<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1998
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.)
44 MONTGOMERY STREET
SUITE 3600
SAN FRANCISCO, CA 94104-4602
(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.
44 MONTGOMERY STREET
SUITE 3600
SAN FRANCISCO, CA 94104-4602
(415) 445-6530
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
COPY TO:
MORGAN P. GUENTHER, ESQ.
WILLIAM J. MORAN, 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. [ ]
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
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
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 728,929 Shares $27.72 $20,205,912 $5,961
- ---------------------------------------------------------------------------------------------------------------
</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 January 22, 1998.
---------------------
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.
2
<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 JANUARY 27, 1998
PROSPECTUS
728,929 SHARES
BRE PROPERTIES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale of up to 728,929 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 to the Selling
Shareholder in December 1997, in connection with the formation of the Selling
Shareholder as a unit investment trust. 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 a Registration Rights Agreement dated as of December 23, 1997 (the
"Registration Rights Agreement") between the Company and the Selling
Shareholder.
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, Inc. (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
January 26, 1998, the closing sale price of the Common Stock as reported on the
NYSE was $27.38 per share.
1
<PAGE>
-----------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH
UNDER "RISK FACTORS" BEGINNING ON PAGE 7 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 February __ , 1998
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
2
<PAGE>
thereto. For further information regarding the Company and the Shares, reference
is hereby made to the Registration 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.
l. Current Report on Form 8-K filed on December 18, 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., 44 Montgomery Street, Suite 3600, San Francisco, California 94104-4602,
Attn: Charles P. Wingard, Director
3
<PAGE>
of Financial Reporting, telephone number (415)445-6530.
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 of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act, such as those pertaining
to the Company's capital resources, portfolio performance and results of
operations. In addition, the pro forma financial statements and other pro forma
information incorporated by reference in this Prospectus also contain certain
such forward-looking statements. Forward-looking statements involve numerous
risks and uncertainties and should not be relied upon as predictions of future
events. Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma,"
"estimates," or "anticipates" or the negative thereof or other variations
thereof or comparable terminology, or by discussions of strategy, plans or
intentions. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and they may be
incapable of being realized. 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, failure to successfully integrate acquired
properties and operations, risks and uncertainties affecting property
development and construction (including, without limitation, construction
delays, cost overruns, inability to obtain necessary permits and public
opposition to such activities), 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
this 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
Commission pursuant to the Exchange Act.
THE COMPANY
The Company, a Maryland corporation, is a fully integrated real estate
operating company which owns, acquires, develops, rehabilitates and manages
apartment communities in 12 targeted metropolitan markets in the western United
States. As of November 30, 1997, BRE's multifamily portfolio included 73
apartment communities aggregating 18,329 units in California, Arizona,
Washington, Oregon, Nevada, New Mexico, and Utah and eight apartment communities
under development aggregating approximately 2,445 units. See "Recent
Developments." On that date, BRE also owned five commercial and retail
properties and held limited partnership interests in two shopping centers and
one apartment community.
The Company's business objective is to become the preeminent owner,
developer and operator of apartment communities in key growth markets of the
western United States. In furtherance of this objective, the Company implemented
a strategic plan in 1996, many goals of which have been achieved, including
increased liquidity of the Company's common stock, the establishment of internal
property management and the disposition of substantially all non-core assets. In
addition, on November 18, 1997, the Company completed the acquisition of certain
assets and operations of Trammell Crow Residential located in the western United
States ("TCR-West"), which significantly advanced the objectives of the
Company's long-term strategic plan. See "Recent Developments." The Company
believes that its future growth will be supported by the continued
implementation of its long-term strategic plan.
The following table summarizes certain information relating to the
Company's completed apartment communities as of November 30, 1997, after giving
effect to the TCR-West transaction (the "TCR-West Transaction"):
4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER PERCENTAGE OF
METROPOLITAN MARKET(1) PROPERTIES OF UNITS TOTAL UNITS
---------------------- ---------- --------- -------------
<S> <C> <C> <C>
Phoenix 12 3,082 17%
San Francisco Bay Area 9 2,960 16
Los Angeles/Orange County 10 2,352 13
San Diego 9 1,899 10
Tucson 9 1,836 10
Seattle 6 1,673 9
Sacramento 7 1,543 8
Salt Lake City 3 904 5
Las Vegas 4 814 5
Albuquerque 2 646 4
Portland 2 620 3
-- ------ ---
73 18,329 100%
== ====== ===
</TABLE>
- -------
(1) Does not include the Denver metropolitan market where the Company is
currently developing a property.
All of the properties and operations acquired in the TCR-West
Transaction are held through newly-formed or newly-acquired subsidiaries of BRE.
These include BRE Property Investors LLC (the "Operating Company"), a Delaware
limited liability company which acquired properties with a book value of
approximately $429 million, and Blue Ravine Investors LLC ("Blue Ravine"), a
Delaware limited liability company which acquired a single property with a book
value of approximately $30 million. BRE is the sole managing member of the
Operating Company and, as of November 30, 1997, owned approximately a 70% equity
interest therein. The remaining equity interests in the Operating Company (all
of which will be exchangeable at the option of the holders thereof, commencing
on November 18, 1998, into shares of BRE's Common Stock, or, at the option of
BRE, cash in an amount equal to the then market value of such shares of Common
Stock at the time of exchange) are owned by other, non-managing members of the
Operating Company. BRE also holds an approximate 88% equity interest as the sole
managing member in Blue Ravine. The equity interests issued by Blue Ravine will
be exchangeable for shares of Common Stock (or at BRE's option, cash) upon terms
similar to those applicable to the Operating 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. Upon such
merger, the equity interests issued by Blue Ravine will be changed into a like
number of equity interests in the Operating Company. 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 44 Montgomery Street, Suite 3600, San
Francisco, California 94104-4602, and its telephone number is (415) 445-6530.
RECENT DEVELOPMENTS
TCR-WEST TRANSACTION
On November 18, 1997, the Company acquired certain real estate
assets and operations of TCR-West (the "TCR-West Properties") for a purchase
price of approximately $462 million. The acquisition included 17 completed
apartment properties comprising 4,786 units located in California, Arizona, Utah
and New Mexico. The following table sets forth certain information regarding
those properties:
5
<PAGE>
<TABLE>
<CAPTION>
Number of
Property Location Units
-------- -------- -----
<S> <C> <C>
Deer Valley San Rafael, CA 171
Blue Rock Village I Vallejo, CA 280
Blue Rock Village II Vallejo, CA 280
Parkside Village Riverside, CA 304
Parkside Terrace Santa Ana, CA 240
Parkside Court 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 Albuquerque, NM 430
Pinnacle View Albuquerque, NM 216
---
Total 4,786
=====
</TABLE>
In addition, the Company acquired eight apartment properties in various
stages of development. These development properties are expected to include
approximately 2,445 units and are located in Arizona, Colorado, Utah, 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 over 600 new
employees and three regional offices located in Arizona, California and Utah.
Prior to the acquisition, the Company was not engaged in the development and
construction of real estate properties or in the management of properties owned
by third parties.
The total cost of the TCR-West Transaction (including closing costs)
was approximately $462 million. The Company financed the cost of the acquisition
with bank borrowings of approximately $160 million, the issuance of 3,713,331
shares of Common Stock, 2,672,087 units and 152,500 performance units
("Performance OC Units") of the Operating Company and Blue Ravine and assumed
debt of $126 million. Under the terms of the transaction, up to an additional
627,594 development units ("Development OC Units") in the Operating Company,
subject to possible adjustment, may be issued if certain construction goals
related to the Development Properties are met in the future. Pursuant to the
terms of the transaction, the Shares and the OC Units (as defined below) issued
in the transaction were valued at $26.93 per Share and OC Unit. The units of the
Operating Company and Blue Ravine, including the Performance OC Units and the
Development OC Units, are hereinafter sometimes called "OC Units." The OC Units
will be exchangeable, commencing November 18, 1998, at the option of the holders
thereof for shares of Common Stock (at a rate of one share per OC Unit, subject
to adjustment under certain circumstances) or, at BRE's election, into an
equivalent amount of cash based on the value of the Common Stock at the time of
the exchange. Upon the merger of Blue Ravine into the Operating Company, which
is anticipated will occur on or after November 30, 1998, the OC Units issued by
Blue Ravine will be changed into a like number of OC Units of the Operating
Company.
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").
6
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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 and is currently fixed at the London InterBank Offer Rate (LIBOR) plus
0.70%.
TREASURY RATE LOCK AGREEMENT
In anticipation of future financing transactions, the Company entered
into a treasury rate lock agreement with a major financial institution in
November 1997 on a notional amount of $100 million. The agreement, which expires
in February 1998, is intended to reduce the Company's overall exposure to
interest rate changes. The lock rate of 5.9% is based on the yield on November
21, 1997 of a U.S. Treasury Note due August 15, 2007 with a coupon rate of
6.125%. The Company will either receive or pay the difference between the value
of the U.S. Treasury Note at the lock rate compared to the value at the
effective rate at settlement, times the notional amount of $100 million.
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
7
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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 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 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
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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.
Risks of Development, Construction and Acquisition Activities
- -------------------------------------------------------------
Pursuant to the TCR-West Transaction, the Company acquired eight
Development Properties. Prior to the acquisition, the Company was not engaged in
the development and construction of real estate properties.
