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Agreement Of Purchase & Sale & Joint Escrow

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EXHIBIT 10.4


AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
(Norwood Industrial Park Disposition)


THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS ("Agreement") is made and entered into as of this 10 day of December, 1997 ("Execution Date"), by and between PMRA III, a group trust ("Seller") and PACIFIC GULF PROPERTIES INC., a Maryland corporation ("Buyer"), with respect to the following.


RECITALS


A. WHEREAS, Seller owns certain improved real property, which is commonly known as Norwood Industrial Parks I and II, located at 251, 261 and 271 Opportunity Street, 3950 Development Drive and 3951 Research Drive in the city of Sacramento ("City"), county of Sacramento ("County"), state of California ("State"), which is more particularly described on Exhibit "A" attached hereto (the "Land"), together with (i) the building and all other improvements located on the Land (the "Improvements") (ii) all rights, easements, and appurtenances pertaining to the Real Property, including any right, title and interest of Seller in and to adjacent streets, roads, alleys and rights of way; (iii) all the personal property owned by Seller, if any, located upon or in the Real Property and the Improvements and used exclusively in connection with the operation thereof ("Personal Property"); (iv) all of Seller's right, title and interest in and to any rental agreements with occupants, tenants and leases of the Improvements and/or the Real Property, including, but not limited to, all refundable and nonrefundable security, rental and cleaning deposits, and prepaid rent held by Seller (hereinafter collectively referred to as "Tenant Leases"; all tenants under such Tenant Leases are hereinafter collectively referred to as "Tenants"); and (v) such other rights, interests, and properties as may be specified in this Agreement to be sold, transferred, assigned, or conveyed by Seller to Buyer.


B. WHEREAS, the Real Property, together with the Improvements, Personal Property, Tenant Leases and other rights, interests, easement, appurtenances, and properties described in this Agreement, are hereinafter collectively called the "Property."


C. WHEREAS, Seller desires to sell the Property to Buyer, and Buyer desires to purchase the Property from Seller, upon the terms and conditions set forth in this Agreement.


AGREEMENT


NOW, THEREFORE, incorporating the foregoing recitals, and in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree that the terms and conditions of this Agreement and the instructions to Chicago Title


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Insurance Company ("Escrow Holder"), with regard to the escrow ("Escrow") created pursuant hereto are as follows.


1. Purchase and Sale. Seller hereby agrees to sell the Property to Buyer, and Buyer hereby agrees to purchase the Property from Seller, upon the terms and conditions set forth in this Agreement.


2. Purchase Price. The purchase price ("Purchase Price") for the Property shall be Four Million Seven Hundred Thousand Dollars ($4,700,000.00), which shall be paid in accordance with the terms of Paragraph 3 below.


3. Payment of Purchase Price. The Purchase Price for the Property shall be paid by Buyer as set forth below in this Paragraph 3.


3.1 Deposit. Within one (1) day after the "Opening of Escrow" (as
defined below in Paragraph 4.1), Buyer shall deposit, or cause to be
deposited, with Escrow Holder the sum of One Hundred Thousand and
No/100 Dollars ($100,000.00) in immediately available funds (the
"Initial Deposit"). Until 5:00 p.m. Pacific Standard time on December
17, 1997 ("Contingency Date"), the Initial Deposit shall remain
immediately refundable to Buyer upon demand if the transaction
contemplated by this Agreement is not consummated for any reason
whatsoever. If this Agreement has not previously terminated, then
within one (1) business day after the Contingency Date, Buyer shall
deposit, or cause to be deposited, with Escrow Holder the additional
sum of One Hundred Thousand and No/100 Dollars ($100,000.00)
("Additional Deposit") (together with any interest which accrues
thereon, the Initial Deposit and the Additional Deposit are
hereinafter collectively referred to as the "Deposit"). Escrow Holder
shall immediately invest the Deposit in a federally-insured,
interest-bearing account and all interest accruing thereon shall be
credited to Buyer. From and after the Contingency Date, the Deposit
shall not be refundable unless the transaction contemplated by this
Agreement is not consummated solely as the result of Seller's default
or the failure of a condition precedent to the Close of Escrow for the
benefit of Buyer. Upon the "Close of Escrow" (as defined below in
Paragraph 4.2), the Deposit shall be credited toward payment of the
Purchase Price.


