Exhibit 10.14
ARDEN REALTY GROUP, INC.
0000 XXXXXXXX XXXXXXXXX
XXXXX 000 - XXXX XXXXX
XXXXXXX XXXXX, XXXXXXXXXX 00000
(000) 000-0000 FAX
(000) 000-0000
June 17, 1996
Xxxxxx Xxxxxxx
Broad Base Investments Two, LLC
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Re: CONFIDENTIAL OFFER TO PURCHASE PARTNERSHIP INTERESTS
Dear Xxxxxx:
Arden Realty Group ("Arden") is currently engaged in the process of
forming a real estate investment trust known as Arden Realty Group, Inc. (the
"Company" or the "REIT") to continue and expand the real estate business of
Arden, its principals and their affiliates which are engaged in owning,
acquiring, renovating, managing and leasing office properties in Southern
California.
The Company will operate as a self-administered and self-managed real
estate investment trust ("REIT") and expects to qualify as a REIT for federal
income tax purposes. The operations of the Company will be carried on solely
through Arden Realty Group Limited Partnership (the "Operating Partnership"), of
which the Company will be the sole general partner.
The Company and its Operating Partnership have been formed to
consolidate the ownership of a portfolio of office properties (the
"Participating Properties") located in Southern California through a series of
transactions (the "Formation Transactions") whereby the Operating Partnership
will acquire direct interests in certain of the Participating Properties (the
"Property Interests") and all of the interests in certain limited partnerships,
certain limited liability companies and certain other entities (collectively the
"Participating Partnerships and LLCs") which currently own directly or
indirectly the Participating Properties (the "Consolidation").
The Company is currently engaged in finalizing the Formation
Transactions whereby (i) the owners of the Property Interests and the partners
and members of the Participating Partnerships and LLCs will either transfer
their Property Interests and interests in the Participating Partnerships and
LLCs to the Company in exchange for cash (the "Cash Participants") or contribute
such interests directly to the Operating Partnership (the "OP Participants") in
exchange for an interest in the Operating Partnership ("OP Units") and
June 17, 1996
Page 2
(ii) Arden will contribute certain of its assets and liabilities to the
Operating Partnership in exchange for OP Units. In addition, the Company will
make a public offering (the "Public Offering") of its common stock (the "REIT
Shares" or "Common Stock") and use the proceeds therefrom, either directly or
through the Operating Partnership, to effectuate the Consolidation, among other
things. Beginning one year after completion of the Public Offering, the OP
Units will be redeemable for cash (based upon the fair market value of an
equivalent number of shares of Common Stock of the Company at the time of such
redemption) or, at the election of the Company, exchangeable for shares of
Common Stock on a one-for-one basis.
The Company wishes to include in its Consolidation interests Broad
Base Investments Two, LLC ("Broad Base") owns in certain of the Participating
Partnerships and LLCs as set forth on Exhibit A of the attached Option Agreement
(the "Partnerships") which own directly or indirectly interests in certain of
the Participating Properties also as set forth on Exhibit A (the "Properties").
As such, the Company respectfully requests Broad Base's cooperation in
effectuating the Consolidation and hereby offers to purchase for cash (the
"Offer"), on the terms and conditions described in more detail below, all of
Broad Base's right, title and interest, as a partner (or member) of the
Partnerships, including, without limitation, all of Broad Base's voting rights
and interests in the capital, profits and losses of the Partnerships or any
property distributable therefrom, constituting all of Broad Base's interests in
the Partnerships (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest").
For the reasons set forth below, the Company and the General Partners
of the Partnerships believe that the Offer is fair and recommend that Broad Base
accept the Offer.
In considering the Offer, the Arden principals and the Company
strongly encourage you to carefully read this confidential Offer and all
appendices hereto which are hereby incorporated by reference as if set forth
fully herein. If you have any questions concerning any of the matters addressed
in this confidential Offer, or would like to receive copies of the Partnerships'
limited partnership agreements (or limited liability company operating
agreements, as applicable) or other information, please feel free to contact
Xxxxxx Xxxxxxx of Xxxxx Realty Group, Inc. at (000) 000-0000.
AFTER YOU HAVE CAREFULLY REVIEWED THIS CONFIDENTIAL OFFER AND ALL
APPENDICES HERETO, IF YOU DECIDE TO ACCEPT THE OFFER PLEASE SIGN THE ENCLOSED
OPTION AGREEMENT SIGNATURE PAGE (AT P. A-11 OF APPENDIX A) AND RETURN IT TO
ARDEN REALTY GROUP, INC. IN THE ENCLOSED POSTAGE-PAID, PRE-ADDRESSED ENVELOPE AS
SOON AS POSSIBLE, BUT IN NO EVENT LATER THAN JUNE 21, 1996.
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June 17, 1996
Page 3
THE OFFER AND THE OPTION AGREEMENT
The terms and conditions of the Offer are set forth in the Option
Agreement (the "Option Agreement") to be entered into by the Company (the
"Offeror") and you, as a partner (or member) of the Partnerships (the
"Offeree"). The discussion set forth below is a summary of such terms and
conditions. The Option Agreement is attached hereto as Appendix A and is hereby
incorporated by reference.
OPTION, PURCHASE PRICE AND TERMS OF OPTION. The Company, is offering
to acquire for the Option Fee (as defined below) an option (the "Option") to
purchase all of Broad Base's Partnership Interest for a cash amount (the
"Purchase Price") equal to the "Total Minimum Consideration" figure indicated on
Exhibit A. The Company and the General Partners of the Partnerships believe
that the Purchase Price represents a fair value for Broad Base's Partnership
Interests. The Option will expire on December 31, 1996. Upon Broad Base's
acceptance of the Offer, the Company will pay you a nonrefundable option payment
equal to $100.00 (the "Option Fee"). Upon the final closing following the
Company's exercise of the Option, you will receive the Purchase Price in
exchange for Broad Base's Partnership Interest and the execution of an
Assignment and Assumption Agreement in favor of the Company.
CONDITIONS TO CLOSING ON THE OPTION. Exercise of the Option and
closing of the sale of the Partnership Interest pursuant to the Option will not
occur unless, among other things, (i) the Public Offering is consummated and the
net proceeds therefrom are sufficient to enable Offeror to consummate the
Formation Transactions including the acquisition of the Partnership Interest;
(ii) the transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
delivery by Offeree, directly or through the Attorney-in-Fact (see Article 5 of
the Option Agreement), of the Closing Documents. These conditions may be waived
in whole or in part by the Offeror.
