PACIFIC GATEWAY PROPERTIES, INC.
SERIES 1 PREFERRED
STOCK PURCHASE AGREEMENT
September 21, ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ PROPERTIES, INC.
SERIES 1 PREFERRED
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
21st day of September, 1998, by and among Pacific Gateway Properties, Inc., a
New York corporation (the "Company"), and GEM Value/PGP, LLC (the "Investor").
WHEREAS:
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), and Section 4(2) of
the Securities Act;
B. The Company desires to sell and the Investor desires to purchase,
upon the terms and conditions stated in this Agreement, 300,000 shares of the
Company's Series 1 Preferred Stock, par value $1.00 per share (the "Series 1
Preferred Stock"), at a price of $10.00 per share for an aggregate principal
amount of Three Million Dollars ($3,000,000). The Series 1 Preferred Stock is
convertible into Common Stock of the Company, par value $1.00 per share (the
"Common Stock");
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws; and
D. Contemporaneous with the execution of this Agreement and the
Registration Rights Agreement the parties hereto and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Trust,
Turkey Vulture Fund XIII, Ltd. and Liberty Self Stor, Ltd. (collectively, the
"Principal Stockholder") are executing and delivering a Stockholder Agreement
and Irrevocable Proxy, in the form attached hereto as Exhibit B (the
"Stockholders' Agreement"), pursuant to which the Investor and the Principal
Stockholder have agreed to certain Tag-Along Rights with respect to the
transfer and disposition of their shares and to certain voting arrangements in
connection with a Change of Control Transaction (as defined therein).
NOW, THEREFORE, the parties hereby agree as follows:
1. Purchase and Sale of Stock.
1.1. Sale and Issuance of Series 1 Preferred Stock.
(a) The Company shall adopt and file with the
Department of State of the State of New York on or before the Closing (as
defined below) the Amendment to the Certificate of Incorporation in the form
attached hereto as Exhibit C (the "Certificate of Amendment"). In order
to assist the parties in interpreting certain provisions of the Certificate of
Amendment, interpretive examples are attached hereto as Schedule A.
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(b) Subject to the terms and conditions of
this Agreement, the Investor, agrees to purchase at the Closing and the
Company agrees to sell and issue to the Investor at the Closing 300,000 shares
of the Company's Series 1 Preferred Stock at a price of $10.00 per share for
an aggregate purchase price of $3,000,000 (the "Purchase Price").
1.2. Closing. The purchase and sale of the Series 1
Preferred Stock under Article 1.1(b) shall take place at 9:00 a.m. pacific
standard time, on September 21, 1998 (the "Closing"). The Closing shall take
place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Telesis Tower, ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
time and place as the Company and the Investor mutually agree upon orally or
in writing. At the Closing, the Company shall deliver to the Investor a
certificate representing the Series 1 Preferred Stock and the Investor or the
Investor's designee shall deliver the Purchase Price to the Company by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions attached hereto as Schedule B.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on a
Schedule of Exceptions attached hereto as Schedule C which exceptions shall be
deemed to be representations and warranties as if made hereunder.
2.1. Organization: Good Standing; Qualification. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of New York and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify or be in good standing would have a material
adverse effect on its business.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors, and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Registration
Rights Agreement and the Stockholders' Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale, and delivery of the Series 1
Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion thereof has been taken or will be taken prior to the Closing, and
this Agreement, the Registration Rights Agreement and the Stockholders'
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors' rights generally
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
2.3. Valid Issuance of Preferred and Common Stock. The
Series 1 Preferred Stock that is being purchased by the Investor hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable and the Investor shall have good and marketable title to the
shares of Series 1 Preferred Stock free of any liens or restrictions (unless
created by the Investor) other than restrictions expressly set forth in this
Agreement, the Stockholders' Agreement or the Registration Rights Agreement.
Based in part upon the representations of the Investor in this Agreement, the
shares of Series 1 Preferred Stock will be issued in compliance with
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series 1 Preferred Stock purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Certificate of Amendment, will be duly and validly
issued, fully paid, and nonassessable and issued in compliance with applicable
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state and federal securities laws and the Investor shall have good and
marketable title to the shares of Common Stock free of any liens or
restrictions (unless created by the Investor) other than restrictions
expressly set forth in this Agreement, the Stockholders' Agreement or the
Registration Rights Agreement.
