<PAGE>
As filed with the Securities and Exchange Commission on December 3, 1997
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BRE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 94-1722214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
(415) 445-6530
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
LeRoy E. Carlson
Chief Financial Officer
BRE Properties, Inc.
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
(415) 445-6530
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copy to:
Morgan P. Guenther, Esq.
Sungbo Shim, Esq.
Farella Braun & Martel LLP
235 Montgomery Street
San Francisco, CA 94104-3159
---------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Share (1) Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
Common Stock 3,713,331 Shares $28.907 $107,341,260 $31,670
===============================================================================================================
</TABLE>
(1) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(c) of the Securities Act of 1933, as amended (the "Securities
Act"), based on the average of the high and low prices of the Common Stock
on the New York Stock Exchange on November 28, 1997.
---------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER __, 1997
PROSPECTUS
3,713,331 SHARES
BRE PROPERTIES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale of up to 3,713,331 shares
(the "Shares") of Common Stock, $0.01 par value ("Common Stock"), of BRE
Properties, Inc. ("BRE" or the "Company"), which may be offered from time to
time by a certain shareholder of the Company (the "Selling Shareholder"). The
Company is registering the Shares on behalf of the Selling Shareholder, but the
registration of the Shares does not necessarily mean that any of the Shares will
be offered or sold by the Selling Shareholder. The Company will receive no part
of the proceeds of any sales of the Shares offered hereby.
All of the Shares were originally issued by the Company in connection with
the Company's acquisition on November 18, 1997 of certain real estate assets and
operations of Trammell Crow Residential located in the Western United States
("TCR-West"). See "Recent Developments." The Shares were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). The Shares are being registered by the Company
pursuant to (i) the Contribution Agreement dated as of September 29, 1997, as
amended (the "Contribution Agreement"), by and among the Company, BRE Property
Investors LLC (the "Operating Company") and the TCR-West signatories thereto and
(ii) the Registration Rights Agreement dated as of November 18, 1997 (the
"Registration Rights Agreement") among the Company, the Operating Company, the
Selling Shareholder and certain other parties.
The Shares may be offered by the Selling Shareholder from time to time
directly or through agents, underwriters or broker-dealers, on terms to be
determined at the time of the sale, in one or more transactions on the New York
Stock Exchange (the "NYSE") or any national securities exchange where the Common
Stock is listed or traded, in the over-the-counter market, in negotiated
transactions or otherwise. See "Plan of Distribution." The price at which any
of the Shares may be sold, and the commissions, if any, paid in connection with
any such sale, are unknown and may vary from transaction to transaction. The
Company will pay all expenses incident to the offering and sale of the Shares to
the public other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes. See "Selling Shareholder" and "Plan of
Distribution."
The Securities and Exchange Commission (the "Commission") may take the view
that, under certain circumstances, the Selling Shareholder and any broker-
dealers or agents that participate with the Selling Shareholder in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act. Commissions, discounts or concessions received by any
such broker-dealer or agent may be deemed to be underwriting commissions under
the Securities Act. The Company and the Selling Shareholder have agreed to
certain indemnification arrangements. See "Plan of Distribution."
The Common Stock is traded on the NYSE under the symbol "BRE." On December
2, 1997, the closing sale price of the Common Stock as reported on the NYSE was
$28.625 per share.
1
<PAGE>
_________
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
_________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_________
The date of this Prospectus is _________, 1997
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER
OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY APPLICABLE
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY OR THEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a home page on
the Internet that contains such information with respect to registrants that
file electronically such as the Company at http://WWW.sec.gov. The Company's
Common Stock is listed on the NYSE and similar information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (as the
same may be amended from time to time, the "Registration Statement") of which
this Prospectus is a part under the Securities Act, with respect to the Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document do not purport to be complete, and in each instance reference is made
to the copy of such contract or other document filed or incorporated by
reference as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Shares, reference
is hereby made to the Registration
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<PAGE>
Statement and such exhibits and schedules, which may be obtained from the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
a. Report on Form 10-K for the fiscal year ended December 31, 1996, as amended
by the Report on Form 10-K/A filed on April 25, 1997.
b. Reports on Form 10-Q for the fiscal quarters ended March 31, June 30, and
September 30, 1997, filed on April 25, August 12, and November 14, 1997,
respectively.
c. Current Report on Form 8-K filed on January 14, 1997, as amended by the
Current Report on Form 8-K/A filed on February 13, 1997, and the Current
Report on Form 8-K/A filed on April 23, 1997.
d. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A filed on December 10, 1996, and the Current Report on
Form 8-K filed on October 15, 1996.
e. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A filed on May 21, 1996, and the Current Report on Form
8-K filed on April 1, 1996.
f. Current Report on Form 8-K filed on April 25, 1997.
g. Current Report on Form 8-K filed on June 12, 1997.
h. Current Report on Form 8-K filed on June 23, 1997.
i. Current Report on Form 8-K filed on September 3, 1997, as amended by the
Current Report on Form 8-K/A filed on October 30, 1997.
j. Current Report on Form 8-K filed on October 15, 1997.
k. Current Report on Form 8-K filed on November 24, 1997
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing of
such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus has been delivered, upon
the written or oral request of such person, a copy of any and all documents
incorporated by reference in this Prospectus (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to BRE Properties,
Inc., One Montgomery Street, Telesis Tower, Suite 2500, San Francisco,
California 94104-5524, Attn: Charles Wingard, Director of Financial Reporting,
telephone number (415) 445-6530.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to historical information, the information included and
incorporated by reference in this Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, such as those pertaining to the Company's capital resources,
profitability and portfolio performance. Forward-looking statements involve
numerous risks and uncertainties. The following factors, among others, could
cause actual results and future events to differ materially from those set forth
or contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, property development and construction delays and
cost overruns, failure to qualify as a real estate investment trust under the
Internal Revenue code of 1986, as amended (the "Code"), environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate and zoning laws and increases in real
property tax rates. The success of the Company also depends upon economic
trends generally, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed in
the accompanying Prospectus under the heading "Risk Factors." Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only. The Company assumes no obligation to update
forward-looking statements. See also the Company's reports filed from time to
time with the Securities and Exchange Commission pursuant to the Exchange Act.
THE COMPANY
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires, develops,
rehabilitates and manages apartment communities in twelve targeted metropolitan
markets in the western United States. As of November 30, 1997, BRE's
multifamily portfolio included 81 apartment communities aggregating 20,774 units
in California, Arizona, Washington, Oregon, Nevada, New Mexico, Utah and
Colorado (including 2,445 units in various stages of construction and
development). On that date, BRE also owned five commercial and retail
properties and held limited partnership interests in two shopping centers and
one apartment community.
Substantially all of the properties and other assets of BRE are held
directly or indirectly by, and substantially all of BRE's operations are
conducted directly or indirectly through, BRE or BRE Property Investors LLC (the
"Operating Company"), a Delaware limited liability company. BRE is the sole
managing member of the Operating Company and, as of November 30, 1997, owned an
approximate 74% interest therein. The remaining interests in the Operating
Company are owned by other, non-managing members of the Operating Company. BRE
also holds an approximate 88% interest as the sole managing member in Blue
Ravine Investors LLC ("Blue Ravine"), a Delaware limited liability company. It
is expected that Blue Ravine will be merged with and into the Operating Company,
with the Operating Company as the surviving entity, on or after November 30,
1998. The Operating Company and Blue Ravine are consolidated subsidiaries of
BRE. Both the Operating Company and Blue Ravine were created in connection with
the TCR-West Transaction. See "Recent Developments -- TCR-West Transaction."
As used in this Prospectus, unless the context otherwise requires,
references to the "Company" shall include BRE, the Operating Company, Blue
Ravine and their respective affiliated and subsidiary companies. BRE's
principal executive offices are located at One Montgomery Street, Telesis Tower,
Suite 2500, San Francisco, California 94104-5525, and its telephone number is
(415) 445-6530.
RECENT DEVELOPMENTS
TCR-West Transaction
On November 18, 1997, the Company completed the acquisition of certain
real estate assets and operations of TCR-West (the "TCR-West Transaction"). The
acquisition included 17 apartment properties comprising 4,786 units
4
<PAGE>
located in Arizona, California, New Mexico and Utah (the "Operating
Properties"). The following table sets forth certain information regarding the
Operating Properties:
<TABLE>
<CAPTION>
Number of
Property Location Units
------------------------------- ----------------- -------------
<S> <C> <C>
Deer Valley San Rafael, CA 171
The Highlands Vallejo, CA 280
Somerset Park Vallejo, CA 280
Parkside Village Riverside, CA 304
Riverview Santa Ana, CA 240
Villa Verde Santa Ana, CA 210
Overlook at Blue Ravine Folsom, CA 400
Pinnacle at South Mountain I Phoenix, AZ 360
Pinnacle at South Mountain II Phoenix, AZ 192
Pinnacle at Union Hills Phoenix, AZ 264
Pinnacle Heights Tucson, AZ 310
Pinnacle Canyon Tucson, AZ 225
Pinnacle at Fort Union Salt Lake City, UT 160
Pinnacle Reserve Salt Lake City, UT 492
Pinnacle Lakeside Salt Lake City, UT 252
Pinnacle at High Desert Albuqurque, NM 430
Cimarron Village Albuqurque, NM 216
Total 4,786
=====
</TABLE>
In addition to the Operating Properties, the Company acquired eight
properties comprising an estimated 2,445 units under development in Arizona,
Colorado, New Mexico and Nevada (the "Development Properties"). The Company
expects to incur an estimated $113 million to complete development and
construction of the Development Properties over the next two years. The Company
also acquired TCR-West's development, construction and third-party management
operations in the transaction, including approximately 600 new employees and
three regional offices located in Arizona, California and Utah.
The TCR-West Transaction was structured using the Operating Company
and Blue Ravine, with BRE as the sole managing member of each. The Operating
Company and Blue Ravine are consolidated subsidiaries of BRE. The acquisition
cost payable at the close of the transaction was approximately $462 million
(including closing costs), consisting of the Shares valued at $100 million,
2,672,087 units and 152,500 performance units of the Operating Company (the "OC
Units") valued at $76 million, assumed debt of $126 million and cash of $160
million. Under the terms of the transaction, additional OC Units up to a maximum
of 627,594 OC Units valued at approximately $17 million, subject to possible
adjustment, may be issued in the future upon achievement of certain specified
conditions applicable to properties under development. Beginning November 18,
1998, the OC Units are convertible into shares of Common Stock on a 1:1 basis
or, at BRE's election, into an equivalent amount of cash based on the value of
the Common Stock on the conversion date. Pursuant to the terms of the
Transaction, the Shares and the OC Units were valued at $26.93 per share.
Credit Facility
In order to facilitate the closing of the TCR-West Transaction, the
Company arranged a new $265 million unsecured line of credit (the "Credit
Facility") with Bank of America National Trust and Savings Association ("BofA").
The Credit Facility replaced the Company's existing $115 million line of credit
with BofA. At November 30, 1997, borrowings of approximately $152 million were
outstanding under the Credit Facility. The Credit Facility may be used for
acquisitions and development of apartment projects and for general working
capital purposes. The Credit Facility is scheduled to mature on July 10, 2000.
The Credit Facility carries an interest rate based on the Company's credit
rating
5
<PAGE>
and is currently fixed at the London InterBank Offer Rate (LIBOR) plus 0.75%.
Treasury Rate Lock Agreement
In anticipation of future financing transactions, the Company entered into
a treasury rate lock agreement in November 1997. The agreement was executed with
a notional amount of $100 million on the 6 1/8% U.S. Treasury Note due August
2007. The agreement, which expires in February 1998, is intended to reduce the
Company's overall exposure to interest rate changes and the Company will either
receive or pay the difference between the lock rate and the effective treasury
rate on the settlement date.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Shares. The Company
cautions the reader that this list of factors does not purport to be exhaustive.
Real Estate Investment Risks
General
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend upon the amount
of revenues generated and expenses incurred. If properties do not generate
revenues sufficient to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its shareholders will be adversely affected. The performance of
the economy in each of the areas in which the properties are located affects
occupancy, market rental rates and expenses and, consequently, has an impact on
the revenues from the properties and their underlying values. The financial
results of major local employers also may have an impact on the revenues and
value of certain properties.
Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company to
provide adequate facilities maintenance, services and amenities, and insurance
premiums and real estate taxes. The Company's revenues would also be adversely
affected if residents or users were unable to pay rent or the Company was unable
to rent apartments or commercial properties on favorable terms. If the Company
were unable to promptly relet or renew the leases for a significant number of
apartment units or commercial properties, or if the rental rates upon such
renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations would, and ability to make expected
distributions to shareholders may, be adversely affected. There is also a risk
that as leases on the properties expire, residents or users will vacate or enter
into new leases on terms that are less favorable to the Company. Operating
costs, including real estate taxes, insurance and maintenance costs, and
mortgage payments, if any, do not, in general, decline when circumstances cause
a reduction in income from a property. If a property is mortgaged to secure
payment of indebtedness, and the Company is unable to meet its mortgage
payments, a loss could be sustained as a result of foreclosure on the property.
In addition, revenues from properties and real estate values are also affected
by such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties. However,
no assurance can be given that the Company will have the financial resources to
make suitable acquisitions or that properties that satisfy the Company's
investment policies will be available for acquisition. Acquisitions of
properties entail risks that investments will fail to perform in accordance with
expectations. Such risks may include that construction costs may exceed original
estimates, possibly making a project uneconomical, financing may not be
available on favorable terms or at all and construction and lease-up may not be
completed on schedule. Estimates of the costs of improvements to bring an
acquired property up to standards established for the market position intended
for that property may prove inaccurate. In addition, there are general real
estate investment risks associated with any new real estate investment. Although
the Company undertakes an evaluation of the physical condition of each new
investment before it is acquired, certain defects or necessary repairs may not
be detected until after the investment is acquired, which could significantly
increase the Company's total acquisition costs and which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders.
Illiquidity of Real Estate and Reinvestment Risk
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to changes
in economic or other conditions. Additionally, the Internal Revenue Code of
1986, as amended (the "Code") places certain limits on the number of properties
a real estate investment trust ("REIT") may sell without adverse tax
consequences. To effect its current operating strategy, the Company has in the
past raised, and will seek
6
<PAGE>
to continue to raise additional acquisition funds, both through outside
financing and through the orderly disposition of commercial and retail
properties, and, depending upon interest rates, current acquisition
opportunities and other factors, generally to reinvest the proceeds in
multifamily properties. In this respect, in the markets the Company has targeted
for future acquisition of multifamily properties, there is considerable buying
competition from other real estate companies, many of whom may have greater
resources, experience or expertise than the Company. In many cases, this
competition for acquisition properties has resulted in an increase in property
prices and a decrease in property yields. Due to the relatively low
capitalization rates currently prevailing in the pricing of potential
acquisitions of multifamily properties which meet the Company's investment
criteria, no assurance can be given that the proceeds realized from the
disposition of commercial and retail properties can be reinvested to produce
economic returns comparable to those being realized from the properties disposed
of, or that the Company will be able to acquire properties meeting its
investment criteria. To the extent that the Company is unable to reinvest
proceeds from the disposition of commercial and retail properties, or if
properties acquired with such proceeds produce a lower rate of return than the
properties disposed of, such results may have a material adverse effect on the
Company and its ability to make distributions to shareholders. In addition, a
delay in reinvestment of such proceeds may have a material adverse effect on the
Company and its ability to make distributions to shareholders.
The Company may seek to structure future dispositions as tax-free
exchanges, where appropriate, utilizing the nonrecognition provisions of Section
1031 of the Code to defer income taxation on the disposition of the exchanged
property. For an exchange of such properties to qualify for tax-free treatment
under Section 1031 of the Code, certain technical requirements must be met. For
example, both the property exchanged and the property acquired must be held for
use in a trade or business or for investment, and the property acquired must be
identified within 45 days, and must be acquired within 180 days, after the
transfer of the exchanged property. If the technical requirements of Section
1031 of the Code are not met, then the exchanged property will be treated as
sold in a taxable transaction for a sales price equal to the fair market value
of the property received, in which event a distribution of cash to the
shareholders may be required to avoid a corporate-level income tax on the
resulting capital gain. Given the competition for properties meeting the
Company's investment criteria, it may be difficult for the Company to identify
suitable properties within the foregoing time frames in order to meet the
requirements of Section 1031. Even if a suitable tax-deferred exchange can be
structured, as noted above, no assurance can be given that the proceeds of any
of these dispositions will be reinvested to produce economic returns comparable
to those currently being realized from the properties which were disposed of.
Competition
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real estate
companies, many of which have greater financial and other resources than the
Company, within the market area of each of the properties which will compete
with the Company for tenants and development and acquisition opportunities. The
number of competitive multifamily properties and real estate companies in such
areas could have a material effect on (i) the Company's ability to rent the
apartments and the rents charged and (ii) development and acquisition
opportunities. The activities of these competitors could cause the Company to
pay a higher price for a new property than it otherwise would have paid or may
prevent the Company from purchasing a desired property at all, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders.
Geographic Concentration; Dependence on Western United States Regions
The Company's portfolio is principally located in the San Francisco Bay
Area, San Diego, Tucson, Phoenix, Seattle, Portland, Los Angeles/Orange County,
Sacramento, Las Vegas, Albuquerque and Salt Lake City. The Company's performance
could be adversely affected by economic conditions in, and other factors
relating to, these geographic areas, including supply and demand for apartments
in these areas, zoning and other regulatory conditions and competition from
other properties and alternative forms of housing. In that regard, certain of
these areas (particularly the Los Angeles/Orange County and San Diego
metropolitan areas) have in the recent past experienced economic recessions and
depressed conditions in the local real estate markets. To the extent general
economic or social conditions in any of these areas deteriorate or any of these
areas experiences natural disasters, the value of the portfolio, the Company's
results of operations and its ability to make distributions to shareholders
could be adversely affected.
7
<PAGE>
Risks of Real Estate Development and Acquisition
The Company currently has eight properties under development in four
states. The Company may in the future seek to develop additional properties
when market and economic conditions warrant.
Real estate development involves significant risks in addition to those
involved in the ownership and operation of real estate. While the Company's
policies with respect to development activities are intended to limit some of
the risks otherwise associated with such activities, the Company nevertheless is
subject to certain risks, including lack of financing, construction delays,
budget overruns and lease-up. The occurrence of any of these risks could have a
material adverse effect on the Company and its ability to make distributions to
shareholders.
It is expected that, in the future, the Company's evaluation of real
property acquisition opportunities will be based, in part, upon the cost to
finance the acquisition and the yield expected to be derived from the ongoing
ownership of such real property. If the Company is unable to obtain sufficient
capital on acceptable terms, its ability to acquire new real estate or implement
other aspects of its objectives and strategies will be impaired. In addition,
even if sufficient capital is available on reasonable terms, no assurance can be
given that the costs to maintain the property so acquired or the yields actually
derived from the property will not deviate materially from expectations.
Uninsured Loss; Limited Coverage
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company currently carries
flood and earthquake insurance for its properties with an aggregate annual limit
of $100 million, subject to substantial deductibles, no assurance can be given
that such coverage will be available on acceptable terms or at an acceptable
cost, or at all, in the future, or if obtained, that the limits of those
policies will cover the full cost of repair or replacement of covered
properties. In addition, there may be certain extraordinary losses (such as
those resulting from civil unrest) that are not generally insured (or fully
insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and would
continue to be obligated on any mortgage indebtedness on the property. Any such
loss could have a material adverse effect on the Company and its ability to make
distributions to shareholders.
Change in Laws
Increases in real estate taxes and income, service and transfer taxes
cannot always be passed through to residents or users in the form of higher
rents, and may adversely affect the Company's cash available for distribution
and its ability to make distributions to shareholders. Similarly, changes in
laws increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions, as
well as changes in laws affecting development, construction and safety
requirements, may result in significant unanticipated expenditures, which could
have a material adverse effect on the Company and its ability to make
distributions to shareholders. In addition, future enactment of rent control or
rent stabilization laws or other laws regulating multifamily housing may reduce
rental revenues or increase operating costs.
Laws Benefiting Disabled Persons
A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved access
to such buildings by disabled persons. Legislation or regulations adopted in the
future may impose further burdens or restrictions on the Company with respect to
improved access by disabled persons. The costs of compliance with these laws and
regulations may be substantial, and limits or restrictions on completion of
certain renovations may limit implementation of the Company's investment
strategy in certain instances or reduce overall returns on its investments,
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders. The Company reviews its properties
periodically to determine the level of compliance and, if necessary, takes
appropriate action to bring such properties into
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compliance. The Company's management believes, based on property reviews to
date, that the costs of such compliance should not have a material adverse
effect on the Company. Such conclusions are based upon currently available
information and data, and no assurance can be given that further review and
analysis of the Company's properties, or future legal interpretations or
legislative changes, will not significantly increase the costs of compliance.
Real Estate Financing Risks
Debt Financing and Maturities.
The Company is subject to the normal risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness. If the Company were unable to
refinance its indebtedness on acceptable terms, or at all, the Company might be
forced to dispose of one or more of the properties on disadvantageous terms,
which might result in losses to the Company, which losses could have a material
adverse effect on the Company and its ability to make distributions to
shareholders. Furthermore, if a property is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the mortgagee
could foreclose upon the property, appoint a receiver and receive an assignment
of rents and leases or pursue other remedies, all with a consequent loss of
revenues and asset value to the Company. Foreclosures could also create taxable
income without accompanying cash proceeds, thereby hindering the Company's
ability to meet the REIT distribution requirements of the Code.
Risk of Rising Interest Rates
The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. Accordingly, increases in interest
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by interest rate protection
arrangements), which could have a material adverse effect on the Company and its
ability to make distributions to shareholders or cause the Company to be in
default under certain debt instruments. In addition, an increase in market
interest rates may lead holders of the Company's Common Shares to demand a
higher yield on their shares from distributions by the Company, which could
adversely affect the market price for the Common Shares.
Additional Debt
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such as
sales of non-core properties. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness that the Company may incur.
Accordingly, the Company could become more highly leveraged, resulting in an
increase in debt service, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and in an
increased risk of default on its obligations.
Environmental Risks
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances in, on,
around or under such property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of, or failure to
remediate properly, such substances may adversely affect the owner's or
operator's ability to sell or rent the affected property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may also seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials and
other hazardous or toxic substances. The operation and subsequent removal of
certain underground storage tanks are also regulated by federal and state laws.
In connection with the current or former ownership (direct or indirect),
operation, management, development and/or control of real properties, the
Company
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<PAGE>
may be considered an owner or operator of such properties or as having arranged
for the disposal or treatment of hazardous or toxic substances and, therefore,
may be potentially liable for removal or remediation costs, as well as certain
other costs, including governmental fines, and claims for injuries to persons
and property.
The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental studies or other environmental
studies undertaken with respect to any of the Company's current or future
properties will reveal all or the full extent of potential environmental
liabilities, that any prior owner or operator of a property did not create any
material environmental condition unknown to the Company, that a material
environmental condition does not otherwise exist as to any one or more of such
properties or that environmental matters will not have a material adverse effect
on the Company and its ability to make distributions to shareholders. The
Company currently carries no insurance for environmental liabilities.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
Provisions Which Could Limit a Change in Control or Deter a Takeover
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities). In order to protect the Company against risk of losing its
status as a REIT due to a concentration of ownership among its shareholders, the
articles of incorporation of the Company provide, among other things, that if
the Board of Directors determines, in good faith, that direct or indirect
ownership of the Company's Common Shares have or may become concentrated to an
extent that would prevent the Company from qualifying as a REIT, the Board of
Directors may prevent the transfer of the Common Shares or call for redemption
(by lot or other means affecting one or more shareholders selected in the sole
discretion of the Board of Directors) of a number of Common Shares sufficient in
the opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of the Common Shares into conformity with the requirements
for maintaining REIT status. These limitations may have the effect of precluding
acquisition of control of the Company by a third party without consent of the
Board of Directors.
