<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BRE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 94-1722214
(State of registrant's (I.R.S. Employer
incorporation) Identification No.)
44 MONTGOMERY STREET, SUITE 3600
SAN FRANCISCO, CALIFORNIA 94104-4602
(415) 445-6530
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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LEROY E. CARLSON
CHIEF FINANCIAL OFFICER
BRE PROPERTIES, INC.
44 MONTGOMERY STREET, SUITE 3600
SAN FRANCISCO, CALIFORNIA 94104-4602
(415) 445-6530
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
MORGAN P. GUENTHER, ESQ. ERIC S. HAUETER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP BROWN & WOOD LLP
345 CALIFORNIA STREET 555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104-2635 SAN FRANCISCO, CALIFORNIA 94104-1715
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, as amended (the "Securities Act"), 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
under the Securities Act, please check the following box. [X]
(Continued on following page)
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1)(2) FEE(1)
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<S> <C> <C> <C> <C>
Debt Securities(3)(4).. --
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Preferred Stock(5)..... --
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Depositary
Shares(5)(6).......... $750,000,000 -- $750,000,000 $219,037.88
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Common Stock
Warrants(7)........... --
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Common Stock(5)(8)(9).. --
</TABLE>
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(1) Not specified as to each class of securities to be registered, pursuant to
General Instruction II.D of Form S-3. Securities registered hereby may be
offered for U.S. dollars or the equivalent thereof in foreign currencies,
currency units or composite currencies. Securities registered hereby may
be sold separately, together or in units with other securities registered
hereby. As described elsewhere on the cover page of this Registration
Statement, $7,300,000 proposed maximum aggregate offering price of
securities or, if any such securities are issued at an original issue
discount, such greater amount as may be sold for an aggregate initial
offering price of up to $7,300,000 (or the equivalent thereof in foreign
currencies, currency units or composite currencies), is being carried
forward from Registration Statement No. 333-24915 previously filed by the
Registrant under the Securities Act; a filing fee of $2,212.12 was
previously paid to register such securities under such prior Registration
Statement.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o) of the Securities Act. The proposed maximum
offering price will be determined from time to time by the Registrant in
connection with the issuance by the Registrant of the securities
registered hereunder.
(3) If any Debt Securities are issued at an original issue discount, then such
greater amount as may be sold for an aggregate initial offering price of
up to the proposed maximum aggregate offering price set forth above.
(4) In addition to any Debt Securities that may be issued directly under this
Registration Statement, there is being registered hereunder such
indeterminate amount of Debt Securities as may be issued upon conversion
or exchange of other Debt Securities, Preferred Stock or Depositary
Shares, for which no consideration will be received by the Registrant.
(5) Such indeterminate number of shares of Preferred Stock and Common Stock,
and such indeterminate number of Depositary Shares, as may be issued from
time to time at indeterminate prices. In addition to any Preferred Stock,
Depositary Shares and Common Stock that may be issued directly under this
Registration Statement, there are being registered hereunder such
indeterminate number of shares of Preferred Stock and Common Stock, and
such indeterminate number of Depositary Shares, as may be issued upon
conversion or exchange of Debt Securities, Preferred Stock or Depositary
Shares, as the case may be, for which no separate consideration will be
received by the Registrant.
(6) Depositary Shares will represent fractional interests in shares of
Preferred Stock registered hereby.
(7) Common Stock Warrants will represent rights to purchase Common Stock
registered hereby.
(8) The shares of Common Stock being registered hereunder, if issued prior to
the termination by the Company of its Shareholder Rights Plan, shall
include Common Stock Purchase Rights. Prior to the occurrence of certain
events, the Common Stock Purchase Rights will not be exercisable or
evidenced separately from the Common Stock.
(9) The aggregate amount of Common Stock registered hereunder is limited,
solely for purposes of any at the market offerings, to that which is
permissible under Rule 415(a)(4) of the Securities Act.
Pursuant to Rule 429 under the Securities Act, the prospectus included in
this Registration Statement is a combined prospectus relating also to
Registration Statement No. 333-24915 previously filed by the Registrant under
the Securities Act. This Registration Statement also constitutes post-
effective amendment No. 1 to such Registration Statement No. 333-24915 and
such post-effective amendment No. 1 shall hereafter become effective
concurrently with the effectiveness of this Registration Statement and in
accordance with Section 8(c) of the Securities Act.
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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 SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<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 MARCH 6, 1998
PROSPECTUS
$750,000,000
BRE PROPERTIES, INC.
DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES,
COMMON STOCK WARRANTS AND COMMON STOCK
BRE Properties, Inc. (the "Company") may from time to time offer in one or
more series (i) its unsecured debt securities (the "Debt Securities"), which
may be senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of its Preferred
Stock, $0.01 per share par value ("Preferred Shares"), (iii) depositary shares
("Depositary Shares") representing fractional interests in Preferred Shares,
(iv) warrants ("Common Stock Warrants") to purchase shares of its Common Stock,
$0.01 per share par value ("Common Shares"), or (v) Common Shares, with an
aggregate public offering price of up to $750,000,000, on terms to be
determined at the time or times of offering. The Debt Securities, Preferred
Shares, Depositary Shares, Common Stock Warrants and Common Shares which may be
offered by the Company (collectively, the "Offered Securities"), may be
offered, separately or together, in separate classes or series, in amounts, at
prices and on terms to be set forth in a supplement to this Prospectus (a
"Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Preferred Shares or Common Shares, and the public
offering price; (ii) in the case of Preferred Shares, the specific series,
title and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and the public offering price; (iii) in the case of
Depositary Shares, the whole or fractional Preferred Shares represented by each
such Depositary Share and the public offering price; (iv) in the case of Common
Stock Warrants, the duration, public offering price, exercise price and
detachability features, if applicable; and (v) in the case of Common Shares,
the public offering price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Offered Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for federal
income tax purposes.
The applicable Prospectus Supplement will also contain information, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by that Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names and any applicable purchase price, fee, commission or
discount arrangement will be set forth in or will be calculable from the
information set forth in the applicable Prospectus Supplement. No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of those Offered Securities.
See "Plan of Distribution" for possible indemnification arrangements with
underwriters, dealers and agents.
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
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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.
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The date of this Prospectus is , 1998
<PAGE>
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 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 Shares are listed on the
New York Stock Exchange 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 of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document do not purport
to be complete, and in each instance reference is made to the copy of such
contract or other document filed or incorporated by reference as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Offered Securities, 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.
2
<PAGE>
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.
m. Current Report on Form 8-K filed on February 24, 1998.
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 Offered Securities 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 the applicable Prospectus Supplement) 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 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, California 94104-4602, Attn: Charles Wingard, Director of Financial
Reporting, telephone number (415) 445-6530.
3
<PAGE>
THE COMPANY
BRE Properties, Inc., a Maryland corporation (the "Company" or "BRE"), is a
self-administered and self-managed real estate investment trust which owns,
acquires, develops, rehabilitates and manages apartment communities and other
income producing properties in the western United States. At November 30,
1997, BRE's portfolio included 73 completed apartment communities aggregating
18,329 units, and five commercial and retail properties. Of these properties,
40 were located in California, 21 in Arizona, six in Washington, four in
Nevada, three in Utah, two in Oregon and two in New Mexico. As of that date,
BRE's portfolio also included eight apartment communities under development
aggregating approximately 2,445 units in Arizona, Colorado, New Mexico, Nevada
and Utah. As of November 30, 1997, these properties (excluding properties
under development) contained, in the aggregate, approximately 18.4 million net
rentable square feet of improvements owned by the Company. In addition, at
November 30, 1997, the Company held limited partnership interests in two
shopping centers located in Arizona and one apartment community located in
California. In November 1997, the Company completed the acquisition (the "TCR-
West Transaction") of certain properties (the "TCR-West Properties") and
operations of Trammell Crow Residential located in the western United States
("TCR-West"). A substantial portion of the properties acquired in the TCR-West
Transaction are held by BRE Property Investors LLC (the "Operating Company"),
a Delaware limited liability company, of which the Company is the sole
managing member. 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.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Offered Securities. The
Company cautions the reader that this list of factors does not purport to be
exhaustive.
All references in this Prospectus to shareholders of the Company include
holders of Common Shares and holders of any Preferred Shares and Depositary
Shares which may be issued by the Company, and all references to distributions
to shareholders include dividends and other distributions payable to holders
of Common Shares and any such Preferred Shares and Depositary Shares.
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 and to pay amounts due on its Debt
Securities 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
4
<PAGE>
and to pay amounts due on its Debt Securities may, be adversely affected.
There is also a risk that as leases on the properties expire, residents or
users will vacate or enter into new leases on terms that are less favorable to
the Company. Operating costs, including real estate taxes, insurance and
maintenance costs, and mortgage payments, if any, do not, in general, decline
when circumstances cause a reduction in income from a property. If a property
is mortgaged to secure payment of indebtedness, and the Company is unable to
meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property. In addition, revenues from properties and real
estate values are also affected by such factors as applicable laws, including
tax laws, interest rate levels and the availability of financing.
In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties.
However, no assurance can be given that the Company will have the financial
resources to make suitable acquisitions or that properties that satisfy the
Company's investment policies will be available for acquisition. Acquisitions
of properties entail risks that investments will fail to perform in accordance
with expectations. Such risks may include that construction costs may exceed
original estimates, possibly making a project uneconomical, financing may not
be available on favorable terms or at all and construction and lease-up may
not be completed on schedule. Estimates of the costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are
general real estate investment risks associated with any new real estate
investment. Although the Company undertakes an evaluation of the physical
condition of each new investment before it is acquired, certain defects or
necessary repairs may not be detected until after the investment is acquired,
which could significantly increase the Company's total acquisition costs and
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its Debt
Securities. Any statements included in or incorporated by reference in this
Prospectus or any Prospectus Supplement pertaining to anticipated growth rates
in target markets, anticipated growth in the Company's funds from operations
and anticipated market conditions, demographics or results of operations
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act and there can be no
assurance that such anticipated events or circumstances will be achieved or
will occur due to, among other things, the factors described under "Risk
Factors."
Illiquidity of Real Estate and Reinvestment Risk
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to
changes in economic or other conditions. Additionally, the Internal Revenue
Code of 1986, as amended (the "Code") places certain limits on the number of
properties a 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 and to pay
amounts due on its Debt Securities. 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 and to pay amounts due on its
Debt Securities.
5
<PAGE>
The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged
property. For an exchange of such properties to qualify for tax-free treatment
under Section 1031 of the Code, certain technical requirements must be met.
For example, both the property exchanged and the property acquired must be
held for use in a trade or business or for investment, and the property
acquired must be identified within 45 days, and must be acquired within 180
days, after the transfer of the exchanged property. If the technical
requirements of Section 1031 of the Code are not met, then the exchanged
property will be treated as sold in a taxable transaction for a sales price
equal to the fair market value of the property received, in which event a
distribution of cash to the shareholders may be required to avoid a corporate-
level income tax on the resulting capital gain. Given the competition for
properties meeting the Company's investment criteria, it may be difficult for
the Company to identify suitable properties within the foregoing time frames
in order to meet the requirements of Section 1031. Even if a suitable tax-
deferred exchange can be structured, as noted above, no assurance can be given
that the proceeds of any of these dispositions will be reinvested to produce
economic returns comparable to those currently being realized from the
properties which were disposed of.
Competition
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real
estate companies, many of which have greater financial and other resources
than the Company, within the market area of each of the properties which will
compete with the Company for tenants and development and acquisition
opportunities. The number of competitive multifamily properties and real
estate companies in such areas could have a material effect on (i) the
Company's ability to rent the apartments and the rents charged and (ii)
development and acquisition opportunities. The activities of these competitors
could cause the Company to pay a higher price for a new property than it
otherwise would have paid or may prevent the Company from purchasing a desired
property at all, which could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on
its Debt Securities.
Geographic Concentration; Dependence on Western United States Regions
The Company's portfolio is principally located in the San Francisco Bay
Area, the Denver 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 and to pay amounts due on
its Debt Securities could be materially adversely affected.
Risks of Development, Construction and Acquisition Activities
Pursuant to the TCR-West Transaction, the Company acquired eight apartment
properties in various stages of development (the "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 multifamily apartment communities may exceed original
estimates, possibly
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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, development and construction
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Development and construction 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. In that regard, the properties
acquired in the TCR-West Transaction were acquired on an "as is" basis,
meaning that the properties were acquired without warranty by the sellers.