2.4. Governmental Consents. No consent, approval, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
consummation of the transactions contemplated by this Agreement, except for
any filing required pursuant to the Securities Act and any applicable state
securities laws.
2.5. Capitalization and Voting Rights. As of the date of
this Agreement, the authorized capital of the Company consists of:
(i) Preferred Stock. Two Million (2,000,000) shares
of Preferred Stock (the "Preferred Stock"), of which Three Hundred Thousand
(300,000) shares have been designated Series 1 Preferred Stock and all of
which will be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series 1 Preferred Stock will be as stated in the
Certificate of Amendment.
(ii) Common Stock. Ten Million (10,000,000) shares of
Common Stock, of which 3,933,536 shares are issued and outstanding.
(iii) All such issued and outstanding shares have been
duly authorized and validly issued and are fully paid and non-assessable and
no issued and outstanding shares are subject to pre-emptive rights created by
statute, the Certificate of Incorporation or Bylaws or any agreement to which
the Company is a party or by which the Company may be bound. All outstanding
shares of the Company's capital stock have been issued in compliance with
applicable federal and state securities laws.
(iv) The Company has reserved for issuance 204,175
shares of Common Stock pursuant to the Company's 1985 and 1996 Stock Option
Plans, of which, as of the date of this Agreement, options to purchase 171,175
shares were outstanding with a weighted average exercise price of $2.79 per
share and 33,000 shares remain available for issuance pursuant to options that
may be granted under the 1996 Stock Option Plan. Except for the shares of
Series 1 Preferred Stock to be issued pursuant to this Agreement or as set
forth on Schedule C there are no other options, warrants, conversion
privileges, preemptive rights, rights of first refusal or other contractual
rights presently outstanding or in existence to purchase or otherwise acquire
any authorized but unissued shares of the Company's capital stock or other
securities or capital stock or other securities of any subsidiary of the
Company.
(v) Except for the Registration Rights Agreement and
as disclosed on Schedule A, there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the Securities Act. Except as set forth on Schedule C, there are no
securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Series 1 Preferred Stock in
accordance with the terms of this Agreement.
2.6. Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of this Agreement or the right of the Company
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to enter into such agreement, or to consummate the transactions contemplated
hereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, prospects or financial condition of the
Company, or in any material change in the current equity ownership of the
Company. The Company is not a party to, or to the best of its knowledge, named
in any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit or proceeding by the
Company currently pending or that the Company currently intends to initiate.
2.7. Offering. Subject in part to the truth and accuracy of
the Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series 1 Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
2.8. Disclosure. The Company has fully provided the Investor
with all the information that the Investor has requested for deciding whether
to purchase the Series 1 Preferred Stock and all information that the Company
believes is reasonably necessary to enable the Investor to make such decision.
To the best of the Company's knowledge, neither this Agreement, the
Registration Rights Agreement, the Stockholders' Agreement, nor any other
statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading.
2.9. Corporate Documents. Except for the Certificate
of Amendment, the Certificate of Incorporation and Bylaws of the Company are
in the form attached hereto as Section 2.9 of Schedule C.
2.10 SEC Documents. The Company has furnished to the
Investor prior to the date hereof copies of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 ("Form 10-K"), and
all other registration statements, reports and proxy statements filed by the
Company with the Securities and Exchange Commission ("Commission") on or after
December 31, 1997 (the Form 10-K and such registration statements,
reports and proxy statements, are collectively referred to herein as the "SEC
Documents"). Each of the SEC Documents, as of the respective date thereof, did
not, and each of the registration statements, reports and proxy statements
filed by the Company with the Commission after the date hereof and prior to
the Closing will not, as of the date thereof, contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading, except as may have been corrected in a subsequent
SEC Document. The Company is not a party to any material contract, agreement
or other arrangement which was required to have been filed as an exhibit to
the SEC Documents that is not so filed.
2.11 Environmental Matters. The Investor has been provided
with complete copies of the most recent environmental assessment, evaluation,
contamination or remediation reports regarding any of the Company's properties
which are in the Company's possession. To the knowledge of the Company, there
is no claim, action, cause of action, investigation or notice by any person or
entity against the Company or any of its properties alleging potential
5
liability arising out or, or based on or resulting from (a) the presence or
release into the indoor or outdoor environment of any hazardous materials at
any location or (b) the violation of any federal, state or local laws or
regulations relating to pollution or protection of human health or the
environment, which individually or in the aggregate would have a material
adverse effect on the Company or its business.