CLOSING ON THE OPTION. If the Option is exercised, a place and time
for the closing of the purchase of Offeree's Partnership Interest will be set.
At an initial closing, Offeree will deliver, or have delivered on Offeree's
behalf through the Attorney-in-Fact, executed closing documents, including a
document that conveys to Offeror the Offeree's Partnership Interest (the
"Closing Documents"). If the Public Offering occurs and the other conditions to
closing are met, Offeree will receive the cash to which such Offeree is entitled
(i.e., the Purchase Price) and the purchase and sale of Offeree's Partnership
Interest will be complete.
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June 17, 1996
Page 4
POWER OF ATTORNEY AND PROXY. Among the provisions of the Option
Agreement is an irrevocable power of attorney and proxy giving each of Offeror
and its designee the authority to act on behalf of Offeree with respect to all
matters of the Partnerships related to the Formation Transactions, including:
(i) to vote the Offeree's Partnership Interest with respect to any matter
relating to the Formation Transactions, (ii) to provide information about the
Offer to the Securities and Exchange Commission (the "SEC") and/or to other
partners in the Partnerships and other partnerships or limited liability
companies being considered for participation in the Formation Transactions, and
(iii) to make, execute and deliver contracts, receipts and certificates in
connection with, and take all other actions necessary to carry out, the
transactions contemplated by the Option Agreement. Offeror intends to use the
proxy granted to it by each Offeree who accepts the Offer to vote all
Partnership Interests subject to the proxy in favor of the Formation
Transactions (and to amend the Partnerships' limited partnership agreements, if
required) and in favor of all actions by the Partnerships deemed necessary or
desirable by Offeror to consummate the Formation Transactions.
EFFECT OF ACCEPTANCE OF THE OFFER. Assuming the Option is exercised
and the sale of the Partnership Interest is completed, Offeree will receive the
Purchase Price for his Partnership Interest tendered, will no longer have any
interests in the Partnerships, and will not receive any interest in the
Operating Partnership. Offeree will recognize income or loss for federal income
tax purposes in connection with the sale of the Partnership Interest pursuant to
the Offer. See Appendix D, "Certain Federal Income Tax Consequences."
PURCHASE PRICE
Provided the entire Partnership Interest is transferred at Closing,
the Purchase Price will be a cash amount at least equal to the value of the
"Total Minimum Consideration" indicated on Exhibit A to the Option Agreement
which represents the sum of the minimum cash consideration values attributed to
each of the interests which collectively constitute the Partnership Interest to
be transferred upon the exercise of the Option.
If at Closing, the aggregate value of the cash available to all Cash
Participants exceeds the sum of the Total Minimum Consideration values (after
all adjustments set forth in the following paragraph) of all Cash Participants
(the "Additional Consideration"), then the Additional Consideration or a portion
thereof, if any, shall be allocated among the Cash Participants (including the
Offeree) based upon the relative values of the Offeree's Partnership Interest
and the interests contributed by each of the other Cash Participants, in each
case as determined in my sole discretion.
The Offeror reserves the right not to acquire any particular interest
that constitutes part of the Partnership Interest, if in good faith the Offeror
determines that the ownership of such interest or the underlying Properties
would be inappropriate for the Operating Partnership for any reason whatsoever.
In such an event, the Offeree's Total
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June 17, 1996
Page 5
Minimum Consideration may be reduced by an amount determined in my sole
discretion to reflect the reduction in total value of the Partnership Interest
ultimately transferred by the Offeree.
BENEFITS OF THE OFFER
Certain of the potential benefits to Offeree of the sale of its
Partnership Interest for cash are described below.
OPPORTUNITY TO LIQUIDATE INVESTMENT. The Offer will provide the
Offeree with an opportunity to liquidate its investment in the Partnerships for
cash. The Partnership Interest is a relatively illiquid investment. Generally,
the Partnership Interest cannot be sold except with the consent of the General
Partners of the Partnerships and an opinion of counsel for the Partnerships
stating that such sale is in compliance with all applicable laws, rules and
regulations of the federal and applicable state securities commissions and does
not jeopardize the Partnerships' tax status. Because the Partnership Interest
is not freely transferable, and because there is no public market for the
Partnership Interest, an investment in the Partnership Interest is not readily
convertible to cash. The Offer provides the opportunity for liquidity to the
Offeree. This is an opportunity that the General Partners cannot assure will be
available again in the foreseeable future. The availability to third-party
purchasers of attractive financing to acquire single-property real estate
investments remains limited under current market conditions. Traditional
sources of debt financing for single-property investments with traditionally
high levels of leverage have been reduced in recent years, in part because of
the difficulties encountered by financial institutions that made large numbers
of real estate loans in the past. The anticipated ability of Arden to undertake
the Public Offering puts it in a position to obtain equity financing to acquire
the Participating Properties for a combination of cash, OP Units and the
assumption or repayment of debt. No assurance can be made that the equity
markets will continue to be available in the future on terms that would make it
feasible to dispose of the Partnerships' Properties for the same consideration
proposed to be paid in the Formation Transactions.
ELIMINATION OF RISK OF REAL ESTATE OWNERSHIP. Ownership of the
Partnership Interest is subject to the risks inherent in the ownership of real
estate in general and office properties in particular, which include changes in
general or local economic conditions, changes in the supply of or demand for
competing properties in the area of the Partnerships' Properties, changes in
interest rates, the need to maintain the properties and to provide for
substantial costs of major repairs, replacements, improvements, and other
capital expenditures, and changes in the availability of mortgage funds (any or
all of which may render difficult the sale or refinancing of the Properties).
The Offer would enable Offerees to terminate their investments in the
Partnerships and thereby eliminate these risks.
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ALTERNATIVES CONSIDERED
In reaching the conclusion to recommend that the Offeree accept the
Offer, the Company and Arden principals have considered the following
alternatives:
CONTINUATION OF THE PARTNERSHIPS. The Partnerships could continue
their operations, seeking to maximize the value of their properties. Continuing
the Partnerships without change would not allow them to seek other investment
opportunities in the foreseeable future, as cash flow is not sufficient to
permit the Partnerships to borrow funds for additional property acquisitions.