In addition, certain other provisions contained in the Company's articles
of incorporation and bylaws, as well as its shareholder rights plan, may have
the effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company. For
example, such provisions may (i) deter tender offers for Common Shares which
offers may be attractive to the shareholders, or (ii) deter purchases of large
blocks of Common Shares, thereby limiting the opportunity for shareholders to
receive a premium for their Common Shares over then-prevailing market prices.
Tax Risks
Tax Liabilities as a Consequence of Failure to Qualify as a REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's taxable gross income in any year must be derived from qualifying
sources and the Company must make distributions to shareholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
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If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates, which would likely have a material adverse
effect on the Company and its ability to make distributions to shareholders. In
addition, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification is lost. This treatment
would reduce funds available for investment or distributions to shareholders
because of the additional tax liability to the Company for the year or years
involved. In addition, distributions to shareholders would no longer be required
to be made. To the extent that distributions to shareholders would have been
made in anticipation of qualifying as a REIT, the Company might be required to
borrow funds or to liquidate certain of its investments to pay the applicable
tax.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholder. All proceeds from the sale of the Shares will
be for the account of the Selling Shareholder.
SELLING SHAREHOLDER
The following table sets forth certain information as of the date of this
Prospectus regarding the ownership of shares of Common Stock by the Selling
Shareholder and as adjusted assuming the sale of all the Shares offered hereby.
All of the Shares being offered by the Selling Shareholder were acquired in
connection with the TCR-West Transaction. In addition to its ownership of
Common Stock of the Company, (i) the Selling Shareholder is the lender under the
terms of certain loan agreements with the Company providing for up to
$73,000,000 of unsecured indebtedness and (ii) a wholly-owned subsidiary of the
Selling Shareholder has provided financing services for BRE and has received
fees for the rendering of those services.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of Shares Number of Shares
Owned Beneficially Number of Shares Owned Beneficially
The Selling Shareholder Before the Offering Being Offered After the Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Prudential Insurance Company of America
-- Prudential Property Investment 3,713,331 3,713,331 0
Separate Account 2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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DESCRIPTION OF COMMON STOCK
General
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which this Prospectus relates. The
statements below describing the Common Stock, the Rights (as defined below) and
the Rights Agreement (as defined below) do not purport to be complete and are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Articles of Incorporation (the "Articles") and the
Bylaws (the "Bylaws") of BRE and the Rights Agreement dated as of August 14,
1989 (the "Rights Agreement") between the Company and Chase Mellon Shareholder
Services L.L.C. ("Chase Mellon") (formerly Chemical Trust Company of
California), as successor rights agent, as supplemented, copies of which have
been filed or incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part and are available as described
above under "Available Information."
The Articles authorize the issuance of up to 100,000,000 shares of Common
Stock, $0.01 par value. As of November 30, 1997, there were 40,820,260 shares of
Common Stock issued and outstanding. In addition, as of November 30, 1997, there
were 895,936 shares of Common Stock reserved for issuance upon the exercise of
options under the Company's stock option plans and 1,396,207 shares reserved for
issuance under the Company's Dividend Reinvestment Plan. As of November 30,
1997, there were 3,452,181 shares of Common Stock reserved for issuance upon
exchange of the OC Units which were issued or may be issued in connection with
the TCR-West Transaction. The Common Stock is listed on the NYSE under the
symbol "BRE." Chase Mellon is the transfer agent and registrar of the Common
Stock.
Holders of Common Stock are entitled to receive dividends ratably, when, as
and if declared by the Board of Directors of the Company, out of assets of the
Company legally available for payment, subject to any preferential rights of any
outstanding Preferred Stock. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in any assets of the Company available for
distribution to shareholders after payment of or provision for all liabilities
of the Company and any amounts owing in respect of any outstanding Preferred
Stock. The Common Stock does not have preemptive or conversion rights.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Stock and, except as
otherwise required by law or as provided by the express provisions of any series
of Preferred Stock, the holders of the Common Stock will exclusively possess all
voting power of the shareholders of the Company. Holders of Common Stock do not
have cumulative voting rights in the election of directors.
The Board of Directors may, without the approval of the shareholders of the
Company, from time to time authorize the issuance of one or more series of
Preferred Stock with such rights, restrictions and other terms as may be
determined by the Board of Directors. The issuance of Preferred Stock, while
providing flexibility in connection with possible financings, acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
powers and other rights and interests of holders of Common Stock and, under
certain circumstances, could make it more difficult for a third party to gain
control of the Company and could have the effect of delaying or preventing an
attempted takeover of the Company. As of December 2, 1997, no Preferred Stock
was issued or outstanding.
Certain Provisions of the Articles of Incorporation and Bylaws
Several provisions of the Articles and Bylaws may have the effect of
deterring a takeover of the Company. These provisions include (i) the
requirement that 70% of the outstanding shares of voting stock approve certain
mergers, sales of assets or other business combinations with shareholders owning
10% or more of then outstanding voting shares, unless the transaction is
recommended by a majority of the disinterested directors or meets certain fair
price criteria, (ii) a requirement that directors of the Company may be removed
by the shareholders only for "cause" and that vacancies in the Board of
Directors may be filled only by action of the remaining directors, (iii) the
requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of the Articles, (iv) the classification of the
Company's Board of Directors into three classes serving staggered three-year
terms, (v) a prohibition on certain stock repurchases by the Company from a
holder of 5% or more of the outstanding voting shares for a price exceeding fair
market value unless certain conditions are met, and (vi) a requirement that
shareholder action without a meeting be taken only by unanimous
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<PAGE>
written consent.
Maryland law imposes certain restrictions on business combinations with a
greater than ten percent shareholder unless a company's charter states that it
has elected not to be governed by such provisions. The Company has made such an
election in the Articles and therefore is not subject to such provisions.
Maryland law eliminates the voting rights of any shares of voting stock
held by a person to the extent such shares exceed 20% of the outstanding voting
stock of the company, and permits a company to redeem any such shares at the
fair value of the stock, unless a company's charter states that it has elected
not to be governed by such provisions. The Company has made such an election in
the Articles and therefore is not subject to such provisions.
Shareholder Rights Plan
On August 14, 1989, the Company's Board of Directors declared a dividend
distribution to shareholders of record on September 7, 1989 of one common share
purchase right (a "Right") for each outstanding share of Common Stock. Each
Right entitled the holder to purchase from the Company one share of Common Stock
at a cash purchase price of $90.00 per share, subject to adjustment. Following
the Company's stock dividend of one share of Common Stock for each share
outstanding in June 1996, such cash purchase price was adjusted to $45.00 per
share, subject to adjustment. The terms of the Rights are set forth in the
Rights Agreement. The Rights are not exercisable until the Distribution Date
referred to below and will expire at the close of business on September 7, 1999,
unless earlier redeemed by the Company as described below (the "Final Expiration
Date").
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued shares of Common Stock
and (ii) the Rights will be evidenced by the Common Stock certificates and the
transfer of Common Stock certificates will also constitute the transfer of the
Rights associated with such Common Stock. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Stock as of the close of business on the Distribution Date.
The Rights will separate from the Common Stock and a Distribution Date (as
defined in the Rights Agreement) will occur, in general, upon the earlier of (i)
10 days following a public announcement that a person (an "Acquiring Person")
has acquired 32% or more of the outstanding Common Stock (the "Stock Acquisition
Date"), (ii) 10 business days following the commencement of a tender or exchange
offer for 40% or more of the outstanding Common Stock or (iii) 10 business days
after the Board of Directors determines that a person has become an "Adverse
Person" (as defined in the Rights Agreement).
In the event that, among other things, (i) the Company survives a merger or
business combination with an Acquiring Person or an Adverse Person without any
exchange of its outstanding Common Stock for other securities, cash or property,
(ii) any person becomes the owner of 40% or more of the then outstanding Common
Stock, (iii) an Acquiring Person or an Adverse Person engages in one of a number
of self-dealing transactions set forth in the Rights Agreement, or (iv) during
such time as there is an Acquiring Person or an Adverse Person, an event occurs
which results in such person's ownership interest being increased by more than
1%, each Right will entitle the holder to receive, upon exercise, Common Stock
having a value equal to two times the exercise price of the Right. In the event
that, at any time following the Stock Acquisition Date or the date on which the
Board of Directors determines that a person is an Adverse Person, (i) the
Company is acquired in a merger or other business combination, (ii) the Company
survives a merger or business combination in which Common Stock is exchanged for
other securities, cash or property or (iii) 50% or more of the Company's assets
or earning power is sold or transferred, each Right will entitle the holder to
receive, upon exercise, common shares of the acquiring person having a value
equal to two times the exercise price of the Right.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the earlier of
the Stock Acquisition Date, the date on which a person is determined to be an
Adverse Person or the Final Expiration Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights by the Board of
Directors or on
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<PAGE>
the acquisition by such person or group of a substantial number of Rights.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION
The Articles provide that any shareholder must, upon demand, disclose to
the Board of Directors of the Company in writing such information with respect
to its direct and indirect ownership of the shares of the Company's stock as the
Board of Directors deems necessary to permit the Company to comply (or to verify
compliance) with the REIT provisions of the Code, and the regulations
promulgated thereunder or the requirements of any other taxing authority. The
Articles further provide that, if the Board of Directors in good faith
determines that direct or indirect ownership of shares of the Company's stock
has or may become concentrated to an extent that would prevent the Company from
qualifying as a REIT (See "Federal Income Tax Considerations"), the Board of
Directors is authorized to prevent the transfer of stock or to call for
redemption (by lot or by other means affecting one or more shareholders selected
in the sole discretion of the Board of Directors) of a number of shares of stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Company's stock into conformity with the
requirements for maintaining REIT status. If Common Stock is called for
redemption, the redemption price shall be (i) the last reported sale price of
the shares on the last business day prior to the redemption date on the
principal national securities exchange on which the shares are listed or
admitted to trading, (ii) if the shares are not so listed or admitted to trading
but are reported in the Nasdaq system, the last sale price on the last business
day prior to the redemption date, or if there is no sale on such day then at the
last bid price on such day as reported in the Nasdaq National Market, (iii) if
the shares are not so reported or listed or admitted to trading, the mean
between the highest bid and lowest asked prices on such last business day as
reported by the National Quotation Bureau Incorporated or a similar organization
selected by the Board of Directors for such purpose, or (iv) if not determined
by the foregoing methods, as determined in good faith by the Board of Directors.
From and after the date fixed for redemption by the Board of Directors, the
holder of any shares of stock so called for redemption will cease to be entitled
to dividends, distributions, voting rights and other benefits with respect to
such shares, excepting only the right to payment of the redemption price without
interest.
The Bylaws provide that, whenever it is determined by the Board of
Directors to be reasonably necessary to protect the REIT tax status of the
Company, the Board of Directors may require a statement or affidavit from each
holder or proposed transferee of shares of stock setting forth the number of
shares already owned by such holder or transferee or any related person. The
Bylaws further provide that if, in the opinion of the Board of Directors, which
will be conclusive upon any proposed transferor or transferee of shares, any
proposed transfer would jeopardize the status of the Company as a REIT under the
Code, the Board of Directors may refuse to permit such transfer; that any
attempt to transfer as to which the Board of Directors has refused its
permission will be void and of no effect to transfer any legal or beneficial
interest in the shares; and that all contracts for the sale or other transfer of
shares are subject to these restrictions.
These provisions may have the effect of preventing acquisition of control
of the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Shares
and the treatment of the Company as a REIT. It is not intended to represent a
detailed description of the federal income tax consequences applicable to a
particular shareholder of the Company in view of a shareholder's particular
circumstances, or to certain types of shareholders (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. The
discussion in this section is based on current provisions of the Code, current
and proposed Treasury Regulations, court decisions and other administrative
rulings and interpretations, all of which are subject to change either
prospectively or retroactively. There can be no assurance that any such change,
future Code provision or other legal authority will not alter significantly the
tax considerations described herein.
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<PAGE>
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISOR,
REGARDING THE SPECIFIC TAX CONSEQUENCES, IN VIEW OF SUCH PROSPECTIVE PURCHASER'S
INDIVIDUAL CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
General
Effective as of its formation on May 22, 1970, the Company has elected to
be taxed as a real estate investment trust under Code Sections 856 through 860.