3.2 Cash Balance. Not later than 11:00 a.m. Pacific Standard time
on the Closing Date, Buyer shall deposit or cause to be deposited,
with Escrow Holder, in immediately available funds, the balance of the
Purchase Price, plus or minus Buyer's share of closing costs and
charges set forth in Paragraph 10 below and Buyer's share of
prorations set forth on the Proration and Expense Schedule (as defined
below in paragraph 11) payable pursuant to this Agreement.


4. Escrow.


4.1 Opening of Escrow. For the purposes of this Agreement, the
Escrow shall be deemed opened ("Opening of Escrow") on the date Escrow
Holder receives an original of this Agreement fully executed by Buyer
and Seller, which shall


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occur no later than December 10, 1997, or such later date as the parties
may agree in writing, or this Agreement shall automatically and
irrevocably terminate. Escrow Holder shall promptly notify Buyer and
Seller in writing of the Opening of Escrow. Buyer and Seller agree to
execute, deliver and be bound by any reasonable or customary
supplemental escrow instructions or other instruments reasonably
required by Escrow Holder to consummate the transaction contemplated by
this Agreement; provided, however, that no such instruments shall be
inconsistent or in conflict with, amend or supersede any portion of this
Agreement. If there is any conflict or inconsistency between the terms
of such instruments and the terms of this Agreement, then the terms of
this Agreement shall control.


4.2 Close of Escrow. For purposes of this Agreement, the "Close
of Escrow" shall be the date that the Deed (as defined below in
Paragraph 9.1.1) is recorded in the Official Records of the County
(the "Official Records"). Unless changed in writing by Buyer and
Seller, the Close of Escrow shall occur on or before December 23, 1997
(the "Closing Date").


4.3 Delivery and Possession. At the Close of Escrow, Seller shall
deliver to Buyer (a) possession of the Property, subject to all
title-matters of record or apparent, including, without limitation,
all Approved Title Conditions (as defined below in Paragraph 5), and
(b) all keys to the Improvements in Seller's possession or control
(which Seller may cause to occur through its property manager).


5. Condition of Title. As a condition precedent to the Close of Escrow for Buyer's benefit, title to the Property shall be conveyed to Buyer by Seller by the Deed subject only to the following approved conditions of title (collectively, the "Approved Title Conditions").


5.1 Taxes. A lien to secure payment of real estate taxes not
delinquent shall constitute an Approved Title Condition.


5.2 Approved Matters. Matters affecting the Property created by
or with the written consent of Buyer shall constitute Approved Title
Conditions.


5.3 Additional Matters. Exceptions which are disclosed by the
Report (as defined below in Paragraph 7.1) and which are approved or
deemed approved by Buyer in accordance with the terms of Paragraph 7.1
shall constitute Approved Title Conditions.


5.4 Monetary Encumbrances. Notwithstanding anything to the
contrary contained herein and notwithstanding any approval or consent
given by Buyer hereunder, Seller shall use good faith efforts to cause
all mortgages, deeds of trust and other monetary encumbrances caused
by Seller, including, without limitation, all mechanics' liens, but
excluding non-delinquent real property taxes, to be released and
reconveyed from the Property on or prior to the Closing Date.


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6. Buyer's Title Policy. Provided that Buyer has timely obtained and delivered to Title Company (as defined below in Section 7.1) an ALTA survey of the Land ("Survey"), at Buyer's sole expense, in form and substance satisfactory to Title Company and in time for Title Company to confirm, by the Contingency Date, its willingness to issue an ALTA Owner's Policy of Title Insurance (Form B, rev. 10/17/70, with Endorsement Form 1 coverage) in the amount of the Purchase Price showing title to the Real Property vested in Buyer subject only to the Approved Title Conditions and with CLTA endorsement nos. 100 (modified for an owner), 101.4, 103.7, 116, 116.1 and 116.7, then as a condition precedent to Buyer's obligations under this Agreement, Title Company shall issue the Title Policy in such form upon the Close of Escrow. If Buyer fails to timely deliver the Survey to Title Company, then Title Company's willingness to issue an ALTA Owner's Policy of Title Insurance, but with a general survey exception, shall constitute satisfaction of this condition precedent to Buyer's obligations under this Agreement with respect to matters of title to the Real Property (as applicable, the "Title Policy"). To facilitate the process of procuring the Survey, Seller shall deliver to Buyer the most recent ALTA survey of the Property in Seller's possession within two (2) business days after the Opening of Escrow.