The Company intends to actively pursue development and construction of
multifamily apartment communities, including the Development Properties. There
can be no assurance that the Company will complete development of the
Development Properties or any other development project which may be undertaken
by the Company. As a general matter, property development and construction
projects typically have a higher, and sometimes substantially higher, level of
risk than the acquisition of existing properties. Risks associated with the
Company's development and construction activities may include the following:
development opportunities may be abandoned; construction costs of a multifamily
apartment communities may exceed original estimates, possibly making the
communities uneconomical; occupancy rates and rents at newly completed
communities may not be sufficient to make the communities profitable; financing
for the construction and development of projects may not be available on
favorable terms or at all; construction and lease-up may not be completed on
schedule; and expenses of operating a completed community may be higher than
anticipated. In addition, new development activities, regardless of whether or
not they are ultimately successful, typically require a substantial portion of
management's time and attention. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations.
The Company also intends to continue actively to acquire multifamily
apartment communities. Acquisitions of multifamily apartment communities entail
risks that investments will fail to perform in accordance with expectations.
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 investment risks associated
with any new real estate investment.
The Company anticipates that future developments and acquisitions will
be financed, in whole or in part, under various construction loans, lines of
credit, other forms of secured or unsecured financing or through the issuance of
additional equity by the Company. The Company expects periodically to review its
financing options regarding the appropriate mix of debt and equity financing.
Equity, rather than debt, financing of future developments or acquisitions could
have a dilutive effect on the interests of existing shareholders of the Company.
If new developments are financed through construction loans, there is a risk
that, upon completion of construction, permanent financing for such communities
may not be available or may be available only on disadvantageous terms or that
the cash flow from new communities will be insufficient to cover debt service.
If a newly developed or acquired community is unsuccessful, the Company's losses
may exceed its investment in the community. Any of the foregoing could have a
material adverse
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effect on the Company and its ability to make distributions to shareholders.
Risks Relating to Acquisition Strategy
- --------------------------------------
Pursuant to the TCR-West Transaction, the Company acquired 17 completed
apartment communities aggregating 4,786 units and eight Development Properties
aggregating approximately 2,445 units. This significant increase in the size of
the Company's operations after the acquisitions will substantially increase the
demands placed upon the Company's management, including demands resulting from
the need to integrate the accounting systems, management information systems and
other operations of TCR-West with those of the Company, and the Company is
unable to predict the effect of acquisitions on its business and results of
operations. Failure to effectively integrate the operations of the acquired
properties with those of the Company could have a material adverse effect on the
Company.
A substantial portion of the Company's growth over the last several
years has been attributable to acquisitions. Further, a principal component of
the Company's strategy is to continue to grow profitably and in a controlled
manner in both existing and new markets by acquiring new properties. The
Company's future growth will be dependent upon a number of factors, including
the Company's ability to identify acceptable acquisition candidates, consummate
acquisitions on favorable terms, successfully integrate acquired businesses,
expand its customer base at existing and acquired locations and obtain financing
to support expansion. There can be no assurance that the Company will be
successful in implementing its acquisition strategy, that growth will continue
at historical levels or at all, or that any expansion will improve operating
results. The failure to identify, acquire and integrate acquired businesses
effectively could adversely affect the Company's operating prospects for future
growth. Any statements included or incorporated by reference in this Prospectus
pertaining to anticipated growth of the Company's funds from operations, its
portfolio, its results from operations or other future growths constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act and there can be no assurance the any such growth will occur.
Restrictions in the Operations of the Operating Company
- -------------------------------------------------------
A substantial portion of the properties acquired in the TCR-West
Transaction are held by the Operating Company, a Delaware limited liability
company. BRE is the sole managing member of the Operating Company and, as of
November 30, 1997, held approximately a 70% equity interest therein. The
remaining equity interest in the Operating Company are held by third parties as
non-managing members.
Under the terms of the limited liability company agreement governing
the operations of the Operating Company (the "LLC Agreement"), the Operating
Company may not, without the consent of a majority in interest of the
non-managing members, (i) dispose of any of its properties in a taxable sale or
exchange prior to dates which are specified in the LLC Agreement for each of the
properties, ranging from one to ten years from November 18, 1997, or (ii)
dissolve the Operating Company other than in certain limited circumstances
specified in the LLC Agreement, such as a sale of all or substantially all of
the Company's assets, or any merger, consolidation or other combination by the
Company with or into another person, or reclassification, recapitalization or
change of the Company's outstanding equity interests. These restrictions on the
Company's ability to dispose of a significant portion of its properties and to
dissolve the Operating Company, even when such a disposition or dissolution of
the Operating Company would be in the best interest of the Company based on then
prevailing business, market or other conditions, could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
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
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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.
Risks Associated with Survey Exceptions to Certain Title Insurance Polices
- --------------------------------------------------------------------------
Because updated surveys of the properties acquired in the TCR-West
Transaction were not obtained prior to closing, the title insurance policies
obtained for the properties contain exceptions for matters which a current
survey would disclose. Such matters might include such things as boundary
encroachments, unrecorded easements or similar matters which would have been
reflected on a survey and, because no updated surveys were prepared for these
properties, there can be no assurance that the title insurance policies in fact
cover the entirety of the real property, buildings, fixtures, and improvements
which the Company believes they cover, any of which 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 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.
Risks of Assumed Liabilities
- ----------------------------
In the TCR-West Transaction, the Company (i) acquired the TCR-West
Properties either by acquiring title to the properties and related assets (plus
assumption of associated contractual obligations of the contributing parties)
or, as to certain TCR-West Properties, by acquiring all of the ownership
interests in the partnerships or limited liability companies which held such
properties, and (ii) assumed certain specified loans secured by the TCR-West
Properties. Under the terms of the transaction, the Company has not expressly
agreed to assume any liabilities other than the assumed loans and the
contractual obligations referenced above. However, as a matter of law, the
Company automatically assumed all of the liabilities (known, unknown or
contingent) of the partnerships or limited liability companies whose ownership
interests were acquired by the Company, potentially including liabilities
unrelated to the properties conveyed pursuant to such transfer. Moreover, even
in cases where title to the properties and related assets (rather than ownership
interests therein) were acquired by the Company, the legal doctrine of successor
liability may give creditors of and claimants
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against the prior owners the right to hold the Company responsible for
liabilities which arose with respect to such properties prior to their
acquisition by the Company, whether or not such liabilities were expressly
assumed by the Company under the terms of the transaction.
As a result of the foregoing, there can be no assurance that the
Company will not be subject to liabilities and claims relating to the TCR-West
Properties, which could have a material adverse effect on the Company and its
ability to make distributions to its shareholders. In that regard, the terms of
the TCR-West Transaction do not provide for the Company to be indemnified
against such liabilities and claims. See "--Limited Indemnification" below.
Limited Indemnification
- -----------------------
The Company acquired the TCR-West Properties on an "as is" basis,
meaning that the properties were acquired without warranty from the sellers. As
a result, the Company has no recourse against the sellers for matters relating
to the properties or the transaction, except to the limited extent described
below.
The terms of the TCR-West Transaction provide the Company with only
limited indemnification with respect to claims or liabilities that might arise
out of the transaction or actions taken by the sellers before the closing.
Specifically, certain Trammell Crow Residential entities and affiliates (the
"TCR Parties") have agreed to indemnify the Company and its affiliates only
against claims arising out of (i) any inaccuracy in the investment
representations of prior owners who contributed the properties or their
ownership interests therein to the Company (the "Contributing Parties") or
certain representations about employment matters, or any failure of a TCR Party
to comply with any agreement with respect thereto, (ii) any breach by a TCR
Party of its fiduciary duties (including duties of disclosure) to any other
person in connection with the transaction, and (iii) any document filed by a
Contributing Party or any affiliate with a governmental agency or prepared or
distributed in connection with the transaction (including any document
distributed in connection with the solicitation of consents for the
transaction). The Company has no recourse against the TCR Parties or the
Contributing Parties with respect to any claims which are not within the
specific coverage of the indemnity provisions. In addition, in the event that
the Company is entitled to indemnification, the terms of the TCR-West
Transaction significantly limit the amount which the Company would be entitled
to recover. Specifically, the Company's sole recourse under a claim for
indemnity is the right to reduce the number of Development OC Units which the
Company might otherwise have been required to deliver.
The Development OC Units are equity interests in the Operating Company
which will be issued to the Contributing Parties to the extent that certain
completion schedule and budget objectives are met for the Development
Properties. The Development OC Units will be exchangeable for a like number of
shares of Common Stock or, at the Company's election, cash, and have a maximum
value of approximately $16.9 million (based upon an assumed value of $26.93 per
share of Common Stock). See "Recent Developments -- TCR-West Transaction,"
above. The Company currently anticipates that all of the Development OC Units
will either be awarded or will become ineligible for award by the end of 1999.
Accordingly, there can be no assurance that the amount of any claim for
indemnity will be made at a time when a sufficient amount, or any of Development
OC Units remain available for set-off or that, even if the full number of
Development OC Units is available, that the value of those units will be
sufficient to fully cover the claim for indemnity.
There can be no assurance that the Company will not be confronted in
the future with claims by third parties relating to the TCR-West Transaction or
the activities of the TCR Parties or the Contributing Parties before the closing
of the transaction that are outside the coverage of the indemnity provisions.
Likewise, there can be no assurance that the properties acquired in the TCR-West
Transaction will meet the Company's expectations. Accordingly, the limited scope
of the indemnification could have a material adverse effect on the Company and
its ability to make distributions to shareholders. See "-- Risks of Assumed
Liabilities," above.