In addition, continuing the Partnerships would not relieve the Partnerships of
their existing debt obligations or provide their partners with liquidity.
SALE OF THE PROPERTIES TO OTHER PURCHASERS AND LIQUIDATION OF THE
PARTNERSHIPS. The Partnerships could seek other purchasers to acquire their
properties, repay their debts, and, after establishing required reserves,
distribute the balance of the sale proceeds to limited partners and general
partners in accordance with the distribution provisions of the Partnerships'
limited partnership agreements. However, the Arden principals have neither
solicited any third-party offers nor received any attractive third-party offers
to purchase the Partnerships' Properties.
MISCELLANEOUS
To assist you in considering the attractiveness of this confidential
Offer certain "Special Considerations" have been enumerated in Appendix B, a
disclosure of certain "Conflicts of Interest" is attached as Appendix C, and a
discussion of "Certain Federal Income Tax Consequences" of the proposed
transactions is attached as Appendix D.
PENDING THE PUBLIC ANNOUNCEMENT OF THE FORMATION TRANSACTIONS AND THE
PUBLIC OFFERING, IT IS IMPERATIVE THAT YOU KEEP ALL INFORMATION CONTAINED IN
THIS LETTER AND THE APPENDICES ATTACHED HERETO ABSOLUTELY CONFIDENTIAL.
We thank you in advance for Broad Base's cooperation and careful
consideration of this liquidity opportunity as we move forward with the
formation of the REIT. As always, please do not hesitate to contact us if you
have any questions.
Sincerely,
Xxxxxxx X. Xxxxx
Xxxxx Realty Group, Inc.
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APPENDIX A
OPTION AGREEMENT
This Option Agreement (hereinafter referred to as the "OPTION
AGREEMENT") is made by and between Arden Realty Group, Inc., a Maryland
corporation ("OPTIONEE"), and Broad Base Investments Two, LLC, a Nevada limited
liability company ("OPTIONOR").
RECITALS
A. Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), of which Optionee is the sole general
partner, desires to consolidate the ownership of a portfolio of office
properties (the "PARTICIPATING PROPERTIES") located in Southern California
through a series of transactions (the "FORMATION TRANSACTIONS") whereby the
Operating Partnership will acquire direct interests in certain of the
Participating Properties (the "PROPERTY INTERESTS") and all of the interests in
certain limited partnerships, certain limited liability companies and certain
other entities (collectively the "PARTICIPATING PARTNERSHIPS AND LLCS") which
currently own directly or indirectly the Participating Properties (the
"CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Optionee which will
operate as a self-administered and self-managed real estate investment trust
("REIT") and will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Optionor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on EXHIBIT "A" (the "PROPERTIES").
E. The Optionee desires to acquire from Optionor, and Optionor
desires to grant to Optionee, an option to purchase on the terms and conditions
set forth herein all of Optionor's right, title and interest, as a partner (or
member) of the Partnerships, including, without limitation, all of its voting
rights and interests in the capital, profits and losses of the Partnerships or
any property distributable therefrom, constituting all of its interests in the
Partnerships (such right, title and interest are hereinafter collectively
referred to as the "PARTNERSHIP INTEREST").
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F. The parties acknowledge that Optionee's purchase of Optionor's
Partnership Interest is in connection with and subject to the consummation of
the Formation Transactions and the Public Offering.
NOW, THEREFORE, in consideration of payment of $100.00 in cash (the
"OPTION FEE"), the mutual covenants and conditions set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Optionee and Optionor agree as follows:
ARTICLE I
THE OPTION
1.1 GRANT OF OPTION. Optionor hereby grants to Optionee an option to
purchase (the "PURCHASE OPTION") all right, title and interest of such Optionor
in all of Optionor's Partnership Interest on the terms and conditions set forth
herein.
1.2 TERM AND EXERCISE OF OPTION. The Purchase Option may be
exercised at any time through December 31, 1996 (the "OPTION TERMINATION DATE")
by notice by Optionee to Optionor. If Optionee does not exercise the Purchase
Option by the Option Termination Date, Optionor's Purchase Option shall
terminate, Optionor shall be entitled to retain the Option Fee, and neither
party shall have any further obligations hereunder.
1.3 PURCHASE PRICE AND PAYMENT. Subject to ARTICLES 1.4 AND 1.5
below, the purchase price for Optionor's Partnership Interest (the "PURCHASE
PRICE") upon the exercise of the Purchase Option will be an amount equal to the
value indicated on Exhibit A as Optionor's "TOTAL MINIMUM CONSIDERATION".
1.4 ADDITIONAL CONSIDERATION. Subject to ARTICLE 1.5 below, in the
event that, at Closing (as defined in ARTICLE 2.2 below) the aggregate value of
the cash available to all Cash Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.5) of all
Cash Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the Cash
Participants (including the Optionor) based upon the relative values of the
Optionor's Partnership Interest and the interests contributed by each of the
other Cash Participants, in each case as determined by Xxxxxxx X. Xxxxx, in his
sole discretion.
1.5 ADJUSTED CONSIDERATION. The Optionee reserves the right not to
acquire any particular interest that constitutes part of the Partnership
Interest, if in good faith the Optionee determines that the ownership of such
interest or the underlying Properties would be inappropriate for the Operating
Partnership for any reason whatsoever. Optionor hereby agrees that, in such
event, the Optionor's Total Minimum Consideration may be reduced by an amount
determined by Xxxxxxx X. Xxxxx, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately transferred by Optionor.
A-2
1.6 AUTHORIZATION. Optionor hereby authorizes Xxxxxxx X. Xxxxx to
make any and all determinations to be made by him pursuant to ARTICLES 1.4 AND
1.5 hereof, and any and all such determinations shall be final and binding on
all parties.
1.7 CONTRIBUTION OF CERTAIN RIGHTS. Effective upon the Closing,
Optionor hereby assigns to the Optionee all of its rights and interests, if any,
including rights to indemnification in favor of the Optionor, if any, under the
agreements pursuant to which the Optionor or its affiliates initially acquired
the Partnership Interest transferred pursuant to this Option Agreement.
ARTICLE II
PURCHASE AND CLOSING
2.1 PURCHASE AND SALE. Optionee, in its sole discretion, may
exercise the Purchase Option to purchase all of Optionor's Partnership Interest.