7. Conditions Precedent to the Close of Escrow for the Benefit of Buyer. The Close of Escrow and Buyer's obligation to consummate the transaction contemplated by this Agreement are subject to the timely satisfaction or written waiver of the following conditions precedent for Buyer's benefit by the dates designated below. Unless otherwise specified below, Buyer's failure to timely deliver written notice of its disapproval of the matter(s) set forth below in this Paragraph 7 shall be deemed to constitute Buyer's irrevocable approval thereof


7.1 Title. Buyer shall have approved the legal description of the
Land and any matters of title disclosed by the following documents
(collectively, the "Title Documents") prepared and delivered to Buyer by
Chicago Title Insurance Company, National Business Unit (Mr. John Premac)
(the "Title Company"): (A) a standard preliminary title report issued by
the Title Company with respect to the Property (the "Report"); and (B)
copies of all recorded documents referred to in the Report. Buyer shall
have until 5:00 p.m. Pacific Standard time on the Contingency Date, to
deliver to Seller written notice ("Buyer's Title Notice") of Buyer's
disapproval or conditional approval of any matters shown in or disclosed by
the Title Documents or the survey, if Buyer obtains a survey of the
Property in a timely manner. Buyer's failure to timely deliver Buyer's
Title Notice shall be deemed to constitute Buyer's disapproval of all
matters of title. Upon the Closing Date, the Title Company shall be
prepared to issue to Buyer the Buyer's Title Policy in the form and
substance required by the provisions of Paragraph 6, subject only to the
Approved Title Conditions.


7.2 Physical Inspections and Studies. Buyer shall have the right to
approve or disapprove, in Buyer's sole discretion, the results of Buyer's
inspections, investigations, tests and studies, including, without
limitation, investigations with regard to zoning, building codes and other
governmental regulations, architectural inspections, engineering tests, and
soils, seismic and geologic reports with respect to the Property,
inspections of all or any portion of the Improvements (including, without
limitation,


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structural, mechanical and electrical systems, roofs, pavement, landscaping
and public utilities), and any other physical inspections and/or
investigations as Buyer may elect to make or obtain (collectively, the
"Tests") by delivering written notice thereof to Seller and Escrow Holder
by the Contingency Date. Buyer's failure to timely approve in writing the
results of the Tests shall be deemed to constitute Buyer's disapproval
thereof


7.3 Seller's Deliveries. At least one (1) business day prior to the
Closing Date, Seller shall have delivered to Escrow Holder the documents
described in Paragraph 9.1.


7.4 Representations and Warranties. All representations and warranties
of Seller contained in this Agreement shall be true and correct as of the
date made and as of the Close of Escrow with the same effect as if those
representations and warranties were made at and as of the Close of Escrow.


7.5 Covenants. By the Closing Date, Seller shall not be in default in
the performance of any covenant or agreement to be performed by Seller
under this Agreement.


7.6 Tenant Estoppels. As a condition precedent to Buyer's obligation
to close this transaction, Seller shall obtain and deliver to Buyer, by
December 16, 1997, Tenant Estoppel Certificates in the form attached hereto
as Exhibit "G" executed by all Tenants of the Property as of the Execution
Date, which Buyer shall have the right to disapprove only if a Tenant
Estoppel Certificate discloses (A) a material default of the landlord or
Tenant under the applicable Tenant Lease, or (B) a material discrepancy
with the corresponding Tenant Lease. Seller shall have the right, but not
the obligation, to satisfy the foregoing requirement for Tenant's
occupying, in the aggregate, up to, but not more than, 30% of the leased
area of the Improvements, by executing Tenant Estoppel Certificates,
modified as follows ("Landlord Estoppel Certificate"): (X) qualified to
Seller's actual knowledge (as defined in this Agreement), and (Y) to
survive only until the expiration of the representations and warranties in
this Agreement or the earlier receipt by Buyer of a Tenant Estoppel
Certificate for the corresponding Tenant Lease to the extent that such
Tenant Estoppel Certificate does not materially deviate from the matters
set forth in the corresponding Landlord Estoppel Certificate.
Notwithstanding anything to the contrary contained herein, the failure of
the condition precedent set forth in this Paragraph 7.6 shall not be deemed
to constitute a default by Seller under this Agreement.