Likewise, due to the competitive nature of the bidding process for the TCR-
West Properties, the Company was able to perform only a limited investigation
with respect to the TCR-West Properties prior to acquiring them. Both of these
factors increased the risks associated with acquiring the TCR-West Properties.
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. Similarly, financing future developments and
acquisitions with debt entails certain risks, including those described below
under "--Real Estate Financing Risks." In addition, if new development
properties are financed through construction loans, there is a risk that, upon
completion of construction, permanent financing for such properties may not be
available or may be available only on disadvantageous terms or that the cash
flow from new properties will be insufficient to cover debt service. If a
newly developed or acquired property is unsuccessful, the Company's losses may
exceed its investment in the property. Any of the foregoing could have a
material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities.
Risks Relating to Growth 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 acquisition has substantially increased
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 acquired from TCR with those of the Company.
Likewise, the Company added approximately 600 persons previously employed by
TCR and its affiliates, which has also significantly increased the demands
upon the Company's management. Failure to effectively integrate the operations
of the acquired properties, operations and employees with those of the Company
could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
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 in a controlled manner in both
existing and new markets by acquiring and developing new properties. The
Company's future growth will be dependent upon a number of factors, including
the Company's ability to identify acceptable properties for acquisition and
development, complete acquisitions and developments on favorable terms,
successfully integrate acquired and newly developed properties, and obtain
financing to support expansion. There can be no assurance that the Company
will be successful in implementing its growth strategy, that growth will
continue at historical
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levels or at all, or that any expansion will improve operating results. The
failure to identify, acquire, develop, and integrate new properties
effectively could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
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 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
interests 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 is required to maintain certain debt service coverage, debt-to-asset
and other financial ratios intended to protect the members' rights to receive
distributions. In addition, with respect to certain tax-exempt financing for
certain completed properties, the Operating Company is restricted from
prepaying its debt or taking certain other specified actions which could have
adverse tax consequences for the members. Further, the Company, as the
managing member, is restricted from taking certain other specified actions --
either absolutely or without the consent of a majority in interest of the non-
managing members (or of the non-managing members affected thereby) --
including, but not limited to, any actions that would make it impossible to
carry out the business of the Operating Company, or that would subject a non-
managing member to liability as a managing member, or that would cause the
Operating Company to institute bankruptcy proceedings or confess a judgment,
or that would prohibit or restrict a member from exercising its rights to
exchange units in the Operating Company for Common Shares. Any such
requirement to maintain financial ratios and any such restrictions on the
actions of the Operating Company and its managing member could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its Debt Securities.
Further, under the terms of 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 the properties held by the Operating Company in
a taxable sale or exchange prior to respective 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, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities.
The Operating Company also must distribute all Available Cash (as defined in
the LLC Agreement) on a quarterly basis: first, to members (other than BRE)
until each member has received, cumulatively on a per Operating Company unit
basis, distributions equal to the cumulative dividends declared with respect
to one Common Share over the corresponding period (subject to adjustment from
time to time as applicable to account for stock dividends, stock splits and
similar transactions affecting the Common Shares) (the "Priority
Distribution"); and second, the balance to BRE.
If the Operating Company's Available Cash in any quarterly period is
insufficient to permit distribution of the full amount of the Priority
Distribution for that quarter, BRE is required to make a capital contribution
to the Operating Company in an amount equal to the lesser of (i) the amount
necessary to permit the full Priority Distribution or (ii) an amount equal to
the sum of any capital expenditures made by the Operating Company plus the sum
of any payments made by the Operating Company on account of any loans to or
investments in, or any guarantees of the obligations of, BRE or its affiliates
for that quarterly period. The Operating Company's
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obligation to make Priority Distributions and BRE's obligation to make
additional capital contributions to the Operating Company under such
circumstances could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
In addition, BRE may not be removed as the managing member of the Operating
Company by the non-managing members, with or without cause, other than with
its consent. BRE may not voluntarily withdraw from the Operating Company or
transfer all or any portion of its interest in the Operating Company without
the consent of all of the non-managing members, except in certain limited
circumstances, such as a sale of all or substantially all of BRE's assets, or
any merger, consolidation or other combination by BRE with or into another
person, or any reclassification, recapitalization or change of BRE's
outstanding equity interests. Such restrictions on the withdrawal of BRE as
the managing member of the Operating Company, and on BRE's ability to transfer
its interest in the Operating Company, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its Debt Securities.
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 continue to be available on acceptable terms or
at an acceptable cost, or at all, in the future, or if obtained, that the
limits of those policies will cover the full cost of repair or replacement of
covered properties. In addition, there may be certain extraordinary losses
(such as those resulting from civil unrest) that are not generally insured (or
fully insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and
would continue to be obligated on any mortgage indebtedness on the property.
Any such loss could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
Risks Associated with Survey Exceptions to Certain Title Insurance Policies
Although the Company believes that prior owners of the TCR-West Properties
in the past obtained surveys of those properties, the Company did not obtain
updated surveys when it acquired the TCR-West Properties. Because updated
surveys of the TCR-West Properties were not obtained, the title insurance
policies obtained by the Company for those properties contain exceptions for
matters which an updated survey might have disclosed. Such matters might
include such things as boundary encroachments, unrecorded easements or similar
matters which would have been reflected on a survey. Moreover, because no
updated surveys were prepared for those 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 and to pay amounts due
on its Debt Securities.
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 and to pay amounts due on its
Debt Securities. 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
and to pay amounts due on its Debt Securities. 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.
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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 and may require other structural
features which add to the cost of buildings under construction. 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 construction or 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
and to pay amounts due on its Debt Securities. 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, pursuant to a contribution agreement (the
"Contribution Agreement") the Company (i) acquired the TCR-West Properties
either by acquiring title to the properties and related assets (plus
assumption of certain associated contractual obligations, warranties and
guarantees) 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 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, warranties and guarantees referenced above. However,
as a matter of law, the Company automatically assumed all of the liabilities
(known, unknown or contingent) of the partnerships and 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) was acquired by the Company,
the legal doctrine of successor liability may give creditors of and claimants
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 arising from events which occurred or circumstances which existed
prior to the acquisition of those properties by the Company, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its Debt Securities. In that regard,
the terms of the TCR-West Transaction do not provide for the Company to be
indemnified against any 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 related parties
who are signatories to the Contribution Agreement (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 any TCR Party
or certain
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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, or (iii) any document filed by or on
behalf of a TCR 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 by the TCR Parties
for the TCR-West Transaction) (provided, however, that the foregoing does not
apply to the information supplied by the Company or the Operating Company in
writing specifically for inclusion or incorporation by reference in any such
document or to any document prepared or filed by the Company or the Operating
Company). The Company has no recourse against the TCR 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 (as defined below) which the Company might otherwise be
required to deliver in connection with the TCR-West Transaction. A maximum of
up to 627,594 Development OC Units are issuable, each of which will be
exchangeable, commencing November 18, 1998, at the option of the holders
thereof for Common Shares (at the rate of one Common Share per Development OC
Unit, subject to adjustment under certain circumstances) or, at the Company's
election, into an equivalent amount of cash based on the value of the Common
Shares at the time of exchange. For purposes of determining the reduction in
the number of Development OC Units in the event of a claim for indemnity, the
Development OC Units will be deemed to have a value equal to the average of
the closing prices of a Common Share on the New York Stock Exchange for the
fifteen consecutive trading days concluding on the fifth trading day preceding
the day of the reduction. The TCR Parties' indemnification obligations (and
such obligations of the Company and the Operating Company, as described below)
are limited, in the aggregate, to an amount which, as of any date, is obtained
by multiplying the number of Development OC Units which have not been
distributed by the lower of (i) $26.93 or (ii) the average of the closing
prices of a Common Share on the New York Stock Exchange for the fifteen
consecutive trading days concluding on the fifth trading day preceding such
date.
The "Development OC Units" are equity interests in the Operating Company
which will be issued to the TCR Parties if certain completion schedule and
budget objectives are met for the Development Properties. 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 the 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 to
the activities of the TCR Parties or the operations of the TCR-West Properties
and matters related thereto prior to the closing of the transaction. 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 and to pay
amounts due on its Debt Securities. See "--Risks of Assumed Liabilities,"
above.
The Company and the Operating Company have also provided a limited indemnity
to the TCR Parties. Under the terms of the Contribution Agreement, the Company
and the Operating Company have agreed to indemnify the TCR Parties and their
affiliates against claims arising out of (i) any inaccuracy in certain
representations made by the Company about the registration rights it agreed to
provide to the TCR Parties who become shareholders of the Company or
unitholders of the Operating Company, or any failure by the Company to fulfill
its obligations under terms of the transaction, or (ii) any material
misstatement or omission in the information statement provided to the TCR
Parties with respect to the Company, the Operating Company, the Common Shares
or units of the Operating Company. The Company's indemnification obligations
are limited to
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an amount equal to the value of the remaining Development OC Units outstanding
from time to time, calculated in the same manner as the limit on the
indemnification obligations of the TCR Parties, as described above.
Notwithstanding the limit upon the Company's indemnification obligations, if
claims within the coverage of the indemnity provisions were brought against
the Company, it could 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 and to pay
amounts due on its Debt Securities.
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 given rise to investor lawsuits. If any lawsuits were filed in connection
with the TCR-West Transaction, whether by any of the TCR Parties or other
persons, such lawsuits could require the Company to incur costs in defending
such lawsuits or to pay any judgment awards or make settlement payments, any
of which could have a material adverse effect on the Company and its ability
to make distributions to shareholders and to pay amounts due on its Debt
Securities.
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 and to pay amounts due on its Debt
Securities. 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 and to pay amounts due on
its Debt Securities or cause the Company to be in default under certain debt
instruments (including its Debt Securities). In addition, an increase in
market interest rates may lead holders of the Company's Common Shares to
demand a higher yield on their shares from distributions by the Company, which
could adversely affect the market price for the Common Shares.
Additional Debt
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such
as sales of non-core properties. The organizational documents of the Company
do not contain any limitation on the amount of indebtedness that the Company
may incur. Accordingly, the Company could become more highly leveraged,
resulting in an increase in debt service, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its Debt Securities and in an increased risk of
default on its obligations.
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Terms of Certain Indebtedness
At September 30, 1997, the Company had outstanding borrowings of $73 million
under two loan agreements which, among other things, (i) contain a covenant
which requires the Company to maintain an investment grade rating for its
long-term unsecured debt and (ii) define "events of default" to include the
acquisition by any person of either (x) 20% or more of the Company's
outstanding shares or securities (or other securities convertible into such
securities) or (y) 10% or more of the Company's outstanding shares or
securities (or other securities convertible into such securities) if such
acquisition results in any change of the board of directors of the Company or
any change in the management of the Company or any of its assets. In the event
that the Company fails to maintain an investment grade rating for its long-
term unsecured debt or if such an event of default occurs, the lender may
declare all borrowings under such loan agreements to be due and payable
immediately, which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
Debt Securities.
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 and to pay amounts due on its Debt Securities. 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 THIRD PARTY MANAGEMENT BUSINESS
Possible Termination of Management Contracts
As part of the TCR-West Transaction, the Company also acquired TCR-West's
third party management contracts. A wholly-owned subsidiary of the Company
(the "Management Company") was organized to undertake this business.
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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 the 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 market factors affecting specific properties,
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."
RANKING OF SECURITIES
All of the Common Shares, Preferred Shares and Debt Securities 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 Common Shares and any Preferred Shares, and to
service its debt, including the Debt Securities, will be partially 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.
