Annual Meeting of Stockholders

Our shares are illiquid and nearly all of our stockholders have held their stock for between nine and eleven years. As disclosed in the registration statement for our initial public offering, the charter required that we seek stockholder approval of our liquidation if our shares of common stock were not listed on a national securities exchange by March 2018, unless a majority of our conflicts committee determined that liquidation was not then in the best interest of our stockholders. The charter requires that the conflicts committee revisit the issue of liquidation at least annually. In March 2018 and in March 2019, the conflicts committee determined that liquidation was not then in the best interest of our stockholders.

On January 27, 2016, our board of directors formed a special committee (the “Special Committee”) composed of all of our independent directors to explore the availability of strategic alternatives involving us. As part of the process of exploring strategic alternatives, on February 23, 2016, the Special Committee engaged Evercore Group L.L.C. (“Evercore”) to act as our financial advisor and to assist us and the Special Committee with this process. Under the terms of the engagement, Evercore provided various financial advisory services, as requested by the Special Committee as customary for an engagement in connection with exploring strategic alternatives. Although the Special Committee engaged Evercore to assist us and the Special Committee with the exploration of strategic alternatives for us, we were not obligated to enter into any particular transaction or any transaction at all.

Following a review of the strategic alternatives presented by Evercore, in May 2016 we announced the determination of the Special Committee that it would be in our best interest and the best interest of our stockholders to market for sale the Company’s assets while it continued to explore strategic alternatives for us.  Subsequent to that time, our Advisor recommended to the Special Committee and our board of directors that it would be in the best interest of our stockholders for the Company to market for sale and, if satisfactory prices were obtained, sell those of our properties that our Advisor believed were best positioned for sale in the near term, while continuing to operate the remainder of our portfolio with a view toward making the necessary enhancements to best position the remaining assets in our portfolio for sale.  Those enhancements included addressing key lease expirations for certain of our remaining assets as well as executing on those capital projects recommended by our Advisor for our remaining assets. 

As noted above, in each of March 2018 and 2019, our conflicts committee determined that liquidation was not then in the best interest of our stockholders.  However, because of developments over the past six months with respect to the execution of several key leases and completion of capital projects that enhance property stability and better position our remaining assets for sale, on November 8, 2019, the Advisor discussed its detailed analysis of the state of and future outlook for the Company’s portfolio with the board of directors and the Special Committee, and our Advisor recommended to the board of directors and the Special Committee that it would be in our best interest and the best interest of our stockholders to engage in a planned liquidation pursuant to the Plan of Liquidation.  The board of directors and the Special Committee carefully reviewed and considered the terms and conditions of the Plan of Liquidation and the transactions contemplated by that plan, as well as the other alternatives described in the proxy statement, and the Special Committee consulted with Evercore regarding Evercore’s view of the Company’s assets as well as its view of the Company’s other strategic alternatives, including a merger of the Company with another entity, a sale of the Company, a sale of the Company’s portfolio in a single transaction or a listing of the Company on a national securities exchange.  See “What alternatives to the Plan of Liquidation have you considered?” below for a discussion of other alternatives considered.

On November 13, 2019, the board of directors and the Special Committee each concluded that a planned liquidation pursuant to the Plan of Liquidation was in the Company’s best interest and the best interest of our stockholders, and each unanimously determined that the terms of the Plan of Liquidation are fair to you, advisable and in your best interest. For a discussion of the reasons for the Plan of Liquidation, see “Proposal 1. The Plan of Liquidation Proposal – Reasons for the Plan of Liquidation Proposal; Recommendation of the Board of Directors and the Special Committee” in the proxy statement. The board of directors and the Special Committee then decided to seek your approval of the Plan of Liquidation. We currently estimate that if the Plan of Liquidation Proposal is approved by our stockholders and we are able to successfully implement the plan, our net proceeds from liquidation and, therefore, the amount of cash that you would receive for each share of our common stock that you then hold, could range between approximately $3.40 and $3.83 per share. We note that we previously paid (i) a special distribution in the amount of $4.50 per share to stockholders of record as of the close of business on September 15, 2014 and (ii) a special distribution of $0.45 per share to stockholders of record as of the close of business on June 17, 2019, all in connection with asset sales. 

Our range of estimated net proceeds from liquidation is based upon market, economic, financial and other circumstances and conditions existing as of the date of the proxy statement, and any changes in such circumstances and conditions during the liquidation process could have a material effect on the ultimate amount of liquidating distributions received by stockholders. 