The Company has also provided a limited indemnity to the Contributing
Parties. Under the terms of the transaction, the Company has agreed to indemnify
the Contributing Parties and their affiliates against claims arising out of (i)
any inaccuracy in certain representations made by the Company about the
registration rights it has agreed to provide to Contributing Parties who become
shareholders of the Company or unitholders of the Operating Company or
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<PAGE>
another subsidiary of the Company, or any failure by the Company to fulfill its
obligations under terms of the transaction, and (ii) any material inaccuracy in
an information statement provided by the Company to the Contributing Parties.
The Company's indemnification obligations are limited to an amount equal to the
value of the remaining Development OC Units outstanding from time to time.
Notwithstanding the limit upon the Company's indemnification obligations, if
claims within the coverage of the indemnity provisions were brought against the
Company, there is no assurance it would not be required to incur costs in
defending against or satisfying the claims, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
Potential Litigation Related to the TCR-West Transaction
- --------------------------------------------------------
Over the last several years, business reorganizations involving the
conversion of partnerships into REITs, the combination of several partnerships
into a single entity and the combination of multiple REITs into a single REIT
have occasionally given rise to investor lawsuits. If any lawsuits were filed in
connection with the TCR-West Transaction, such lawsuits could require the
Company to incur costs of defending such lawsuits or result in claims or
liabilities against the Company, any of which could have a material adverse
effect on the Company and its ability to make distributions to shareholders.
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 Stock to demand a higher
yield on their shares from distributions by the Company, which could adversely
affect the market price for the Common Stock.
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.
13
<PAGE>
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 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.
RISKS OF FEE MANAGEMENT BUSINESS
Possible Termination of Management Contracts.
- ---------------------------------------------
As part of the TCR-West Transaction, the Company also acquired
TCR-West's third-party management operation. A wholly-owned subsidiary of the
Company (the "Management Company") was organized to undertake this operation.
Risks associated with the management of properties owned by third
parties include the risk that the management contracts (which are generally
cancelable upon a sale of property or, in many cases, upon 30 days' notice) will
be terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms and that the rental revenues upon
which management fees are based will decline as a result of general real estate
market conditions or specific market factors affecting properties managed by the
Management Company, resulting in decreased management fee income. As a result,
there can be no assurance that the Management Company will perform in accordance
with the Company's expectations.
Possible Adverse Consequences of REIT Status on the Business of the Management
- -------------------------------------------------------------------------------
Company.
- --------
Certain requirements for REIT qualifications may in the future limit
the Company's ability to increase third party management operations conducted
and related services offered by the Management Company without jeopardizing the
Company's qualifications as a REIT. See "Federal Income Tax
Considerations--Third-Party Management Income."
14
<PAGE>
SUBSIDIARY STRUCTURE
All of the Shares offered hereby will be obligations exclusively of the
Company. Because a significant portion of the operations of the Company is
conducted through its subsidiaries, including the Operating Company, the cash
flow of the Company and the consequent ability to make distributions and other
payments on its equity securities, including the Shares, will be dependent upon
the earnings of such subsidiaries and the distribution of those earnings to the
Company, or upon loans or other payments of funds made by such subsidiaries to
the Company. In addition, debt or other agreements of the Company's subsidiaries
may impose restrictions that affect, among other things, the ability of the
Company's subsidiaries to pay dividends or make other distributions or loans to
the Company.
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 Stock has 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 Stock 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 shares of Common Stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Common Stock 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
Stock which offers may be attractive to the shareholders, or (ii) deter
purchases of large blocks of Common Stock, thereby limiting the opportunity for
shareholders to receive a premium for their shares of Common Stock 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). Thus, to the extent Third Party Management Income (as defined
below) represents 5% or more of the Company's gross income in any taxable year,
the Company will not satisfy the 95% income test and may fail to qualify as a
REIT, unless certain relief provisions apply, and, even if those relief
provisions apply, a tax would be imposed with respect to excess net income, any
of which could have a material adverse effect on the Company and its ability to
make distributions to shareholders. See "Federal Income Tax
Considerations--Third Party Management Income" and "Federal Income Tax
Considerations--Income Tests." Additionally, to the extent the Operating Company
or any of the Subsidiary Entities (as defined in "Federal Income Tax
Considerations--Requirements for Qualification") are determined to be taxable as
a corporation, the Company would not qualify as a REIT, which could have a
material adverse effect on the Company and its ability to make distributions to
shareholders. See "Federal Income Tax Considerations--Federal Income Tax Aspects
of the Operating Company and the Subsidiary Entities." Finally, 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
15
<PAGE>
federal income tax consequences of such qualification.
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 from
the Company in December 1997, in connection with the formation of the Selling
Shareholder as a unit investment trust. The Selling Shareholder was formed to
acquire the shares of nine domestic publicly traded REITs, including the
Company. It is anticipated that the shares of these REITs will be held by the
Selling Shareholder for approximately two years, and then all of such shares,
including the Shares, will be sold in connection with the termination of the
Selling Shareholder, although under certain circumstances they may be sold prior
to such time. The Selling Shareholder has not had a material relationship with
the Company within the past three years other than as a result of the ownership
of the Shares.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OWNED NUMBER OF SHARES OWNED
THE SELLING SHAREHOLDER BENEFICIALLY BEFORE THE NUMBER OF SHARES BENEFICIALLY AFTER THE
OFFERING BEING OFFERED OFFERING
<S> <C> <C> <C>
Legg Mason Unit Investment Trust Series 7, Legg
Mason REIT Trust, December 1997 Series 728,929 728,929 0
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</TABLE>
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 December 31, 1997, there were 41,738,704
shares of Common Stock issued and outstanding. In addition, as of December 31,
1997, there were 2,800,900 shares of Common Stock reserved for issuance upon the
exercise of options under the Company's stock
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<PAGE>
option plans and 1,390,925 shares reserved for issuance under the Company's
Dividend Reinvestment Plan. As of December 31, 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 January 27, 1998, 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 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
17
<PAGE>
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 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
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<PAGE>
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 shareholders 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.
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 year ended July 31, 1995, its short taxable year ended
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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 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
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(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 or a member in
a limited liability company ("LLC"), the REIT Provisions provide that the REIT
is deemed to own its proportionate share of the assets of the partnership or LLC
based on the REIT's capital interest in the partnership or LLC and is deemed to
be entitled to the income of the partnership or LLC attributable to such
proportionate share (unless specifically stated otherwise or the context
otherwise requires, the discussion under this section "Federal Income Tax
Considerations" relating to partnerships and the partners thereof also applies
to LLCs and the members thereof). 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.
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 the Company's taxable years prior to January 1, 1998,
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 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 the Company's taxable years beginning on or
after January 1, 1998, the provision of Prohibited Services by the Company in
connection with a lease of real property will not
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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
Company 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 intends to 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 the Company's taxable years beginning prior to January 1, 1998, any
gross income derived from a prohibited transaction will be 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 the
Management Company, 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 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, is expected to represent less
than 5% of the Company's gross income in any taxable year.
Inadvertent failure to satisfy the 75% and 95% gross income tests may
not disqualify the Company as a REIT if, as discussed above, certain relief
provisions apply. See "--Income Tests."
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
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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.
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
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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 taxable income" ("UBTI")
to such trust unless the trust owns more than ten percent of the Company's
Common Stock, 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 Stock, 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 shares of Common Stock by a Non-U.S. Shareholder generally
will not be subject to United States taxation unless such gain is treated as
"effectively connected" with
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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.
On October 6, 1997, the IRS issued final Treasury Regulations
concerning the withholding of tax and reporting for certain amounts paid to
non-resident individuals and foreign corporations. These new withholding rules
significantly change the current withholding regime. However, in general, these
new rules apply only to payments made after December 31, 1998. Prospective
purchasers should consult their tax advisors concerning the impact, if any, of
these new Treasury Regulations.
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.
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 LLCs as a partnership (as opposed to an
association taxable as a corporation) for federal income tax purposes. Under
recently finalized Treasury Regulations pertaining to entity classification, the
Company believes that the Operating Company and Subsidiary Entities will be
classified as partnerships for federal income tax purposes. Nevertheless, if any
of such partnerships or LLCs were to be treated as a corporation, such entity
would be 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 Company's shareholders. In addition, if the Operating Company or any of the
Subsidiary Entities were to be taxable as a corporation, the Company would not
qualify
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as a REIT, which could have a material adverse effect on the Company and its
ability to make distributions to shareholders.
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).
In general, the Company will be allocated higher amounts of
depreciation deductions for tax purposes than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to the
property-contributing members and the Company will generally be allocated only
its share of capital gains attributable to appreciation, if any, occurring after
the contribution of such assets to the Operating Company. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Company.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Company will cause the Company
to be allocated lower depreciation and other deductions, and possible amounts of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "Annual Distribution Requirements."
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 pursuant to the
"traditional method" as described in the applicable Treasury Regulations. Use of
the "traditional method" may result in distributions to Company shareholders
being comprised of a greater portion of taxable income rather than a return of
capital.
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
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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 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
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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 Company and certain related persons against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed with the Selling Shareholder to use its
reasonable efforts to keep the Registration Statement of which this Prospectus
constitutes a part effective for up to two years following the effective date of
such Registration Statement (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.
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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:
SEC Registration Fee................................................ $ 5,961
NYSE Listing Fee.................................................... ______
Printing and Engraving C............................................ ______
Legal Fees and Expenses............................................. ______
Blue Sky Fees and Expenses.......................................... ______
Accounting Fees and Expenses........................................ ______
Miscellaneous....................................................... ______
Total............................................................... $ ______
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.