Likewise, a substantial portion of the Company's consolidated assets are
owned by its subsidiaries, effectively subordinating the Debt Securities to
all existing and future liabilities, including indebtedness, trade payables,
lease obligations and guarantees, of the Company's subsidiaries. The Operating
Company has guaranteed amounts due under the Company's $265 million unsecured
bank credit facility (the "Credit Facility") with Bank of America National
Trust and Savings Association and the Company's $35 million unsecured line of
credit with Sanwa Bank California (the "Sanwa Line of Credit"), and it is
anticipated that Blue Ravine Investors LLC ("Blue Ravine"), a Delaware limited
liability company which is a subsidiary of the Company, also will guarantee
amounts due under the Credit Facility. Likewise, any other subsidiary of the
Company with assets or net income which, when multiplied by the Company's
effective percentage ownership interest in such subsidiary, exceeds $30
million or 5% of the Company's consolidated net income, respectively, is
required to guarantee the repayment of borrowings under the Credit Facility
and the Sanwa Line of Credit. The Operating Company, Blue Ravine and other
subsidiaries of the Company may also from time to time guarantee other
indebtedness of the Company. Therefore, the Company's rights and the rights of
its creditors, including the holders of Debt Securities, to participate in the
assets of any subsidiary upon the latter's liquidation or reorganization will
be subject to the prior claims of such subsidiary's creditors, except to the
extent that the Company may itself be a creditor with recognized claims
against the subsidiary, in which case the claims of the Company would still be
effectively subordinate to any security interests in or mortgages or other
liens on the assets of such subsidiary and would be subordinate to any
indebtedness of such subsidiary senior to that held by 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
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concentration of ownership among its shareholders, the articles of
incorporation of the Company provide, among other things, that if the Board of
Directors determines, in good faith, that direct or indirect ownership of the
Company's Common Shares have or may become concentrated to an extent that
would prevent the Company from qualifying as a REIT, the Board of Directors
may prevent the transfer of the Common Shares or call for redemption (by lot
or other means affecting one or more shareholders selected in the sole
discretion of the Board of Directors) of a number of Common Shares sufficient
in the opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of the Common Shares into conformity with the requirements
for maintaining REIT status. These limitations may have the effect of
precluding acquisition of control of the Company by a third party without
consent of the Board of Directors.
In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company. For
example, such provisions may (i) deter tender offers for Common Shares which
offers may be attractive to the shareholders, or (ii) deter purchases of large
blocks of Common Shares, thereby limiting the opportunity for shareholders to
receive a premium for their Common Shares over then-prevailing market prices.
TAX RISKS
Tax Liabilities as a Consequence of Failure to Qualify as a REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within the Company's control. For example, in order to qualify as a REIT, at
least 95% of the Company's taxable gross income in any year must be derived
from qualifying sources and the Company must make distributions to
shareholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). Thus, to the extent Third Party Management
Income (as defined in "Federal Income Tax Considerations--Third Party
Management Income") 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 and to pay amounts due on
its Debt Securities. 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 and to pay
amounts due on its Debt Securities. 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 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
and to pay amounts due on its Debt Securities. 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 security holders 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
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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.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1997 and the years ended December 31, 1996, 1995, 1994, 1993,
and 1992 was 3.3x, 3.2x, 4.0x, 5.0x, 4.4x, and 3.4x, respectively. For the
purposes of computing these ratios, earnings have been calculated by adding
fixed charges to income before net gains (losses) on sales of investments.
Fixed charges consist of interest costs (including capitalized interest),
amortization of debt expense and one-third of the rental expense, which is
deemed to be the interest component of such rental expense.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement for any
offering of securities, the Company intends to use the net proceeds from the
sale of the Offered Securities for general corporate purposes, which may
include the acquisition and development of properties or interests therein
(including using the net proceeds for possible portfolio or asset acquisitions
or in business combinations) as suitable opportunities arise, the expansion
and improvement of certain properties in the Company's portfolio and the
repayment of indebtedness.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). The Debt
Securities will be issued under one or more indentures. Senior Debt Securities
and Subordinated Debt Securities will be issued pursuant to separate
indentures (respectively, a "Senior Indenture" and a "Subordinated
Indenture"), in each case between the Company and a trustee (a "Trustee"),
which may be the same trustee. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
referred to collectively as the "Indentures." The Indentures will be subject
to and governed by the Trust Indenture Act of 1939, as amended (the "TIA").
The statements made under this heading relating to the Debt Securities and the
Indentures are summaries of certain anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
forms of Indentures and such Debt Securities, which have been or will be
included or incorporated by reference to exhibits to the Registration
Statement of which this Prospectus is a part and are or will be available as
described above under "Available Information."
The following description of Debt Securities sets forth certain general
terms and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of any particular series
of Debt Securities will be described in the applicable Prospectus Supplement.
The terms of the Debt Securities offered by any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms
set forth in such Prospectus Supplement.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable form of Indenture. As used in this
"Description of Debt Securities," all references to the "Company" shall mean
BRE Properties, Inc., excluding, unless otherwise expressly stated or the
context shall otherwise require, its subsidiaries.
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GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Each Indenture will provide that the Debt Securities issued thereunder may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time in or pursuant to authority
granted by a resolution of the Board of Directors of the Company or as
established in one or more indentures supplemental to the applicable
Indenture. The terms of any Debt Securities within any series may differ from
the terms of any other Debt Securities in such series. All Debt Securities of
one series need not be issued at the same time and, unless otherwise provided,
a series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series. (See Section 301 of the forms of Indenture.) Any Trustee under either
Indenture may resign or be removed with respect to one or more series of Debt
Securities issued under such Indenture, and a successor Trustee may be
appointed to act with respect to such series.
Reference is made to each Prospectus Supplement for the specific terms of
the series of Debt Securities being offered thereby, including:
(1) The title of such Debt Securities and whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) If other than 100% of the principal amount thereof, the portion of
the principal amount of such Debt Securities payable upon declaration of
acceleration of the maturity thereof or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Shares or other equity securities of the Company, or the method by which
any such portion shall be determined;
(4) If such Debt Securities are convertible, any limitation on the
ownership or transferability of the Common Shares or other equity
securities of the Company into which such Debt Securities are convertible
in connection with the preservation of the Company's status as a REIT;
(5) The date or dates, or the method for determining the date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining the date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such Regular Record Dates
shall be determined, the Person to whom such interest shall be payable, and
the basis upon which interest, shall be calculated if other than that of a
360-day year of twelve 30-day months;
(8) The place or places where (i) the principal of (and premium, if any)
or interest, if any, on such Debt Securities will be payable, (ii) such
Debt Securities may be surrendered for conversion (if applicable) or
registration of transfer or exchange, and (iii) notices or demands to or
upon the Company in respect of such Debt Securities and the applicable
Indenture may be served;
(9) The period or periods within which, the price or prices at which, and
the terms and conditions upon which, such Debt Securities may be redeemed,
as a whole or in part, at the option of the Company, if the Company is to
have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
or the date or dates on which, the price or prices at which and the terms
and conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
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(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificated or book-
entry form;
(15) Whether such Debt Securities will be in registered or bearer form or
both and, if and to the extent in registered form, the denominations
thereof if other than $1,000 and any integral multiple thereof and, if and
to the extent in bearer form, the denominations thereof if other than
$5,000 and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable Indenture;
(17) The terms, if any, upon which such Debt Securities may be
convertible into Common Shares or other equity securities of the Company
(and the class thereof) and the terms and conditions upon which such
conversion will be effected, including, without limitation, the initial
conversion price or rate and the conversion period;
(18) The circumstances, if any, under which the Company will pay
Additional Amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
and
(19) Any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as hereinafter set forth under the captions "Certain Covenants--
Aggregate Debt Test," "--Maintenance of Total Unencumbered Assets," "--Debt
Service Test" and "--Secured Debt Test," which relate solely to the Senior
Indenture and the Senior Debt Securities issued thereunder, neither Indenture
will contain any provision that would limit the ability of the Company to
incur indebtedness or that will afford Holders of Debt Securities protection
in a highly leveraged or similar action involving the Company or in the event
of a change of control of the Company. However, certain restrictions on
ownership and transfers of the Company's Common Shares and the Company's other
equity securities designed to preserve its status as a REIT may act to prevent
or hinder a change of control. See "Description of Common Shares."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
registered Debt Securities of any series will be issuable in denominations of
$1,000 and integral multiples of $1,000. (See Section 302 of the forms of
Indenture.)
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the office or agency maintained by the Company
for such purpose; provided that, at the option of the Company, payment of
interest may be made by
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check mailed to the address of the Person entitled thereto as it appears in
the Security Register or by transfer of funds to such Person at an account
maintained within the United States. (See Sections 301, 305, 306, 307 and 1002
of the forms of Indenture.)
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice of which shall be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture. (See Section 307 of the forms of Indenture.)
Subject to certain limitations applicable to Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the office or agency maintained by the Company for such purpose.
In addition, subject to certain limitations applicable to Debt Securities
issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion (if applicable) or registration of transfer thereof
at the office or agency maintained by the Company for such purpose. Every Debt
Security surrendered for conversion (if applicable), registration of transfer
or exchange must be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (See Section 305 of the forms of Indenture.) If the applicable
Prospectus Supplement refers to any transfer agent initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change in
the location at which any such transfer agent acts, except that the Company
will be required to maintain a transfer agent in each Place of Payment for
such series. The Company may at any time designate additional transfer agents
with respect to any series of Debt Securities. (See Section 1002 of the forms
of Indenture.)
Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series if such Debt
Securities may be among those selected for redemption during a period
beginning at the opening of business 15 days before selection of Debt
Securities of that series to be redeemed and ending at the close of business
on (A) if such Debt Securities are issuable only in registered form, the day
of the mailing of the relevant notice of redemption or (B) if such Debt
Securities are issuable in bearer form, the day of the first publication of
the relevant notice of redemption or, if such Debt Securities are also
issuable in registered form and there is no publication, the day of the
mailing of the relevant notice of redemption; (ii) to register the transfer of
or exchange any Debt Security in registered form, or portion thereof, called
for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; (iii) to exchange any Debt Security in bearer form so
selected for redemption except in exchange for a Debt Security in registered
form which is simultaneously surrendered for redemption; or (iv) to issue,
register the transfer of or exchange any Debt Security which has been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Security not to be so repaid. (See Section 305 of the forms
of Indenture.)
MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company will not, in any transaction or
series of related transactions, consolidate with, or sell, lease, assign,
transfer or otherwise convey all or substantially all of its assets to, or
merge with or into, any other Person unless (i) either the Company shall be
the continuing corporation, or the successor Person (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received the transfer of such assets is a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by supplemental indenture
delivered to the Trustee, the due and punctual payment of the principal of
(and premium,
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if any) and interest, if any, on all of the outstanding Debt Securities issued
under such Indenture and the due and punctual performance and observance of
all of the other covenants and conditions contained in such outstanding Debt
Securities and such Indenture; (ii) immediately after giving effect to such
transaction and treating any Debt (including Acquired Debt) which becomes an
obligation of the Company or any of its Subsidiaries as a result thereof as
having been incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default under the applicable Indenture, and no event
which, after notice or the lapse of time or both, would become such an Event
of Default, shall have occurred and be continuing; and (iii) an officers'
certificate and legal opinion concerning such conditions shall be delivered to
the relevant Trustee. In the event that the Company is not the continuing
corporation, then, for purposes of clause (ii) of the preceding sentence, the
successor corporation shall be deemed to be the "Company" referred to in such
clause (ii). (See Sections 801 and 803 of the forms of Indenture).
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing corporation, the
successor corporation formed by such consolidation or into which the Company
is merged or to which such sale, assignment, transfer, lease or other
conveyance is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the relevant Indenture with the
same effect as if such successor corporation had been named as the Company
therein and thereafter (except in the case of a lease) the Company shall be
released from its obligations under such Indenture and the Debt Securities.