Upon such exercise, Optionor shall sell, transfer, assign, and convey to
Optionee, and Optionee shall purchase, for the Purchase Price, all right, title
and interest of Optionor in such Partnership Interest free and clear of all
Encumbrances (as defined in ARTICLE 3.3).
2.2 CLOSING. In connection with or at any time after the exercise by
Optionee of the Purchase Option, Optionee will specify a date for the closing
(the "CLOSING") of the purchase and sale of the Partnership Interest. At or
before such Closing, which shall be held at a place and time determined by
Optionee in its sole discretion, Optionee and Optionor (itself or through the
Attorney-in-Fact (see ARTICLE 5)) will execute all closing documents (the
"CLOSING DOCUMENTS") required by Optionee including without limitation (i) an
Assignment and Assumption Agreement substantially in the form attached hereto as
EXHIBIT B, (ii) an individual quitclaim deed fully executed and duly
acknowledged from Optionor substantially in the form attached hereto as EXHIBIT
C, and (iii) any other documents deemed by Optionee to be necessary or desirable
to assign, transfer and convey Optionor's Partnership Interest, to confirm the
accuracy of Optionor's representations and warranties made hereby and the
compliance by Optionor of Optionor's covenants and agreements made hereby, and
to effectuate the transactions contemplated hereby. Subject to the Conditions
to Closing in ARTICLE 2.3 below, at Closing Optionee will pay to Optionor a cash
amount equal to the Purchase Price in consideration for the sale, transfer,
assignment and conveyance of the Partnership Interest.
2.3 CONDITIONS TO CLOSING. Optionee will purchase the Partnership
Interest only if (i) the Public Offering is consummated and the net proceeds
therefrom are sufficient to enable Optionee to consummate the Formation
Transactions including the acquisition of the Partnership Interest; (ii) the
transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
A-3
delivery by Optionor, directly or through the Attorney-in-Fact (see ARTICLE 5
hereof), of the Closing Documents. These conditions may be waived in whole or
in part by the Optionee.
2.4 TRANSFER TAXES. Optionee agrees to pay all transfer taxes
arising from the sale of Optionor's Partnership Interest pursuant to the
exercise by Optionee of the Purchase Option.
2.5 PRORATIONS. At the Closing, or as promptly as practicable
following the Closing, to the extent such matters are not the right or
responsibility of all tenants of a given Property, all revenue and all charges
that are customarily prorated in transactions of this nature, including accrued
rent currently due and payable, overpaid taxes or fees, real and personal
property taxes, common area maintenance charges and other similar periodic
charges payable or receivable with respect to such Property shall be ratably
prorated between the partners of the Partnership which holds such Property prior
to the Closing and the Optionee on and after the Closing, effective as of the
Closing. After providing for such prorations, (i) if any of the Partnerships
has a resultant cash surplus, the Purchase Price to be exchanged for Optionor's
Partnership Interest shall be increased in proportion to Optionor's ratable
share of such cash surplus and (ii) if any of the Partnerships has a resultant
cash deficit, the Purchase Price to be exchanged for Optionor's Partnership
Interest shall be reduced in proportion to Optionor's ratable share of such cash
deficit, unless such deficit is cured prior to Closing.
2.6 FURTHER ASSURANCES. Optionor will, from time to time, execute
and deliver to Optionee (or its designee) all such other and further instruments
and documents and take or cause to be taken all such other and further action as
Optionee (or its designee) may reasonably request in order to effect the
transactions contemplated by this Option Agreement, including instruments or
documents deemed necessary or desirable by Optionee (or its designee) to effect
and evidence the conveyance of Optionor's Partnership Interest in accordance
with the terms of this Option Agreement.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF OPTIONOR
Optionor hereby makes to Optionee each of the following
representations and warranties which are true as of the date hereof and will be
true as of the date of the Closing:
3.1 ORGANIZATION; AUTHORITY. The Optionor (A) if a natural
person, has the legal capacity to enter the Option Agreement; if not a natural
person, is duly formed, validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its formation, and (B) has all
requisite power and authority to own, lease or operate its property and to carry
on its business as presently conducted and, to the extent required under
applicable law, is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
3.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Option Agreement by the Optionor has been duly and validly authorized by all
necessary action
A-4
of the Optionor. This Option Agreement and each agreement, document and
instrument executed and delivered by or on behalf of Optionor pursuant to this
Option Agreement constitutes, or when executed and delivered will constitute,
the legal, valid and binding obligation of Optionor, each enforceable against
the Optionor in accordance with its terms.
3.3 TITLE TO PARTNERSHIP INTEREST. Optionor is the sole owner of the
Partnership Interest and owns beneficially and of record free and clear of any
claim, lien, pledge, voting agreement, option, charge, security interest,
mortgage, deed of trust, encumbrance, rights of assignment, purchase rights or
other rights of any nature whatsoever of any third party (collectively,
"ENCUMBRANCES"), and has full power and authority to convey free and clear of
any Encumbrances, its Partnership Interest and, upon payment for such
Partnership Interest, Optionee (or its designee) will acquire good and valid
title thereto, free and clear of any Encumbrances except Encumbrances created in
favor of Optionee by the transactions contemplated hereby. Optionor has no
equity interest, either direct or indirect, in the Properties or the
Partnerships except for the Partnership Interest which is the subject of this
Option Agreement.
3.4 CASH FLOW AND OPERATIONS DATA. Optionor has been provided
quarterly cash flow and operations data for the Properties (additional copies of
which have been made available by Optionee upon request) and has had the
opportunity to conduct its own independent valuation of the Properties.
3.5 CONSENTS AND APPROVALS. Optionor has full right, authority,
power and capacity, and no consent, waiver, approval or authorization of any
governmental entity, lender or other third party is required for Optionor:
(i) to enter into this Option Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of Optionor pursuant to
this Option Agreement; (ii) to carry out the transactions contemplated hereby
and thereby; and (iii) to transfer, sell and deliver all of Optionor's
Partnership Interest to Optionee (or its designee) upon exercise by Optionee of
the Purchase Option and payment therefor in accordance with this Option
Agreement.
3.6 NO VIOLATION. None of the execution, delivery or performance of
the Option Agreement and the transactions contemplated hereby does or will, with
or without the giving of notice, lapse of time, or both, (i) violate, conflict
with, result in a breach of, or constitute a default under or give to others any
right of termination or cancellation of (A) the organizational documents,
including the charters and bylaws, if any, of the Optionor, (B) any material
agreement, document or instrument to which the Optionor is a party or by which
the Optionor or its Partnership Interest is bound or (C) any term or provision
of any judgment, order, writ, injunction, or decree of any governmental or
regulatory authority binding on the Optionor or by which the Optionor or any of
its assets or properties are bound or subject or (ii) result in the creation of
any Encumbrance upon the Partnership Interest.