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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.
The Company has entered into indemnification agreements with its
directors and officers.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 Amended and Restated Articles of Incorporation (1)
4.2 Articles of Amendment (2)
4.3 Bylaws (3)
4.4 Rights Agreement between the Company and Bank of America, N.T.
& S.A., dated as of August 14, 1989 (4)
4.5 Supplement to Rights Agreement between the Company and Chemical
Trust Company of California, dated as of July 30, 1992 (5)
4.6 Registration Rights Agreement between the Company and Legg Mason
Unit Investment Trust Series 7, Legg Mason REIT Trust, December
1997 Series, dated as of December 23, 1997
4.7 Specimen Certificate for Common Stock of the Company (6)
4.8 Purchase Agreement between the Company and Legg Mason Wood Walker,
Incorporated, dated as of December 18, 1997
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)
- -----------
(1) Incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed on March 15, 1996.
(2) 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.
(3) 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.
(4) Incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated August 14, 1989.
(5) 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.
(6) 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:
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(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(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:
II-3
<PAGE>
(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
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.
II-4
<PAGE>
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 27th
day of January, 1998.
BRE PROPERTIES, INC.
By:
//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 27th
day of January, 1998.
SIGNATURE TITLE
--------- -----
//John McMahan// Director, Chairman of the Board
----------------
John McMahan
//Frank C. McDowell// President, Chief Executive Officer and Director
--------------------- (Principal Executive Officer)
Frank C. McDowell
//LeRoy E. Carlson// Executive Vice President, Chief Financial Officer
-------------------- and Secretary (Principal Financial Officer
LeRoy E. Carlson and Principal Accounting Officer)
//William E. Borsari// Director
----------------------
William E. Borsari
II-5
<PAGE>
SIGNATURE TITLE
--------- -----
//C. Preston Butcher// Director
----------------------
C. Preston Butcher
//L. Michael Foley// Director
--------------------
L. Michael Foley
//Roger P. Kuppinger// Director
----------------------
Roger P. Kuppinger
//Gregory M. Simon// Director
--------------------
Gregory M. Simon
//Arthur G. von Thaden// Director
------------------------
Arthur G. von Thaden
II-6
<PAGE>
BRE PROPERTIES, INC.
EXHIBIT INDEX
TO REGISTRATION STATEMENT ON FORM S-3
EXHIBIT
NUMBER EXHIBIT LOCATION
------- ------- --------
4.1 Amended and Restated Articles of Incorporation (1)
4.2 Articles of Amendment (2)
4.3 Bylaws (3)
4.4 Rights Agreement between the Company and Bank of
America, N.T. & S.A., dated as of August 14, 1989
(4)
4.5 Supplement to Rights Agreement between the Company
and Chemical Trust Company of California, dated as
of July 30, 1992 (5)
4.6 Registration Rights Agreement between the Company
and Legg Mason Unit Investment Trust Series 7, Legg
Mason REIT Trust, December 1997 Series, dated as of
December 23, 1997 Contained herein
4.7 Specimen Certificate for Common Stock of the Company
(6)
4.8 Purchase Agreement between the Company and Legg
Mason Wood Walker, Incorporated, dated as of
December 18, 1997 Contained herein
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 and
8)
23.2 Consent of Ernst & Young LLP Contained herein
24 Power of Attorney (see page II-5)
- -----------
(1) Incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed on March 15, 1996.
(2) 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.
(3) 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.
(4) Incorporated by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated August 14, 1989.
(5) 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.
(6) 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-7
<PAGE>
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of December 23, 1997 by and between BRE Properties, Inc., a
Maryland corporation (the "Company") and Legg Mason Unit Investment Trust Series
7, Legg Mason REIT Trust, December 1997 Series (the "Trust").
WHEREAS, on December 23, 1997, an aggregate of 728,929 shares of the
Company's common stock, $.01 par value (the "Shares"), was deposited into the
Trust; and
WHEREAS, in order to permit the Trust to freely offer and sell the
Shares so acquired, the Company has agreed to provide the Trust 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 Trust shall be entitled to registration of its Registrable
Shares (as defined below) 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
all of the Shares, excluding (i) any Shares that have been sold or otherwise
disposed of by the Trust under the Registration Statement (as hereinafter
defined) or other effective registration statement under the Securities Act or
pursuant to Rule 144 under the Securities Act, and (ii) any Shares that are
eligible for sale pursuant to Rule 144(k) under the Securities Act.
Section 1.1 Registration. The Company shall cause to be filed with
------------
the Securities and Exchange Commission (the "SEC"), no later than forty-five
(45) days after the date hereof, 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
Trust of all Registrable Shares. 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 Shares 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 Shares, 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 second anniversary
of the effectiveness thereof (the "Two Year Expiration Date").
<PAGE>
Section 1.2 Registration Rights if Form S-3 is Not Available. The
------------------------------------------------
following provisions shall apply with respect to Registrable Shares held by the
Trust 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 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 Trust
shall have the following rights:
(a) Demand Right. The Trust may make a written request for
------------
registration under the Securities Act of all or part of its Registrable Shares
(a "Demand Registration"); provided, however, that (i) the Company shall not be
obligated to effect more than one Demand Registration in any twelve month
period, (ii) the number of Registrable Shares proposed to be sold by the Trust
upon written request shall have an estimated market value at the time of such
request (based upon the then market price of a Share) of at least $10,000,000
and (iii) the Trust shall be entitled to make a maximum of two Demand
Registrations. 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 Trust 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 the Trust was 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 shares of its common stock (the "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.
(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 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 Trust not later than thirty (30) days prior to the filing
thereof. The Trust 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 the Trust and the Company propose to include
in the registration statement exceeds the
2
<PAGE>
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 securities of any prior holders
of piggyback registration rights, and third, pro rata, the Registrable Shares of
the Trust, (B) if the registration is an underwritten secondary registration on
behalf of any security holders of the Company (including the Trust) and the
managing underwriters determine in good faith that the aggregate amount of
securities which the Trust, such security holders and any prior holders of
piggyback registration rights 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 securities of any prior holders of piggyback registration rights, third, pro
rata, the Registrable Shares of the Trust, if the Trust did not exercise its
demand registration rights and fourth, 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 Trust if the underwriters
eliminate entirely the participation in the registration of all the other
holders at a parity with the Trust 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 Trust shall be sold to prospective underwriters selected
by such holders and approved by the Company and on the terms and subject to the
conditions of one or more underwriting agreements negotiated between the
Company, the Trust 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 Trust (a copy of which opinion is
delivered to the Trust) 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 the Trust 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 Trust 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 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 Trust and (iii) the date upon
which the Company shall repurchase such Registrable Shares, which date shall not
be later than the tenth business day after receipt of the request relating to
such Registrable Shares. If the Company so elects to purchase the Registrable
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 Registrable
Shares or as a result of the registration notice.
3
<PAGE>
Section 1.3 Additional Registration Procedures.
----------------------------------
(a) The Company will provide to the Trust 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 the Trust 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; 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) 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.
Section 1.4 Cooperation. The Trust agrees to provide in a timely manner
-----------
information regarding the proposed distribution 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 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 Trust if 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
4
<PAGE>
circumstances under which they were made (in the case of the Prospectus) not
misleading, the Trust agrees that it will immediately discontinue offers and
sales of the Registrable Shares under the Registration Statement until it
receives copies of a supplemented or amended Prospectus that corrects the
misstatement(s) or omission(s) referred to above and receives notice that any
post-effective amendment has become effective. If so directed by the Company,
the Trust will deliver to the Company any copies of the Prospectus covering the
Registrable Shares in its 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). The Trust shall be responsible for the payment of
any and all other expenses incurred by them in connection with the sale of the
Registrable Shares, including, without limitation, brokerage and sales
commissions, underwriting discounts, fees and disbursements of counsel
representing the Trust, and any transfer taxes relating to the sale or
disposition of the Registrable Shares by the Trust.
ARTICLE 2. Indemnification; Contribution.
-----------------------------
Section 2.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless the Trust, its trustees and officers and each
person, if any, who controls the Trust 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
5
<PAGE>
(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 the Trust with respect to any loss, liability, claim, damage or
expense that arises out of or is 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 the Trust
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amended or supplement thereto) or (y) the Trust'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 the Trust. The Trust 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 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 Trust, 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 the Trust expressly for use in the Registration Statement (or
any amendment thereto) or the Prospectus (or any amendment or supplement
thereto) or (y) the Trust'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
- -------- -------
6
<PAGE>
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.
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 the Trust shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by the indemnity agreement incurred by the Company and the Trust,
in such proportion as is appropriate to reflect the relative fault of the
Company on the one hand and of the Trust 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, the Trust shall not be
required to pay or contribute any amount in excess of the lesser of (i) the
total price at which the Registrable Shares of the Trust were sold to the public
or (ii) the amount of any damages which the Trust would otherwise have been
required to pay by reason of the untrue statement or omission.
7
<PAGE>
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 trustee
and officer of the Trust and each person, if any, who controls the Trust within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Trust, 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 the Trust.