We cannot complete the sale of all of our assets or our dissolution pursuant to the terms of the Plan of Liquidation unless our stockholders approve the Plan of Liquidation Proposal. If the Plan of Liquidation Proposal is not approved by our stockholders, the board of directors will meet to determine what other alternatives to pursue in the best interest of the Company and our stockholders, including, without limitation, continuing to operate under our current business plan. If the Plan of Liquidation is approved by our stockholders, we intend to pay the initial liquidating distribution within two months of stockholder approval, with such distribution to be funded with the proceeds from the sale of the Campus Drive Buildings. If the Plan of Liquidation Proposal is not approved, the board of directors will consider the best uses of the proceeds from such asset sale, which uses may include paying a special distribution to our stockholders, continuing to pay down debt, paying for capital expenditures related to certain of our real estate properties to reposition such properties or acquiring additional real estate assets.

The board of directors and the Special Committee also explored the options of:

• continuing under our current business plan; and
• seeking to dispose of our assets through a merger or a portfolio or whole-entity sale.

The board of directors and the Special Committee also considered a listing of our common stock on a national securities exchange. However, after consulting with Evercore and the Advisor, the board of directors and the Special Committee each concluded that because of the nature of the Company’s portfolio of properties, along with our externalized management structure, it would not be worthwhile to devote meaningful time or resources to evaluating a possible listing of our shares on a national securities exchange.

If we continue to operate under our current business plan, we may experience a decrease in cash flow due to the fixed costs associated with running a public REIT, asset sales and the costs of maintaining our properties.  In this event, we may need to further revise our distribution policy.

After reviewing the other alternatives, and based on developments in the portfolio over the past six months with respect to key lease executions and the completion of certain capital projects that enhance property stability and better position our remaining assets for sale, the board of directors and the Special Committee concluded that a planned liquidation pursuant to the Plan of Liquidation was in the Company’s best interest and the best interest of our stockholders.  For additional information on the board of directors’ and the Special Committee’s analysis of other strategic alternatives, see “Proposal 1. The Plan of Liquidation Proposal – Background of the Plan of Liquidation – Assessment of Strategic Alternatives” in the proxy statement.

Pursuant to Maryland law and the charter, you are not entitled to appraisal or dissenters rights (or rights of an objecting stockholder) in connection with the Plan of Liquidation.

The Plan of Liquidation authorizes us to undertake an orderly liquidation. In an orderly liquidation, we would sell all of our assets, pay all of our known liabilities, provide for the payment of our unknown or contingent liabilities, distribute our remaining cash to our stockholders, wind up our operations and dissolve.

      In order to dissolve, we will file articles of dissolution (“Articles of Dissolution”) with the State Department of Assessments and Taxation of Maryland (the “SDAT”), our jurisdiction of incorporation, to dissolve the Company as a legal entity following the satisfaction of or provision for all our outstanding liabilities. The board of directors, in its sole discretion, will determine the timing for this filing. We expect to pay liquidating distributions to our stockholders during the liquidation process and to pay the final liquidating distribution after we sell all of our assets, pay or provide for all of our known liabilities and provide for unknown liabilities. We expect to complete these activities within 24 months after stockholder approval of the Plan of Liquidation. A final liquidating distribution to our stockholders may not be paid until all of our liabilities have been satisfied. Upon our liquidation and dissolution, the Company will cease to exist.

The Plan of Liquidation provides, in pertinent part, that, among other things:

• We will be authorized to sell all of our assets (including, if appropriate, through a whole-entity sale or sale of one or more of our subsidiaries or our direct or indirect ownership interests in these subsidiaries), liquidate and dissolve the Company, and distribute the net proceeds from liquidation in accordance with the provisions of the charter and applicable law. Although we currently anticipate that we will sell our assets for cash and our discussion in the proxy statement contemplates that we will receive cash for the sale of our assets, the Plan of Liquidation provides that our assets may be sold for cash, notes or such other assets as may be conveniently liquidated or distributed to our stockholders.
• We will be authorized to take all necessary or advisable actions to wind up our business, pay our debts, and distribute the remaining proceeds to our stockholders.
• We will be authorized to provide for the payment of any unascertained or contingent liabilities. We may do so by purchasing insurance, by establishing a reserve fund or in other ways.
• We expect to distribute all of the net proceeds from liquidation to you within 24 months after the date the Plan of Liquidation is approved by our stockholders. However, if we cannot sell our assets and pay our debts within 24 months, or if the board of directors and the Special Committee determine that it is otherwise advisable to do so, we may transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our stockholders will receive beneficial interests in the liquidating trust. The liquidating trust will pay or provide for all of our liabilities and distribute any remaining net proceeds from liquidation to the holders of beneficial interests in the liquidating trust. The amounts that you would receive from the liquidating trust are included in our estimates described above of the total amount of cash that you will receive in the liquidation.
• Prior to the acceptance for record of the Articles of Dissolution by the SDAT, the board of directors may terminate the Plan of Liquidation for any reason, subject to and contingent upon the approval of such termination by our stockholders. Notwithstanding approval of the Plan of Liquidation by our stockholders, the board of directors or, if a liquidating trust is established, the trustees of the liquidating trust, may make certain modifications or amendments to the Plan of Liquidation without further action by or approval of our stockholders to the extent permitted under law.
• Upon our liquidation and dissolution, all of our outstanding shares of stock will be cancelled and the Company will cease to exist.