The Company believes that it is organized and is operating in such a manner as
to qualify for taxation as a REIT under the Code. The Company intends to
continue to operate in such a manner, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified as a REIT.
In the opinion of Farella Braun & Martel LLP, based on certain assumptions
and representations, the Company was reorganized in Delaware in 1987 in
conformity with the requirements for qualification as a "Real Estate Investment
Trust" under the Code, and the Company has qualified as a REIT for its fiscal
years ended July 31, 1994 and July 31, 1995, its short taxable year ended
December 31, 1995 and its taxable year ended December 31, 1996 (the years, to
the best knowledge of counsel, that are still subject to audit by the Internal
Revenue Service), and the Company is organized and operates in a manner that
will enable it to qualify to be taxed as a REIT under the Code for its taxable
year ending December 31, 1997 and thereafter provided the Company continues to
meet the asset composition, source of income, shareholder diversification,
distributions, record keeping, and other requirements of the Code necessary for
the Company to qualify as a REIT. It must be emphasized that this opinion is
based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters including, but not limited to, those
set forth below in this discussion of "Federal Income Tax Considerations" and
those concerning the Company's business and properties as set forth and
incorporated by reference in this Prospectus. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code discussed below the
results of which will not be reviewed by Farella Braun & Martel LLP.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. See
"Failure to Qualify."
Taxation of the Company
A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from an investment
in a corporation. However, the Company will be subject to federal income tax in
several ways, including the following: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax." Third, if the Company
has: (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax on such income at the highest corporate rate. Fourth, if the
Company has net income from "prohibited transactions" (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% corporate level tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(each discussed below) but has nonetheless maintained its qualification as a
REIT by satisfying certain other requirements, it will be subject to a 100% tax
on an amount equal to the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of: (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior periods, it
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company acquires any
asset from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the ten-year period beginning on
the
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<PAGE>
date the asset was acquired by the Company, then the excess of (i) the fair
market value of such asset as of the beginning of such period over (ii) the
Company's adjusted basis in such asset as of the beginning of such period will
be subject to tax at the highest regular corporate tax rate.
Requirements for Qualification
A REIT is defined in the Code as a corporation, trust or association: (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation, but for Code Sections 856 through 859; (iv) which is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding stock of which is owned
during the last half of each taxable year, directly or indirectly, by or for
five or fewer individuals (as defined in the Code to include certain entities);
and (vii) which meets certain income and asset tests described below. Conditions
(i) through (iv) above must be met during the entire taxable year and condition
(v) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. However,
conditions (v) and (vi) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
With respect to its taxable years ending before January 1, 1998, in order
to maintain its election to be taxed as a REIT, the Company must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Company believes that it has
complied and will comply with these requirements.
In the case of a REIT that is a partner in a partnership, the REIT
Provisions provide that the REIT is deemed to own its proportionate share of the
assets of the partnership based on the REIT's capital interest in the
partnership and is deemed to be entitled to the income of the partnership
attributable to such proportionate share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of satisfying the gross income tests and the
asset tests, described below. Similar treatment applies with respect to lower-
tier partnerships which the REIT indirectly owns through its interests in
higher-tier partnerships. Thus, the Company's proportionate share of the
assets, liabilities and items of income of the Operating Company and the other
partnerships and limited liability companies in which the Company owns a direct
or indirect interest (collectively, the "Subsidiary Entities"), will be treated
as assets, liabilities and items of income of the Company for purposes of
applying the gross income tests and the asset tests described below, provided
that the Operating Company and the Subsidiary Entities are treated as
partnerships for federal income tax purposes. See "Federal Income Tax Aspects
of the Operating Company and the Subsidiary Entities" below. If the gross
income tests and the asset tests described below were applied to partnerships in
a manner different from that described in this paragraph, then the Company might
not be able to satisfy one or more of the gross income tests or asset tests
described below and, thus, could lose its REIT status.
Income Tests
In order to maintain qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest ) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from sale or disposition of stock or securities (or from any combination of the
foregoing). Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
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whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if the REIT, or an owner of 10% or more of the REIT, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, a REIT may provide services to
its tenants and the income will qualify as "rents from real property" only if
the services are of a type that a tax-exempt organization can provide to its
tenants without causing its rental income to be unrelated business taxable
income under the Code. Services that would give rise to unrelated business
taxable income if provided by a tax-exempt organization ("Prohibited Services")
must be provided by an "independent contractor" who is adequately compensated
and from whom the REIT does not derive any income. Payments received by a REIT
for services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants in properties of a similar class in
the geographic market in which the REIT's property is located will not qualify
as "rents from real property." For taxable years beginning after August 5, 1997,
the provision of Prohibited Services by a REIT in connection with a lease of
real property will not cause the rent to fail to qualify as "rents from real
property" unless the amount treated as received for the Prohibited Services
exceeds 1% of all amounts received or accrued during the taxable year directly
or indirectly by the REIT with respect to such property.
The Company does not and will not charge rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as described above),
and the Company does not and will not rent any personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
The Company directly performs services under certain of its leases, but such
services should not be considered Prohibited Services. To the extent that the
performance of any services provided by the Company would cause amounts received
from its tenants to be excluded from "rents from real property," the Company
will hire independent contractors from whom the Company will derive no revenue
in connection with such services.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
For taxable years beginning on or before August 5, 1997, any gross income
derived from a prohibited transaction is taken into account in applying the 30%
income test necessary to qualify as a REIT. The net income from a prohibited
transaction is subject to a 100% tax. The Company believes that no asset
directly or indirectly owned by it is held for sale to customers and that the
sale of any such property will not be in the ordinary course of business of the
Company, the Operating Company or the Subsidiary Entities.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests was attributable to reasonable cause and not to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not attributable to fraud with intent
to evade tax. It is not possible, however, to determine whether, in all
circumstances, the Company would be entitled to the benefit of those relief
provisions. As discussed above in "General," even if those relief provisions
apply, a tax would be imposed with respect to excess net income.
Third-Party Management Income
In connection with the TCR-West Transaction, the Company acquired certain
management contracts (which were immediately contributed to a newly created
"qualified REIT subsidiary," as defined in the Code) whereby, in return for
various fees, the Company is obligated to provide management services related to
properties that are not owned directly or indirectly by the Company ("Third-
Party Management Income"). The Third-Party Management Income will not qualify
under either the 75% or 95% gross income tests described above. However, the
Company does not believe that the receipt
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of this income will cause the Company to fail to satisfy one or both of the 75%
or 95% gross income tests for the current or any future taxable year as this
income, along with other non-qualifying income, should represent less than 5% of
the Company's gross income in any taxable year.
Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property to the extent the mortgage
balance does not exceed the value of the associated real property, shares in
other REITs, cash, cash items, government securities and certain securities
attributable to temporary investment of new capital. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a REIT is prohibited by the asset tests. However, the
Company owns stock in certain subsidiaries that are, in the opinion of Farella
Braun & Martel LLP (based on certain representations by the Company), "qualified
REIT subsidiaries" as defined in the Code, and as "qualified REIT subsidiaries,"
such subsidiaries are not treated as separate corporations for federal income
tax purposes. Thus, the Company's ownership of stock of a "qualified REIT
subsidiary" will not cause the Company to fail the asset tests.
Annual Distribution Requirements
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of non-cash
income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income
for such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed (including for this purpose
as amounts distributed, amounts taxed at regular ordinary and capital gains
corporate tax rates). The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because of
timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company. In
the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for short-
term, or possibly long-term, borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
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Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made by the Company. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and, subject to certain limitations, a
corporate distributee may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. Whether the Company
would be entitled to such statutory relief cannot be foreseen.
Taxation of Taxable Domestic Shareholders
As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will result in ordinary income to
such shareholders. Corporate shareholders will not be entitled to the "dividends
received" deduction. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions by the Company in excess of its
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder's shares, but rather, will be a non-taxable reduction
in a shareholder's adjusted basis in such shares to the extent thereof and
thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of
any year payable to a shareholder of record on a specified date in any such
month will be treated as both paid by the Company and received by the
shareholder on or before December 31 of such year, provided that the dividend is
actually paid by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
Backup Withholding
The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder: (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Company. See "Taxation of Foreign
Shareholders."
Taxation of Pension Trusts
For purposes of the "five or fewer" test described above, beneficiaries of
a domestic pension trust that owns shares in the Company generally will be
treated as owning such shares in proportion to their actuarial interests in the
trust. In addition, amounts distributed by the Company to a tax-exempt pension
trust generally do not constitute "unrelated business
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taxable income" ("UBTI") to such trust unless the trust owns more than ten
percent of the Company's Common Shares, in which case a portion of such amounts
distributed may be treated as UBTI.
Taxation of Foreign Shareholders
The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt is made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares, including any reporting requirements.
It is currently anticipated that the Company will qualify as a
"domestically controlled REIT" (i.e., a REIT in which at all times during a
specified testing period less than 50% of the value of the capital stock of
which is owned directly or indirectly by Non-U.S. Shareholders) and therefore
gain from the sale of Common Shares by a Non-U.S. Shareholder generally will not
be subject to United States taxation unless such gain is treated as "effectively
connected" with the Non-U.S. Shareholder's United States trade or business.
Distributions that are not attributable to gain from the sale or exchange
by the Company of United States real property interests (and are not designated
as capital gain dividends) ("Non-Capital Distributions") will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions generally
will be subject to a United States withholding tax equal to 30% of the gross
amount of the distribution, subject to reduction or elimination under an
applicable tax treaty. However, if dividends from the investment in the shares
are treated as "effectively connected" with the Non-U.S. Shareholder's conduct
of a United States trade or business, such dividends will be subject to regular
U.S. income taxation (foreign corporations may also be subject to the 30% branch
profits tax). The Company will withhold United States income tax at the rate of
30% on the gross amount of any Non-Capital Distributions paid to a Non-U.S.
Shareholder unless: (i) a lower treaty rate applies and the Non-U.S. Shareholder
files certain information evidencing its entitlement to such lower treaty rate,
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is "effectively connected" income. Distributions
which exceed current and accumulated earnings and profits of the Company will
not be taxable to the extent that they do not exceed the adjusted basis of
shares, but rather will reduce (but not below zero) the adjusted basis of such
shares. To the extent that such distributions exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they generally will give rise to United States
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
gain from the sale or disposition of his shares in the Company, as described
above. Because the Company will withhold 30% (or lower treaty rate) of all Non-
Capital Distributions, to the extent the Company makes distributions in excess
of its earnings and profits, generally the amount withheld will exceed a Non-
U.S. Shareholder's U.S. tax liability on such distributions and such shareholder
can seek a refund from the IRS to the extent the amount withheld on its
distributions exceeds its U.S. tax liability.
Distributions by the Company to a Non-U.S. Shareholder that are
attributable to gain from sales or exchanges by the Company of a United States
real property interest are subject to income and withholding tax under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, those distributions, if any, which are treated as gain
recognized from the sale of a United States real property interest, are taxed as
income "effectively connected" with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to the applicable alternative minimum tax and a
special alternative minimum tax for nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company will withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated by the Company as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability. A refund may
be available if the amount withheld exceeds the Non-U.S. Shareholder's federal
tax liability.
Federal Income Tax Aspects of the Operating Company and the Subsidiary Entities
As a result of the TCR-West transaction, a portion of the Company's assets
are held indirectly through the Operating Company and the Subsidiary Entities.
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The Operating Company and the Subsidiary Entities involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of such partnerships or limited liability companies as a
partnership (as opposed to an association taxable as a corporation) for federal
income tax purposes. If any of such partnerships or limited liability companies
were to be treated as an association, it would be taxable as a corporation and,
therefore, subject to an entity level tax on its income. Such an entity level
tax is likely to substantially reduce the amount of cash available for
distribution to holders of Shares. In addition, if the Operating Company or any
of the Subsidiary Entities were to be taxable as a corporation, the Company
would not qualify as a REIT.
Tax Allocations With Respect To Contributed Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax-basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Company was formed by way of contributions of
property by TCR-West. Consequently, allocations with respect to such
contributed property must be made in a manner consistent with Code Section
704(c).