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 requested), telex, telecopier, or any courier
guaranteeing overnight delivery, to the Trust and to the Company at the address
indicated below:
If to the Trust:
Legg Mason Unit Investment Trust, Series 7
Legg Mason REIT Trust, December 1997 Series
The Bank of New York, Trustee
101 Barclay Street, 17 West
New York, New York 10286
Attention: Jeff Cohen
Phone: (212) 815-3605
Fax: (212) 815-2948
with a copy to:
Chapman & Cutler
111 West Monroe Street
Chicago, Illinois 60603
Attention: Mark J. Kneedy, Esq.
Phone: (312) 845-3000
Fax: (312) 701-2361
If to the Company:
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, California 94104
Attention: Frank C. McDowell
8
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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 are personal to and may not be assigned by the Trust.
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 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
9
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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.
10
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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
LEGG MASON UNIT INVESTMENT TRUST
SERIES 7, LEGG MASON REIT TRUST,
DECEMBER 1997 SERIES
BY: LEGG MASON WOOD WALKER,
INCORPORATED
as sponsor for the
Legg Mason Unit Investment Trust Series 7, Legg
Mason REIT Trust, December 1997 Series
By: /s/ Richard J. Himelfarb
--------------------------
Name: Richard J. Himelfarb
Its: Senior Executive Vice President
11
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Exhibit 4.8
PURCHASE AGREEMENT
December 18, 1997
Legg Mason Wood Walker, Incorporated
As Purchaser
111 Calvert Street
Baltimore, Maryland 21203
Ladies and Gentlemen:
1. INTRODUCTORY. BRE Properties, Inc., a corporation organized under the
laws of the State of Maryland (the "Company"), proposes to issue and sell to you
(the "Purchaser"), pursuant to the terms of this Purchase Agreement
("Agreement"), an aggregate of 728,929 shares of its Common Stock, $0.01 par
value per share (the "Securities") at a price of $26.2028 per share for an
aggregate purchase price of $19,099,980.80. The class of Common Stock, $0.01
par value per share of the Company is sometimes referred to in this Agreement as
"Common Stock".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser, as of the date hereof and as of the Closing Date
(as defined in Section 4), and agrees with the Purchaser that:
(i) (a) The Company has filed with the Securities and Exchange
Commission (the "SEC") all forms, reports, documents and registration statements
(collectively, the "SEC Reports") required to be so filed by it since January 1,
1997, under the Securities Exchange Act of 1934, as amended (together with the
rules and regulations thereunder, the "Exchange Act"). A list of all such SEC
Reports is attached hereto as Exhibit A. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Exchange
Act and none of the SEC Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements (the "Financial Statements") contained in each of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"Form 10-K") and Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 (the "Form 10-Qs") have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods involved (except as otherwise stated
in such financial statements) and present fairly the consolidated financial
position of the Company and its subsidiaries as at the respective dates thereof
and the consolidated statements of income, statements of cash flows and
statements of stockholders' equity of the Company and the subsidiaries for the
periods indicated, subject, in the case of the financial statements contained in
the Form 10-Qs, to normal year-end audit adjustments; provided, however, that
-------- -------
the financial statements in the Company's 10-Qs are based in part on estimates
and include such adjustments as management believes necessary for a fair
presentation of the Company's
<PAGE>
financial position at the dates therein stated and the results of its operations
for the periods then ended; such financial statements and related notes are
condensed and have been prepared in accordance with generally accepted
accounting principles applicable to interim periods, consequently they do not
include all generally accepted accounting disclosures required for more complete
annual financial statements; more complete information with respect to the
Company's financial statements is contained in the footnote disclosures in the
Company's Annual Reports to Shareholders, Forms 10-K and in such 10-Qs.
(b) The statements of gross income and direct operating expenses of
certain acquired properties included in the SEC Reports, together with the
related notes and supporting schedules (if any), present fairly the gross income
and direct operating expenses of such acquired properties or entities as at the
respective dates and for the respective periods therein indicated, and such
financial statements and related notes and supporting schedules have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved, except as may be set forth therein.
(ii) The printer's proof, dated December 18, 1997, of portions of the
Company's Prospectus Supplement and Prospectus delivered to Purchaser is
referred to herein as the "Draft Prospectus." The SEC Reports, together with
the Draft Prospectus are referred to herein collectively as the "Disclosure
Documents." The Draft Prospectus, as of its date, does not include an untrue
statement of material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in the
condition,, financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole, from that set forth in
the Disclosure Documents. Since the respective dates as of which information is
given in the Disclosure Documents (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement), except as otherwise stated
therein or contemplated thereby, (A) there has been no change in the
consolidated capital stock or the consolidated long-term debt of the Company,
(B) there have been no transactions entered into by the Company or any of its
subsidiaries which are material to the Company and its subsidiaries considered
as one enterprise, other than those entered into in the ordinary course of its
business, and (C) except for regular quarterly dividends, there has been no
dividend or distribution of any kind declared, paid or made by the Company on
its shares of capital stock.
(iii) The accountants who have certified the financial statements
and supporting schedules included in the SEC Reports are independent public
accountants as required by the Securities Act of 1933 (together with the rules
and regulations thereunder, the "Securities Act.")
(iv) The pro forma financial statements, together with the related
notes and any supporting schedules, included in the SEC Reports present fairly
the information shown therein, have been prepared on a basis substantially
consistent with the audited
2
<PAGE>
financial statements of the Company set forth therein, the assumptions on which
such pro forma financial statements have been prepared are reasonable and are
set forth in the notes thereto, and such pro forma financial statements have
been prepared, and the pro forma adjustments set forth therein have been
applied, in accordance with the applicable accounting requirements of the
Securities Act, and such pro forma adjustments have been properly applied to the
historical amounts in the compilation of such statements.
(v) As of the date hereof, the authorized capital stock of the Company
consisted of 100,000,000 shares of Common Stock, of which 40,915,323 shares were
issued and outstanding and 10,000,000 shares of preferred stock, none of which
were issued. The shares of issued and outstanding Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable; and none of
the outstanding shares of Common Stock was issued in violation of any preemptive
or other similar rights arising by operation of law, under the charter or by-
laws of the Company, under any agreement or instrument to which the Company or
any of its subsidiaries is a party or otherwise.
(vi) The Company is eligible to use a Form S-3 registration statement
under the Securities Act. The Company is also eligible to use Form S-3 pursuant
to the standards for that Form in effect immediately prior to October 21, 1992.
(vii) Neither the Company nor any of its subsidiaries nor any of
their respective officers or directors has taken nor will any of them take,
directly or indirectly, any action resulting in a violation of Regulation M
under the Securities Act, or designed to cause or result in, or which has
constituted or which reasonably might be expected to constitute, the
stabilization or manipulation of the price of the Securities or facilitation of
the sale or resale of the Securities.
(viii) The shares of Common Stock issued and outstanding as of the
date of this Agreement are listed on the New York Stock Exchange.
(ix) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland; the
Company has power and authority to own, lease and operate its properties and
conduct its business as described in the Disclosure Documents; the Company is
duly qualified as a foreign corporation to transact business and is in good
standing in the States of Arizona, California, Colorado, Nevada, New Mexico,
Oregon, Utah and Washington; the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, except where the failure
to be so qualified or in good standing would not have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect").
3
<PAGE>
(x) Attached hereto as Exhibit B is a true and complete list of all
subsidiaries of the Company and all other corporations, partnerships, joint
ventures, limited liability companies or other entities in which the Company
directly or indirectly owns capital stock or any other equity or ownership
interest. Such Exhibit accurately sets forth the jurisdiction of organization
of, and the Company's approximate percentage ownership interest in, each such
subsidiary and other entity. Such ownership interests are owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity that would or might result
in a Material Adverse Effect. The Company does not have any subsidiaries other
than those listed on such Exhibit.
(xi) Each subsidiary of the Company has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of its
organization, has power and authority to own, lease and operate its property and
conduct its business as described in the Disclosure Documents, and is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, except where the
failure to be so qualified or in good standing would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise.
(xii) The Company and its subsidiaries own or possess or have
obtained all material governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease or own, as the case may
be, and to operate their respective properties and to carry on their respective
businesses as contemplated in the Disclosure Documents.
(xiii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xiv) Neither the Company nor any of its subsidiaries is in violation
of its charter or by-laws, certificate of limited partnership, limited
partnership agreement, certificate of formation of a limited liability company,
limited liability company agreement or other similar organizational
certificates, instruments, agreements or documents (collectively,
"Organizational Documents"), as the case may be; neither the Company nor any of
its subsidiaries is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or any of its property or assets may be bound, except
for such defaults which would not, individually or in the aggregate, have a
material adverse effect on the condition (financial or otherwise) or on the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise; and the execution, delivery and
performance of this Agreement and the sale of the Securities, the consummation
of the transactions contemplated herein and therein, and compliance by the
Company with its obligations hereunder and thereunder, have been duly authorized
by
4
<PAGE>
all necessary corporate action and will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries may
be bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Organizational Documents of the Company or its subsidiaries or
any applicable law, administrative regulation or administrative or court decree;
and no consent, approval, authorization or order of any court or governmental
authority or agency is required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as may be required
under state securities or Blue Sky laws of any jurisdiction or real estate
syndication laws in connection with the purchase of the Securities by the
Purchaser.