For more information, see “Proposal 1: The Plan of Liquidation Proposal” in the proxy statement.

As of the date of the proxy statement, we have entered into an agreement to sell the Campus Drive Buildings. For more information, see “Our Business and Assets” in the proxy statement. There can be no assurance that this disposition will close on the projected closing date or at all, or that the Campus Drive Buildings will sell for the projected sales price. In addition, this disposition is not contingent on stockholder approval of the Plan of Liquidation Proposal.  The anticipated net proceeds from this sale are included in the range of estimated net proceeds from liquidation discussed in the proxy statement.

The amount of cash that may ultimately be received by our stockholders is not yet known. However, we currently estimate that if the Plan of Liquidation Proposal is approved by our stockholders and we are able to successfully implement the plan, our net proceeds from liquidation and, therefore, the amount of cash that you would receive for each share of our common stock that you then hold, could range between approximately $3.40 and $3.83 per share.  We note that we previously paid (i) a special distribution in the amount of $4.50 per share to stockholders of record as of the close of business on September 15, 2014 and (ii) a special distribution of $0.45 per share to stockholders of record as of the close of business on June 17, 2019, all in connection with asset sales.  There are many factors that may affect the amount of liquidating distributions available for distribution to our stockholders, including, among other factors: (i) the ultimate sale price of each asset, (ii) changes in market demand that affect the timing of the disposition of office properties during the liquidation process, (iii) the amount of taxes, transaction fees and expenses relating to the Plan of Liquidation, and (iv) amounts needed to pay or provide for our liabilities and expenses, including unanticipated or contingent liabilities that could arise. No assurance can be given as to the amount of liquidating distributions you will ultimately receive. If we have underestimated our existing obligations and liabilities or if unanticipated or contingent liabilities arise, the amount ultimately distributed to our stockholders could be less than that set forth above. In addition, these estimates are based upon market, economic, financial and other circumstances and conditions existing as of the date of the proxy statement, and any changes in such circumstances and conditions during the liquidation process could have a material effect on the ultimate amount of liquidating distributions received by our stockholders.  See “Risk Factors” and “Proposal 1: The Plan of Liquidation Proposal – Background of the Plan of Liquidation” in the proxy statement.

If the Plan of Liquidation is approved by our stockholders, we intend to pay the initial liquidating distribution within two months of stockholder approval, with such distribution to be funded with the proceeds from the sale of the Campus Drive Buildings. We expect to pay multiple liquidating distribution payments to our stockholders during the liquidation process and to pay the final liquidating distribution after we sell all of our properties, pay all of our known liabilities and provide for unknown liabilities. We expect to complete these activities within 24 months after stockholder approval of the Plan of Liquidation. If we have not sold all of our properties and paid all of our liabilities within 24 months after stockholder approval of the Plan of Liquidation, or if the board of directors and the Special Committee otherwise determine that it is advantageous to do so, we may transfer our remaining assets and liabilities to a liquidating trust. We would then distribute beneficial interests in the liquidating trust to our stockholders. If we establish a reserve fund, we may pay a final distribution from any funds remaining in the reserve fund after we determine that all of our liabilities have been paid.

The actual amounts and timing of the liquidating distributions will be determined by the board of directors or, if a liquidating trust is formed, by the trustees of the liquidating trust, in their discretion. If you transfer your shares during the liquidation process, the right to receive liquidating distributions will transfer with those shares.

A liquidating trust is a trust organized for the primary purpose of liquidating and distributing the assets transferred to it. If we form a liquidating trust, we will transfer to our stockholders beneficial interests in the liquidating trust. This transfer of beneficial interests will constitute a taxable distribution to you in redemption of your ownership of our common stock. Beneficial interests in the liquidating trust will generally not be transferable by you.