The Treasury Regulations under Code Section 704(c) allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the contributed property. Book-Tax Differences
associated with the Operating Company will be allocated in a manner intended to
comply with Code Section 704(c) and the applicable Treasury Regulations.
Partnership Anti-Abuse Rule
The IRS has published regulations that provide an anti-abuse rule (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions"). Under the Anti-Abuse Rule, if a partnership is
formed or availed of in connection with a transaction a principal purpose of
which is to reduce substantially the present value of the partners, aggregate
federal tax liability in a manner that is inconsistent with the intent of the
Partnership Provisions, the IRS can recast the transaction for federal tax
purposes to achieve tax results that are consistent with the intent of the
Partnership Provisions. This analysis is to be made based on all facts and
circumstances. The Anti-Abuse Rule states that the intent of the Partnership
Provisions incorporates the following requirements: (i) the partnership must be
bona fide and each partnership transaction or series of related transactions
must be entered into for a substantial business purpose; (ii) the form of each
partnership transaction must be respected under substance over form principles;
and (iii) with certain exceptions, the tax consequences under the Partnership
Provisions to each partner of partnership operations and the transactions
between the partner and the partnership must accurately reflect the partner's
economic agreement and clearly reflect the partner's income.
The Company believes that its indirect ownership of certain assets through
its interest in the Operating Company and the Subsidiary Entities is not
inconsistent with the intent of the Partnership Provisions and that, therefore,
the IRS should not be able to invoke the Anti-Abuse Rule to recast the structure
of the Company for federal income tax purposes. However, no assurance can be
given that the IRS or a court will concur with such opinion.
The Anti-Abuse Rule also provides that, unless a provision of the Code or
the Treasury Regulations prescribes the treatment of a partnership as an entity,
in whole or in part, and that treatment and the ultimate tax results, taking
into account all the relevant facts and circumstances, are clearly contemplated
by that provision, the IRS can treat a partnership as an aggregate of its
partners, in whole or in part, as appropriate to carry out the purpose of any
provision of the Code or the Treasury Regulations. Treatment of the Operating
Company or any of the Subsidiary Entities, in whole or in part, as an aggregate
rather than an entity is unlikely to materially change the federal tax
consequences to any
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partner. In addition, the REIT Provisions generally treat a partnership as an
aggregate rather than an entity for purposes of applying the REIT Requirements.
Therefore, the Anti-Abuse Rule should not have a material adverse effect on the
federal income tax consequences to any partner or on the ability of the Company
to qualify as a REIT.
Other Tax Consequences
The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its shareholders
may not conform to the federal income tax consequences discussed above.
Prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
Any or all of the Shares offered hereby may be sold from time to time, in
one or more transactions, on the NYSE, on any other exchange on which the Shares
are listed or traded, in the over-the-counter market or otherwise. Such sales
may be made at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. To the extent
required, this Prospectus may be amended or supplemented from time to time to
describe a specific plan of distribution. In addition, any or all of the Shares
that qualify for sale pursuant to Rule 144 might be sold under Rule 144 rather
than pursuant to this Prospectus. The Selling Shareholder will act independently
of the Company in making decisions with respect to the timing, manner and size
of each sale.
In effecting sales, brokers, dealers or agents engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Shareholder in amounts to be negotiated prior to the sale. Such
brokers, dealers and any other participating brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales, and any such commissions, discounts or concessions may be deemed to
be underwriting discounts or commissions under the Securities Act. The Company
will pay all expenses incident to the offering and sale of the Shares to the
public other than any commissions and discounts of underwriters, dealers or
agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the Shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Company has advised the Selling Shareholder that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Shares in the
market and to the activities of the Selling Shareholder and its affiliates. In
addition, the Company will make copies of this Prospectus available to the
Selling Shareholder and has informed it of the need for delivery of copies of
this Prospectus to purchasers at or prior to the time of any sale of the Shares
offered hereby. The Selling Shareholder may indemnify any broker-dealer that
participates in transactions involving the sale of the Shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of Shares is made, if required, a Prospectus
Supplement will be distributed that will set forth the number of Shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or reallowed or paid to any dealer, and the proposed selling
price to the public.
The sale of Shares by the Selling Shareholder is subject to compliance by
the Selling Shareholder with certain contractual restrictions with the Company.
There can be no assurance that the Selling Shareholder will sell all or any of
the Shares.
The Company has agreed to indemnify the Selling Shareholder and any person
controlling the Selling Shareholder against certain liabilities, including
liabilities under the Securities Act. The Selling Shareholder has agreed to
indemnify the
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Company and certain related persons against certain liabilities, including
liabilities under the Securities Act.
The Company has agreed with the Selling Shareholder to keep the
Registration Statement of which this Prospectus constitutes a part effective for
up to two years following November 18, 1997, the closing date of the TCR-West
Transaction (which period may be shortened or extended under certain
circumstances). The Company intends to de-register any of the Shares not sold
by the Selling Shareholder at the end of such two-year period; however, it is
anticipated that at such time any unsold Shares may be freely tradable subject
to compliance with Rule 144 of the Securities Act.
EXPERTS
The financial statements and related financial schedule of the Company
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The statement of gross income and direct
operating expenses of Promontory Point Apartments for the year ended December
31, 1996, appearing in the Company's Current Report on Form 8-K/A filed on
February 13, 1997, as amended, has been audited by Ernst & Young LLP, as set
forth in their report thereon included therein and incorporated herein by
reference. The statement of gross income and direct operating expenses of
Foster's Landing Apartments for the year ended December 31, 1995, appearing in
the Company's Current Report on Form 8-K/A filed on December 9, 1996, as
amended, has been audited by Ernst & Young LLP, as set forth in their report
thereon included therein and incorporated herein by reference. The statement of
gross income and direct operating expenses of Red Hawk Ranch for the year ended
December 31, 1996, appearing in the Company's Current Report on Form 8-K filed
on April 25, 1997, has been audited by Ernst & Young LLP, as set forth in their
report thereon included therein and incorporated herein by reference. The
statement of gross income and direct operating expenses of Lakeshore Landing
Apartments for the year ended December 31, 1996, appearing in the Company's
Current Report on Form 8-K/A filed on October 30, 1997, has been audited by
Ernst & Young LLP, as set forth in their report thereon included therein and
incorporated herein by reference. The statement of gross income and direct
operating expenses of certain TCR-West multifamily properties for the year ended
December 31, 1996, appearing in the Company's Current Report on Form 8-K filed
on November 24, 1997, has been audited by Ernst & Young LLP, as set forth in
their report thereon included therein and incorporated herein by reference.
Such financial statements and schedule referred to above are incorporated herein
by reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Shares offered hereby, as well as certain legal matters
described under "Federal Income Tax Considerations," will be passed upon for the
Company by Farella Braun & Martel LLP, San Francisco, California.
-----------------------
-----------------------
23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be paid by BRE
Properties, Inc. (the "Company") in connection with the issuance of the Shares
being registered hereby. All amounts, other than the SEC Registration Fee, are
estimates:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee................................................................ $ 31,670
NYSE Listing Fee.................................................................... _______
Printing and Engraving Costs........................................................ _______
Legal Fees and Expenses............................................................. _______
Blue Sky Fees and Expenses.......................................................... _______
Accounting Fees and Expenses........................................................ _______
Miscellaneous....................................................................... _______
Total............................................................................... $
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 2-418 of the General Corporation Law of the State
of Maryland (the "Maryland Corporation Law"), Article VI of the Company's Bylaws
provides that the Company shall indemnify any officer or director who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit, proceeding or investigation, whether civil, criminal or
administrative, and whether external or internal to the Company (other than an
action brought by or in the right of the Company) by reason of the fact that he
or she is or was an officer or director, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred by the officer or director in connection with such action, suit,
proceeding or investigation, or any appeal therein. However, there will be no
such indemnification if it is established by adjudication that (i) the act or
omission of the director was material to the matter giving rise to the
proceeding and (A) was committed in bad faith or (B) was the result of active
and deliberate dishonesty; (ii) the officer or director actually received an
improper personal benefit in money, property or services; or (iii) with respect
to any criminal action or proceeding, the officer or director had no reasonable
cause to believe that his or her conduct was unlawful. Notwithstanding the
foregoing, an officer or director may receive indemnification where a court of
appropriate jurisdiction determines that such person is fairly and reasonably
entitled to indemnity for any expense, liability or loss which the court shall
deem proper; provided, however, that no indemnification for any liability or
loss (other than expenses) shall in any event be made to the extent that such
person has been adjudged to have actually received an improper personal benefit.
Article VI of the Articles provides that, to the fullest extent permitted by
law, no director or officer of the Company shall be personally liable to the
Company, any subsidiary thereof or any of its shareholders for money damages.
In addition, Article VI of the Company's Bylaws also provides that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed judicial action or suit
brought by or in the right of the Company to procure a judgment in its favor by
reason of the fact that such person is or was an officer or director, against
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by such person in connection with the defense, settlement or
appeal of such action or suit, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that a court
of appropriate jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
The Company maintains a directors' and officers' insurance policy which
insures the directors and officers of the Company from claims arising out of an
alleged wrongful act by such persons in their respective capacities as directors
and officers of the Company, subject to certain exceptions.
II-1
<PAGE>
The Company has entered into indemnification agreements with its directors
and officers.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
Number -----------
-----
<C> <S>
2.1 Contribution Agreement dated as of September 29, 1997, as amended between the Company, BRE Property
Investors LLC and the TCR Signatories (1)
4.1 Amended and Restated Articles of Incorporation (2)
4.2 Articles of Amendment (3)
4.3 Bylaws (4)
4.4 Rights Agreement between the Company and Bank of America, N.T. & S.A., dated as of August 14, 1989 (5)
4.5 Supplement to Rights Agreement between the Company and Chemical Trust Company of California dated as of
July 30, 1992 (6)
4.6 Registration Rights Agreement among the Company, BRE Property Investors LLC and the other signatories
thereto dated November 18, 1997
4.7 Specimen Certificate for Common Stock of the Company (7)
5 Opinion of Farella Braun & Martel LLP regarding the validity of the Common Stock being registered
8 Opinion of Farella Braun & Martel LLP regarding tax matters
23.1 Consent of Farella Braun & Martel LLP (included as part of Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (see page II-5)
</TABLE>
___________
(1) Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's current
report on Form 8-K filed November 24, 1997.
(2) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on March 15, 1996.
(3) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(4) Incorporated by reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-4 (No. 33-65365), filed with the Securities and
Exchange Commission on December 22, 1995, as amended.
(5) Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated August 14, 1989.
(6) Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(7) Incorporated by reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
II-2
<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
Annual Report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
into this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be
II-3
<PAGE>
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, as of the 3rd day
of December, 1997.
BRE Properties, Inc.
By:
/s/ LeRoy E. Carlson
--------------------
LeRoy E. Carlson
Executive Vice President,
Chief Financial Officer
and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frank C. McDowell and LeRoy E. Carlson, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any related registration
statements which may be filed under Rule 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons in
the capacities indicated as of the 3rd day of December, 1997.
Signature TITLE
--------- -----
/s/ John McMahan
---------------- Director, Chairman of the Board
John McMahan
/s/ Frank C. McDowell
---------------------- President, Chief Executive Officer and
Frank C. McDowell Director (Principal Executive Officer)
II-4
<PAGE>
/s/ LeRoy E. Carlson
------------------- Executive Vice President, Chief Financial
LeRoy E. Carlson Officer and Secretary (Principal Financial
Officer and Principal Accounting Officer)
Signature TITLE
--------- -----
/s/ William E. Borsari Director
----------------------
William E. Borsari
/s/ C. Preston Butcher Director
----------------------
C. Preston Butcher
/s/ L. Michael Foley Director
--------------------
L. Michael Foley
/s/ Roger P. Kuppinger Director
----------------------
Roger P. Kuppinger
/s/ Gregory M. Simon Director
--------------------
Gregory M. Simon
/s/ Arthur G. von Thaden Director
------------------------
Arthur G. von Thaden
II-5
<PAGE>
BRE PROPERTIES, INC.