(xv) The Company was and is organized to qualify as a "real estate
investment trust" under the Internal Revenue Code of 1986, as amended (the
"Code"); the Company at all times since its organization has elected to be taxed
as a "real estate investment trust"; the Company has qualified as a "real estate
investment trust" under the Code for its taxable years ended July 31, 1994, July
31, 1995, its short taxable year ended December 31, 1995 and its taxable year
ended December 31, 1996; and the Company's present and contemplated operations,
assets and income will enable the Company to meet the requirements for
qualification as a "real estate investment trust" under the Code. United States
Federal income tax returns of the Company have been closed through the fiscal
year of the Company ended July 31, 1993. As used in this paragraph (viii), the
term "Company" includes BankAmerica Realty Investors, a California business
trust and predecessor to BRE Properties, Inc., a Delaware corporation.
(xvi) Each subsidiary of the Company is a "qualified REIT subsidiary"
within the meaning of the Code.
(xvii) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened against or affecting the Company or any
of its subsidiaries, which is required to be disclosed in the SEC Reports or
which might result in a Material Adverse Effect (other than as disclosed in the
Disclosure Documents). There are no contracts or documents of the Company or
any of its subsidiaries which are required to be filed as exhibits to the SEC
Reports which have not been so filed.
(xviii) Neither the Company nor any of its subsidiaries is required
to own or possess any trademarks, service marks, trade names or copyrights in
order to conduct the business now operated by it.
5
<PAGE>
(xix) The Company has full right, power and authority to enter into
this Agreement and to issue and sell the Securities; this Agreement has been
duly authorized, executed and delivered by the Company.
(xx) The Securities that are being purchased by the Purchaser
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Registration Rights Agreement (as hereinafter defined) and under applicable
state and federal securities laws. The form of certificate used to evidence the
Common Stock is in due and proper form and complies with all applicable
statutory requirements.
(xxi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorizations; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Neither the Company nor any of its subsidiaries nor any of their
respective employees or agents has made any payment of funds of the Company or
any of its subsidiaries or received or retained any funds in violation of any
law, rule or regulation which payment, receipt or retention of funds is of a
character required to be disclosed in the SEC Reports.
(xxii) Except as otherwise disclosed in the Disclosure Documents:
(A) the Company and its subsidiaries have good and marketable title in fee
simple to all real property and improvements described in the Disclosure
Documents as being owned by the Company (none of which is leased by the Company
or any of its subsidiaries, as lessee); (B) all liens, charges, encumbrances,
claims or restrictions on or affecting the real property and improvements of the
Company or any of its subsidiaries which are required to be disclosed in the SEC
Reports or which, individually or in the aggregate, would have a Material
Adverse Effect are disclosed in the Disclosure Documents; (C) neither the
Company nor any of its subsidiaries nor any lessee of any portion of the real
property or improvements of the Company or any of its subsidiaries is in default
under any of the leases pursuant to which the Company or any of its subsidiaries
leases (as lessor) its real property or improvements and the Company knows of no
event which, but for the passage of time or the giving of notice, or both, would
constitute a default under any of such leases, except such defaults that would
not, individually or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or on earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise; (D)
no tenant under any of the leases
6
<PAGE>
pursuant to which the Company or any of its subsidiaries leases any of its real
property or improvements has an option or right of first refusal to purchase the
premises demised under such lease; (E) all of the real property and improvements
of the Company and its subsidiaries comply with all applicable codes and zoning
laws and regulations, except for such failures to comply which would not,
individually or in the aggregate, have a Material Adverse Effect; and (F) the
Company has no knowledge of any pending or threatened condemnation, zoning
change or other proceeding or action that would in any manner affect the size
of, use of, improvements on, construction on, or access to any of the real
property of the Company or any of its subsidiaries, except such proceedings or
actions that would not, individually or in the aggregate, have a material
adverse effect on the condition, financial or otherwise, or earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise.
(xxiii) Except as otherwise set forth in the Disclosure Documents,
(A) to the best knowledge and information of the Company, neither the Company
nor any of its subsidiaries has at any time, and no other party has at any time,
handled, buried, stored, retained, refined, transported, processed,
manufactured, generated, produced, spilled, allowed to seep, leak, escape or
leach, or pumped, poured, emitted, emptied, discharged, injected, dumped,
transferred or otherwise disposed of or dealt with Hazardous Materials
(hereinafter defined) on, to or from real property owned, leased or otherwise
utilized by the Company or any of its subsidiaries or in which the Company or
any of its subsidiaries has any ownership interest, including without limitation
any subsurface soils and ground water (the "Premises"), except for such cases as
(u) are not required to be disclosed in the SEC Reports or (v) would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise) or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise, (B)
to the best knowledge and information of the Company, no seepage, leak, escape,
leach, discharge, injection, release, emission, spill, pumping, pouring,
emptying or dumping of Hazardous Materials from or to the Premises has occurred,
except for such cases as (w) are not required to be disclosed in the SEC
Reports, or (x) would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise) or the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, (C) neither the Company nor any of its
subsidiaries has received notice of any claim, or has knowledge of any
occurrence or circumstance which with notice or passage of time or both would
give rise to a claim, under or pursuant to any Environmental Statute (as
hereinafter defined), except for such claims as (y) are not required to be
disclosed in the SEC Reports or (z) would not, individually or in the aggregate,
have a material adverse effect on the condition (financial or otherwise) or the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, and (D) to the best of the Company's
knowledge and information, no part of the Premises is included or proposed for
inclusion on the National Priorities List issued pursuant to CERCLA (hereinafter
defined) by the United States Environmental Protection Agency (the
7
<PAGE>
"EPA") or on the inventory of other potential "problem" sites issued by the EPA
and has not otherwise been identified by the EPA as a potential CERCLA site or
included or proposed for inclusion on any list or inventory issued pursuant to
any other Environmental Statute or issued by any other Governmental Authority
(hereinafter defined). As used herein "Hazardous Material" shall include without
limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, or related
materials, asbestos or any material containing asbestos, or any other substance
or material as defined by any Federal, state or local environmental law,
ordinance, rule or regulation including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et seq.) ("CERCLA"), the Hazardous Materials
-- ---
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource
-- ---
Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and
-- ---
in the regulations adopted and publications promulgated pursuant to each of the
foregoing (individually, an "Environmental Statute") or by any Federal, state or
local governmental authority having or claiming jurisdiction over the Premises
(a "Governmental Authority").
(xxiv) The issuance, sale and private offering of the Securities to
be issued and sold by the Company have been approved by all of the "Continuing
Directors" and do not constitute a "Business Combination" (as such terms are
defined in Article IX of the Company's Articles of Incorporation).
(xxv) To the extent applicable, the Company has complied and will
comply with the provisions of that certain Florida act relating to disclosure of
doing business with Cuba, codified as Section 517.075 of the Florida statutes,
and the rules and regulations thereunder (collectively, the "Cuba Act") or is
exempt therefrom.
(xxvi) The common share purchase rights (the "Rights") issuable
pursuant to the Rights Agreement dated as of August 14, 1989, as supplemented
(the "Rights Agreement"). between the Company and ChaseMellon Shareholder
Services, L.L.C. have been duly authorized by the Company and, when the
Securities are issued by the Company pursuant to this Agreement, the Rights
attached to such Securities will be validly issued.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company, as of the date hereof and as of the
Closing Date, that:
(i) Purchaser is duly organized and validly existing as a corporation
under the laws of the State of Maryland.
(ii) The execution, delivery and performance of this Agreement by
Purchaser, the consummation of the transactions contemplated hereby and the
compliance by Purchaser of its obligations hereunder, have been duly authorized
and approved by all
8
<PAGE>
requisite action of the Purchaser and will not conflict with or constitute a
breach of, or default under, any material contract, indenture, purchase
agreement, or other agreement or instrument to which Purchaser is a party or to
which any of its properties or assets may be bound, nor will such action result
in any violation of the provisions of its articles of incorporation or bylaws or
any applicable law, administrative regulation or administrative or court decree;
and no consent, approval, authorization or order of any court or governmental
authority or agency is required for the consummation by Purchaser of the
transactions contemplated by this Agreement.
(iii) Purchaser has full power and authority to enter into this
Agreement and this Agreement constitutes a valid and legally binding obligation
of Purchaser.
(iv) This Agreement is made with Purchaser in reliance upon
Purchaser's representation to the Company, which by such Purchaser's execution
of this Agreement such Purchaser hereby confirms, that the Securities to be
purchased by Purchaser will be acquired for investment for such Purchaser's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Purchaser further represents that Purchaser does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third party,
with respect to any of the Securities. Notwithstanding the foregoing, the
Company acknowledges that Purchaser may transfer all of the Securities to a unit
investment trust sponsored by Purchaser (the "Trust") which is duly registered
as an "investment company" under the Investment Company Act of 1940, as amended,
upon delivery to the Company by the Trust of representations and warranties
substantially identical to those of the Purchaser set forth in this Section 3,
executed by and on behalf of the Trust.
(v) Purchaser understands that the Securities are not registered under
the Securities Act on the ground that the sale provided for in this Agreement
and the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to section 4(2) thereof, and that the Company's reliance
on such exemption is based on the Purchaser's representations set forth herein.
Purchaser realizes that the basis for the exemption may not be present if,
notwithstanding such representations, the Purchaser has in mind merely acquiring
the Securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. Purchaser has no such intention.
(vi) Purchaser believes it has received all the information it
considers necessary or appropriate for deciding whether to purchase the
Securities. Purchaser further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Securities and the business, properties,
prospects and financial condition of the Company and to obtain additional
information (to the extent the Company possessed such information or
9
<PAGE>
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.
(vii) Purchaser understands that the Securities may not be sold,
transferred or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Securities or an available exemption from
registration under the Securities Act, the Securities must be held indefinitely.