2.12. Finder's Fees. The Company represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction.
3. Representations and Warranties of the Investor. The
Investor hereby represents and warrants that:
3.1. Authorization. The Investor has full power and
authority to enter into this Agreement, the Registration Rights Agreement and
the Stockholders' Agreement, and such agreements constitute valid and legally
binding obligations of the Investor, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited
by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
3.2. Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor
hereby confirms, that the Series 1 Preferred Stock to be purchased by the
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a present view to the resale
or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Except as contemplated by this Agreement, the Registration Rights
Agreement and the Stockholders' Agreement, the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3. Reliance upon Investor's Representations. The
Investor understands that the Series 1 Preferred Stock is not, and any Common
Stock acquired on conversion thereof at the time of issuance may not be,
registered under the 1933 Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Regulation D and Section 4(2) thereof,
and that the Company's reliance on such exemption is predicated on the
Investor's representations set forth herein.
3.4. Receipt of Information. Such Investor believes it
has received all the information it considers necessary or appropriate for
deciding whether to purchase the Series 1 Preferred Stock. Such Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Series 1 Preferred Stock and the business, properties, prospects and
financial condition of the Company and to obtain additional information (to
the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
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3.5. Investment Experience. The Investor represents that it
is experienced in evaluating and investing in securities of companies and
acknowledges that it can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series 1
Preferred Stock.
3.6. Accredited Investor or Relationship to the Company. The
Investor further represents to the Company that the Investor is an "Accredited
Investor" within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.
3.7. Restricted Securities. The Investor understands that
(i) except as provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the Securities Act or any
state securities laws, and may not be transferred unless (a) subsequently
registered thereunder, or (b) the Investor shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that the Securities to be sold or transferred may be sold or transferred under
an exemption from such registration, or (c) sold under Rule 144
promulgated under the Securities Act (or a successor rule) ("Rule 144"),
or (d) sold or transferred to an affiliate of the Investor (which sale or
transfer shall be subject to the Company's consent which shall not be
unreasonably withheld); and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
3.8. Legends. To the extent applicable, each certificate or
other document evidencing any of the Securities shall be endorsed with the
legends set forth below, and the Investor covenants that, except to the extent
such restrictions are waived by the Company, the Investor shall not transfer
the shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED
UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED"; and
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT AND IRREVOCABLE PROXY, DATED
SEPTEMBER 21, 1998 BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES
(OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS CERTAIN
TAG-ALONG RIGHTS WITH RESPECT TO THE TRANSFER AND DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND PROVIDES FOR CERTAIN VOTING ARRANGEMENTS.
THE COMPANY WILL, UPON REQUEST, FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
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3.9. Finder's Fees. The Investor represents that it
neither is nor will be obligated for any finder's fee or commission in
connection with this transaction.
4. Conditions of Investor's Obligations at Closing. The
obligations of the Investor to effect the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions,:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall have been true when
made and be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
4.2. Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing.
4.3. Qualification. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing,
4.4. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Investor.
4.5. Registration Rights Agreement. The Company shall
have executed and delivered the Registration Rights Agreement.
4.6. Stockholders' Agreement. The Company and the Principal
Stockholder shall have executed and delivered the Stockholders' Agreement.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to effect the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions by
the Investor:
5.1. Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall have been true when
made and be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
5.2 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.3. Payment of Purchase Price. The Investor shall have
delivered the purchase price as specified in Section 1.1.
5.4. Registration Rights Agreement. The Investor shall
have executed and delivered the Registration Rights Agreement.
5.5. Stockholders' Agreement. The Investor and the Principal
Stockholder shall have executed and delivered the Stockholders' Agreement.