EXHIBIT INDEX
to Registration Statement on Form S-3
<TABLE>
<CAPTION>
Exhibit Exhibit Location
------- ------- --------
Number
------
<S> <C> <C>
2.1 Contribution Agreement dated as of September 29, 1997, as amended between
the Company, BRE Property Investors LLC and the TCR Signatories (1)
4.1 Amended and Restated Articles of Incorporation (2)
4.2 Articles of Amendment (3)
4.3 Bylaws (4)
4.4 Rights Agreement between the Company and Bank of America, N.T. & S.A., dated
as of August 14, 1989 (5)
4.5 Supplement to Rights Agreement between the Company and Chemical Trust
Company of California dated as of July 30, 1992 (6)
4.6 Registration Rights Agreement among the Company, BRE Property Investors LLC
and the other signatories thereto dated November 18, 1997 Contained herein
4.7 Specimen Certificate for Common Stock of the Company (7)
5 Opinion of Farella Braun & Martel LLP regarding the validity of
the Common Stock being registered Contained herein
8 Opinion of Farella Braun & Martel LLP regarding tax matters Contained herein
23.1 Consent of Farella Braun & Martel LLP (included as part of
Exhibits 5.1 and 8)
23.2 Consent of Ernst & Young LLP Contained herein
24 Power of Attorney (see page II-5)
</TABLE>
___________
(1) Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's current
report on Form 8-K filed November 24, 1997.
(2) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on March 15, 1996.
(3) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(4) Incorporated by reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-4 (No. 33-65365), filed with the Securities and
Exchange Commission on December 22, 1995, as amended.
(5) Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated August 14, 1989.
(6) Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(7) Incorporated by reference to Exhibit 4.11 to the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
II-6
<PAGE>
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of November 18, 1997 by and among BRE Properties, Inc., a
Maryland corporation (the "Company"), BRE Property Investors LLC, a Delaware
limited liability company (the "Operating Company"), and the parties set forth
in Exhibit A attached hereto.
---------
WHEREAS, the Company, the Operating Company and certain
contributors identified on Schedule A thereto (the "Contributors"), have entered
into a Contribution Agreement, dated as of September 29, 1997 (the "Contribution
Agreement"), pursuant to which, among other things, the Contributors, the
Company and the Operating Company have agreed to combine their properties and
related assets;
WHEREAS, pursuant to the Contribution Agreement, the Company
has agreed to issue shares of common stock of the Company (the "Company Shares")
to certain of the Contributors, Contributing Partners and Distributees (as such
terms are defined in the Contribution Agreement) (the Contributors, Contributing
Partners and Distributees being referred to herein collectively as the
"Investors"), and the Operating Company has agreed to issue units of membership
interest of the Operating Company (the "Units") to certain of the Investors;
WHEREAS, the Units are convertible, at any time after one year
following issuance, into Company Shares or, at the option of the Company, cash,
as set forth in the Operating Company's Limited Liability Company Agreement (the
"LLC Operating Agreement"); and
WHEREAS, in order to permit the Investors to freely offer and
sell the Company Shares that may be issued upon conversion of Units upon or
after the date hereof and to permit the Investors to freely offer and sell the
Company Shares that they receive pursuant to the Contribution Agreement, the
Company has agreed to provide the Investors with the registration rights
provided herein.
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
ARTICLE 1. Registration Rights.
-------------------
The Investors shall be entitled to registration of their
Registrable Shares under the Securities Act of 1933, as amended (the "Securities
Act"), upon and subject to the terms and conditions set forth herein (the
"Registration Rights"). As used herein, the term "Registrable Shares" means the
Company Shares issued to the Investors pursuant to the Contribution Agreement
and the Company Shares issued to the Investors upon conversion or exchange of
Units, excluding (i) any Company Shares that have been sold or otherwise
disposed of by an
<PAGE>
Investor under a Registration Statement (as hereinafter defined) or other
effective registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act, (ii) any Company Shares that are eligible for sale
pursuant to Rule 144(k) under the Securities Act, which are held by any Investor
(or permitted assignee) who is not an affiliate of the Company within the
meaning of Rule 144 (a "Rule 144 Affiliate"), and (iii) any Company Shares held
by any Investor (or permitted assignee) who is a Rule 144 Affiliate if all of
such Company Shares are eligible for sale pursuant to Rule 144 under the
Securities Act and could be sold within a period of three months in accordance
with the volume limitations contained in Rule 144(e)(1).
Section 1.1 Initial Registrations.
---------------------
(a) Company Shares Issued Upon Conversion of Units. Within
----------------------------------------------
six (6) months after the date hereof or at such later date as may be appropriate
under applicable rules or regulations of the Securities and Exchange Commission
(the "SEC") but in all events within eleven (11) months following the date
hereof, the Company shall cause to be filed with the SEC a registration
statement ("Registration Statement") under Rule 415 of the Securities Act and
related prospectus ("Prospectus") that comply in all material respects with
applicable SEC rules providing for registration under the Securities Act of the
offer and sale by the Investors of the total number of Registrable Shares that
the Investors would own if they were to convert all Units owned by them, for
which a sale by such Investors has not been consummated. The Company shall
(subject to Section 1.6 hereof) use its best efforts to cause the Registration
Statement to be declared effective by the SEC as soon as practicable. So long as
any Company Shares issuable upon conversion of Units remain Registrable Shares,
the Company shall (subject to Section 1.6 hereof) use its reasonable efforts to
keep the Registration Statement pursuant to this paragraph effective until the
earlier of (i) such time as Form S-3 (or similar successor form of registration
statement) is not available to the Company for registration of the Registrable
Shares (the "S-3 Expiration Date") or (ii) the last to occur of (a) the tenth
anniversary of the effectiveness thereof or (b) the first date upon which at
least ten percent (10%) of the Units issued to the Investors under the terms of
the Contribution Agreement are no longer outstanding.
(b) Company Shares Issued the Pursuant to the Contribution
------------------------------------------------------
Agreement. The Company shall cause to be filed with the SEC, no later than ten
- ---------
(10) Business Days after the date hereof, a Registration Statement under Rule
415 of the Securities Act and related Prospectus that comply in all material
respects with applicable SEC rules providing for registration under the
Securities Act of the offer and sale by the Investors of all Registrable Shares
received by them pursuant to the Contribution Agreement. The Company shall
(subject to Section 1.6 hereof) use its best efforts to cause such Registration
Statement to be declared effective by the SEC as soon as practicable. So long as
any Company Shares received pursuant to the Contribution Agreement remain
Registrable Shares, the Company shall (subject to Section 1.6 hereof) use its
reasonable efforts to keep the Registration Statement pursuant to this paragraph
effective with respect to all, and not less than all, of such Company Shares
(and will not permit the registration of any securities of the Company other
than Registrable Shares under such Registration Statement), until the earlier of
(i) the S-3 Expiration Date or (ii) the second anniversary of the effectiveness
thereof (the "Two Year Expiration Date"); provided, however, that solely with
respect to any Registrable Shares issued pursuant to the Contribution Agreement
to The Prudential Insurance
2
<PAGE>
Company of America ("Prudential"), the Two Year Expiration Date shall
automatically and without lapse or any action of the parties be extended to and
through the first date upon which counsel for the Company reasonably acceptable
to Prudential advises the Company in writing (a copy of which is delivered to
Prudential) that all Registrable Shares then owned by Prudential may be disposed
of in a single transaction without registration pursuant to Rule 144(e)(1) or
144(k) of the Securities Act.
Section 1.2 Registration Rights if Form S-3 is Not Available. The
------------------------------------------------
following provisions shall apply with respect to Registrable Securities held by
Investors during the period, if any, beginning on the date of the occurrence of
an S-3 Expiration Date and ending on the date when the Company would no longer
be obligated to maintain the applicable Registration Statement in effect
pursuant to the terms of Section 1.1 but for the occurrence of the S-3
Expiration Date (the "Supplemental Rights Period"). During the Supplemental
Rights Period, the Investors shall have the following rights:
(a) Demand Right. Investors may make a written request for
------------
registration under the Securities Act of all or part of its or their Registrable
Shares (a "Demand Registration"); provided, however, that (i) the Company shall
not be obligated to effect more than one Demand Registration for Investors other
than Prudential in any twelve month period and with respect to Prudential more
than one Demand Registration in any twelve month period (subject, however, to
Prudential's right to request a second Demand Registration within such twelve
month period with respect to Registrable Securities held by it as provided in
the last sentence of this subsection 1.2(a)), (ii) the number of Registrable
Shares proposed to be sold by the Investors making such written request shall
have an estimated market value at the time of such request (based upon the then
market price of a Company Share) of at least $10,000,000 and (iii) an Investor
shall be entitled to make or join in a maximum of two Demand Registrations.
Subject to the foregoing, the number of Demand Registrations which may be made
during the Supplemental Rights Period pursuant to this Section 1.2(a) shall be
unlimited. The Company shall (subject to Section 1.6 hereof) file any
registration statement required by this paragraph with the SEC within thirty
(30) days of receipt of the requisite Investor request and shall use its
reasonable efforts to cause such registration statement to be declared effective
by the SEC as soon as practicable thereafter. The Company shall (subject to
Section 1.6 hereof) use its reasonable efforts to keep each such registration
statement filed hereunder continuously effective for a period of 90 days, unless
such offering is an underwritten offering and the managing underwriter requires
that the registration statement be kept effective for a longer period of time,
in which event for such longer period up to 120 days (such period, in each case,
to be extended by the number of days, if any, during which Investors were not
permitted to make offers or sales under such registration statement by reason of
Section 1.6). The Company may elect to include in any such registration
statement additional Common Shares to be issued by the Company subject, in the
case of an underwritten secondary Demand Registration, to cutback by the
managing underwriters. A registration shall not constitute a Demand Registration
under this Section 1.2(a) until it has been declared effective. Notwithstanding
the foregoing, Prudential may request a second Demand Registration within a
twelve month period (subject to the $10,000,000 limitation set forth above)
provided that the Company shall not be obligated to file a registration
statement pursuant to any such Demand Registration within six months after the
3
<PAGE>
effective date of any earlier registration statement filed by the Company so
long as Prudential was given a notice offering it the opportunity to sell its
Registrable Shares under the earlier registration statement and Prudential did
not request that all of its Registrable Shares be included; provided, however,
that this limitation shall not apply if Prudential requested that all or a part
of its Registrable Shares be included in the earlier registration statement but
not all or such part were so included due to no fault of Prudential.
(b) Piggyback Rights. If the Company at any time during the
----------------
Supplemental Rights Period proposes to file a registration statement under the
Securities Act with respect to an offering of Company Shares solely for cash
(other than under a shelf Registration Statement filed pursuant to Section 1.1
hereof or a registration statement (i) on Form S-8 or any successor form to such
Form or in connection with any employee or director welfare, benefit or
compensation plan, (ii) in connection with a rights offering exclusively to
existing holders of Common Shares or an offering solely to employees of the
Company or its subsidiaries or (iii) relating to a transaction pursuant to Rule
145 of the Securities Act) the Company shall give written notice of the proposed
registration to the holders of Registrable Shares not later than the earlier to
occur of (i) the fifth day following receipt by the Company of notice of
exercise of any Demand Registration or (ii) thirty (30) days prior to the filing
thereof. The holders of Registrable Shares shall have the right to request that
all or any part of the Registrable Shares be included in the registration by
giving written notice to the Company within fifteen (15) days after the giving
of the notice by the Company; provided, however, that (A) if the registration
-------- -------
relates to an underwritten primary offering on behalf of the Company and the
managing underwriters of the offering determine in good faith that the aggregate
amount of securities of the Company which those holders and the Company propose
to include in the registration statement exceeds the maximum amount of
securities that could practicably be included therein, the Company will include
in the registration, first, the securities which the Company proposes to sell,
second, pro rata, the Registrable Shares of the Investors, and third, pro rata,
the securities of any subsequent holders of other piggyback registration rights,
and (B) if the registration is an underwritten secondary registration on behalf
of any security holders of the Company (including Investors holding Registrable
Shares) and the managing underwriters determine in good faith that the aggregate
amount of securities which the holders of Registrable Shares and such security
holders propose to include in the registration exceeds the maximum amount of
securities that could practicably be included therein, the Company will include
in the registration, first, the securities to be sold for the account of those
holders who demanded the registration, second, pro rata, the Registrable Shares
of those Investors who did not exercise their demand registration rights and
third, pro rata, other securities to be sold for the account of other holders
electing to include securities in the registration. (It is understood, however,
that the underwriters shall have the right to terminate entirely the
participation therein of the holders of Registrable Shares if the underwriters
eliminate entirely the participation in the registration of all the other
holders electing to include (but not being entitled to demand inclusion of)
securities in the registration because it is not practicable to include such
securities in the registration.) If the registration is not an underwritten
registration, then all of the Registrable Shares requested to be included in the
registration shall be included. Registrable Shares proposed to be registered and
sold pursuant to an underwritten offering for the account of the holders of
Registrable Shares shall be sold to prospective underwriters selected by such
holders and approved by the Company and on the
4
<PAGE>
terms and subject to the conditions of one or more underwriting agreements
negotiated between the Company, the holders of Registrable Shares and any other
holders demanding registration and the prospective underwriters. Registrable
Shares need not be included in any Registration Statement pursuant to this
provision if in the opinion of counsel to the Company reasonably acceptable to
the holders of Registrable Shares (a copy of which opinion is delivered to such
holders) registration under the Securities Act is not required for public
distribution of the Registrable Shares without limitation as to number or
volume.