3.7 NON-FOREIGN STATUS. The Optionor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Internal Revenue Code of 1986, as amended and hereinafter
referred to as the "CODE"), and is, therefore,
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not subject to the provisions of the Code relating to the withholding of sales
proceeds to foreign persons.
3.8 WITHHOLDING. The Optionor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withholding provisions, including those referred to in
ARTICLE 3.7 above and similar provisions under California law. If Optionor
fails to provide such certificates or affidavits, Optionee may withhold a
portion of the Purchase Price as required by the Code or California law.
3.9 LITIGATION. There is no litigation or proceeding, either
judicial or administrative, pending or threatened, affecting all or any portion
of Optionor's Partnership Interest or Optionor's ability to consummate the
transactions contemplated hereby.
3.10 NO OTHER AGREEMENTS TO SELL. Except for the Purchase Option
granted hereby, Optionor has made no agreement and has no obligation (absolute
or contingent) to sell, transfer or in any way encumber any of Optionor's
Partnership Interest or not to sell Optionor's Partnership Interest.
3.11 NO BROKERS. Neither the Optionor nor any of its officers,
directors or employees has employed or made any agreement with any broker,
finder or similar agent or any person or firm which will result in the
obligation of the Optionee or any of its affiliates to pay any finder's fee,
brokerage fees or commission or similar payment in connection with the
transactions contemplated by this Option Agreement.
3.12 COVENANT TO REMEDY BREACHES. Optionor covenants to use its
best efforts (i) to prevent the breach of any representation or warranty of
Optionor hereunder, (ii) to satisfy all covenants of Optionor hereunder and
(iii) to promptly cure any breach of a representation, warranty or covenant of
Optionor hereunder upon its learning of same.
ARTICLE IV
RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 4 shall
become effective only upon the Closing of the purchase and sale of the
Partnership Interest pursuant to ARTICLE 2 herein.
4.1 GENERAL RELEASE OF OPTIONEE. As of the Closing, Optionor
irrevocably waives, releases and forever discharges the Optionee and Optionee's
affiliates, executive officers (including Xxxxxxx X. Xxxxx and Xxxxxx X.
Xxxxxxx), agents, attorneys, successors and assigns of and from, any and all
charges, complaints, claims, liabilities, damages, actions, causes of action,
losses and costs of any nature whatsoever (collectively, "OPTIONOR CLAIMS"),
known or unknown, suspected or unsuspected, arising out of or relating to any
partnership agreement or limited liability company operating agreement governing
the Partnership Interest (collectively, the "PARTNERSHIP AGREEMENTS"), this
Option Agreement or any other matter which exists at the
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Closing, except for Optionor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.2 GENERAL RELEASE OF OPTIONOR. As of the Closing, Optionee
irrevocably waives, releases and forever discharges the Optionor and Optionor's
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses and
costs of any nature whatsoever (collectively, "OPTIONEE CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreements, this Option Agreement or any other matter which exists at the
Closing, except for Optionee Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.3 WAIVER OF SECTION 1542 PROTECTIONS. As of the Closing,
Optionor and Optionee each expressly waives and relinquishes all rights and
benefits afforded by Section 1542 of the California Civil Code and do so
understanding and acknowledging the significance and consequence of such
specific waiver of Section 1542 which provides:
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 the settlement with the
debtor.
4.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT. As of the
Closing, the Optionor waives and relinquishes all rights and benefits otherwise
afforded to Optionor under the Partnership Agreements including, without
limitation, any right to consent to or approve of the sale or contribution by
the other partners (or members) of the Partnerships of their partnership
interests to the Company or the Operating Partnership.
ARTICLE V
POWER OF ATTORNEY
5.1 GRANT OF POWER OF ATTORNEY. Optionor does hereby irrevocably
appoint Optionee (or its designee) and each of them individually and any
successor thereof from time to time (such Optionee or designee or any such
successor of any of them acting in his, her or its capacity as attorney-in-fact
pursuant hereto, the "ATTORNEY-IN-FACT") as the true and lawful attorney-in-fact
and agent of Optionor, to act in the name, place and stead of Optionor to make,
execute, acknowledge and deliver all such other contracts, orders, receipts,
notices, requests, instructions, certificates, consents, letters and other
writings (including without limitation the execution of any Closing Documents or
other documents relating to the acquisition by Optionee of Optionor's
Partnership Interest), to provide information to the Securities and Exchange
Commission and others about the transactions contemplated hereby and, in
general, to do all things and to take all actions which the Attorney-in-Fact in
its sole discretion may consider necessary or proper in connection with or to
carry out the transactions contemplated by this Option Agreement, as fully as
could Optionor if personally present and acting. Further, Optionor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Optionor's Partnership
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Interest on any matter related to the Formation Transactions presented to the
Partnerships' partners for a vote, including, but not limited to, the transfer
of interests in the Partnerships by other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Optionor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Option Agreement, the Attorney-in-Fact shall nevertheless be authorized and
directed to complete all such transactions as if such other act or events had
not occurred and regardless of notice thereof. Optionor agrees that, at the
request of Optionee it will promptly execute a separate power of attorney and
proxy on the same terms set forth in this ARTICLE 5, such execution to be
witnessed and notarized. Optionor hereby authorizes the reliance of third
parties on each of the Power of Attorney and Proxy.
Optionor acknowledges that Optionee has, and any designee or successor
thereof acting as Attorney-in-Fact may have, an economic interest in the
transactions contemplated by this Option Agreement.
5.2 LIMITATION ON LIABILITY. It is understood that the Attorney-
in-Fact assumes no responsibility or liability to any person by virtue of the
Power of Attorney or Proxy granted by Optionor hereby. The Attorney-in-Fact
makes no representations with respect to and shall have no responsibility for
the Formation Transactions or the Public Offering, or the acquisition of the
Partnership Interest by Optionee and shall not be liable for any error or
judgment or for any act done or omitted or for any mistake of fact or law except
for its own gross negligence or bad faith. Optionor agrees to indemnify the
Attorney-in-Fact for and to hold the Attorney-in-Fact harmless against any loss,
claim, damage or liability incurred on its part arising out of or in connection
with it acting as the Attorney-in-Fact under the Power of Attorney or Proxy
created by Optionor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extent such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Optionor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Optionee or
its successors or affiliates), and it shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to
Optionor hereunder, release, amend or modify any other power of attorney or
proxy granted by any other person under any related agreement.
