EXHIBIT 10.5
K I L R O Y
R E A L T Y
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C O R P O R A T I O N
October 13, 1998
Allen Development, Inc.
111 South Johnson
Visalia, California 93291
Re: Carmel Valley Corporate Center Closing
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Gentlemen:
This letter is addressed to Allen Development, Inc. in its capacity as
the general partner and managing member of the various entities which are
parties to the Contribution Agreement, dated as of October 21, 1997 (the
"Contribution Agreement"), by and among Kilroy Realty, L.P., Kilroy Realty
Corporation (together with Kilroy Realty, L.P., "Kilroy") and the entities
collectively referred to therein as "TAG". David Dick raised a number of issues
in his letter of September 2, 1998, and additional issues have been raised in
various discussions and correspondence since that date. This letter agreement
is intended to provide a global resolution of certain of the remaining open
issues. The following paragraphs correspond to the numbered paragraphs in David
Dick's September 2, 1998 letter. Unless otherwise indicated, defined terms
shall have the meanings set forth in the Contribution Agreement.
1. The Contribution Value for Carmel Valley Corporate Center (the
"Carmel Property") shall be $21,686,605. The closing for this Property (the
"Closing") shall occur as soon as reasonably possible, but in any event prior to
October 19, 1998. All prorations shall be made as of October 1, 1998. The $24
minimum Average Closing Price which is in effect prior to November 1, 1998
pursuant to Section 3.2(d) of the Contribution Agreement will apply to Units
issued at the closing.
2. At the Closing for the Carmel Property, TAG may elect to take up
to $4,440,258 of the Contribution Value in cash. There has been disagreement
between Kilroy and TAG concerning the standards for determining the amount of
cash that can be elected at this Closing. The foregoing cash election is agreed
to by Kilroy for purposes of this Closing only and shall not be deemed to be a
precedent for any subsequent closings pursuant to the
Allen Development, Inc.
October 13, 1998
Page 2
Contribution Agreement. The total amount of cash which may be elected pursuant
to Section 3.2(c)(i) of the Contribution Agreement for all closings pursuant to
the Contribution Agreement will remain at $20,000,000. Upon the Closing for the
Carmel Property and the payment of the cash election, TAG will have received a
total of $17,288,523 of such $20,000,000
3. Kilroy and TAG agree to the early contribution of the LPL Property
on the condition that all free rent on this Property is eliminated by TAG prior
to such Contribution. TAG shall use reasonable efforts to promptly modify the
LPL lease to eliminate free rent in order to permit the early contribution.
4. Richard Allen's correspondence on the subject of Lot 1 of the
Corporate Research Park Property has indicated that he believes that Lot 1
should be acquired by KR-Gateway Partners, LLC, the joint venture of KR and TAG.
Kilroy management will meet with Richard Allen to hear his position. Richard
Allen may also take this issue up directly with the Board of Directors of Kilroy
Realty Corporation.
5. Kilroy will waive and will not exercise both its option to
purchase and its right of first refusal on the Doubletree Restaurant Parcel on
the conditions that (a) the La Jolla Playhouse purchases or leases the
Doubletree Restaurant Parcel for purposes of a theater-related facility, (b)
Kilroy has the right to reasonably approve the design plans, landscaping plans
and other exterior elements of such facility, and (c) Kilroy and TAG first
record a mutually acceptable reciprocal easement agreement relating to the
Doubletree Restaurant Parcel and providing for ingress, egress and parking as to
each parcel.
6. Kilroy is willing to consider the early contribution of the
Dataworks facility to Kilroy Realty, L.P. and awaits your proposal with respect
to this issue.
7. Upon execution and delivery of this letter by Kilroy and TAG,
Kilroy shall have no further obligation to acquire Pilot Commerce Center,
Redwood Shores or the San Rafael Fed Ex properties. The Contribution Agreement
is hereby amended to relieve TAG of its obligation to offer, and Kilroy of its
obligations to accept, contribution of such properties. The parties shall enter
into such further amendments of the Contribution Agreement as may be necessary
to implement the foregoing.
8. The Management Agreements for the Kelly Ranch and Wateridge
Properties shall be modified as of November 1 as follows: (a) the Management Fee
payable to Kilroy Services, Inc. ("KSI") related to the Kelly Ranch Property
shall be reduced to $5,000 per month until commencement of infrastructure
construction and then increased to $7,500 per month until 30 days after the
completion of the infrastructure (with no changes to the Development Fee of $3
per gross square foot of Buildings constructed), and (b) the Management Fee
payable to KSI related to the Wateridge Property shall be reduced to $5,000 per
month 30 days after the completion of shell construction, and KSI shall receive
a tenant improvements administrative fee of 5% of the cost of the tenant
improvements on the Wateridge Property if KSI
Allen Development, Inc.