CERTAIN COVENANTS
The Senior Indenture will contain the following covenants:
Aggregate Debt Test. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation,
Acquired Debt) if, immediately after giving effect to the incurrence of such
Debt and the application of the proceeds therefrom on a pro forma basis, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries (determined on a consolidated basis in accordance with generally
accepted accounting principles) is greater than 60% of the sum of (without
duplication) (i) the Total Assets of the Company and its Subsidiaries as of
the last day of the then most recently ended fiscal quarter and (ii) the
aggregate purchase price of any real estate assets or mortgages receivable
acquired, and the aggregate amount of any securities offering proceeds
received (to the extent such proceeds were not used to acquire real estate
assets or mortgages receivable or used to reduce Debt), by the Company or any
of its Subsidiaries since the end of such fiscal quarter, including the
proceeds obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
Debt Service Test. The Company will not, and will not cause or permit any of
its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if the ratio of Consolidated Income Available for Debt Service to the
Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and
any other Debt (including, without limitation, Acquired Debt) incurred by the
Company or any of its Subsidiaries since the first day of such four-quarter
period had been incurred, and the application of the proceeds therefrom
(including to repay or retire other Debt) had occurred, on the first day of
such period, (ii) the repayment or retirement of any other Debt of the Company
or any of its Subsidiaries since the first day of such four-quarter period had
occurred on the first day of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility, line of
credit or similar facility shall be computed based upon the average daily
balance of such Debt during such period) and (iii) in the case of any
acquisition or disposition by the Company or any of its Subsidiaries of any
asset or group of assets, in any such case with a fair market value
(determined in good faith by the Company's Board of Directors) in excess of $1
million, since the first day of such four-quarter period, whether by merger,
stock purchase or sale or asset purchase or sale or otherwise, such
acquisition or disposition had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or
disposition being
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included in such pro forma calculation. If the Debt giving rise to the need to
make the foregoing calculation or any other Debt incurred after the first day
of the relevant four-quarter period bears interest at a floating rate then,
for purposes of calculating the Annual Debt Service Charge, the interest rate
on such Debt shall be computed on a pro forma basis as if the average rate
which would have been in effect during the entire such four-quarter period had
been the applicable rate for the entire such period.
Secured Debt Test. The Company will not, and will not cause or permit any of
its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) secured by any Lien on any property or assets of the Company or any of
its Subsidiaries, whether owned on the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such Debt
and the application of the proceeds therefrom on a pro forma basis, the
aggregate principal amount (determined on a consolidated basis in accordance
with generally accepted accounting principles) of all outstanding Debt of the
Company and its Subsidiaries which is secured by any Lien on any property or
assets of the Company or any of its Subsidiaries is greater than 40% of the
sum of (without duplication) (i) the Total Assets of the Company and its
Subsidiaries as of the last day of the then most recently ended fiscal quarter
and (ii) the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received (to the extent such proceeds were not used to acquire real
estate assets or mortgages receivable or used to reduce Debt), by the Company
or any of its Subsidiaries since the end of such fiscal quarter, including the
proceeds obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting
principles.
Maintenance of Total Unencumbered Assets. The Company will, and will cause
its Subsidiaries to, have at all times Total Unencumbered Assets of not less
than 150% of the aggregate principal amount of all outstanding Unsecured Debt
of the Company and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles.
The Subordinated Indenture will not contain any of the covenants described
above and will not contain any other limitation on the amount of Debt of any
kind which the Company or its Subsidiaries may incur. Neither Indenture will
limit the amount of dividends or other distributions which the Company may pay
to its shareholders.
Each Indenture will contain the following covenants:
Existence. Except as permitted under the provisions of such Indenture
described in "Merger, Consolidation or Sale" the Company will do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company will not be required to preserve any right or
franchise if its Board of Directors determines that the preservation thereof
is no longer desirable in the conduct of its business and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities outstanding under the relevant Indenture.
Maintenance of Properties. The Company will cause all of its properties used
or useful in the conduct of its business or the business of any Subsidiary to
be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the Company and its Subsidiaries will not be
prevented from selling or otherwise disposing of for value their respective
properties in the ordinary course of business.
Insurance. Each Indenture will require the Company to, and to cause each of
its Subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance
with prevailing market conditions and availability.
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Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company
or any Subsidiary, provided, however, that the Company will not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, for so long as any Debt Securities
are outstanding, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Section 13 or 15(d) if the Company were so
subject, on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been so required so to file such documents. The
Company will also in any event (x) within 15 days after each Required Filing
Date (i) transmit by mail to all Holders of Debt Securities, as their names
and addresses appear in the relevant Security Register, without cost to such
Holders, copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were
subject to such Sections and (ii) file with the applicable Trustee copies of
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Company were subject to such Sections and (y)
if filing such documents by the Company with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder of Debt Securities under the relevant Indenture.
Definitions. As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the
Company or (ii) assumed by the Company or any of its Subsidiaries in
connection with the acquisition of assets from such Person. Acquired Debt
shall be deemed to be incurred on the date the acquired Person is merged or
consolidated with or into, or becomes a Subsidiary of, the Company or the date
of the related acquisition, as the case may be.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Company and its Subsidiaries for such period (including, without
duplication, (i) all amortization of debt discount, (ii) all accrued interest,
(iii) all capitalized interest, and (iv) the interest component of capitalized
lease obligations), determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries for such period,
plus amounts which have been deducted and minus amounts which have been added
for (without duplication) (i) interest expense on Debt, (ii) provision for
taxes based on income, (iii) amortization of debt discount and deferred
financing costs, (iv) provisions for gains and losses on sales or other
dispositions of properties and other investments, (v) property depreciation
and amortization, (vi) the effect of any non-cash items resulting from a
change in accounting principles in determining Consolidated Net Income, and
(vii) amortization of deferred charges, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period, excluding (without
duplication) (i) extraordinary items and (ii) the portion of net income (but
not losses) of the Company and its Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by the Company or one of its
Subsidiaries, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
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"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of directors of such
Person or, in the case of the Company or a Subsidiary, by the Company's Board
of Directors) of the property subject to such Lien, (iii) reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that constitutes an
accrued expense or trade payable, or (iv) any lease of property by such Person
as lessee which is required to be reflected on such Person's balance sheet as
a capitalized lease in accordance with generally accepted accounting
principles, and also includes, to the extent not otherwise included, any
obligation of such Person to be liable for, or to pay, as obligor, guarantor
or otherwise (other than for purposes of collection in the ordinary course of
business), Debt of the types referred to above of another Person (it being
understood that Debt shall be deemed to be incurred by such Person whenever
such person shall create, assume, guarantee or otherwise become liable in
respect thereof).
"Executive Group" means, collectively, those individuals holding the offices
of Chairman, Vice Chairman, President, Chief Executive Officer, Chief
Operating Officer or any Vice President of the Company.
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
"Subsidiary" means (i) a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares, if any, of the
non-voting capital stock or other equivalent ownership interests of which
(except directors' qualifying shares) are at the time directly or indirectly
owned by the Company and/or any other Subsidiary or Subsidiaries, and the
majority of the shares of the voting capital stock or other equivalent
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by the Company, any other Subsidiary or
Subsidiaries, and/or one or more individuals of the Executive Group (or, in
the event of death or disability of any of such individuals, his/her
respective legal representatives(s), or such individuals' successors in office
as an officer of the Company), and (ii) any Person the accounts of which are
consolidated with the accounts of the Company.
"Total Assets" means the sum of (without duplication) (i) Undepreciated Real
Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Total Unencumbered Assets" means the sum of (without duplication) (i) those
Undepreciated Real Estate Assets which are not subject to a Lien securing Debt
and (ii) all other assets (excluding accounts receivable and intangibles) of
the Company and its Subsidiaries not subject to a Lien securing Debt, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, all
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Unsecured Debt" means Debt of the Company or any of its Subsidiaries which
is not secured by a Lien on any property or assets of the Company or any of
its Subsidiaries.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any interest on or any Additional Amounts payable in
respect of any Debt Security of such series; (ii) default in the payment of
any principal of (or premium, if any, on) any Debt
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Security of such series at its Maturity; (iii) default in making any sinking
fund payment as required for any Debt Security of such series; (iv) default in
the performance of any other covenant or warranty of the Company contained in
the applicable Indenture (other than a covenant or warranty included in such
Indenture solely for the benefit of a series of Debt Securities other than
such series), continued for 60 days after written notice as provided in such
Indenture; (v) default under any bond, note, debenture or other evidence of
indebtedness of the Company or any of its Subsidiaries or under any mortgage,
indenture or other instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness of the Company or any of
its Subsidiaries which results in the acceleration of such indebtedness in an
aggregate principal amount exceeding $20,000,000 or which constitutes a
failure to pay at maturity or other scheduled payment date (after expiration
of any applicable grace period) such indebtedness in an aggregate principal
amount exceeding $20,000,000, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled within 10 days after notice
to the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 10% in aggregate principal amount of the Outstanding Debt
Securities of such series; (vi) certain events of bankruptcy, insolvency or
reorganization with respect to the Company or of any Significant Subsidiary;
and (vii) any other Event of Default provided with respect to that series of
Debt Securities. (See Section 501 of the forms of Indenture.) The term
"Significant Subsidiary" means any Subsidiary which is a significant
subsidiary (as defined in Regulation S-X promulgated under the Securities Act
as in effect on January 1, 1996) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
that series may declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms thereof) of
all of the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given
by the Holders). However, at any time after such a declaration of acceleration
with respect to Debt Securities of such series has been made, the Holders of
not less than a majority in principal amount of outstanding Debt Securities of
such series may rescind and annul such declaration and its consequences if (i)
the Company shall have deposited with the applicable Trustee all required
payments of the principal of (and premium, if any) and interest, if any, on
the Debt Securities of such series (other than amounts which have become due
and payable as a result of such acceleration), plus certain fees, expenses,
disbursements and advances of such Trustee and (ii) all Events of Default
(other than the nonpayment of accelerated principal (or specified portion
thereof), premium, if any, and interest) with respect to Debt Securities of
such series have been cured or waived as provided in such Indenture. (See
Section 502 of the forms of Indenture.) The Indentures will also provide that
the Holders of not less than a majority in principal amount of the outstanding
Debt Securities of any series may waive any past default with respect to such
series and its consequences, except a default (x) in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the Holder of each Outstanding Debt Security of such series affected thereby.
(See Section 513 of the forms of Indenture.)
The Indentures will require each Trustee to give notice to the Holders of
Debt Securities issued thereunder within 90 days of a default under the
applicable Indenture known to such Trustee, unless such default shall have
been cured or waived; provided, however, that such Trustee may withhold notice
to the Holders of any such series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest, if any, on any Debt Security of such series
or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if a Responsible Officer of such Trustee determines
such withholding to be in the interest of such Holders. (See Section 601 of
the forms of Indenture.)
The Indentures will provide that no Holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the failure of the applicable Trustee, for 60 days, to act after it has
received a written request to institute proceedings in respect of an Event of
Default from the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of such series, as well as an offer of reasonable
indemnity. (See Section 507 of the
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forms of Indenture.) This provision will not prevent, however, any Holder of
Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium, if any) and interest, if any, on such Debt
Securities held by that Holder at the respective due dates thereof. (See
Section 508 of the forms of Indenture.)
The Indentures will provide that, subject to provisions to each Indenture
relating to its duties in case of default, a Trustee thereunder is under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to
the Trustee thereunder reasonable security or indemnity. (See Section 602 of
the forms of Indenture.) The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to such Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining
therein. (See Section 512 of the forms of Indenture.)
Within 120 days after the close of each fiscal year, the Company must
deliver to the relevant Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any noncompliance under the applicable Indenture and, if so,
specifying such noncompliance and the nature and status thereof. (See Section
1014 of the form of Senior Indenture and Section 1011 of the form of
Subordinated Indenture.)
MODIFICATION OF THE FORMS OF INDENTURE
Modifications and amendments of an Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities of each series issued thereunder which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest, if any, (or premium, if any) on,
any such Debt Security, (ii) reduce the principal amount of, or the rate or
amount of interest on, or any amount of premium payable on any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of the Holder of any such Debt Security to repayment of such Debt
Security at such Holder's option, (iii) change the Place of Payment, or the
coin or currency, for payment of principal of (or premium, if any) or
interest, if any, on any such Debt Security, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to any
such Debt Security, (v) reduce the percentage in principal amount of
Outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture with respect to such Debt Securities, to waive compliance
with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture, (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security, or (vii) make any change that
adversely affects the right, if any, to convert or exchange any Debt Security
for equity securities of the Company or other securities or property in
accordance with the terms of any such Debt Security. (See Section 902 of the
forms of Indenture.)
Each Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series issued
thereunder have the right to waive compliance by the Company with certain
covenants in the Indenture applicable to such series, including those
described in the section of this Prospectus captioned "Description of Debt
Securities--Certain Covenants." (See Section 1013 of the form of Senior
Indenture and Section 1011 of the form of Subordinated Indenture.)