ARTICLE VI
MISCELLANEOUS
6.1 AMENDMENT. Any amendment hereto shall be effective only
against those parties who have acknowledged in writing their consent to such
amendment. No waiver of any provisions of this Option Agreement shall be valid
unless in writing and signed by the party against whom enforcement is sought.
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6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Option
Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, (b) may be executed in one or more
counterparts, each of which will be deemed an original and all of which shall
constitute but one and the same instrument and (c) shall be governed in all
respects by the laws of California without giving effect to the conflict of law
provisions thereof.
6.3 ASSIGNABILITY. Neither this Option Agreement nor any of the
rights or obligations hereunder may be assigned by Optionor without the prior
written consent of Optionee or by Optionee without the prior written consent of
Optionor, except that Optionee may, without such consent, assign such rights and
such obligations to any affiliate of Optionee, provided that such assignment
shall not affect Optionee's obligations hereunder.
6.4 SEVERABILITY. If any provision of this Option Agreement, or
the application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Option Agreement and application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Option Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision and
to execute any amendment, consent or agreement deemed necessary or desirable by
Optionee to effect such replacement.
6.5 EQUITABLE REMEDIES. The parties hereto agree that irreparable
damage would occur if any provision of this Option Agreement was not performed
in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Option Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in the California (as to which the parties agree to submit to
jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
6.6 NOTICES; EXERCISE OF OPTIONOR'S PURCHASE OPTION. Any notice or
demand which must or may be given under this Option Agreement (including the
exercise by Optionee of the Purchase Option) or by law shall, except as
otherwise provided, be in writing and shall be deemed to have been given
(i) when physically received by personal delivery (which shall include the
confirmed receipt of a telecopied facsimile transmission), or (ii) three
business days after being deposited in the United States certified or registered
mail, return receipt requested, postage prepaid, or (iii) one business day after
being deposited with a nationally known commercial courier service providing
next day delivery service (such as Federal Express).
A-9
Any such notice shall be addressed and delivered or telecopied (a) in
the case of a notice to Optionee at the following address and facsimile number:
Arden Realty Group, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxx Xxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: President
and (b), in the case of a notice to Optionor, to the address and facsimile
number set forth on the Option Agreement Signature Page hereof.
6.7 SURVIVAL. It is the express intention and agreement of the
parties hereto that the representations, warranties and covenants of Optionor
set forth in this Option Agreement shall survive the consummation of the
transactions contemplated hereby.
6.8 INDEMNIFICATION. Optionee shall cause the Operating
Partnership to indemnify and hold harmless the Optionor and its partners,
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including without limitation, amounts paid in
settlement, reasonable attorneys' fees, costs of investigation and remediation,
costs of investigative judicial or administrative proceedings or appeals
therefrom and costs of attachment or similar bonds (collectively, "LOSSES")
asserted against, imposed upon or incurred by the Indemnified Party in
connection with: (i) any liabilities or obligations incurred, arising from or
out of, in connection with or as a result of any claims made or actions brought
by or against the Optionor, the Operating Partnership, the Property or an
Indemnified Party, that arise from or out of, in connection with or as a result
of any contamination or other environmental liability of the Property regardless
of when or how occurring; and fees, costs and expenses of the Operating
Partnership in connection with the transactions contemplated by the Option
Agreement, including without limitation any and all costs associated with the
transfers contemplated herein.
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OPTION AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties hereto has executed this
Option Agreement as of this __ day of June, 1996.
OPTIONOR
BROAD BASE INVESTMENTS TWO, LLC,
a Nevada limited liability company
By:/s/ XXXXXX XXXXXXX
------------------------------
Xxxxxx Xxxxxxx
By: Xxxxxxx Foundation
/s/ XXXXXX XXXXXXX
------------------------------
Xxxxxx Xxxxxxx
President
OPTIONOR'S NOTICE ADDRESS
Broad Base Investments Two, LLC
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
OPTIONEE
ARDEN REALTY GROUP, INC.,
a Maryland corporation
By:/s/ XXXXXXX X. XXXXX
------------------------------
Xxxxxxx X. Xxxxx
Chief Executive Officer
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EXHIBIT A
TO
OPTION AGREEMENT
CONSTITUENT INTERESTS OF
OPTIONOR'S PARTNERSHIP INTEREST
PROPERTIES HELD BY MINIMUM
PARTNERSHIPS PARTNERSHIPS CONSIDERATION
------------ ------------------ -------------
LAOP IV, LLC 5601 Lindero Canyon
Westwood Terrace
Calabasas Commerce Center
The New Wilshire
70 South Lake
SkyView Center
0000 Xxxxxxx Xxxxx Xxxxx
4900/10 Airport Plaza Drive $8,507,349
-------------
TOTAL MINIMUM CONSIDERATION $8,507,349
-------------
-------------
A-12
EXHIBIT B
TO
OPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers, sells
and conveys to ARDEN REALTY GROUP, INC. a Maryland corporation (the "Company"),
its entire legal and beneficial right, title and interest in and to
______________________________, a __________________________________ [(the
"Partnership"/"LLC")], including, without limitation, all right, title and
interest, if any, of the undersigned in and to the [Partnership's/LLC's] assets
and the right to receive distributions of money, profits and other assets from
the [Partnership/LLC], presently existing or hereafter at any time arising or
accruing (such right, title and interest are hereinafter collectively referred
to as the ["Partnership Interest/LLC Interest"]), TO HAVE AND TO HOLD the same
unto the Company, its successors and assigns, forever.
Upon the execution and delivery hereof, the Company assumes all
obligations in respect of the [Partnership Interest/LLC Interest].
The [Partnership/LLC] owns certain real property as described in
Attachment "1" attached hereto.
Executed: _____________ __, 1996
By:
------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
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EXHIBIT C
TO
OPTION AGREEMENT
Order No.
Escrow No.
Loan No.