6. Covenants of Company. The Company covenants and agrees with the
Investor as follows:
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6.1 Board Representation. For as long as the Investor
or its Affiliates holds at least 100,000 shares of Series 1 Preferred Stock or
Common Stock (subject to adjustment to reflect any stock split, reverse stock
split, stock dividend, combination of shares, reclassification of shares and
the like), the Investor will be entitled to one representative on the Board of
Directors and the Company will use its best efforts to assure the election of
the Investor's chosen representative to the Board of Directors at the earlier
of the next scheduled meeting of the Board of Directors or the Annual
Stockholders' Meeting and to provide such director with the same director and
officers insurance and indemnification arrangement as are provided to other
members of the Board of Directors. In the event that such chosen
representative is not so elected, such person shall be entitled to receive
notices of and attend all meetings of the Board of Directors as a
non-participating observer and to receive copies of all materials distributed
to the members of the Company's Board of Directors at the time such materials
are so distributed.
6.2 Termination of Standstill. At the Closing, GEM Value,
Inc. will cease to be subject to the standstill provisions contained in the
tenth and eleventh paragraphs of the Confidentiality Agreement dated June 29,
1998, between the Company and GEM Value, Inc. (the "Confidentiality
Agreement"); provided, however, that all other provisions of the
Confidentiality Agreement will remain in full force and effect in accordance
with their terms.
6.3 Exemption from Ownership Limit.
(a) In reliance upon the representations, warranties, and
covenants of the Investor contained in Section 7.3 hereof, pursuant to
subparagraph (A)(9) of Article VI of the "Maryland Articles" (as defined in
Section 7.1 hereof), the Company agrees that it will exempt the Investor and
GEM Value Fund L.P. ("GEM") from the restrictions on ownership contained in
subparagraph (A)(2)(b) of Article VI of the Maryland Articles such that GEM
may own 101,700 shares of Common Stock of the "Maryland Company" (as defined
in Section 7.1 hereof) and the Investor or GEM may own 300,000 shares of
Series 1 Preferred Stock of the Maryland Company. Such exemptions shall be
granted to the Investor and GEM only, and shall not be assignable to any other
person or entity (including, without limitation, successors and assigns of the
Investor or GEM).
(b) If at any time and each time that there is a breach of
any covenant contained in Section 7.3(a) hereof, and as a result of such
breach (but for the provisions of this Section 6.3(b)), the Company would be
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), then the exemption granted in Section
6.3(a) hereof shall, as of the close of business on the business day prior to
the date of such breach, cease to be effective, and any shares of the
Company's capital stock owned by the Investor or GEM shall be subject to
subparagraph (A)(2)(b) of Article VI of the Maryland Articles. Notwithstanding
anything herein to the contrary, if at any time and each time the exemption
granted in Section 6.3(a) so ceases to be effective, it shall cease to be
effective only to the extent necessary such that the Company would not be
"closely held." If at any time and each time that the exemption granted in
Section 6.3(a) hereof so ceases to be effective, the Investor or GEM own both
shares of Common Stock and shares of Series 1 Preferred Stock of the Company,
subparagraph (A)(2)(b) of Article VI of the Maryland Articles shall apply to
such shares pro rata based on the proportion that the fair market value of the
shares of each class of stock bears to the total fair market value of the
shares of such class of stock owned by the Investor or GEM.
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7. Covenants of the Investor. The Investor covenants and agrees with
the Company as follows:
7.1 Approval of REIT Conversion. The Investor acknowledges
that it has received and reviewed, in connection herewith, a draft of the
Company's preliminary Proxy Statement containing a proposal by the Board of
Directors to convert the Company to a real estate investment trust ("REIT") by
reincorporating the Company as a Maryland corporation (the "Maryland
Reincorporation") and making the appropriate elections under federal tax laws.
The Investor understands that to effect the Reincorporation, the existing
Company, currently organized as a corporation under the laws of New York (the
"New York Company"), will be merged into a new corporation organized under the
laws of Maryland (the "Maryland Company") (the "Merger"), pursuant to an
Agreement and Plan of Merger by and between the New York Company and the
Maryland Company. When the Merger becomes effective, (i) the New York
Company will cease to exist, (ii) the Maryland Company will succeed, to
the fullest extent permitted by law, to all of the business, assets and
liabilities of the New York Company, and (iii) each share of Common
Stock of the New York Company will be converted automatically into one share
of common stock of the Maryland Company, and each share of Series 1 Preferred
Stock of the New York Company will be converted automatically into one share
of Series 1 Preferred Stock of the Maryland Company (the "Maryland Series 1
Preferred Stock"). As a result of the Merger, to the extent that the Investor
holds shares of Series 1 Preferred Stock the Investor will become a holder of
Maryland Series 1 Preferred Stock subject to the rights, privileges and
restrictions substantially in the form contained in the draft Articles of
Incorporation (the "Maryland Articles") and Bylaws (the "Maryland Bylaws") of
the Maryland Company, drafts of which have previously been provided to the
Investor by the Company. The Investor hereby agrees to approve the
Reincorporation by voting its shares of Series 1 Preferred Stock in favor of
the Maryland Reincorporation, including the Maryland Articles and Bylaws, upon
substantially the terms and conditions set forth in the draft Proxy Statement.