In particular, Purchaser is aware that the Securities may not be sold pursuant
to Rule 144 promulgated under the Securities Act unless all of the conditions of
the Rule are met.
(viii) Each certificate or other document evidencing any of the
Securities shall be endorsed with the legend set forth below, and Purchaser
covenants that, except to the extent such restrictions are waived by the
Company, Purchaser shall not transfer the Securities represented by any such
certificate without complying with the restrictions on transfer described in the
legend endorsed on such certificate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF
ANY STATE, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS
OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION AND QUALIFICATION UNDER FEDERAL AND STATE
SECURITIES LAWS IS NOT REQUIRED.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES
(i) On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company agrees to
issue and sell the Securities to the Purchaser and the Purchaser agrees to
purchase the Securities from the Company at the price indicated in Section 1.
(ii) Delivery to the Purchaser of a certificate for, and payment of
the purchase price for the Securities shall be made at 9:30 A.M., New York City
time, on December 23, 1997, or such other time not later than ten business days
after such date as shall be agreed upon by the Purchaser and the Company (such
time and date of payment and delivery being herein called the "Closing Date") at
the offices of Hunton & Williams, 951 East Byrd Street, Richmond, Virginia,
23219-4074. The Closing Date and the location of the place of closing, the
manner of delivery of, and the form of payment for, the Securities may be varied
by agreement between Purchaser and the Company.
10
<PAGE>
(iii) The certificate for the Securities shall be registered in
Purchaser's name and issued for the full amount of the Securities. Such
certificate shall be made available to you for inspection not later than 9:30
A.M., New York City time, on the business day next preceding the Closing Date.
The certificate in definitive form evidencing the Securities shall be delivered
to you on the Closing Date, with any transfer taxes thereon duly paid by the
Company, for the account of the Purchaser, against payment of the purchase price
therefor by intra-bank transfer or wire transfer of same day funds to such
account as may be designated by the Company at least two business days prior to
the Closing Date.
5. PAYMENT OF EXPENSES. The Company and the Purchaser will each pay
their own expenses incident to the negotiation, preparation and performance of
their respective obligations under this Agreement, whether or not a Closing
shall occur hereunder.
6. CONDITIONS OF PURCHASER'S OBLIGATIONS. The obligations of Purchaser
under Sections 1 and 4(i) of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions:
(i) The representations and warranties of the Company contained
in Section 2 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing.
(ii) The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
(iii) All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
(iv) All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Purchaser's
counsel, which shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
(v) The Company and the Trust shall have entered into the
Registration Rights Agreement substantially in the form attached hereto as
Exhibit C (the "Registration Rights Agreement").
(vi) The Purchaser shall have received from Farella Braun & Martel
LLP, counsel for the Company, an opinion, dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser and its counsel, covering
organization,
11
<PAGE>
qualification and good standing, execution, delivery and performance of this
Agreement and the Registration Rights Agreement, authorization and issuance of
the Securities, qualification as a "real estate investment trust," absence of
litigation, absence of conflicts and required consents.
(vii) (i) Since the date of the latest balance sheet included or
incorporated by reference in the SEC Reports, there shall not have been any
Material Adverse Effect, (ii) other than as set forth in the Disclosure
Documents, no proceedings shall be pending or, to the knowledge of the Company,
after due inquiry, threatened against the Company or any Property before or by
any federal, state or other commission, board or administrative agency, where an
unfavorable decision, ruling or finding could reasonably be expected to result
in a Material Adverse Effect, and on the Closing Date Purchaser shall have
received a certificate dated the Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company, confirming the matters
set forth in paragraph (i) and this paragraph (vii) of this Section 6.
(viii) Purchaser shall have received on the Closing Date an opinion,
dated the Closing Date, of Hunton & Williams, counsel for the Purchaser, in
form and substance satisfactory to Purchaser, as to matters customary in
transactions of this type.
(ix) On the Closing Date Ernst & Young shall have furnished to the
Purchaser a letter, dated the date of its delivery, addressed to the Purchaser
and in form and substance satisfactory to the Purchaser (and to its counsel),
confirming that they are independent public accountants with respect to the
Company and its subsidiaries as required by the Securities Act and with respect
to the financial and other statistical and numerical information contained in
the SEC Reports.
If any condition specified in this Section 6 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Purchaser by
notice to the Company at any time on or prior to the Closing Date, which
termination shall be without liability on the part of any party to any other
party, except that the provisions of Section 5 and Section 8 shall at all times
be effective and shall survive such termination.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligations of the
Company to the Purchaser under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by the Purchaser:
(i) The representations and warranties of the Purchaser contained in
Section 3 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
(ii) All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
12
<PAGE>
8. EFFECTIVE DATE AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall become effective upon execution.
(b) This Agreement may be terminated at any time prior to the Closing
Date by the Purchaser by written notice to the Company if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Disclosure Documents, there has been a Material Adverse Effect, (ii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in Purchaser's judgment, is material and
adverse and would, in Purchaser's judgment, make it impracticable or inadvisable
(x) to commence or continue the offering of the shares of the Trust to the
public or (y) to enforce contracts for the sale of such shares, (iii) the
suspension or material limitation of trading in securities on the New York Stock
Exchange or the American Stock Exchange or material limitation on prices for
securities on either of such exchanges, (iv) (a) the downgrading of any of the
debt securities of the Company or any of its subsidiaries by any "nationally
recognized statistical rating organization" or the announcement by any such
organization of an initial rating with respect to any such securities that is
below the ratings of other such organizations in effect for such securities on
the date hereof, or (b) the public announcement by any such organization that it
has under surveillance or review, with possible negative implications, its
rating of any of such securities, (v) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in Purchaser's opinion would
result in a Material Adverse Effect, (vi) the declaration of a banking
moratorium by either federal or New York State authorities or (vii) the taking
of any action by any federal, state or local government or agency in respect of
its monetary or fiscal affairs which in Purchaser's opinion has a material
adverse effect on the financial markets in the United States.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Purchaser, and
each of the officers, directors and employees of the Purchaser and each person,
if any, who controls the Purchaser within the meaning of the Securities Act or
Section 20 of the Exchange Act against any loss, claim, damage, liability or
expense (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), as incurred, to which the
Purchaser, any officer, director, trustee, employee or controlling person may
become subject, under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of any of the Company, insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based upon any breach of representation, warranty or covenant of the Company
made in this Agreement.
13
<PAGE>
(b) The Purchaser agrees to indemnify and hold harmless the Company and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, against any loss,
claim, damage liability or expense, as incurred, to which any such officer,
director, employee or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Purchaser), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any breach of representation, warranty or covenant of the Purchaser made in this
Agreement.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement thereof,
but the failure so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained in
this Section 9 except to the extent the indemnifying party is materially
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly noticed, by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement
14
<PAGE>
of the action, in each of which cases the fees and expenses of one separate
counsel (together with local counsel) shall be at the expense of the
indemnifying party.
(d) In addition to its other obligations under this Section 9, the
indemnifying parties agree that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any matter described in this Section 9 for which indemnification may
be requested, they will reimburse the indemnified party on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the indemnifying party's obligation to
reimburse the indemnified party for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. Any such interim reimbursement payments that are not made within
thirty (30) days of a request for reimbursement shall bear interest at the prime
rate (or reference rate or other commercial lending rate for borrowers of the
highest credit standing) published from time to time by The Wall Street Journal
(the "Prime Rate") from the date of such request. The indemnifying party under
this Section 9 shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by this Section 9, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement,
compromise or consent to the entry of judgment in any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity was or could have been sought hereunder by such
indemnified party, unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
10. MISCELLANEOUS.
(i) Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
15
<PAGE>
(ii) Survival of Warranties and Representations. Except as
------------------------------------------
otherwise expressly provided herein, all warranties and representations of the
Company and the Purchaser contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing but shall
expire on the second anniversary of the Closing (or except in the case of the
representations and warranties of Purchaser and the Trust set forth in Section
3(iii) to 3(viii) inclusive, on the third anniversary of the Closing), except to
the extent that, prior to the expiration of such two or three year period, as
the case may be, a party has given notice to the other of an alleged breach of
warranty or representation.
(iii) Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(iv) Governing Law. This Agreement shall be governed and
-------------
construed under the laws of the State of New York as applied to agreements among
New York residents entered into and to be performed entirely within New York.
(v) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(vi) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(vii) Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service, addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other party.
(viii) Finders' Fees. Each party represents that it neither is nor
-------------
will be obligated for any finder's or broker's or similar fee or commission in
connection with this transaction.
(ix) Attorneys' Fees. If any action at law or in equity is
---------------
necessary to enforce or interpret the terms of this Agreement or the
Registration Rights Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
16
<PAGE>
(x) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Purchaser.
(xi) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
17
<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
LEGG MASON WOOD WALKER, INCORPORATED
By: /s/ E. J. Bradley, Jr.
-------------------------
Edwin J. Bradley, Jr.
Title: V.P.
-------------------------
Address: 111 Calvert Street
Baltimore, MD 21203
18
<PAGE>
Exhibit A
---------
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.
l. Current Report on Form 8-K filed on December 18, 1997.