--------------------------------------------------------------------------------
WHEN RECORDED MAIL TO:
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $
. . . . .Computed on the consideration or value of
property conveyed; OR
. . . . .Computed on the consideration or value less
liens or encumbrances remaining at time of
sale.
----------------------------------------------------------------------
Signature of Declarant of Agent determining tax -Firm Name
--------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group, Inc., a Maryland corporation
the real property in the City of _________, County of ________, State of
California, described as
Dated __________________________________
STATE OF CALIFORNIA )
) COUNTY OF__________________
)
On _________________________________________________________________before me,
_______________________________________________________________________________
personally appeared____________________________________________________________
Personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose names(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s) or the entity upon behalf of
which the person(s) acted, executed the instrument. (This area for official
notarial
WITNESS my hand and official seal.
Signature_____________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(THIS AREA FOR OFFICIAL SEAL.)
A-14
APPENDIX B
SPECIAL CONSIDERATIONS
NO FAIRNESS OPINIONS OR APPRAISALS
No third-party fairness opinions of the transactions contemplated by
the Option Agreement were sought or obtained. In addition, no third-party
appraisals of the fair market value of the Partnership Interest, or the
Partnerships' Properties were sought or obtained. There can be no assurance
that the consideration paid in connection with the Offer is equivalent to the
fair market value of such Partnership Interest or Properties.
NO INDEPENDENT REPRESENTATIVE FOR PARTNERS OF THE PARTNERSHIPS
The terms of the Offer have been established by the Arden principals
on behalf of the REIT. The partners of the Partnerships were not separately
represented in structuring and negotiating the terms of such transactions,
either by representative groups of limited partners or outside experts and
consultants, such as investment bankers, legal counsel, accountants and
financial experts. Had independent representation been arranged for such
partners, the terms of such transactions might have been different and possibly
more favorable to such partners.
POTENTIAL DIFFERENCE IN VALUE RECEIVED BY OFFEREE AND THE OP PARTICIPANTS
Depending upon prevailing market conditions, the OP Participants who
will receive OP Units for their Partnership Interest, may receive greater value
(on the basis of the trading prices for the Offeror's common stock after the
Public Offering) for their Partnership Interest in the Formation Transactions
than the Offerees will receive for their Partnership Interest pursuant to the
Offer. In addition, the OP Participants will receive from the Operating
Partnership distributions of cash and allocations of income and loss, including
allocations of certain interest expenses attributable to loans which will be
transferred by the Partnerships to the Operating Partnership. The Offerees will
not receive such benefits. As holders of OP Units, however, the OP Participants
will own an investment with substantial limits on transferability for at least
one year during which the OP Units may not be transferred, or redeemed for cash
or REIT Shares and will bear the risk of fluctuations in value.
BENEFITS TO ARDEN PRINCIPALS RELATING TO THE FORMATION OF THE OPERATING
PARTNERSHIP
The Arden principals may realize substantial financial benefits from
their participation in the formation of the Operating Partnership and from the
consummation of the Formation Transactions. The Arden principals will receive
OP Units and cash in exchange for their interests in the Partnerships, other
Participating Partnerships and LLCs and the assets of Arden. Although the
consideration paid to the Arden principals in connection with the Formation
Transactions is intended to be based on the value of the assets contributed,
such consideration may not necessarily be indicative of the actual value of
these assets.
B-1
TAX CONSEQUENCES TO OFFEREE
The sale of Partnership Interest will be a taxable transaction for the
Offeree. The Offeree will recognize gain or loss with respect to its
Partnership Interest equal to the difference between the "amount realized" with
respect to such Partnership Interest (which includes both the cash received and
the Offeree's share of the Partnerships' liabilities as determined for tax
purposes) and its adjusted tax basis in such Partnership Interest. Such gain
may exceed the Purchase Price. It is extremely important that each Offeree
consult with his tax advisor regarding the consequences of the Offer. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in APPENDIX D.
LOSS OF OPPORTUNITY TO BENEFIT FROM POTENTIAL FUTURE APPRECIATION OF PROPERTY
The determination of the Purchase Price has been based in part on
current market conditions. There can be no assurance that the real estate
market in general will not improve following the Formation Transactions,
creating an environment for a more favorable disposition of the Properties or
Offeree's Partnership Interest in the future.
B-2
APPENDIX C
CONFLICTS OF INTEREST
A number of conflicts of interest are inherent in the relationships
among the Arden principals, the Participating Partnerships and LLCs, the
Operating Partnership, the REIT and its directors and officers. Certain of
these conflicts of interest are summarized below.
COMMON GENERAL PARTNERS
State law in each of the jurisdictions in which the Participating
Partnerships and LLCs have been formed, including California and Nevada, imposes
certain fiduciary duties upon the general partners or managing members of each
of the Participating Partnerships and LLCs that go beyond the specific duties
and obligations imposed upon them under their respective limited partnership
agreements or LLC Operating Agreement. The general partners and managing
partners, in handling the affairs of each Participating Partnership and LLC, are
expected to exercise good faith, to use care and prudence and to act with an
undivided duty of loyalty to the limited partners of the respective
Participating Partnerships and LLCs. The Arden principals serve with others as
general partners or managing members for many of the Participating Partnerships
and LLCs. The general partners and managing members of each Participating
Partnership and LLC have an independent obligation to ensure that the
participation of the limited partners or members in the Option Agreement
transactions is fair and equitable. The Arden principals have sought to
discharge faithfully their fiduciary obligation to each of the Participating
Partnerships and LLCs, but it should be borne in mind that the Arden principals
who are the general partners of several of the Partnerships may serve in a
similar capacity with respect to each of the Participating Partnerships and
LLCs.
LACK OF INDEPENDENT REPRESENTATION
The Participating Partnerships and LLCs have not retained an
unaffiliated representative to negotiate the terms and conditions under which
their properties shall be transferred to the Operating Partnership. The Arden
principals, who are affiliates of the Operating Partnership and the REIT, have
acted on behalf of the Operating Partnership and the Participating Partnerships
and LLCs to structure the transactions and determine the Purchase Price.
Consequently, the terms of such transactions are not the result of arm's-length
negotiations, and no fairness opinion concerning the Offer has been obtained.
Further, because the Arden principals and their affiliates have a
significant financial interest in consummating the Formation Transactions and no
independent entity approved such Formation Transactions on behalf of the
Participating Partnerships and LLCs, there is an inherent conflict of interest
in the Arden principals' structuring of the terms and conditions of the
Formation Transactions.