7.2. Waiver of Liquidation Rights. The Investor hereby
waives its liquidation rights, with respect to the Maryland Reincorporation,
pursuant to Article IV, Section (d)(3) of the Certificate of Amendment, as
amended.
7.3. REIT Representations, Warranties and Covenants. The
Investor hereby represents and warrants that, as of the date hereof, and
covenants (except in the case of Section 7.3(b) below) that, from and after
the effective time of the Maryland Reincorporation:
(a) For purposes of Sections 7.3(b)-(j), the
term "Investor" shall include GEM.
(b) No entity or individual "Beneficially Owns"
or "Constructively Owns" (as defined below), or in the future will
Beneficially or Constructively Own, twenty-five percent (25%) or more of the
capital or profits interests of any direct member or partner of the Investor.
The Investor is and will be taxable as a partnership for federal income tax
purposes and not as a corporation or association taxable as a corporation.
(c) On the date of the Closing, the Investor
will not be "closely held" within the meaning of Section 856(h) of the Code,
determined as though the Investor were a corporation, trust, or association
(i) that had elected to be treated as a real estate
10
investment trust under Section 856 of the Code and (ii) without regard
to Section 856(h)(2) of the Code. Within ten (10) business days of the
date of any reasonable request from the Company, for so long as the Investor
owns any shares of capital stock of the Company, the Investor will inform the
Company in writing of whether the Investor is "closely held" (as defined in
this Section 7.3(b)) determined as of the date of the Company's request.
(d) From and after the first day of the Company's
first taxable year as a REIT under Section 856 et. seq. of the Code until such
time as the Investor no longer owns any of the capital stock of the Company,
the Investor's ownership in the Company does not and will not cause the
Company to Constructively Own more than 9.8% of the stock or the "Ownership
Interests" (as defined below) in any tenant (a "Tenant") (within the meaning
of Section 856(d)(2)(B) of the Code) (determined without regard to
interests in any such Tenant that the Company may actually or Constructively
Own other than as a result of the Investor's actual or Constructive Ownership
in the Company) from whom the Company, directly or indirectly receives or is
expected to receive "rents from real property" (as such term is defined in
Section 856(d) of the Code (for purposes of applying Sections 856(c)(2) and
(3) of the Code)) if such ownership would cause the Company to fail to satisfy
any of the gross income requirements of Section 856(c) of the Code.
(e) The Investor will promptly inform the Company
if the Investor has knowledge of any facts or circumstances which would make
the statements contained in Section 7.3(d) incorrect. Furthermore,
within ten (10) business days of the date of any reasonable written request
from the Company, for so long as the Investor owns any shares of capital stock
of the Company, the Investor will inform the Company in writing of whether it
actually or Constructively Owns one percent (1%) or more of any Tenant
described in such request.
(f) The term "Constructively Owns" refers to
stock or Ownership Interests which the Investor (or another individual or
entity) actually owns, as well as stock or Ownership Interests which the
Investor (or another individual or entity) is considered to own through the
application of Section 318 of the Code, as modified by Section 856(d)(5) of
the Code.
(g) The term "Beneficially Owns" refers to stock
or an Ownership Interest that the Investor (or another individual or entity)
actually owns, as well as stock or Ownership Interests that the Investor (or
another individual or entity) is considered to own through the application of
Section 544 of the Code, as modified by Section 856(h) of the Code.
(h) The term "Ownership Interest" refers to any
type of ownership interest in either assets or net profits of an entity other
than a corporation.