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Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any
right or power conferred upon the Company in such Indenture; (iii) to add
Events of Default for the benefit of the Holders of all or any series of Debt
Securities issued thereunder; (iv) to add or change any provisions of such
Indenture to facilitate the issuance of Debt Securities issued thereunder in
bearer form, or to permit or facilitate the issuance of such Debt Securities
in uncertificated form, provided that such action shall not adversely affect
the interests of the Holders of such Debt Securities of any series in any
material respect; (v) to change or eliminate any provision of such Indenture,
provided that no such change or elimination shall become effective with
respect to the Outstanding Debt Securities of any series issued thereunder
which were first issued prior to the date of such change or elimination and
which are entitled to the benefit of such provision; (vi) to secure the Debt
Securities issued thereunder; (vii) to establish the form or terms of Debt
Securities of any series issued thereunder, including the provisions and
procedures, if applicable, for the conversion of such Debt Securities into
Common Shares or Preferred Shares of the Company; (viii) to provide for the
acceptance of appointment by a successor Trustee or to facilitate the
administration of the trusts under such Indenture by more than one Trustee;
(ix) to cure any ambiguity, defect or inconsistency in such Indenture or to
make any other provisions with respect to matters or questions arising
thereunder, provided that such action shall not adversely affect the interests
of Holders of Outstanding Debt Securities of any series issued thereunder in
any material respect; or (x) to supplement any of the provisions of such
Indenture to the extent necessary to permit or facilitate defeasance, covenant
defeasance and discharge of any series of Debt Securities issued thereunder,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series issued thereunder in any material
respect. (See Section 901 of the forms of Indenture.)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
Holders of such Debt Securities, (i) the principal amount of an Original Issue
Discount Security that shall be deemed to be Outstanding shall be the amount
of the principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof, (ii)
the principal amount of a Debt Security denominated in a Foreign Currency that
shall be deemed outstanding shall be the U.S. dollar equivalent, determined on
the issue date for such Debt Security, of the principal amount (or, in the
case of an Original Issue Discount Security, the U.S. dollar equivalent on the
issue date of such Debt Security of the amount determined as provided in (i)
above), (iii) the principal amount of an Indexed Security that shall be deemed
Outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to such Indenture, and (iv) Debt Securities owned by the
Company or any other obligor upon the Debt Securities or any Affiliate of the
Company or of such other obligor shall be disregarded. (See Section 101 of the
forms of Indenture.)
The Indentures will contain provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder. (See Section 1501 of the
forms of Indenture.) A meeting may be called at any time by the applicable
Trustee and also, upon request, by the Company or the Holders of at least 10%
in principal amount of the Outstanding Debt Securities of such series, in any
such case upon notice given as provided in the applicable Indenture. (See
Section 1502 of the forms of Indenture.) Except for any consent that must be
given by the Holder of each Debt Security affected by certain modifications
and amendments of such Indenture, any resolution presented at a meeting or
adjourned meeting duly reconvened at which a quorum is present may be adopted
by the affirmative vote of the Holders of a majority in principal amount of
the Outstanding Debt Securities of that series; provided, however, that,
except as referred to above, any resolution with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
may be made, given or taken by the Holders of a specified percentage, which is
less or more than a majority, in principal amount of the Outstanding Debt
Securities of a series may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative vote of the Holders
of such specified percentage in principal amount of the Outstanding
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Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance
with the applicable Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders
of not less than a specified percentage, which is less or more than a
majority, in principal amount of the Outstanding Debt Securities of a series,
the Persons holding or representing such specified percentage in principal
amount of the Outstanding Debt Securities of such series will constitute a
quorum. (See Section 1504 of the forms of Indenture.)
Notwithstanding the provisions described above, the Indentures will provide
that if any action is to be taken at a meeting of Holders of Debt Securities
of any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the applicable Indenture
expressly provides may be made, given or taken by the Holders of a specified
percentage in principal amount of all Outstanding Debt Securities affected
thereby, or by the Holders of a specified percentage in principal amount of
the Outstanding Debt Securities of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series
that are entitled to vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under such
Indenture. (See Section 1504 of the forms of Indenture.)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, upon
request of the Company any Indenture shall cease to be of further effect with
respect to any series of Debt Securities issued thereunder specified in such
Company request (except as to certain limited provisions of such Indenture
which shall survive) when either (i) all Debt Securities of such series have
been delivered to the Trustee for cancellation (subject to certain exceptions)
or (ii) all Debt Securities of such series have become due and payable or will
become due and payable within one year (or, if redeemable, are scheduled for
redemption within one year) and the Company has irrevocably deposited with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium, if any) and
interest to the date of such deposit (if such Debt Securities have become due
and payable) or to the stated maturity or redemption date, as the case may be.
Each Indenture provides that, unless otherwise provided in the applicable
Prospectus Supplement, the Company may elect with respect to any series of
Debt Securities issued thereunder either (i) to defease and be discharged from
any and all obligations with respect to such Debt Securities (except, among
other things, for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register
the transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") (see Section 1402 of the forms of Indenture) or (ii) to
be released from its obligations with respect to such Debt Securities under
the applicable covenants described above under the caption "Certain Covenants"
(except that the Company shall remain subject to the covenant to preserve and
keep in full force and effect its corporate existence, except as permitted
under the provisions described under "Merger, Consolidation or Sale") and, if
provided pursuant to Section 301 of such Indenture, its obligations with
respect to any other covenants applicable to the Debt Securities of such
series, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities
("covenant defeasance") (see Section 1403 of the forms of Indenture), in
either case upon the irrevocable deposit by the Company with the applicable
Trustee, in trust, of an amount, in such currency or currencies, currency unit
or units or composite currency or currencies in which such Debt Securities are
payable at Stated Maturity or, if
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applicable, upon redemption, or Government Obligations (as defined below), or
both, applicable to such Debt Securities which through the scheduled payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient to pay the principal of (and premium, if any) and
interest, if any, on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor or the
applicable redemption date, as the case may be.
Such a trust may only be established if, among other things, (i) the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified in
the applicable Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law
occurring after the date of such Indenture; (ii) if the cash and Government
Obligations deposited are sufficient to pay the outstanding Debt Securities of
such series provided such Debt Securities are redeemed on a particular
redemption date, the Company shall have given the applicable Trustee
irrevocable instructions to redeem such Debt Securities on such date; and
(iii) no Event of Default or event which with notice or lapse of time or both
would become an Event of Default with respect to Debt Securities of such
series shall have occurred and shall be continuing on the date of, or, solely
in the case of Events of Default described in clause (vi) of the first
paragraph under "--Events of Default, Notice and Waiver" above, during the
period ending on the 91st day after the date of, such deposit into trust. (See
Section 1404 of the forms of Indenture.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the Foreign Currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt. (See Section 101 of the forms of Indenture.)
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (ii) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest, if
any, on such Debt Security as it becomes due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such Conversion Event. (See
Section 1405 of the forms of Indenture.) "Conversion Event" means the
cessation of use of (a) a currency, currency unit or composite currency both
by the government of the country which issued such currency and for the
settlement of transactions by a central bank or other public institution of or
within the international banking community, (b) the ECU both within the
European Monetary System and for the settlement of transactions by public
institutions of or within the European Community or (c) any currency unit or
composite
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currency other than the ECU for the purposes for which it was established.
Unless otherwise described in the applicable Prospectus Supplement, all
payments of principal of (and premium, if any) and interest, if any, on any
Debt Security that are payable in a Foreign Currency that ceases to be used by
its government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to the
Debt Securities of any series and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with
the applicable Trustee to effect such covenant defeasance may not be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity or at the time of the acceleration resulting from such Event
of Default. In any such event, the Company would remain liable to make payment
of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
RANKING OF DEBT SECURITIES
The Senior Debt Securities will be unsecured unsubordinated obligations of
the Company and will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated
Debt Securities will be unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior
Indebtedness (as defined below) of the Company. See "Subordination of
Subordinated Securities."
The Debt Securities are 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 service its debt, including the Debt Securities,
are partially dependent on the earnings of such subsidiaries and the Debt
Securities will be effectively subordinated to all existing and future
indebtedness, guarantees and other liabilities of such subsidiaries. See "Risk
Factors--Ranking of Securities." Although the Senior Indentures will, if any
Senior Securities are issued, impose limitations on the incurrence of
additional indebtedness, both the Company and its subsidiaries will retain the
ability to incur substantial additional indebtedness.
SUBORDINATION OF SUBORDINATED SECURITIES
The payment of the principal of (and premium, if any) and interest, if any,
on the Subordinated Debt Securities will be subordinated as set forth in the
Subordinated Indenture in right of payment to the prior payment of all Senior
Indebtedness of the Company whether outstanding on the date of the
Subordinated Indenture or thereafter incurred. (See Section 1701 of the
Subordinated Indenture.)
"Senior Indebtedness" is defined in the Subordinated Indenture to mean (i)
the principal of (and premium, if any) and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument, (ii) purchase money and similar obligations, (iii)
obligations under capital leases, (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the
Company is responsible for the payment of, indebtedness and obligations of
others of the types referred to in clauses (i) through (iii) above, (v)
renewals, extensions and refunding of any such indebtedness or obligations,
(vi) interest in respect of any such indebtedness or obligations accruing
after the commencement of any insolvency or bankruptcy proceedings and (vii)
obligations associated with derivative products such as interest rate and
currency exchange contracts, foreign exchange contracts, commodity contracts,
and similar arrangements, unless, in each case, the instrument by which the
Company incurred, assumed or guaranteed the indebtedness or obligations
described in clauses (i) through (vii) expressly provides that such
indebtedness or obligation is subordinate or junior in right of payment to all
other indebtedness of the Company or is not senior
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in right of payment to the Subordinated Debt Securities or ranks pari passu
with or subordinate to the Subordinated Debt Securities in right of payment.
At September 30, 1997, the Company had approximately $157,000,000 of Senior
Debt outstanding. There are no restrictions in the Subordinated Indenture upon
the incurrence of additional Senior Indebtedness.
The Subordinated Indenture will provide that, in the event (i) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceeding or upon an assignment
for the benefit of creditors or any other marshaling of the assets and
liabilities of the Company or otherwise, except a distribution in connection
with a merger or consolidation or a conveyance or transfer of all or
substantially all of the properties of the Company which complies with the
requirements of Article Eight of the Subordinated Indenture (described above
under "Merger, Consolidation or Sale") or (ii) that a default shall have
occurred and be continuing with respect to the payment of principal of (or
premium, if any) or interest on any Senior Indebtedness, or (iii) that the
principal of the Subordinated Debt Securities of any series issued under the
Subordinated Indenture (or in the case of Original Issue Discount Securities,
the portion of the principal amount thereof referred to in Section 502 of the
form of Subordinated Indenture) shall have been declared due and payable
pursuant to Section 502 of the form of Subordinated Indenture, and such
declaration shall not have been rescinded and annulled as provided in said
Section 502, then:
(1) in a circumstance described in the foregoing clause (i) or (ii), the
holders of all Senior Indebtedness, and in the circumstance described in
the foregoing clause (iii), the holders of all Senior Indebtedness
outstanding at the time the principal of such Subordinated Debt Securities
issued under the Subordinated Indenture (or in the case of Original Issue
Discount Securities, such portion of the principal amount) shall have been
so declared due and payable, shall first be entitled to receive payment of
the full amount due thereon in respect of principal (premium, if any),
interest and Additional Amounts, or provision shall be made for such
payment in money or money's worth, before the Holders of any of the
Subordinated Debt Securities are entitled to receive any payment on account
of the principal of (or premium, if any) or interest, if any, on or any
Additional Amount in respect of the indebtedness evidenced by the
Subordinated Debt Securities;
(2) any payment by, or distribution of assets of, the Company of any kind
or character, whether in cash, property or securities (other than certain
subordinated debt securities of the Company issued in a reorganization or
readjustment), to which the Holder of any of the Subordinated Debt
Securities would be entitled except for the subordination provisions of
Article Seventeen of the Subordinated Indenture shall be paid or delivered
by the person making such payment or distribution directly to the holders
of Senior Indebtedness (as provided in clause (1) above), or on their
behalf, ratably according to the aggregate amount remaining unpaid on
account of such Senior Indebtedness, to the extent necessary to make
payment in full of all Senior Indebtedness (as provided in clause (1)
above) remaining unpaid after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of such Senior
Indebtedness, before any payment or distribution is made to or in respect
of the Holders of the Subordinated Debt Securities; and
(3) in the event that, notwithstanding the foregoing, any payment by, or
distribution of assets of, the Company of any kind or character is received
by the Holders of any of the Subordinated Debt Securities issued under the
Subordinated Indenture before all Senior Indebtedness is paid in full such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as aforesaid, for application to
the payment of all such Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to
any concurrent payment or distribution (or provisions therefor) to the
holders of such Senior Indebtedness.
