall (i) deliver to Buyer
all testing results and/or reports from Seller's consultants in connection with
the mold, fungi or other microbial/microbiological contaminants at the
Sacramento Commerce Park Property (collectively, the "Seller's Reports") and all
recommendations from Seller's consultants with respect thereto (collectively,
the "Remediation Recommendations"), and (ii) complete its remediation of the
three spaces which Seller is presently remediating at the Sacramento Commerce
Park Property. Notwithstanding the foregoing, Seller's obligation to deliver the
Seller's Reports and the Remediation Recommendations shall in all cases be
subject to the maintenance of Seller's attorney-client privilege. The parties
acknowledge that upon Buyer's receipt of Seller's Reports and Remediation
Recommendations and upon Seller's completion of all remediation or
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other actions recommended in the Remediation Recommendations (other than the
completion of ongoing remediation at the Child Abuse Prevention site), Buyer,
acting reasonably after taking into account, among other matters, the delivered
Seller's Reports, the delivered Remediation Recommendations and whether or not
Seller has, in order to protect its attorney-client privilege, not delivered any
of the Seller's Reports or the Remediation Recommendations, may determine the
scope of additional testing required at such Property and may conduct such
testing. Such testing may include testing at the interior locations on the
Property that were previously tested and/or remediated by Seller, and may also
include additional locations, as designated by Buyer (or Buyer's consultant), to
verify the remediation of such mold, fungi or other microbial/microbiological
contaminants, and other contaminants, if any, disclosed by the Seller's Reports
(collectively, the "Contaminants") and to determine in Buyer's reasonable
judgment if additional remediation is necessary on the Property with respect to
the Contaminants. After the completion of ongoing remediation at the Child Abuse
Prevention site, the Seller shall deliver any Seller's Reports and Remediation
Recommendations issued and testing results in respect to such completion and the
Buyer shall be entitled, under the standards of this paragraph, to modify the
scope of its testing based on the information set forth in such Seller's Reports
and Remediation Recommendations. The Seller hereby approves and grants
reasonable access to Buyer (and Buyer's consultants) to perform such
confirmation testing provided that, subject to the availability of the equipment
required by Buyer's consultants to perform such testing, the testing is
completed within ten (10) business days after Buyer's receipt of Seller's
Reports and Remediation Recommendations (the "Testing Period"), provided that
such period shall be reasonably extended if Buyer is entitled to modify the
scope of its testing based on the information set forth in the Seller's Reports
and Remediation Recommendations issued and testing results with respect to the
completion of ongoing remediation at the Child Abuse Prevention site. Buyer
agrees to use commercially reasonable efforts to cause its consultants to make
such equipment so available. If the Buyer notifies the Seller in writing on or
before the expiration of the Testing Period that Buyer has determined that
additional remediation is reasonably necessary at the Property due to the
existence of Contaminants in the internal air or materials at such Property in
excess of normal levels for ambient environment, then Seller shall have the
option, exercisable by written notice to Buyer on or prior to three (3) business
days after receipt by Seller of the aforementioned notice from Buyer, to (i)
treat such Property as a Deleted Property, in which case it shall cease to be a
Property or (ii) elect to treat such Property as a Deferred Property pursuant to
Section 1.8 of the Purchase Agreement and perform any remediation pursuant to a
mutually agreed upon plan in accordance with said Section 1.8, at the completion
of which such Property will close under the terms of said Section 1.8. The
parties hereby confirm that if the Property becomes a Deferred Property, the
limit on liability set forth in Section 2.3(a) of the Purchase Agreement shall
not apply to the indemnity set forth in Section 5 of Schedule 1 with respect to
the Property.
G. TUSTIN
1. The parties agree, notwithstanding Section 1.6, as amended by the Third
Amendment, that all references in Section 1.6 to "ninety (90) days" shall be
changed to "one hundred thirty five (135) days" with respect to the two ground
leases located in Tustin, California.
Except as modified herein, the Agreement is affirmed by the parties hereto
in its entirety and shall remain in full force and effect. Except as set forth
herein in Section B above, the Buyer shall not be deemed to have waived any
Defect Notices previously submitted to Seller or to have waived any other terms
or conditions of the Agreement. This Amendment may be executed in two or more
counterparts, each of which shall be an original and all of which, taken
together, shall be deemed to be one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 118
IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to
Agreement of Purchase and Sale to be duly executed and delivered by their
authorized representatives as of the date first written above.
<TABLE>
<S> <C>
THE BUYER: CALWEST INDUSTRIAL PROPERTIES, LLC,
a California limited liability company
By: RREEF America L.L.C.
a Delaware limited liability company
Its: Manager
By: /s/ SCOTT STUCKMAN
-----------------------------------------------------
Name: Scott Stuckman
Title: An Authorized Representative
THE SELLER: PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
----------------------------------------------------
Its: Chief Executive Officer
By: /s/ DONALD G. HERRMAN
----------------------------------------------------
Its: Chief Financial Officer
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EXHIBIT A
Tukwila
Rancho Bernardo
Spectrum Centre
PGBP Lake Forest
Harbor
Comm Park Anaheim
Cartwright
Pacific Park
611 Cerritos, Anaheim
Whittier
Baldwin Park
Tower Park
EXHIBIT A-1
1. Comm. Park Sunnyvale (1030-1095 East Duane Ave.)
2. Norwood (251-271 Opportunity St.; 3950 Development Dr. and 3951 Research Dr.)
3. Comm. Park San Tomas Buildings (2900-3074 Scott Boulevard)
EXHIBIT A-2
1. Concord Business Park -- 1590 Solano Way and 5600-5750 Imhoff Drive)
2. PGCP -- Eden Landing (3401-3475 Investment Blvd.; 26291 and 26203 Production
Ave.; 26010-26062 Eden Landing Rd.)