7.7 New Matters. If, after the Contingency Date, there shall come to
exist or if Seller or Buyer shall then learn, discover or become aware of
the disposal or discharge after the end of the Due Diligence Period on the
Property of any hazardous or toxic materials or wastes (as such terms are
defined under federal, State or local law) or of any new, changed, or
additional item, matter, fact or circumstance affecting title to the
Property or rendering a representation and/or warranty by Seller hereunder
untrue (collectively, "New Matter"), then the party who has learned,
discovered, or become aware of such New Matter shall promptly give written
notice to the other of same. Buyer shall have two (2) business days after
(a) receipt of notice from Seller, or (b) delivery of Buyer's notice to
Seller, of a New Matter within which to disapprove such New


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Matter by delivering written notice to Seller. Buyer's failure to timely
disapprove any New Matter shall be deemed to constitute Buyer's approval
thereof. If Buyer disapproves or is deemed to disapprove a New Matter in
accordance with this Section 7.7, then within two (2) business days
thereafter, Seller shall have the right to either (i) accept Buyer's
disapproval by delivering written notice thereof to Buyer (or failing to
provide timely written notice of item (ii) below), whereupon this Agreement
shall terminate, the Deposit shall be promptly refunded by Escrow Holder to
Buyer and neither party shall have any further rights or obligations
hereunder, except to the extent that such matters expressly survive the
termination of this Agreement, or (ii) notify Buyer that it has elected to
extend the Close of Escrow for a period of up to thirty (30) days within
which Seller may pursue cure of the New Matter by delivering written notice
thereof to Buyer. If Seller exercises its right to delay the Close of
Escrow and does not cure the New Matter by the delayed Closing Date, then a
condition precedent to Buyer's obligations under this Agreement shall be
deemed to have failed, Seller shall not be deemed to have defaulted under
this Agreement, and this Agreement shall terminate as described above in
subsection (i).


8. Conditions Precedent to the Close of Escrow for the Benefit of Seller. The Close of Escrow and Seller's obligations with respect to the transaction contemplated by this Agreement are subject to the timely satisfaction or written waiver of the following conditions precedent for Seller's benefit by the dates designated below.


8.1 Buyer's Deliveries. At least one (1) business day prior to the
Closing Date, Buyer shall have delivered to Escrow Holder the documents
described in Paragraph 9.2.


8.2 Representations and Warranties. All representations and warranties
of Buyer contained in this Agreement shall be true and correct as of the
date made and as of the Close of Escrow with the same effect as if those
representations and warranties were made at and as of the Close of Escrow.


8.3 Covenants. By the Closing Date, Buyer shall not be in default in
the performance of any covenant or agreement to be performed by Buyer under
this Agreement.


9. Deliveries to Escrow Holder.


9.1 Deliveries by Seller. At least one (1) business day prior to the
Close of Escrow, Seller shall deposit or cause to be deposited with Escrow
Holder the following documents and instruments.


9.1.1 Deed. Seller shall deliver to Escrow Holder a grant deed in
the form attached hereto as Exhibit "B", duly executed by Seller and
acknowledged ("Deed").


9.1.2 FIRPTA. Seller shall deliver to Escrow Holder an executed
Transferor's Certification of Non-Foreign Status and an executed
California Real Estate Withholding Exemption (Form 590), in the forms
attached hereto,


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respectively, as Exhibits "C-1" and "C-2", duly executed by
Seller (collectively, "FIRPTA Certificates").


9.1.3 Lease Assignmment. Seller shall deliver to
Escrow Holder four (4) original counterparts of the Assignment
and Assumption of Leases in the form attached hereto as Exhibit
"D" ("Lease Assignment"), duly executed by Seller.


9.1.4 General Assigrunent. Seller shall deliver to
Escrow Holder four (4) original counterparts of the General
Assignment and Bill of Sale in the form attached hereto as
Exhibit "E" ("General Assignment"), duly executed by Seller.


9.1.5 Notices to Tenants. Seller shall deliver to
Escrow Holder notices to the Tenants of the Property in the form
attached hereto as Exhibit "F" ("Tenant Notices"), executed by
Seller.


9.2 Deliveries by Buyer. Unless otherwise provided, at
least one (1) business day prior to the Close of Escrow, Buyer shall
deposit or cause to be deposited with Escrow Holder the following.


9.2.1 Funds. Prior to the Close of Escrow, Buyer
shall deliver to Escrow Holder funds which are to be applied
toward payment of the Purchase Price in the amounts and at the
times designated above in Paragraph 3 (as adjusted by the
Proration and Expense Schedule).


9.2.2 Lease Assignment. Buyer shall deliver to
Escrow Holder four (4) original counterparts of the Lease
Assignment duly executed by Buyer.


9.2.3 General Assignment. Buyer shall deliver to
Escrow Holder four (4) original counterparts of the General
Assignment duly executed by Buyer.