October 13, 1998
Page 3
administers and manages such tenant improvement work; provided, however, that
the sum of the $5,000 Management Fee and the tenant improvements management fee
shall not exceed $10,000 per month.
9. No action required.
10. The parties agree to commence discussions regarding the land
valuation of the Corporate Research Land consistent with and in the manner set
forth in the Contribution Agreement and the exhibits thereto. The agreement of
the parties to commence negotiations at this time is not an amendment to the
Contribution Agreement and shall not be construed to impose any obligations
greater than or inconsistent with the provisions of the Contribution Agreement.
11. The parties agree to commence discussions regarding the land
valuation of the Doubletree Land consistent with and in the manner set forth in
the Contribution Agreement and the exhibits thereto. The agreement of the
parties to commence negotiations at this time is not an amendment to the
Contribution Agreement and shall not be construed to impose any obligations
greater than or inconsistent with the provisions of the Contribution Agreement.
12. The parties agree to discuss the early contribution of Parcel 2
of the Doubletree Property to Kilroy Realty, L.P. and TAG awaits Kilroy's
proposal with respect to this issue.
TAG represents to Kilroy that no consents are required from any party
to the Contribution Agreement which has not been obtained in order for TAG to
fulfill its obligations set forth in this letter. TAG hereby agrees to
indemnify, defend and hold harmless Kilroy from and against any claims by such
persons and entities related to or based upon the assertion that TAG did not
have the power to enter into this letter agreement or to fulfill its obligations
hereunder.
KSI is executing this letter solely for the purpose of agreeing to the
provisions of paragraph 8.
In order to expedite the transactions contemplated herein, telecopied
signatures may be used in place of original signatures on this letter or any
document delivered pursuant hereto. The parties intend to be bound by the
signatures on the telecopied document, are aware that the other party will rely
on the telecopied signatures, and hereby waive any defenses to the enforcement
of the terms of this letter based on the form of signature. This letter may be
executed in counterparts, all such executed counterparts shall constitute the
same agreement, and the signature of any party to any counterpart shall be
deemed a signature to, and may be appended to, any other counterpart.
Allen Development, Inc.
October 13, 1998
Page 4
If the foregoing is acceptable to you, please execute one copy of this
letter and return it to the undersigned.
"KILROY"
KILROY REALTY, L.P., a Delaware limited
partnership
By: Kilroy Realty Corporation, a Maryland
corporation, its General Partner
By: /s/ Jeffrey C. Hawken
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Name: Jeffrey C. Hawken
Title: Executive Vice President, Chief
Operating Officer
KILROY REALTY CORPORATION, a Maryland corporation
By: /s/ Jeffrey C. Hawken
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Name: Jeffrey C. Hawken
Title: Executive Vice President, Chief
Operating Officer
KILROY SERVICES, INC., a Maryland corporation
By: /s/ Jeffrey C. Hawken
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Name: Jeffrey C. Hawken
Title: Vice President and Assistant Secretary
Allen Development, Inc.
October 13, 1998
Page 5
"TAG"
ALLEN DEVELOPMENT, INC., A California
corporation
By: /s/ Kevin A. Noell
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Kevin A. Noell,
President and Chief Operating Officer
On behalf of the following entities:
ADI EASTGATE PARTNERS, L.P.,
a California limited partnership
ALLEN EXPRESS PETALUMA, L.P.,
a California limited partnership
ADI CARMEL VALLEY PARTNERS, L.P.,
a California limited partnership
MCCARRAN COMMERCE CENTER, LLC,
a Nevada limited liability company
SORRENTO WATERIDGE PARTNERS, L.P.,
a California limited partnership
ALLEN SHORE PARTNERS, L.P.,
a California limited partnership
PIAZZA PARTNERS, L.P.,
a California limited partnership
ADI RESEARCH PARTNERS, L.P.,
a California limited partnership
ADI MESA PARTNERS, L.P.,
a California limited partnership
Allen Development, Inc.
October 13, 1998
Page 6
TAG HOLDINGS, LLC, a California limited
liability company
By: Allen Development, Inc., a California
corporation
By: /s/ Kevin A. Noell
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Kevin A. Noell,
President and Chief Operating Officer