By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain general creditors of the
Company, including holders of Senior Indebtedness, may recover more, ratably,
than the Holders of the Subordinated Debt Securities.
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CONVERTIBLE DEBT SECURITIES
If set forth in the applicable Prospectus Supplement, Debt Securities of any
series may be convertible into Common Shares or other securities of the
Company ("Convertible Debt Securities") on the terms and subject to the
conditions set forth in such Prospectus Supplement.
The applicable Prospectus Supplement may set forth limitations on the
ownership or conversion of Convertible Debt Securities intended to protect the
Company's status as a REIT for federal income tax purposes.
Reference is made to the sections captioned "Description of Common Shares,"
"Description of Preferred Shares" and "Description of Depositary Shares" for a
general description of securities which may be issued upon the conversion of
Convertible Debt Securities, including a description of certain restrictions
on the ownership of the Common Shares and the Preferred Shares.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (each, a "Global Security") that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be identified in the applicable
Prospectus Supplement. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless otherwise
provided in such Prospectus Supplement, Debt Securities that are represented
by a Global Security will be issued in any authorized denomination and will be
issued in registered or bearer form.
The Company anticipates that any Global Securities will be deposited with,
or on behalf of DTC, and that such Global Securities will be registered in the
name of Cede & Co., DTC's nominee. The Company further anticipates that the
following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the
depository arrangements will be described in the Prospectus Supplement
relating to a particular series of Debt Securities issued in the form of
Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as described below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Debt Securities in
certificated form and will not be considered the owners or Holders thereof
under the applicable Indenture. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form; accordingly, such laws may limit the transferability of
beneficial interests in a Global Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
Global Security of any series will be exchangeable for certificated Debt
Securities of the same series only if (i) DTC notifies the Company that it is
unwilling or unable to continue as depository or DTC ceases to be a clearing
agency registered under the Exchange Act (if so required by applicable law or
regulation) and, in either case, a successor depository is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, (ii) the Company in its sole discretion
determines that the Global Securities shall be exchangeable for certificated
Debt Securities or (iii) there shall have occurred and be continuing an Event
of Default under the Indenture with respect to the Debt Securities of such
series and beneficial owners representing a majority in aggregate principal
amount of such Debt Securities represented by Global Securities advise DTC to
cease acting as depository. Upon any such exchange, owners of a beneficial
interest in the Global Security or Securities will be entitled to physical
delivery of individual Debt Securities in certificated form of like tenor,
terms and rank, equal in principal amount to such beneficial interest, and to
have such Debt Securities in certificated form registered in the names of the
beneficial owners, which names are expected to be provided by DTC's relevant
Participants (as identified by DTC) to the applicable Trustee. Unless
otherwise described in the applicable
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Prospectus Supplement, Debt Securities so issued in certificated form will be
issued in denominations of $1,000 or any integral multiple thereof, and will
be issued in registered form only, without coupons.
The following is based on information furnished to the Company:
DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the
name of Cede & Co. (DTC's partnership nominee). One fully registered Debt
Security certificate will be issued with respect to each $200 million (or such
other amount as shall be permitted by DTC from time to time) of principal
amount of the Debt Securities of a series, and an additional certificate will
be issued with respect to any remaining principal amount of such series.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others, such as securities brokers and dealers, and banks and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but is expected to receive a written
confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Debt Securities are accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners do not receive certificates representing their
ownership interests in Debt Securities, except under the circumstances
described above.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the Debt Securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Debt Securities; DTC records reflect only the identity of the Direct
Participants to whose accounts Debt Securities are credited, which may or may
not be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners are governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Debt Securities are credited on the record date
(identified on a list attached to the Omnibus Proxy).
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Principal payments, premium payments, if any, and interest payments, if any,
on the Debt Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it
will not receive payment on the payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
applicable Trustee or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Company or the applicable Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments
to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Debt Securities of a series represented by Global Securities are
being redeemed, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant in such issue to be redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the Global Security repaid by the
Company, through its Participant, to the applicable Trustee, and shall effect
delivery of such interest in a Global Security by causing the Direct
Participant to transfer the Participant's interest in the Global Security or
Securities representing such interest, on DTC's records, to such Trustee. The
requirement for physical delivery of Debt Securities in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
Global Security or Securities representing such Debt Securities are
transferred by Direct Participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the applicable Trustee. Under such circumstances, in the event that
a successor securities depository is not appointed, Debt Security certificates
are required to be printed and delivered as described above.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered as described above.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
None of the Company, the applicable Trustee or any applicable paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in a Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial interest.
DESCRIPTION OF PREFERRED SHARES
The following description of Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate, does not purport to be complete and is qualified in its
entirety by reference to the Company's Amended and Restated Articles of
Incorporation (the "Articles") and by the provisions of the form of articles
supplementary pursuant to which the terms of the Preferred Shares of any
series will be established, which have been or will be included or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and are or will be available as described above
under "Available Information." Certain other specific terms will be described
in the applicable Prospectus Supplement. The terms of the Preferred Shares
offered in any Prospectus Supplement may differ from the terms set forth
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below, in which case the terms set forth below shall be deemed to have been
superseded to the extent of any different terms set forth in such Prospectus
Supplement.
GENERAL
Under the Articles, the Board of Directors has the authority to issue up to
10,000,000 Preferred Shares, $0.01 par value per share. No Preferred Shares
were outstanding as of the date of this Prospectus. Preferred Shares may be
issued from time to time in one or more series, as authorized by the Board of
Directors of the Company and without any action or approval of shareholders of
the Company. Prior to the issuance of shares of such series, the Board of
Directors is required by the Maryland General Corporation Law and the Articles
to fix for each series, subject to the provisions of the Articles, the terms,
rights, restrictions and qualifications, including any preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Shares offered in any Prospectus Supplement will,
when issued, be fully paid and nonassessable and will have no preemptive
rights.
The issuance of Preferred Shares, 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 Shares 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.
TERMS
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate or rates, period or periods and payment date or
dates or method of calculation thereof applicable to such Preferred Shares,
and whether dividends will be cumulative or non-cumulative;
(4) The date from which dividends on such Preferred Shares shall accrue,
if applicable;
(5) The procedures for any auction or remarketing of such Preferred
Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) Any terms and conditions upon which such Preferred Shares will be
convertible into Common Shares of the Company, including the conversion
price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
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RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares of any series will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Shares with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company; (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Shares with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company which the terms of such Preferred Shares
specifically provide rank senior to the Preferred Shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as
shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series
of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment
date, and the Company will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to
the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends for the then current dividend
period have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share of Preferred Shares of such series and such other series of Preferred
Shares shall in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Shares of such series (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares does not have a cumulative dividend) and such
other series of Preferred Shares bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart
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for payment for all past dividend periods and the then current dividend
period, and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of capital
stock ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation, dissolution and winding up) shall be declared or paid or
set aside for payment nor shall any other distribution be declared or made
upon the Common Shares, or any other capital stock of the Company ranking
junior to or on a parity with the Preferred Shares of such series as to
dividends or upon liquidation, dissolution or winding up, nor shall any Common
Shares, or any other shares of capital stock of the Company ranking junior to
or on a parity with the Preferred Shares of such series as to dividends or
upon liquidation, dissolution or winding up be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation, dissolution and winding up).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only
from the net proceeds of the issuance of shares of capital stock of the
Company, the terms of such Preferred Shares may provide that, if no such
shares of capital stock shall have been issued or to the extent the net
proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, such Preferred Shares shall automatically and
mandatorily be converted into the applicable shares of capital stock of the
Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Shares shall have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current dividend
period, and (ii) if a series of Preferred Shares does not have a cumulative
dividend, full dividends on all shares of the Preferred Shares of such series
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no shares of such series of Preferred Shares shall be
redeemed unless all outstanding shares of Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Shares of such series. In addition, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all outstanding
shares of such series of Preferred Shares have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period, and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of such series have
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been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, the Company shall not purchase or otherwise acquire directly
or indirectly any Preferred Shares of such series (except by conversion into
or exchange for capital shares of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation, dissolution and
winding up); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares), or by any other equitable manner
determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the stock transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price;
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Shares of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of Preferred Shares to be
redeemed from each such holder. If notice of redemption of any Preferred
Shares has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any
Preferred Shares so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Preferred Shares, and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of
capital stock of the Company ranking junior to the Preferred Shares of any
series in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of such series of Preferred Shares
shall be entitled to receive out of assets of the Company legally available
for distribution to shareholders, liquidating distributions in the amount of
the liquidation preference per share, if any, set forth in the applicable
Prospectus Supplement, plus an amount equal to all dividends accrued and
unpaid thereon (which, in the case of Preferred Shares for which dividends are
noncumulative, shall not include any accumulation in respect of unpaid
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Shares will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Shares of any series and the corresponding
amounts payable on all shares of other classes or series of capital stock of
the Company ranking on a parity with such Preferred Shares in the distribution
of assets, then the holders of such Preferred Shares and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of any series, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such Preferred Shares upon liquidation, dissolution or
winding up, according to their respective rights and preferences. For such
purposes, the consolidation or merger of the Company with or into
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any other corporation, trust or entity, or the sale, lease or conveyance of
all or substantially all of the property or business of the Company, shall not
be deemed to constitute a liquidation, dissolution or winding up of the
Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as any
shares of Preferred Shares of such series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least two-
thirds of the shares of such series of Preferred Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Shares with respect to payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Articles or the designating amendment for such
series of Preferred Shares, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Shares or the holders
thereof, provided, however, that (x) any increase in the amount of the
authorized Preferred Shares or the creation or issuance of any other series of
Preferred Shares, or (y) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends and the distribution of assets upon liquidation,
dissolution and winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares or any other class or series of capital
stock of the Company will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares or any
other class or series of capital stock of the Company into which the shares of
Preferred Shares are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Shares or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series
of Preferred Shares.
RESTRICTIONS ON OWNERSHIP
The Preferred Shares are subject to certain restrictions on transfer, and
are subject to redemption (at redemption prices to be specified in the
applicable Prospectus Supplement) at the option of the Company, to the extent
the Board of Directors deems necessary to permit the Company to comply with
the REIT provisions of the Code. See "Restrictions on Transfers of Capital
Stock; Redemption." In addition, the applicable Prospectus Supplement may set
forth additional restrictions on transfer and related provisions applicable to
the Preferred Shares offered thereby intended to permit the Company to comply
with such provisions.
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TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable
Prospectus Supplement. Preferred Shares represented by Depositary Shares will
be deposited under a separate Deposit Agreement (each, a "Deposit Agreement")
among the Company, the depositary named therein (such depositary or its
successor, the "Preferred Shares Depositary") and the holders from time to
time of the Depositary Receipts. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Receipt will be entitled, in proportion
to the fractional interest of a share of the particular series of Preferred
Shares represented by the Depositary Shares evidenced by such Depositary
Receipt, to all the rights and preferences of the Preferred Shares represented
by such Depositary Shares (including dividend, voting, conversion, redemption
and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Shares by the Company to the Preferred
Shares Depositary, the Company will cause the Preferred Shares Depositary to
issue, on behalf of the Company, the Depositary Receipts. The following
description of certain terms of any Deposit Agreement and the related
Depositary Shares and Depositary Receipts does not purport to be complete, and
is qualified in its entirety by reference to the form of Deposit Agreement
(including the form of Depositary Receipt) which has been or will be filed or
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part and is or will be available as described below under
"Available Information."
The terms of the Depositary Shares offered in any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms
set forth in such Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received with respect to the Preferred Shares to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to the Preferred
Shares Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Shares Depositary, unless the Preferred
Shares Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Shares Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of
whole or fractional Preferred
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Shares and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Shares
on the basis of the proportion of Preferred Shares represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such Preferred Shares will not thereafter be entitled to receive
Depositary Shares therefor. If the Depositary Receipts delivered by the holder
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of Preferred Shares to be withdrawn, the
Preferred Shares Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends (or, with
respect to Preferred Shares as to which dividends are non-cumulative,
dividends for the current dividend period only) thereon to the date fixed for
redemption. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price and any other amounts per share
payable with respect to the Preferred Shares. If less than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected by the Preferred Shares Depositary by lot or in such other manner as
the Preferred Share Depositary deems equitable.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof
to the Preferred Shares Depositary.
VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Shares) will be entitled to instruct the
Preferred Shares Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Shares represented by such holder's Depositary
Shares. The Preferred Shares Depositary will vote the amount of Preferred
Shares represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which
may be deemed necessary by the Preferred Shares Depositary in order to enable
the Preferred Shares Depositary to do so. The Preferred Shares Depositary will
abstain from voting the amount of Preferred Shares represented by such
Depositary Shares to the extent it does not receive specific instructions from
the holders of Depositary Receipts evidencing such Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the applicable fraction of the liquidation preference accorded
each Preferred Share represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
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CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Shares Depositary with written instructions to the Preferred Shares
Depositary to instruct the Company to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipts
into whole Common Shares, other Preferred Shares of the Company or other
shares of capital stock, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for
delivery of Preferred Shares to effect such conversion. If the Depositary
Shares evidenced by a Depositary Receipt are to be converted in part only, one
or more new Depositary Receipts will be issued for any Depositary Shares not
to be converted. No fractional Common Shares will be issued upon conversion,
and if such conversion will result in a fractional share being issued, an
amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Shares on the
last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may
at any time be amended by agreement between the Company and the Preferred
Shares Depositary. However, any amendment that materially and adversely alters
the rights of the holders of Depositary Receipts will not be effective unless
such amendment has been approved by the existing holders of at least a
majority of the Depositary Shares evidenced by the Depositary Receipts then
outstanding.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) holders of a
majority of the outstanding Depositary Receipts issued thereunder consent to
such termination, whereupon the Preferred Shares Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
Preferred Shares as are represented by the Depositary Shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect of the related
Preferred Shares in connection with any liquidation, dissolution or winding up
of the Company and such distribution shall have been distributed to the
holders of Depositary Receipts evidencing the Depositary Shares representing
such Preferred Shares or (iii) each related Preferred Share shall have been
converted into capital stock of the Company not so represented by Depositary
Shares.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time
remove the Preferred Shares Depositary, any such resignation or removal to
take effect upon the appointment of a successor Preferred Shares Depositary. A
successor Preferred Shares Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
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MISCELLANEOUS
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if,
by law or any circumstances beyond its control, it is prevented from or
delayed in performing its obligations under the Deposit Agreement. The
obligations of the Company and the Preferred Shares Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in
good faith and without gross negligence or willful misconduct, and the Company
and the Preferred Shares Depositary will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Receipts, Depositary
Shares or Preferred Shares represented thereby unless reasonably satisfactory
indemnity is furnished. The Company and the Preferred Shares Depositary may
rely on written advice of counsel or accountants, or information provided by
persons presenting Preferred Shares represented thereby for deposit, holders
of Depositary Receipts or other persons believed to be competent to give such
information, and on documents believed to be genuine and signed by a proper
party.
If the Preferred Shares Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received
from the Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Shares. Common Stock Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Stock Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant
agent specified in the applicable Prospectus Supplement (the "Warrant Agent").
The Warrant Agent will act solely as an agent of the Company in connection
with the Common Stock Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Common Stock Warrants. The following sets forth certain
general terms and provisions of the Common Stock Warrants offered hereby.
Further terms of the Common Stock Warrants and the applicable Warrant
Agreements will be set forth in the applicable Prospectus Supplement.
The following description of certain terms of any Common Stock Warrants and
the related Warrant Agreement does not purport to be complete and is qualified
in its entirety by reference to the form of Warrant Agreement (including the
form of Common Stock Warrant) which has been or will be filed or incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part and which is or will be available as described under
"Available Information."
The terms of the Common Stock Warrants offered in any Prospectus Supplement
may differ from the terms set forth below, in which case the terms set forth
below shall be deemed to have been superseded to the extent of any different
terms set forth in such Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which such Prospectus Supplement is being
delivered, including, where applicable, the following: (i) the title of such
Common Stock Warrants; (ii) the aggregate number of such Common Stock
Warrants; (iii) the price or prices at which such Common Stock Warrants will
be issued; (iv) the number of Common Shares purchasable upon exercise of such
Common Stock Warrants; (v) the designation and terms of the other Offered
Securities with which such Common Stock Warrants are issued and the number of
such Common Stock Warrants issued with each such Company Offered Security;
(vi) whether such Common Stock Warrants will be attached to any other Offered
Securities and the date, if any, on and after which such Common Stock Warrants
and the related
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Offered Securities will be separately transferable; (vii) the price at which
each Common Share purchasable upon exercise of such Common Stock Warrants may
be purchased; (viii) the date on which the right to exercise such Common Stock
Warrants shall commence and the date on which such right shall expire; (ix) if
applicable, the minimum or maximum amount of such Common Stock Warrants which
may be exercised at any one time; (x) information with respect to book-entry
procedures, if any; and (xi) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Shares"
for a general description of the Common Shares to be acquired upon the
exercise of the Common Stock Warrants, including a description of certain
restrictions on the ownership of Common Shares. Common Shares that may be
acquired upon the exercise of Common Stock Warrants directly or constructively
held by an investor will be deemed by the Company to be outstanding (i) at the
time of acquisition of the Common Stock Warrants, and (ii) prior to the
exercise of the Common Stock Warrants, for purposes of determining the
percentage ownership of Common Shares held by such investor.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Shares
will be issuable upon conversion of Debt Securities or Preferred Shares of the
Company or upon the exercise of Common Stock Warrants issued by the Company.
The statements below describing the Common Shares, 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, the Bylaws 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 Common Shares,
$0.01 par value. As of December 31, 1997, there were 41,738,704 Common Shares
issued and outstanding. In addition, as of December 31, 1997, there were
2,800,900 Common Shares reserved for issuance upon the exercise of options
under the Company's stock option plans and 1,383,801 Common Shares were
reserved for issuance under the Company's Dividend Reinvestment Plan. As of
December 31, 1997, there were 3,452,181 shares of Common Shares reserved for
issuance upon exchange of the units in the Operating Company and the units of
a certain other subsidiary of the Company which were issued or may be issued
in connection with the TCR-West Transaction. The Common Shares are listed on
the New York Stock Exchange under the symbol "BRE." Chase Mellon is the
transfer agent and registrar of the Common Shares.
Holders of Common Shares 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 Shares. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Shares 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 Shares. The Common Shares offered in any Prospectus Supplement will
not have preemptive or conversion rights.
Holders of Common Shares are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Shares and, except as
otherwise required by law or as provided by the express provisions
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of any series of Preferred Shares, the holders of the Common Shares will
exclusively possess all voting power of the shareholders of the Company.
Holders of Common Shares do not have cumulative voting rights in the election
of directors.
As described above under "Description of Preferred Shares," 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 Shares
with such rights, restrictions and other terms as may be determined by the
Board of Directors. The issuance of Preferred Shares, 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 Shares 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.
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 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 Common Share. Each Right
entitled the holder to purchase from the Company one Common Share at a cash
purchase price of $90.00 per share, subject to adjustment. Following the
Company's stock dividend of one Common Share for each Common 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 Common Shares and
(ii) the Rights will be evidenced by the Common Share certificates and the
transfer of Common Share certificates will also constitute the transfer of the
Rights associated with such Common Shares. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Shares as of the close of business on the Distribution Date.
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The Rights will separate from the Common Shares 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 Shares (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 Shares 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 Shares for other securities, cash or
property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Shares, (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 Shares 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 Shares are 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 Shares
are called for redemption, the redemption price shall be (i) the last reported
sale price of the shares on the last business day prior to the redemption date
on the principal national securities exchange on which the shares are listed
or admitted to trading, (ii) if the shares are not so listed or admitted to
trading but are reported in the Nasdaq system, the last sale price on the last
business day prior to the redemption date, or if there is no sale on such day
then at the last bid price on such day as reported in the Nasdaq National
Market, (iii) if the shares are not so reported or listed or admitted to
trading, the mean between the highest bid and lowest asked prices on such last
business day as reported by the National Quotation Bureau Incorporated or a
similar organization selected by the Board of Directors for such purpose, or
(iv) if not determined by the foregoing methods, as determined in good faith
by the Board of Directors. From and after the
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date fixed for redemption by the Board of Directors, the holder of any shares
of stock so called for redemption will cease to be entitled to dividends,
distributions, voting rights and other benefits with respect to such shares,
excepting only the right to payment of the redemption price without interest.
The Bylaws provide that, whenever it is determined by the Board of Directors
to be reasonably necessary to protect the REIT tax status of the Company, the
Board of Directors may require a statement or affidavit from each holder or
proposed transferee of shares of stock setting forth the number of shares
already owned by such holder or transferee or any related person. The Bylaws
further provide that if, in the opinion of the Board of Directors, which will
be conclusive upon any proposed transferor or transferee of shares, any
proposed transfer would jeopardize the status of the Company as a REIT under
the Code, the Board of Directors may refuse to permit such transfer; that any
attempt to transfer as to which the Board of Directors has refused its
permission will be void and of no effect to transfer any legal or beneficial
interest in the shares; and that all contracts for the sale or other transfer
of shares are subject to these restrictions.
These provisions may have the effect of preventing acquisition of control of
the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities 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 security holder of the Company in view of a
security holder's particular circumstances, or to certain types of security
holders (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 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 Paul, Hastings, Janofsky & Walker 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, the 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), it is anticipated that the Company will qualify as a REIT for its
taxable year ended December 31, 1997, and the
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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,
1998 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, and the various qualification tests imposed under the Code
discussed below the results of which will not be reviewed by Paul, Hastings,
Janofsky & Walker 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
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meets certain income and asset tests described below. Conditions (i) through
(iv) above must be met during the entire taxable year and condition (v) must
be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. However,
conditions (v) and (vi) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
With respect to its taxable years ending before January 1, 1998, in order to
maintain its election to be taxed as a REIT, the Company must also maintain
certain records and request certain information from its shareholders designed
to disclose the actual ownership of its stock. The Company believes that it
has complied and will comply with these requirements.
In the case of a REIT that is a partner in a partnership 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 beginning 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
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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 1ocated 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 cause the rent to fail to
qualify as "rents from real property" unless the amount treated as received
for the Prohibited Services exceeds l% 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 75% or 95% gross income test
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.
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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 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 Paul,
Hastings, Janofsky & Walker LLP (based on certain representations by the
Company), "qualified REIT subsidiaries" as defined in the Code, and as
"qualified REIT subsidiaries," such subsidiaries are not treated as separate
corporations for federal income tax purposes. Thus, the Company's ownership of
stock of a "qualified REIT subsidiary" will not cause the Company to fail the
asset tests.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and
the Company's net capital gain) and (b) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain items of non-
cash income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails to distribute during each calendar year at least the sum of: (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
income for such year and (iii) any undistributed taxable income from prior
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed (including for
this purpose as amounts distributed, amounts taxed at regular ordinary and
capital gains corporate tax rates). The Company intends to make timely
distributions sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because
of timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company.
In the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form
of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency
dividends. However, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
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FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year
in which the Company fails to qualify will not be deductible by the Company
nor will they be required to be made by the Company. In such event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and, subject to certain
limitations, a corporate distributee may be eligible for the dividends
received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
Whether the Company would be entitled to such statutory relief cannot be
foreseen.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will result in ordinary
income to such shareholders. Corporate shareholders will not be entitled to
the "dividends received" deduction. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions by the Company in
excess of its current and accumulated earnings and profits will not be taxable
to a shareholder to the extent that such distributions do not exceed the
adjusted basis of the shareholder's shares, but rather, will be a non-taxable
reduction in a shareholder's adjusted basis in such shares to the extent
thereof and thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
will be treated as both paid by the Company and received by the shareholder on
or before December 31 of such year, provided that the dividend is actually
paid by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for
six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent distributions from the
Company are required to be treated by such shareholder as long-term capital
gain.
