Option Agreement With Bbi Two, Llc

Exhibit 10.14


ARDEN REALTY GROUP, INC.
9100 WILSHIRE BOULEVARD
SUITE 700 - EAST TOWER
BEVERLY HILLS, CALIFORNIA 90212
(310) 246-2941 FAX
(310) 271-8600


June 17, 1996


Arthur Gilbert Broad Base Investments Two, LLC 9536 Wilshire Boulevard, Suite 420 Beverly Hills, California 90212


Re: CONFIDENTIAL OFFER TO PURCHASE PARTNERSHIP INTERESTS


Dear Arthur:


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


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(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 Victor Coleman of Arden Realty Group, Inc. at (310) 271-8600.


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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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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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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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,


Richard S. Ziman
Arden 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 Richard S. Ziman, 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 Richard S. Ziman, in his sole discretion, to reflect the reduction in total value of the Partnership Interest ultimately transferred by Optionor.


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1.6 AUTHORIZATION. Optionor hereby authorizes Richard S. Ziman 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 ...