(c) Company Purchase. Upon receipt by the Company of a
----------------
registration request pursuant to this Section 1.2, the Company may, but is not
obligated to, purchase from any Investor so requesting registration all, but not
less than all, of the Registrable Shares which are the subject of the request at
a price per share equal to the average closing prices of the Common Shares for
the five trading days immediately preceding the date of the registration
request. In the event the Company elects to purchase the Registrable Shares
which are the subject of request, the Company shall notify the Investor within
five business days of the date of receipt of the request by the Company, which
notice shall indicate: (i) that the Company will purchase the Registrable Shares
held by the Investor which are the subject of the request, (ii) the price per
Share, calculated in accordance with the preceding sentence, which the Company
will pay the Investor and (iii) the date upon which the Company shall repurchase
such Shares, which date shall not be later than the tenth business day after
receipt of the request relating to such Shares. If the Company so elects to
purchase the Shares which are the subject of a registration request made
pursuant to this Section 1.2, then upon such purchase the Company shall be
relieved of its obligations under subsections 1.2(a) and (b) with respect to
such Shares or as a result of the registration notice.
Section 1.3 Additional Registration Procedures.
----------------------------------
(a) The Company will provide to Investors a reasonable number
of copies of any final Prospectus and any amendments or supplements thereto.
(b) The Company will use its reasonable efforts to register or
qualify the Registrable Shares under such other securities or blue sky laws of
such jurisdictions as any Investor reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable in connection
with the disposition of the Registrable Shares owned by that Investor; provided
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this subparagraph, (ii) subject itself to taxation in any such jurisdiction,
(iii) consent to general service of process in any such an jurisdiction, or (iv)
qualify Registrable Shares in a given jurisdiction where qualification would
require the Company to register as a broker or dealer in that jurisdiction.
(c) In accordance with Section 7.9 of the Contribution
Agreement, the Company will cause all Registrable Shares to be listed on each
securities exchange on which similar securities issued by the Company are listed
and to be qualified for trading on each system on which similar securities
issued by the Company are from time to time qualified.
5
<PAGE>
Section 1.4 Cooperation. Each Investor agrees to provide in a timely
-----------
manner information regarding the proposed distribution by that Investor of the
Registrable Shares and all other information reasonably requested by the Company
in connection with preparation of and for inclusion in the Registration
Statement.
Section 1.5 Additional Shares. The parties agree that any Registration
-----------------
Statement may register shares that are not Registrable Shares but are Company
Shares held by others, or to be issued to others, subject, however, to the terms
and conditions of this Agreement.
Section 1.6 Suspension of Offering. Notwithstanding the foregoing
----------------------
provisions of this Agreement, the Company shall not be required to file a
Registration Statement or to keep the Registration Statement effective if the
negotiation or consummation of a transaction by the Company or its subsidiaries
is pending or an event has occurred, which negotiation, consummation or event
would require additional disclosure by the Company in the Registration Statement
of material information which the Company (in the judgment of its Board of
Directors, President or Chief Executive Officer) has a bona fide business
---- ----
purpose for keeping confidential and the nondisclosure of which in the
Registration Statement might cause the Registration Statement to fail to comply
with applicable disclosure requirements; provided, however, that the Company (i)
-------- -------
will promptly notify the holders of Registrable Shares otherwise entitled to
registration of each such determination and (ii) may not delay, suspend or
withdraw the Registration Statement for such reason more than twice in any
twelve (12)-month period or three times in any twenty-four (24) month period or
for more than sixty (60) days at any one time. Upon receipt of any notice from
the Company of the happening of any event during the period the Registration
Statement is effective which is of a type specified in the preceding sentence or
as a result of which the Registration Statement or related Prospectus contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made (in the case of the
Prospectus) not misleading, Investors agree that they will immediately
discontinue offers and sales of the Registrable Shares under the Registration
Statement until Investors receive copies of a supplemented or amended Prospectus
that corrects the misstatement(s) or omission(s) referred to above and receive
notice that any post-effective amendment has become effective. If so directed by
the Company, Investors will deliver to the Company any copies of the Prospectus
covering the Registrable Shares in their possession at the time of receipt of
such notice.
Section 1.7 Expenses. The Company shall pay all expenses incident to
--------
the performance by it of its obligations under this Agreement, including (i) all
SEC or stock exchange registration, listing and filing fees, (ii) all expenses
incurred in connection with the preparation, printing and distributing of any
Registration Statement and Prospectus and any amended or supplemental
Prospectus, and (iii) fees and disbursements of counsel for the Company and of
the independent public accountants of the Company (including, without
limitation, comfort letters). Investors shall be responsible for the payment of
any and all other expenses incurred by them in connection with the conversion of
their Units and sale of their Registrable Shares, including, without limitation,
brokerage and sales commissions, underwriting discounts, fees and disbursements
of counsel representing any Investors, and any transfer taxes relating to the
sale or disposition of the Registrable Shares by Investors.
6
<PAGE>
ARTICLE 2. Indemnification; Contribution.
-----------------------------
Section 2.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Investor, its officers and directors and each
person, if any, who controls any Investor within the meaning of Section 15 of
the Securities Act as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto) pursuant to which the Registrable Shares were registered
under the Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (or any amendment or supplement
thereto), including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company, which shall not be unreasonably withheld; and
(c) subject to the limitations set forth in Section 2.3,
against any and all expense whatsoever, as incurred (including reasonable fees
and disbursements of counsel), reasonably incurred in investigating, preparing
or defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, in each case whether or
not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (a) or (b) above;
provided however, that the indemnity provided pursuant to this Section 2.1 does
- -------- -------
not apply to any Investor with respect to any loss, liability, claim, damage or
expense that arise out of or are based upon (x) any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by that Investor
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amended or supplement thereto) or (y) that Investor's
failure to deliver an amended or supplemental Prospectus provided by the Company
if such loss, liability, claim, damage or expense would not have arisen had such
delivery occurred.
Section 2.2 Indemnification by Investors. Each Investor agrees to
----------------------------
indemnify and hold harmless the Company, and each of its directors and officers
(including each director and officer of the Company who signed the Registration
Statement), and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act, to the same extent as the
7
<PAGE>
indemnity contained in Section 2.1 hereof (except that any settlement described
in Section 2.1(b) shall be effected with the written consent of the Investor,
which shall not be unreasonably withheld), but only insofar as such loss,
liability, claim, damage or expense arises out of or is based upon (x) any
untrue statement or omission, or alleged untrue statement or omission, made in
the Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by that Investor expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) or (y) that Investor's failure to deliver an
amended or supplemental Prospectus provided by the Company if the loss,
liability, claim, damage or expense would not have arisen had such delivery
occurred.
Section 2.3 Conduct of Indemnification Proceedings. Each indemnified
--------------------------------------
party shall give reasonably prompt notice to each indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify the indemnifying party (i) shall not
relieve it from any liability which it may have under the indemnity agreement
provided in Section 2.1 or 2.2 above, unless and to the extent it did not
otherwise learn of such action and the lack of notice by the indemnified party
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) shall not, in any event, relieve the indemnifying party from
any obligations to the indemnified party other than the indemnification
obligation provided under Section 2.1 or 2.2 above. If the indemnifying party so
elects within a reasonable time after receipt of notice, the indemnifying party
may assume the defense of the action or proceeding at the indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
--------
however, that, if the defendants in any such action or proceeding include both
- -------
the indemnified party and the indemnifying party and the indemnified party
reasonably determines upon advice of counsel that a conflict of interest exists
where it is advisable for the indemnified party to be represented by separate
counsel or that, upon advice of counsel, there may be legal defenses available
to it which are different from or in addition to those available to the
indemnifying party, then the indemnified party shall be entitled to separate
counsel at the indemnifying party's expense, which counsel shall be chosen by
the indemnified party and approved by the indemnifying party, which approval
shall not be unreasonably withheld; provided, however, it is understood that the
indemnifying party shall not be liable for the fees, charges and disbursements
of more than one separate firm. If the indemnifying party does not assume the
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In that event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party, which shall not be unreasonably withheld. If an
indemnifying party assumes the defense of an action or proceeding in accordance
with this paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in connection
with that action or proceeding except as set forth in the proviso in the second
sentence of this Section 2.3. Unless and until a final judgment that an
indemnified party is not entitled to the costs of defense under the foregoing
provision, the indemnifying party shall reimburse promptly as they are incurred,
the indemnified party's costs of defense.
8
<PAGE>
Section 2.4 Contribution. To provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company and each Investor shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by the indemnity agreement incurred by the Company and each
Investor, in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of the Investor on the other, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Article 2, no Investor shall be required
to pay or contribute any amount in excess of the lesser of (i) the total price
at which the Registrable Shares of that Investor were sold to the public or (ii)
the amount of any damages which that Investor would otherwise have been required
to pay by reason of the untrue statement or omission.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each director
and officer of an Investor and each person, if any, who controls an Investor
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as that Investor, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as the Company.
ARTICLE 3. Miscellaneous.
-------------
Section 3.1 Amendments and Waivers. The provisions of this Agreement
----------------------
may not be amended, modified, supplemented or waived without the written consent
of the Company and Investors holding at least two-thirds (2/3) of the then
outstanding Registrable Shares and Units (on an as-converted basis) combined;
provided, however, that the provisions of this Agreement applicable to
Prudential may not be amended, modified, supplemented or waived without the
written consent of Prudential.
Section 3.2 Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail (return receipt
9
<PAGE>
requested), telex, telecopier, or any courier guaranteeing overnight delivery,
to each Investor at the address indicated on the records of the Company and the
Operating Company and to the Company at the address indicated below:
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, California 94104
Attention: Frank C. McDowell
Phone: (415) 445-6530
Fax: (415) 445-6599
with a copy to:
Farella Braun & Martel LLP
Thirtieth Floor
Russ Building
235 Montgomery Street
San Francisco, California 94109
Attention: Morgan P. Guenther, Esq.
Phone: (415) 954-4400
Fax: (415) 954-4480
All notices and communications shall be deemed to have been duly given:
at the time delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; or at the time
delivered, if delivered by an air courier guaranteeing overnight delivery.
Section 3.3 Assignment; Successors and Assigns. This Agreement and the
----------------------------------
rights granted hereunder may not be assigned by any Investor without the written
consent of the Company; provided, however, that the rights granted hereunder may
-------- -------
be assigned by any Investor in connection with a transfer of Registrable Shares
or Units (i) to any affiliate of such Investor, (ii) to any stockholder,
partner, member or other owner of such Investor, or (iii) to any other Investor.
Any permitted assignee of an Investor hereunder shall be entitled to all of the
benefits of this Agreement and subsequent to its obligations.
Section 3.4 Governing Law. The laws of the State of Maryland shall
-------------
govern all questions concerning the relative rights of the Company and its
shareholders and questions concerning the construction, validity and
interpretation of this Agreement, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Maryland or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Maryland.