19
<PAGE>
Exhibit B
---------
Subsidiaries
------------
<TABLE>
<CAPTION>
Company's
Percentage
Ownership Interest
------------------
<S> <C>
A. Subsidiaries of the Company
---------------------------
1. Corporate Subsidiaries of the Corporation
-----------------------------------------
BRE Camino Seco, Inc., a Delaware corporation 100%
BRE Colonia Del Rio, Inc., a Delaware corporation 100%
BRE Fountain Plaza, Inc., a Delaware corporation 100%
BRE Hacienda Del Rio, Inc., a Delaware corporation 100%
BRE Oracle Village, Inc., a Delaware corporation 100%
BRE Springhill, Inc., a Delaware corporation 100%
Alliance Property Management Company, a Delaware Corporation 100%
BRE Builders, Inc., a Delaware Corporation 100%
2. Partnership Subsidiaries of the Company:
----------------------------------------
Vallejo Highlands Associates, a California limited partnership 100%
Vallejo Somerset Limited Partnership, a Texas limited partnership 100%
ITCR Villa Verde Limited Partnership, a Texas limited partnership 100%
3. Limited Liability Company Subsidiaries of the Company:
------------------------------------------------------
BRE Property Investors LLC, a Delaware limited liability company 73.75%
Blue Ravine Investors LLC, a Delaware limited liability company 88.45%
Palm Shadows LLC, a California limited liability company 100%
Riverview LLC, a California limited liability company 100%
Woodlake Holdings LLC, an Arizona limited liability company 100%
B. Non-Subsidiary Entities in Which the Company Owns an Interest
-------------------------------------------------------------
Westbar Limited Partnership, an Arizona limited partnership 25%
Metro Village Limited Partnership, an Arizona limited partnership 37.5%
Chateau De Ville Apt. Fund Ltd., a California limited partnership 21%
</TABLE>
20
<PAGE>
EXHIBIT C
---------
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of December 23, 1997 by and between BRE Properties, Inc., a
Maryland corporation (the "Company") and Legg Mason Unit Investment Trust Series
7, Legg Mason REIT Trust, December 1997 Series (the "Trust").
WHEREAS, on December 23, 1997, an aggregate of 728,929 shares of the
Company's common stock, $.01 par value (the "Shares"), was deposited into the
Trust; and
WHEREAS, in order to permit the Trust to freely offer and sell the
Shares so acquired, the Company has agreed to provide the Trust 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 Trust shall be entitled to registration of its Registrable
Shares (as defined below) 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
all of the Shares, excluding (i) any Shares that have been sold or otherwise
disposed of by the Trust under the Registration Statement (as hereinafter
defined) or other effective registration statement under the Securities Act or
pursuant to Rule 144 under the Securities Act, and (ii) any Shares that are
eligible for sale pursuant to Rule 144(k) under the Securities Act.
Section 1.1 Registration. The Company shall cause to be filed with
------------
the Securities and Exchange Commission (the "SEC"), no later than forty-five
(45) days after the date hereof, 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
Trust of all Registrable Shares. 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 Shares 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 Shares, 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 second anniversary
of the effectiveness thereof (the "Two Year Expiration Date").
<PAGE>
Section 1.2 Registration Rights if Form S-3 is Not Available. The
------------------------------------------------
following provisions shall apply with respect to Registrable Shares held by the
Trust 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 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 Trust
shall have the following rights:
(a) Demand Right. The Trust may make a written request for
------------
registration under the Securities Act of all or part of its Registrable Shares
(a "Demand Registration"); provided, however, that (i) the Company shall not be
obligated to effect more than one Demand Registration in any twelve month
period, (ii) the number of Registrable Shares proposed to be sold by the Trust
upon written request shall have an estimated market value at the time of such
request (based upon the then market price of a Share) of at least $10,000,000
and (iii) the Trust shall be entitled to make a maximum of two Demand
Registrations. 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 Trust 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 the Trust was 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 shares of its common stock (the "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.
(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 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 Trust not later than thirty (30) days prior to the filing
thereof. The Trust 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 the Trust and the Company propose to include
in the registration statement exceeds the
2
<PAGE>
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 securities of any prior holders
of piggyback registration rights, and third, pro rata, the Registrable Shares of
the Trust, (B) if the registration is an underwritten secondary registration on
behalf of any security holders of the Company (including the Trust) and the
managing underwriters determine in good faith that the aggregate amount of
securities which the Trust, such security holders and any prior holders of
piggyback registration rights 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 securities of any prior holders of piggyback registration rights, third, pro
rata, the Registrable Shares of the Trust, if the Trust did not exercise its
demand registration rights and fourth, 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 Trust if the underwriters
eliminate entirely the participation in the registration of all the other
holders at a parity with the Trust 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 Trust shall be sold to prospective underwriters selected
by such holders and approved by the Company and on the terms and subject to the
conditions of one or more underwriting agreements negotiated between the
Company, the Trust 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 Trust (a copy of which opinion is
delivered to the Trust) 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 the Trust 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 Trust 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 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 Trust and (iii) the date upon
which the Company shall repurchase such Registrable Shares, which date shall not
be later than the tenth business day after receipt of the request relating to
such Registrable Shares. If the Company so elects to purchase the Registrable
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 Registrable
Shares or as a result of the registration notice.
3
<PAGE>
Section 1.3 Additional Registration Procedures.
----------------------------------
(a) The Company will provide to the Trust 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 the Trust 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; 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) 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.
Section 1.4 Cooperation. The Trust agrees to provide in a timely manner
-----------
information regarding the proposed distribution 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 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 Trust if 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
4
<PAGE>
circumstances under which they were made (in the case of the Prospectus) not
misleading, the Trust agrees that it will immediately discontinue offers and
sales of the Registrable Shares under the Registration Statement until it
receives copies of a supplemented or amended Prospectus that corrects the
misstatement(s) or omission(s) referred to above and receives notice that any
post-effective amendment has become effective. If so directed by the Company,
the Trust will deliver to the Company any copies of the Prospectus covering the
Registrable Shares in its 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). The Trust shall be responsible for the payment of
any and all other expenses incurred by them in connection with the sale of the
Registrable Shares, including, without limitation, brokerage and sales
commissions, underwriting discounts, fees and disbursements of counsel
representing the Trust, and any transfer taxes relating to the sale or
disposition of the Registrable Shares by the Trust.
ARTICLE 2. Indemnification; Contribution.
-----------------------------
Section 2.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless the Trust, its trustees and officers and each
person, if any, who controls the Trust 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
5
<PAGE>
(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 the Trust with respect to any loss, liability, claim, damage or
expense that arises out of or is 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 the Trust
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amended or supplement thereto) or (y) the Trust'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 the Trust. The Trust 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 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 Trust, 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 the Trust expressly for use in the Registration Statement (or
any amendment thereto) or the Prospectus (or any amendment or supplement
thereto) or (y) the Trust'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
- -------- -------
6
<PAGE>
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.
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 the Trust shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by the indemnity agreement incurred by the Company and the Trust,
in such proportion as is appropriate to reflect the relative fault of the
Company on the one hand and of the Trust 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, the Trust shall not be
required to pay or contribute any amount in excess of the lesser of (i) the
total price at which the Registrable Shares of the Trust were sold to the public
or (ii) the amount of any damages which the Trust would otherwise have been
required to pay by reason of the untrue statement or omission.
7
<PAGE>
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 trustee
and officer of the Trust and each person, if any, who controls the Trust within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Trust, 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 the Trust.
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 requested), telex, telecopier, or any courier
guaranteeing overnight delivery, to the Trust and to the Company at the address
indicated below:
If to the Trust:
Legg Mason Unit Investment Trust, Series 7
Legg Mason REIT Trust, December 1997 Series
The Bank of New York, Trustee
101 Barclay Street, 17 West
New York, New York 10286
Attention: Jeff Cohen
Phone: (212) 815-3605
Fax: (212) 815-2948
with a copy to:
Chapman & Cutler
111 West Monroe Street
Chicago, Illinois 60603
Attention: Mark J. Kneedy, Esq.
Phone: (312) 845-3000
Fax: (312) 701-2361
If to the Company:
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, California 94104
Attention: Frank C. McDowell
8
<PAGE>
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 are personal to and may not be assigned by the Trust.
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 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
9
<PAGE>
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.
10
<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:
-----------------------
Frank C. McDowell
LEGG MASON UNIT INVESTMENT TRUST
SERIES 7, LEGG MASON REIT TRUST,
DECEMBER 1997 SERIES
BY: LEGG MASON WOOD WALKER,
INCORPORATED
as sponsor for the
Legg Mason Unit Investment Trust Series 7, Legg
Mason REIT Trust, December 1997 Series
By:
--------------------------
Name: Richard J. Himelfarb
Its: Senior Executive Vice President
11
<PAGE>
Exhibit 5
[LETTERHEAD FARELLA BRAUN & MARTEL LLP]
January 27, 1998
BRE Properties, Inc.
44 Montgomery Street
Suite 3600
San Francisco, CA 94104-4602
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 being filed
by you on or about January 27, 1998, 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.
January 27, 1998
Page 2
Company has qualified as a REIT for its fiscal year ended 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 8
[LETTERHEAD FARELLA BRAUN & MARTEL LLP]
January 27, 1998
BRE Properties, Inc.
44 Montgomery Street, Suite 3600
San Francisco, CA 94104-4602
Re: Legality of Securities to be Registered; Registration of
728,929 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 shareholder named in the Registration Statement (the "Selling
Shareholder") of an aggregate of up to 728,929 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.
January 27, 1998
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
<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 of BRE Properties, Inc. for the
registration of 728,929 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 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 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 April 23, 1997, as
amended; 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 October 30, 1997, as amended; and 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
January 23, 1998
San Francisco, California