10. Costs and Expenses. If the transaction contemplated by this Agreement is consummated, then Seller shall bear the following costs and expenses: (A) one-half (1/2) of Escrow Holder's fees, (B) County and City documentary transfer taxes, (C) the premium for the Title Policy attributable to the CLTA coverage only, and (D) Seller's share of prorations. If the transaction contemplated by this Agreement is consummated, then Buyer shall bear the following costs and expenses: (i) the cost of the Title Policy in excess of the CLTA premium, including the cost of all endorsements, any premium attributable to ALTA coverage, if any, and the cost of any survey, (ii) document recording fees relating to documents conveying title or property interests to Buyer, (iii) one-half (1/2) of Escrow Holder's fee, and (iv) Buyer's share of prorations. Buyer and Seller shall pay, respectively, the Escrow Holder's customary charges to buyers and sellers for document drafting, recording and miscellaneous charges. If, as a result of no fault of Buyer or Seller, Escrow fails to close, Buyer and Seller shall share equally all of Escrow Holder's fees and charges; however, if the transaction fails to close as the result of the default of either party, then such defaulting party shall bear all Escrow Holder's fees and expenses. Subject to the provisions


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of Paragraph 19 below, each party shall bear the cost of its own attorneys and consultants. All other costs and expenses shall be allocated between Buyer and Seller in accordance with the customary practice of the City and County.


11. Prorations. All revenues and expenses relating to the Property, including without limitation, real property taxes and assessments. utility charges, insurance premiums and the like, shall be prorated on a cash basis as of the Close of Escrow. If the parties are unable to obtain final meter readings from all applicable meters as of the Close of Escrow, such expenses shall be reasonably estimated as of the Close of Escrow on the basis of the prior operating history of the Property. Notwithstanding anything to the contrary contained herein, rentals or other amounts due by the Tenants pursuant to the terms of the Tenant Leases which are delinquent as of the Closing Date shall be prorated between Buyer and Seller as of the Closing Date but only upon receipt by Buyer. Buyer shall use commercially reasonable efforts to collect any delinquent rentals, including sending invoices to Tenants for delinquent rent disclosed to Buyer by Seller, on a monthly basis for six (6) months following the Closing Date. However, Buyer shall not be obligated to commence any legal action or incur any cost or expense (other than the delivery of such notices) to collect any delinquent rent. Seller shall be permitted to pursue collection of any rent arrearages applicable to the period prior to the Closing Date, provided that Buyer shall not incur any, and Seller shall indemnify Buyer against all cost, expense or liability in connection therewith, and provided further that Seller shall not commence any legal or equitable proceedings in the nature of an unlawful detainer, eviction or other proceeding, which would have the effect of interfering with any tenant's quiet enjoyment of its leased premises or result in a lien or encumbrance on such leased premises. Delinquent rentals and other amounts collected by Buyer, net of the actual, documented, third-party costs of collection incurred by Buyer, shall be applied first to amounts currently due and then to amounts most recently overdue. In addition, operating cost pass-throughs, percentage rentals, additional rentals, other retroactive rental escalations, sums, charges payable by Tenants ("Additional Rentals"), shall be prorated on a cash basis as of the Close of Escrow. If, at the Close of Escrow, it is determined that Seller has collected Additional Rentals in excess of amounts actually owed by Tenants, Buyer shall be credited for such excess. Payments of Additional Rentals collected by Buyer and due Seller shall be made to Seller promptly following receipt and shall be accompanied by a report showing how same was calculated and such supporting documentation as Seller reasonably requests. In addition, Buyer shall be credited and Seller shall be debited with (or, if a deposit is not a cash deposit then Seller shall transfer such instrument to Buyer) an amount equal to the Tenant deposits listed on the Rent Roll (as defined below in Paragraph 13.1.11) (together with any interest accrued for the benefit of any tenant pursuant to its Lease) and any prepaid rent actually received by Seller. In addition, Seller shall be responsible for obtaining a refund of all refundable deposits, retentions, holdbacks being held by any governmental entity, any utility company, or other third party under contract and Buyer shall be responsible for initiating any utility service with respect to the Property, and posting deposits or other funds required in connection therewith or in connection with any other contract. Not less than one (1) business day prior to the Close of Escrow, Seller shall deliver to Buyer a tentative schedule of expenses and prorations ("Proration and Expense Schedule") for Buyer's approval, which approval shall not be unreasonably withheld. If any prorations, apportionments or computations made under this Paragraph 11 shall require final adjustment, then the parties shall make the appropriate adjustments promptly when accurate information becomes


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available and either party hereto shall be entitled to an adjustment to correct the same. Any corrected adju
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