3. Eden Plaza (26102-26142 Eden Landing Rd. and 3521-3583 Investment Blvd.)
4. Eden Rock #5 (3191 Corporate Place)
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EXHIBIT B
OPINION OF MORGAN STANLEY & CO. INCORPORATED, FINANCIAL ADVISOR TO PACIFIC GULF
PROPERTIES
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MORGAN STANLEY DEAN WITTER
June 19, 2000
Board of Directors
Pacific Gulf Properties Inc.
4220 Von Karman, Second Floor
Newport Beach, California 92660
Members of the Board:
We understand that Pacific Gulf Properties Inc. (the "Company") and CalWest
Industrial Properties, LLC ("Buyer") propose to enter into a Purchase and Sale
Agreement, substantially in the form of the draft dated June 19, 2000 (the
"Purchase Agreement"), which provides, among other things, for the purchase by
Buyer of certain of the Company's industrial properties (the "Properties") and
assumption of certain liabilities of the Company (the "Transaction") pursuant to
the terms and conditions of the Transaction as set forth in the Purchase
Agreement.
You have asked for our opinion as to whether the consideration to be
received by the Company pursuant to the Purchase Agreement is fair from a
financial point of view to the Company.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and the Properties
prepared by the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company with respect to the Transaction;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company, including certain financial, operational
and strategic benefits expected from the Transaction, with senior
executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices
and trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among
representatives of the Company and Buyer and their respective financial and
legal advisors;
(ix) discussed the terms and conditions of the proposed Transaction
with senior executives of the Company;
(x) reviewed the draft dated June 19, 2000 of the Purchase Agreement
and certain related documents; and
(xi) performed such other analyses and considered such other factors
as we have deemed appropriate, including discounted cash flow, net asset
value, comparable transaction and comparable companies analyses.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial estimates and projections prepared
by the Company, we have assumed that they have been reasonably prepared on bases
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reflecting the best currently available estimates and judgments of management
personnel of the Company of the future financial performance of the Company. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. In
arriving at our opinion, we were not asked to consider alternatives other than
the Transaction.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services,
including a transaction fee that is contingent upon the completion of the
Transaction. In the past, Morgan Stanley & Co. Incorporated and its affiliates
have provided advisory and financing services to California Public Employees'
Retirement System and certain of its affiliates and have received fees for the
rendering of these services. In addition, asset management affiliates of Morgan
Stanley & Co. Incorporated beneficially own, in the aggregate, approximately
7.4% of the Company's common stock. We express no opinion or recommendation as
to how the shareholders of the Company should vote at the shareholders meeting
held in connection with the Transaction.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company only and may not be used for any other purpose
without our prior written consent.
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the Company pursuant to the Purchase Agreement
is fair from a financial point of view to the Company.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ GARY P. PALMER
------------------------------------
Gary P. Palmer
Principal
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PACIFIC GULF PROPERTIES INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 9, 2000
Glenn L. Carpenter and Donald G. Herrman, and each of them, are hereby appointed
proxies, with full power of substitution, and are hereby authorized to represent
and vote all shares of common stock of the undersigned at the Special Meeting of
Shareholders of Pacific Gulf Properties Inc. to be held at The Center Club, 650
Town Center Drive, Costa Mesa, California 92626, on November 9, 2000 at 10:00
a.m. local time and at any postponements or adjournments thereof, the manner
indicated below, and in their discretion on any other matter which may properly
come before the Meeting.
This proxy will be voted in accordance with the instructions given. In this
absences of instructions, the proxy will be voted "FOR" Proposal No. 1, "FOR"
Proposal No. 2 and in the discretion of the persons hereby appointed as proxies
with respect to any other matters that may properly come before the Meeting or
any postponements or adjournments thereof.
SHAREHOLDERS ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THIS PROXY
PROMPTLY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE
UNITED STATES
(Continued and to be signed on reverse side.)
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* FOLD AND DETACH HERE *
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PACIFIC GULF PROPERTIES INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
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<S> <C> <C> <C>
For Against Abstain
1. Approval of sale of industrial properties / / / / / /
pursuant to the purchase agreement:
For Against Abstain
2. Approval of the sale of our remaining / / / / / /
assets and the liquidation of Pacific Gulf
Properties, which will be conditioned on
the sale of our industrial properties, and
the dissolution of Pacific Gulf Properties,
which will be conditioned on the sale of
all of our remaining assets.
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3. In their discretion, upon such other matter or matters which may properly
come before the meeting or any postponements or adjournments thereof.
The undersigned hereby revokes any proxy hereto given to vote at the Special
Meeting and acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement dated October 18, 2000.
Dated:_____________________________________ , 2000
__________________________________________________
Signature
Please sign exactly as your name or names appears herein. A proxy executed by a
corporation should be signed in the name(s) of its authorized officer(s).
Executors, administrators and trustees should so indicate when signing.