C-1
SUBSTANTIAL BENEFITS TO THE ARDEN PRINCIPALS
The Arden principals have the following interests in the Formation
Transactions and the Public Offering, which may conflict with the interests of
the Offeree, the Participating Partnerships and their partners:
PARTNERS IN PARTICIPATING PARTNERSHIPS AND OWNERSHIP OF OP UNITS.
Certain of the partners in the Participating Partnerships and LLCs, including
in many cases the Arden principals and/or their affiliates, are contributing
their interests in the Participating Partnerships and LLCs to the Operating
Partnership in exchange for OP Units in tax free transactions. In addition,
Arden will contribute its assets to the Operating Partnership in exchange for OP
Units. The Arden principals, therefore, will hold substantial numbers of OP
Units following the Formation Transactions and thus may receive a long-term
direct financial benefit from the Formation Transactions.
IMPROVED FINANCIAL POSITION OF THE ARDEN PRINCIPALS. Aside from the
direct monetary benefits described above, following the consummation of the
Formation Transactions, certain of the Arden principals will (i) enter into
employment agreements with the Operating Partnership and will receive salary,
other compensation such as bonuses and benefit plan awards, and options to
acquire additional OP Units and/or REIT Shares; (ii) receive increased liquidity
of their interests in the Participating Partnerships and LLCs due to the
conversion of these interests to OP Units that may ultimately be converted into
cash or REIT Shares; (iii) receive increased diversification of their
investments; and (iv) receive the release of certain personal guarantees of
mortgage indebtedness on certain of these properties.
c-2
APPENDIX D
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax
consequences associated with the sale by the Offeree of its Partnership
Interest. It is impractical, however, to set forth in this confidential Offer
all aspects of federal tax law which may have tax consequences with respect to a
partner's participation in the Partnership Interest sale transaction. The
following discussion does not purport to deal with all aspects of taxation that
may be relevant to particular partners in light of their personal investment or
tax circumstances, or to certain types of partners (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws.
Furthermore, the discussion of various aspects of federal income taxation
discussed herein is based on the Code, existing laws, judicial decisions and
administrative regulations, rulings and practice, all of which are subject to
change at any time. Any such changes may be retroactive. Consequently, no
assurance can be given that the federal income tax consequences to a partner
described herein will not be altered in the future. This summary is not
intended to be a complete discussion of all tax consequences of the sale of the
Partnership Interest to the REIT or a substitute for careful tax planning, and
does not address the possible consequences to the Offeree under the tax laws of
the states and localities where the Offeree resides or otherwise does business
or where the Partnerships may operate. Further, the federal income tax
consequences to an Offeree may be affected by matters not discussed below. The
discussion set forth below is based upon the assumption that interests held by
the Offeree constitute capital assets in the hands of such investor. In
addition, this discussion assumes that each of the Partnerships is classified
for federal income tax purposes as a partnership rather than as an "association"
taxable as a corporation or a publicly traded partnership. EACH OFFEREE IS
URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO HIM OF PARTICIPATING IN THE OFFER AND SALE OF
HIS PARTNERSHIP INTERESTS.
TAXATION OF OFFEREES RESULTING FROM THE SALE OF THEIR PARTNERSHIP INTERESTS
The sale of a Partnership Interest will be a taxable transaction for
the Offerees who accept the Offer. Upon the sale of a Partnership Interest for
cash, Offerees will recognize gain or, subject to certain limitations, loss with
respect to such Partnership Interest in an amount equal to the excess (or
deficit) of (i) their "amount realized" with respect to such Partnership
Interest, and (ii) their adjusted tax basis in such Partnership Interest. An
Offeree's "amount realized" with respect to a Partnership Interest for this
purpose will equal the sum of the cash consideration paid for such Partnership
Interest (I.E., the Purchase Price plus the Option Fee) plus the Offeree's
"share" (as determined for tax purposes) of the liabilities of the Partnerships.
Therefore, depending upon an Offeree's adjusted tax basis in the Partnership
Interest and his share of the Partnerships' liabilities, the gain recognized by
a particular Offeree may be in excess of the amount of cash received. Any gain
recognized on the sale of the Partnership Interest pursuant to the Offer
generally will constitute capital gain;
D-1
provided, however, that to the extent the amount received for the Partnership
Interest is attributable to the Offeree's share of "substantially appreciated
inventory" or "unrealized receivables" (within the meaning of Section 751 of the
Code) of the Partnerships (including the Partnerships' previously allowed
depreciation and cost recovery deductions subject to recapture), the gain
resulting therefrom will be treated as ordinary income.
Any gain recognized by the Offerees who do not "materially
participate" (as defined in the Code) in a Participating Partnership in
connection with the sale of their Partnership Interests in such partnership will
constitute "passive activity income" for purposes of the "passive activity loss"
rules. Accordingly, such income generally may be offset by losses from all
sources, including suspended "passive activity losses" with respect to the
Partnerships, and "passive" or "active" losses from other activities. There are
exceptions to this rule, however, and each Offeree should consult with his or
her own tax advisor concerning whether, and the extent to which, he or she has
available suspended "passive" losses from either the Partnerships or other
investments that may be used to offset gain resulting from the sale of
Partnership Interests. Any gain recognized by an offeree who "materially
participates" (as defined in the Code) in a Participating Partnership may not be
offset by suspended "passive activity losses."
STATE AND OTHER TAX CONSIDERATIONS
Offerees who sell their Partnership Interests may be subject to other
taxes, such as state and local income taxes or transfer taxes that may be
imposed by various jurisdictions. Each Offeree is urged to consult with his own
tax advisor for advice as to state, local, or other taxes which may be payable
in connection with his acceptance of the Offer.
THE FOREGOING IS MERELY A SUMMARY OF CERTAIN OF THE FEDERAL
INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE SALE OF
PARTNERSHIP INTERESTS TO THE OFFEROR. IT DOES NOT PURPORT TO BE
EITHER A COMPLETE ANALYSIS OR A COMPETE LISTING OF ALL POTENTIAL
TAX CONSIDERATIONS OR TAX RISKS INHERENT IN THE OFFER AND SALE,
AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY,
OFFEREES ARE URGED TO CONSULT THEIR PERSONAL TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF PARTICIPATING IN THE SALE OF THEIR PARTNERSHIP INTERESTS.
D-2