Section 3.5 Specific Performance. The parties hereto acknowledge that
--------------------
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at
10
<PAGE>
law or in equity, shall be entitled to compel specific performance of the
obligation of any other party under this Agreement in accordance with the terms
and conditions of this Agreement in any court of the United States or any State
thereof having jurisdiction.
Section 3.6 Severability. If any provision of this Agreement is held
------------
to be illegal, invalid or unenforceable under any current or future law, and if
the rights or obligations of the parties under this Agreement would not be
materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance therefrom. In lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement, a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the parties hereto
request the court or any arbitrator to whom disputes relating to this Agreement
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Section 3.6.
Section 3.7 Descriptive Headings. The descriptive headings of this
--------------------
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 3.8 Entire Agreement. This Agreement is intended by the
----------------
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
Section 3.9 Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first written above.
BRE PROPERTIES, INC.
By /s/ Frank C. McDowell
---------------------------------
Frank C. McDowell
Chief Executive Officer
BRE PROPERTY INVESTORS, LLC
By: BRE PROPERTIES, INC.
Its: Managing Member
By /s/ Frank C. McDowell
---------------------------------
Frank C. McDowell
Chief Executive Officer
<PAGE>
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By /s/ Eugene R. Skaggs
---------------------------------
Name: Eugene R. Skaggs
Title: Vice President
<PAGE>
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By /s/ Paul L. Bordogna
----------------------------------
Paul L. Bordogna
Vice President
<PAGE>
/s/ V. Jay Hiemenz
------------------------------------
V. Jay Hiemenz
<PAGE>
/s/ William W. Thompson
------------------------------------
William W. Thompson
<PAGE>
CROW RESIDENTIAL REALTY
INVESTORS, L.P.
By: Crow Family Inc.
Its: General Partner
By: /s/ Timothy J. Hogan
--------------------------------
Name: Timothy J. Hogan
Title: Vice President
<PAGE>
TCF RESIDENTIAL PARTNERSHIP, LTD.
By: Mill Springs Holdings, Inc.,
Its: General Partner
By: /s/ Timothy J. Hogan
----------------------------
Name: Timothy J. Hogan
Title: Vice President
<PAGE>
LEONARD W. WOOD FAMILY LIMITED
PARTNERSHIP
By: /s/ Leonard W. Wood
---------------------------------
Leonard W. Wood
Its: General Partner
<PAGE>
/s/ J. Ronald Terwilliger
------------------------------------
J. Ronald Terwilliger
<PAGE>
J. RONALD TERWILLIGER GRANTOR TRUST
By: /s/ J. Ronald Terwilliger
---------------------------------
J. Ronald Terwilliger, Trustee
<PAGE>
/s/ Robert M. Hutt
------------------------------------
Robert M. Hutt
<PAGE>
/s/ David J. Elwell
------------------------------------
David J. Elwell
<PAGE>
/s/ Patrick W. Dukes
------------------------------
Patrick W. Dukes
<PAGE>
/s/ Harlan R. Crow
------------------------------
Harlan R. Crow
<PAGE>
/s/ Trammell S. Crow
------------------------------
Trammell S. Crow
<PAGE>
/s/ Jeffrey A. Duke
------------------------------
Jeffrey A. Duke
<PAGE>
/s/ Kevin A. Baldridge
------------------------------
Kevin A. Baldridge
<PAGE>
/s/ Clifford A. Breining
------------------------------
Clifford A. Breining
<PAGE>
CFP RESIDENTIAL, L.P.
By: Crow Family, Inc.
Its:General Partner
By: /s/ Timothy J. Hogan
----------------------------
Timothy J. Hogan
Vice President
<PAGE>
/s/ E. Garth Erdossy
------------------------------
E. Garth Erdossy
<PAGE>
/s/ Randy J. Pace
------------------------------
Randy J. Pace
<PAGE>
/s/ Robert C. Speicher
------------------------------
Robert C. Speicher
<PAGE>
/s/ Robert C. Talbott
------------------------------
Robert C. Talbott
<PAGE>
/s/ Bruce C. Ward
------------------------------
Bruce C. Ward
<PAGE>
SALOMON BROTHERS REAL ESTATE
DEVELOPMENT CORP
By: /s/ John P. Buza
----------------------------
Name: John P. Buza
Title: Vice President
<PAGE>
CROW-WESTERN N.C. HIGHLANDS LIMITED PARTNERSHIP
By: TCF Residential Partnership, Ltd.
Its: Managing General Partner
By: Mill Spring Holdings, Inc.
Its: General Partner
/s/ Timothy J. Hogan
-----------------------------------
By: Timothy J. Hogan
Its: Vice President
<PAGE>
CROW-WESTERN #402 - VALLEJO II LIMITED PARTNERSHIP
By: TCF Residential Partnership, Ltd.
Its: Managing General Partner
By: Mill Spring Holdings, Inc.
Its: General Partner
/s/ Timothy J. Hogan
-----------------------------------
By: Timothy J. Hogan
Its: Vice President
<PAGE>
EXHIBIT A
Kevin A. Baldridge
Clifford A. Breining
Crow Residential Realty Investors, L.P.
CFP Residential, L.P.
Harlan R. Crow
Trammell S. Crow
Patrick W. Dukes
Jeffrey A. Duke
David J. Elwell
E. Garth Erdossy
V. Jay Hiemenz
Robert M. Hutt
J. Ronald Terwilliger Grantor Trust
Leonard W. Wood Family Limited Partnership
The Northwestern Mutual Life Insurance Company
Randy J. Pace
The Prudential Insurance Company of America
RCS Development Corporation
Robert C. Talbott
TCF Residential Partnership Ltd.
J. Ronald Terwilliger
William W. Thompson
Salomon Brothers Real Estate Development Corp
Bruce C. Ward
Crow-Western N.C. Highlands Limited Partnership
Crow-Western #402 - Vallejo II Limited Partnership
<PAGE>
Exhibit 5
[LETTERHEAD OF FARELLA BRAUN & MARTEL, LLP APPEARS HERE]
December 3, 1997
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, CA 94104
Re: Legality of Securities to be Registered; Registration of
3,713,331 Shares of Common Stock on Form S-3 Registration
Statement
---------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for BRE Properties, Inc., a Maryland
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-3 being filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Registration Statement"), on
or about the date hereof, with respect to the offering from time to time by a
certain stockholder named in the Registration Statement (the "Selling
Stockholder") of an aggregate of up to 3,713,331 shares of the Company's Common
Stock, $0.01 par value ("Common Shares"). All capitalized terms not defined
herein shall have the meanings ascribed to them in the Registration Statement.
We have examined the Articles of Incorporation of the Company, as
amended on file with the Maryland State Department of Assessments and Taxation;
the Bylaws of the Company; such records of corporate proceedings of the Company
as we deem appropriate for the purposes of this opinion; and the Registration
Statement and the exhibits thereto.
<PAGE>
BRE Properties, Inc.
December 3, 1997
Page 2
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and the Maryland General
Corporation Law.
Based on the foregoing, we are of the opinion that the Common Shares
have been duly and validly authorized by the Company, and that the Common
Shares, when sold as contemplated in the Registration Statement, will be legally
issued, fully paid and nonassessable.
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references to our firm under the caption "Legal
Matters" and to the inclusion of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Farella Braun & Martel LLP
FARELLA BRAUN & MARTEL LLP
SQS:cu
<PAGE>
Exhibit 8
[LETTERHEAD OF FARELLA BRAUN & MARTEL LLP APPEARS HERE]
December 3, 1997
BRE Properties, Inc.
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104
Re: Registration on Form S-3 of BRE Properties, Inc. (the "Company")
----------------------------------------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3, as amended,
being filed by you on or about December 3, 1997, with the Securities and
Exchange Commission (the "Registration Statement"), you have requested our
opinion regarding whether the Company has been organized in conformity with the
requirements for qualification as a real estate investment trust ("REIT"), and
whether its method of operation has enabled the Company to meet, and will enable
it to continue to meet, the requirements for qualification and taxation as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"). This
opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters as set forth in the
Registration Statement and the registration statement on Form S-3 filed on April
10, 1997 (Registration No. 333-24915), as amended, and the most recent quarterly
report on Form 10-Q filed with the Securities and Exchange Commission (the
"Latest Registration and Report"). In addition, the Company has provided a
representation letter certifying, among other items, that it has elected to be
taxed as a REIT since its formation on May 22, 1970, and that the Company has
operated and will continue to operate in accordance with the method of operation
described in the Registration Statement and the Latest Registration and Report.
Based on such assumptions and representations, it is our opinion the
Company has all legal right, power and authority necessary to qualify as a "real
estate investment trust" under the Code; the Company was reorganized in Delaware
in 1987 and reincorporated in Maryland in 1996; the Company has elected to be
treated as a REIT since its original organization; the
<PAGE>
BRE Properties, Inc.
December 3, 1997
Page 2
Company has qualified as a REIT for its fiscal years ended July 31, 1994 and
July 31, 1995, its short taxable year ended December 31, 1995 and its taxable
year ended December 31, 1996 (the years, to the best knowledge of counsel, that
are still subject to audit by the Internal Revenue Service); the Company is
organized and operates in a manner that will enable it to qualify to be taxed as
a REIT under the Code for its taxable year ending December 31, 1997 and
thereafter, provided the Company continues to meet (through actual annual
operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed by the Code necessary for the Company to
qualify as a REIT. As used in this letter, the term "Company" includes
BankAmerica Realty Investors, a California business trust and predecessor to BRE
Properties, Inc. No opinion is expressed as to any matter not discussed herein.
This opinion is based on various statutory provisions and regulations
promulgated thereunder, in effect on the date hereof, and the interpretations of
such provisions and regulations by the Internal Revenue Service and the courts
having jurisdiction over such matters, all of which are subject to change either
prospectively or retroactively. Also, any variation from the factual statements
set forth in the Registration Statement, the Latest Registration and Report or
the written representations made by the Company in connection with this opinion
may affect the conclusions stated herein. Moreover, the Company's qualification
and taxation as a REIT depends upon the Company's ability to meet, through
actual annual operating results, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, the results
of which will not be reviewed by Farella Braun & Martel LLP. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any one taxable year will satisfy such requirements. We wish to point out that
our opinion is not binding on the Internal Revenue Service and, without limiting
our opinion, we note that there can be no assurance that all of the requirements
for qualification as a REIT for any particular taxable year have in fact been
met until the return for such taxable year has been reviewed by the Internal
Revenue Service or the period for such review has expired.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Farella Braun & Martel LLP
FARELLA BRAUN & MARTEL LLP
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and related Prospectus of BRE Properties,
Inc. for the registration of 3,713,331 Shares of Common Stock, and to the
incorporation by reference therein of our reports dated January 14, 1997 (except
Note 13, as to which the date is February 12, 1997), with respect to the
financial statements and schedule of BRE Properties, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1996, as amended; our report
dated April 22, 1997 with respect to the statement of gross income and direct
operating expenses of Red Hawk Ranch Apartments for the year ended December 31,
1996, included in BRE Properties, Inc.'s Current Report on Form 8-K filed on
April 25, 1997; our report dated February 10, 1997 with respect to the statement
of gross income and direct operating expenses of Promontory Point Apartments for
the year ended December 31, 1996, included in BRE Properties, Inc.'s Current
Report on Form 8-K/A filed on April 23, 1997, as amended; our report dated
December 4, 1996 with respect to the statement of gross income and direct
operating expenses of Foster's Landing Apartments for the year ended December
31, 1995, included in BRE Properties, Inc.'s Current Report on Form 8-K/A filed
on April 23, 1997, as amended; and our report dated October 20, 1997 with
respect to the statement of gross income and direct operating expenses of
Lakeshore Landing Apartments for the year ended December 31, 1996, included in
BRE Properties, Inc.'s Current Report on Form 8-K/A filed on October 30, 1997,
as amended; our report dated November 24, 1997 with respect to the statement of
gross income and direct operating expenses of certain TCR-West multifamily
properties for the year ended December 31, 1996, included in BRE Properties,
Inc.'s Current Report on Form 8-K filed on November 24, 1997, all filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
December 1, 1997
San Francisco, California