(i) The Investor understands that the exemption
from the Ownership Limit referred to in Section 6.3 hereof shall cease to be
effective as provided in Section 6.3 hereof. If such exemption ceases to be
effective, the Investor may lose any current or future right or interest to
the number of shares of capital stock Beneficially or Constructively Owned by
the Investor in violation of subparagraph (A)(2)(a) of Article VI of the
Maryland Articles (the "Excess Shares") and (c) such Excess Shares will
be transferred to a trust (or otherwise subject to subparagraph (A)(2)(b)
of Article VI of the Maryland Articles) all in accordance
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with Section 6.3 hereof. The Investor further understands that such exemption
is not assignable to any other person or entity (including, without
limitation, successors and assigns of the Investor).
(j) The Investor understands that shares of
capital stock acquired from the Investor by any transferee of the Investor in
an amount in violation of subparagraph (A)(2)(a) of Article VI of the Maryland
Articles may be transferred to a trust (or the transfer of such shares to the
transferee may be void ab initio) under subparagraph (A)(2)(b) of Article VI
of the Maryland Articles unless a waiver of those provisions is received from
the Company pursuant to subparagraph (A)(9) of Article VI of the Maryland
Articles.
8. Miscellaneous.
8.1. Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
8.2. Survival of Warranties; Indemnification. The
warranties, representations and covenants of the Company and the Investor
contained in or made pursuant to this Agreement shall survive the execution
and delivery of this Agreement and the Closing for a period of one year,
except that the representations and warranties contained in Section 2.2, 2.3,
and 3.1, and the covenants contained in Section 7.3 shall survive
indefinitely. Subsequent to the Closing (i) the Company shall indemnify and
hold harmless Investor from and against any liability. loss or damage,
together with all reasonable costs or expenses related thereto, including
reasonable attorney's fees and expenses (collectively, "Losses"), actually
suffered or incurred by Investor to the extent such Losses arise out of or
result from the untruth and inaccuracy of any of the representations and
warranties of the Company contained herein and (ii) Investor shall indemnify
and hold harmless the Company from and against any Losses actually suffered or
incurred by the Company and arising out of or resulting from the untruth and
inaccuracy of any of the representations and warranties of Investor contained
herein.
(a) The expiration of the applicable survival period set
forth above shall not effect any claim for indemnification under this Section
8.2 if written notice of a claim for indemnification has been delivered by the
person seeking indemnification (the "Indemnitee") to the person from whom
indemnification is sought (the "Indemnitor") with respect to breaches of such
representation and warranties before the expiration of the applicable survival
period set forth above. All notices given pursuant to this subsection (a)
shall set forth with reasonable specificity the basis for the claim for
indemnification and the amount of Losses with respect to such claim.
(b) The indemnification rights under this Section 8.2 shall
be the exclusive remedy available to the parties subsequent to the Closing
Date with respect to any untruth or inaccuracy in any of the representations
and warranties contained in this Agreement.
8.3. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including, without limitation, the Maryland Company and permitted transferees
of any shares of Series 1 Preferred Stock sold hereunder or any Common Stock
issued upon conversion thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
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their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Notwithstanding the foregoing, this Agreement may not be
assigned by any party hereto except that Investor may assign its rights and
obligations under this Agreement to any affiliate (as defined under the
Securities Act), limited partner or investors of Investor, provided, that any
such assignment shall not relieve Investor of any of its obligations hereunder
or under the Stockholders Agreement or Registration Rights Agreement.
8.4. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California, as applied to agreements
among residents of the State of California entered into and to be performed
entirely within the State of California, irrespective of choice-of-law
principles of the State of California.
8.5. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6. Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.7. Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effective upon personal delivery to the party to be notified by hand or
professional courier service or ten (10) days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
8.8. Expenses. Irrespective of whether the Closing is
effected, each party will be exclusively responsible to pay all its own costs
and expenses with respect to the negotiation, execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Stockholders' Agreement.
8.9. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver affected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the Company.
8.10. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
8.11. Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
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8.12 No Personal Liability. Nothing in this Agreement
shall be deemed to impose any personal liability on the part of an officer,
director, shareholder, partner, member, manager or employee of the Investor or
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PACIFIC GATEWAY PROPERTIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
INVESTOR:
GEM VALUE/PGP LLC
By: GEM Value Partners, L.L.C.,
Its Managing Member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
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