In connection with the approval of the Plan of Liquidation by our board of directors, our board of directors determined to cease paying regular monthly distributions.  Going forward we expect to satisfy the REIT distribution requirements through the payment of liquidating distributions.  Every payment of distributions will be subject to the availability of cash and the discretion of the board of directors.

If our stockholders approve the Plan of Liquidation Proposal, after we have sold all of our assets, satisfied our liabilities, paid our final liquidating distribution to our stockholders and filed the Articles of Dissolution with the SDAT, all shares of our common stock owned by you will be cancelled.

Yes, some of our directors and officers and the Advisor and its affiliates may have interests in the liquidation that are different from your interests as a stockholder, including the following:

• All of our executive officers, including Messrs. Schreiber and Waldvogel and Ms. Yamane, are officers of the Advisor and/or one or more of the Advisor’s affiliates and are compensated by those entities, in part, for their service rendered to us. We currently do not pay any direct compensation to our executive officers. Mr. Schreiber is also one of our directors.
• Pursuant to the terms of the advisory agreement, the Advisor is expected to be entitled to disposition fees in connection with the sale of our properties. These disposition fees, including fees for the sale of the Campus Drive Buildings, are estimated to be between approximately $10.3 million and $11.1 million, depending upon the prices we receive for the sale of our properties. See “Proposal One – The Plan of Liquidation Proposal – Use of Liquidation Proceeds” in the proxy statement.
• The Advisor earns asset management fees from us and receives reimbursement of certain of its operating costs. The Advisor will continue to earn such fees and receive reimbursements as long as we continue to own any properties, and the Advisor will receive reimbursements for expenses until our liquidation and dissolution are complete. Based on the properties we owned as of the date of the proxy statement, excluding the Campus Drive Buildings which are under contract to sell as of the date of the proxy statement, we project that we may pay the Advisor an aggregate of approximately $7.6 million for asset management fees and reimbursement of certain of its operating expenses in 2020 and 2021 during the liquidation process, although this estimate may vary significantly based on the timing of property sales.
• The Advisor owns a total of 20,000 shares of our common stock, for which we estimate it will receive liquidating distributions of between approximately $68,000 and $76,600 in connection with our liquidation.
• Not including the 20,000 shares owned by the Advisor referenced above, one of our directors owns an aggregate of 2,680 shares of our common stock, for which we estimate he will receive aggregate liquidating distributions of between approximately $9,112 and $10,264 in connection with our liquidation.

Consequently, some of our directors and officers and the Advisor, in some instances, may be more motivated to support the Plan of Liquidation than might otherwise be the case if they did not expect to receive those payments. Additionally, because of the above conflicts of interest, some of our directors and officers and the Advisor may be motivated to make decisions or take actions based on factors other than the best interest of our stockholders throughout the liquidation process. The board of directors and the Special Committee each was aware of these interests and considered them in making their recommendations. For further information regarding interests that differ from your interests please see “Proposal 1. The Plan of Liquidation Proposal – Interests in the Plan of Liquidation that Differ from Your Interests” in the proxy statement.

Yes. You should carefully review the section of the proxy statement entitled “Risk Factors.”

Subject to the limitations, assumptions, and qualifications described in the proxy statement and the approval by our stockholders of the Plan of Liquidation, the intended liquidation and dissolution of the Company pursuant to the Plan of Liquidation will constitute a taxable distribution to you in redemption of your ownership of our common stock, with the following material federal income tax consequences to our stockholders.

In general, if the Plan of Liquidation is approved and we are liquidated, you will realize, for U.S. federal income tax purposes, gain or loss equal to the difference between the cash distributed to you by the Company and your adjusted tax basis in our common stock. Note that any loss inherent in your common stock would not be recognizable until the final liquidating distribution is made, which would likely be during the 2022 taxable year. If we distribute beneficial interests in a liquidating trust (as defined in the section entitled “Material United States Federal Income Tax Consequences” in the proxy statement) to you, you would be required to recognize any gain in the taxable year of the distribution of the liquidating trust beneficial interests (to the extent that you have not recognized such gain in prior taxable years), although you may not receive the cash necessary to pay the tax on such gain. If you receive cash from the liquidating trust, you may receive such cash after the due date for filing your tax return and paying the tax on such gain. Distributions of beneficial interests in the liquidating trust will also constitute a final liquidating distribution that should allow the recognition of any loss. A summary of the possible tax consequences to you is included in “Material United States Federal Income Tax Consequences” in the proxy statement.

YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE TRANSACTIONS DESCRIBED IN THE PROXY STATEMENT, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF SUCH TRANSACTIONS.