If the Company elects to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains, the Company would pay tax on such
retained net long-term capital gains. In addition, for taxable years of the
Company beginning on or after January 1, 1998, to the extent designated by the
Company, a taxable domestic shareholder generally would (i) include its
proportionate share of such undistributed long-term capital gains in computing
its long-term capital gains in its return for its taxable year in which the
last day of the Company's taxable year falls (subject to certain limitations
as to the amount so includible), (ii) be deemed to have paid the capital gains
tax imposed on the Company on the designated amounts included in such taxable
domestic shareholder's long-term capital gains, (iii) receive a credit or
refund for such amount of tax deemed paid by it, (iv) increase the adjusted
basis of its shares by the difference between the amount of such includible
gains and the tax deemed to have been paid by it, and (v) in the case of a
taxable corporate shareholder, appropriately adjust its earnings and profits
for the retained capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
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
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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. Generally, a tax-exempt investor that holds Common Shares as an
investment and is exempt from tax on its investment income will not be subject
to tax on distributions paid by the Company. However, if such tax-exempt
investor is treated as having purchased Common Shares with borrowed funds,
some or all of its distributions from the Common Shares will be subject to
tax. 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
Shares, in which case a portion of such amounts distributed may be treated as
UBTI.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and
no attempt is made herein to provide more than a summary of such rules. In
addition, this discussion is based on current law, which is subject to change,
and assumes that the Company qualifies for taxation as a REIT. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares, including any reporting requirements.
It is currently anticipated that the Company will qualify as a "domestically
controlled REIT" (i.e., a REIT in which at all times during a specified
testing period less than 50% of the value of the capital stock of which is
owned directly or indirectly by Non-U.S. Shareholders) and therefore gain from
the sale of Common Shares by a Non-U.S. Shareholder generally will not be
subject to United States taxation unless such gain is treated as "effectively
connected" with the Non-U.S. Shareholder's United States trade or business. As
the Common Shares are publicly traded, there can be no assurance that the
Company will always qualify as a "domestically controlled REIT."
If the Company ceases to be a "domestically controlled REIT," gain arising
from the sale or exchange by a Non-U.S. Shareholder of Common Shares would be
subject to United States taxation under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA") as a sale of a "United States real
property interest" unless the Common Shares are "regularly traded" (as defined
by applicable Treasury regulations) on an established securities market (e.g.,
the New York Stock Exchange) and the selling Non-U.S. Shareholder held no more
than 5% (after applying certain constructive ownership rules) of the Common
Shares during the shorter of (i) the period during which the taxpayer held
such shares or (ii) the 5-year period ending on the date of the disposition of
such shares. If gain on the sale or exchange of Common Shares were subject to
taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States income tax with respect to such gain in the same manner as a
domestic shareholder (subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals
and the possible application of the 30% branch profits tax in the case of
foreign corporation), and the purchaser of the stock would be required to
withhold and remit to the IRS 10% of the purchase price. The 10% withholding
tax will not apply if the Common Shares are "regularly traded" in an
established securities market.
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Notwithstanding the foregoing, gain from the sale or exchange of Common
Shares not otherwise subject to United States taxation will be taxable to a
Non-U.S. Shareholder if (i) investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business (or,
if an income tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Shareholder), in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders
with respect to such gain (except that a shareholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
below), or (ii) the Non-U.S. Shareholder is a resident alien individual who is
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
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 income tax treaty. However, if dividends from the
investment in the Common 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 Common 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 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.
Distributions that are designated by the Company at the time of distribution
as capital gains dividends (other than those arising from the disposition of a
United States real property interest) generally will not be subject to United
States federal income taxation, unless (i) investment in the Common Shares is
effectively connected with the Non-U.S. Shareholder's United States trade or
business (or, if an income tax treaty applies, is attributable to a United
States permanent establishment of the Non-U.S. Shareholder), in which case the
Non-U.S. Shareholder will be subject to the same treatment as domestic
shareholders with respect to such gain (except that a shareholder that is a
foreign corporation may also be subject to the 30% branch profits tax, as
discussed above),
53
<PAGE>
or (ii) the Non-U.S. Shareholder is a resident alien individual who is present
in the United States for 183 days or more during the taxable year and has a
"tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
On October 6, 1997, the IRS issued final Treasury Regulations concerning the
withholding of tax and information 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 the Company's shareholders and to holders of Debt Securities.
In addition, if the Operating Company or any of the Subsidiary Entities were
to be taxable as a corporation, the Company would not qualify as a REIT, which
could have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its Debt Securities.
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."
54
<PAGE>
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 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
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to
investors directly or through agents or through dealers or through a
55
<PAGE>
combination of any such methods of sale. Any such underwriter or agent
involved in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale or at prices related to the prevailing market prices at
the time of sale, or at negotiated prices. The Company also may, from time to
time, authorize agents to offer and sell the Offered Securities upon the terms
and conditions set forth in an applicable Prospectus Supplement. In connection
with the sale of Offered Securities, underwriters and agents may be deemed to
have received compensation from the Company in the form of discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agents. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions from the underwriters or commissions from
the purchasers for whom they may act as agent.
Any compensation paid by the Company to underwriters or agents in connection
with the offering of Offered Securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Offered Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Offered Securities may be deemed to
be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on such future date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the
aggregate amount of the Offered Securities sold pursuant to Contracts shall be
not less or more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and
other institutions, but will in all cases be subject to the approval of the
Company. Contracts will not be subject to any conditions except (i) the
purchase by an institution of the Offered Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and
(ii) if the Offered Securities are being sold to underwriters, the Company
shall have sold to such underwriters the total amount of the Offered
Securities less the amount thereof covered by Contracts.
Certain of the underwriters, dealers and agents and their affiliates may
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
EXPERTS
The financial statements and related financial schedule of BRE Properties,
Inc. appearing in BRE Properties, Inc.'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 BRE Properties, Inc.'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 BRE Properties, Inc.'s Current Report on Form 8-K/A
filed on December 10, 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
56
<PAGE>
December 31, 1996, appearing in BRE Properties, Inc.'s Current Report on Form
8-K filed on April 25, 1997, has been audited by Ernst & Young LLP, as set
forth in there 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 Offered Securities as well as certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for
the Company by Paul, Hastings, Janofsky & Walker LLP, San Francisco,
California. Brown & Wood llp, San Francisco, California, will act as counsel
for any underwriters or agents.
57
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred by BRE
Properties, Inc. (the "Company") in connection with the issuance of the
Offered Securities being registered hereby, other than commissions (all
amounts, other than the SEC Registration Fee, are estimates):
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $
NYSE Listing Fee..............................................
Printing and Engraving Costs..................................
Legal Fees and Expenses.......................................
Blue Sky Fees and Expenses....................................
Rating Agency Fees............................................
Accounting Fees and Expenses..................................
Miscellaneous.................................................
----------
Total....................................................... $
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 2-418 of the General Corporation Law of the State
of Maryland (the "Maryland Corporation Law"), Article VI of the Company's
Bylaws provides that the Company shall indemnify any officer or director who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether external or internal to the Company
(other than an action brought by or in the right of the Company) by reason of
the fact that he or she is or was an officer or director, against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
actually and reasonably incurred by the officer or director in connection with
such action, suit, proceeding or investigation, or any appeal therein.
However, there will be no such indemnification if it is established by
adjudication that (i) the act or omission of the director was material to the
matter giving rise to the proceeding and (A) was committed in bad faith or (B)
was the result of active and deliberate dishonesty; (ii) the officer or
director actually received an improper personal benefit in money, property or
services; or (iii) with respect to any criminal action or proceeding, the
officer or director had no reasonable cause to believe that his or her conduct
was unlawful. Notwithstanding the foregoing, an officer or director may
receive indemnification where a court of appropriate jurisdiction determines
that such person is fairly and reasonably entitled to indemnity for any
expense, liability or loss which the court shall deem proper; provided,
however, that no indemnification for any liability or loss (other than
expenses) shall in any event be made to the extent that such person has been
adjudged to have actually received an improper personal benefit. Article VI of
the Articles provides that, to the fullest extent permitted by law, no
director or officer of the Company shall be personally liable to the Company,
any subsidiary thereof or any of its shareholders for money damages.
In addition, Article VI of the Company's Bylaws also provides that the
Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed judicial action or
suit brought by or in the right of the Company to procure a judgment in its
favor by reason of the fact that such person is or was an officer or director,
against expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by such person in connection with the
defense, settlement or appeal of such action or suit, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that a court of appropriate jurisdiction shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
II-1
<PAGE>
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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement (common stock)
1.2 Form of Underwriting Agreement (debt securities)
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 Registrant and Bank of America, N.T. &
S.A., dated as of August 14, 1989 (4)
4.5 Supplement to Rights Agreement between the Registrant and Chemical
Trust Company of California dated as of July 30, 1992 (5)
4.6 Form of Senior Indenture (6)
4.7 Form of Subordinated Indenture (7)
4.8 Form of Senior Debt Security (8)
4.9 Form of Subordinated Debt Security (8)
4.10 Form of Common Stock Warrant Agreement and Form of Warrant (8)
4.11 Specimen Certificate for Common Shares (9)
4.12 Form of Certificate for Preferred Shares (8)
4.13 Form of Articles Supplementary for Preferred Shares (8)
4.14 Form of Deposit Agreement and Depositary Receipt (8)
5 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding the
validity of the securities being registered
8 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding tax matters
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (included as part of
Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (See page II-5)
25.1 Statement of Eligibility of the Senior Trustee on Form T-1 (10)
25.2 Statement of Eligibility of the Subordinated Trustee on Form T-1 (11)
</TABLE>
- --------
(1) Incorporated by reference to Exhibit 3.1 of the Registrant's Current
Report on Form 8-K dated March 15, 1996.
(2) Incorporated by reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
II-2
<PAGE>
(3) Incorporated by reference to Exhibit 4.5 of 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 of the Registrant's Current
Report on Form 8-K dated August 14, 1989.
(5) Incorporated by reference to Exhibit 4.5 of the Registrant'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 4.6 of the Registrant's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(7) To be filed by amendment.
(8) To be filed by amendment or as an exhibit to a document to be incorporated
by reference herein in connection with an offering of specific Offered
Securities.
(9) Incorporated by reference to Exhibit 4.11 of the Registrant's Registration
Statement on Form S-3 (No. 333-24915), filed with the Securities and
Exchange Commission on April 10, 1997, as amended.
(10) Previously filed in accordance with Section 305(b)(2) of the Trust
Indenture Act of 1939 and incorporated by reference herein.
(11) To be filed in accordance with Section 305(b)(2) of the Trust Indenture
Act of 1939.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(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.
II-3
<PAGE>
(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 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 to file an application for
the purpose of determining the eligibility of the trustee to act under
Subsection (a) of Section 310 of the Trust Indenture Act (the "Act") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
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 on the 6th day
of March, 1998.
BRE Properties, Inc.
By:/s/ LeRoy E. Carlson
----------------------------------
LEROY E. CARLSON
Executive Vice President,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frank C. McDowell and LeRoy E. Carlson, and
each of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubsititution, 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 on the
6th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John McMahan Director, Chairman of the Board
____________________________________
JOHN MCMAHAN
/s/ Frank C. McDowell President, Chief Executive Officer
____________________________________ and Director (Principal Executive
FRANK C. MCDOWELL Officer)
/s/ LeRoy E. Carlson Executive Vice President, Chief
____________________________________ Financial Officer and Secretary
LEROY E. CARLSON (Principal Financial Officer and
Principal Accounting Officer)
/s/ William E. Borsari Director
____________________________________
WILLIAM E. BORSARI
/s/ C. Preston Butcher Director
____________________________________
C. PRESTON BUTCHER
/s/ L. Michael Foley Director
____________________________________
L. MICHAEL FOLEY
/s/ Roger P. Kuppinger Director
____________________________________
ROGER P. KUPPINGER
/s/ Gregory M. Simon Director
____________________________________
GREGORY M. SIMON
/s/ Arthur G. von Thaden Director
____________________________________
ARTHUR G. VON THADEN
</TABLE>
II-5
<PAGE>
BRE PROPERTIES, INC.
EXHIBIT INDEX
TO REGISTRATION STATEMENT ON FORM-3 S
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT LOCATION
------- ------------------------------------------------- ----------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (common stock) Contained herein
1.2 Form of Underwriting Agreement (debt securities) Contained herein
5 Opinion of Paul, Hastings, Janofsky & Walker LLP Contained herein
regarding the validity of the securities being
registered
8 Opinion of Paul, Hastings, Janofsky & Walker LLP Contained herein
regarding tax matters
12 Computation of Ratio of Earnings to Fixed Charges Contained herein
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP Contained herein
(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) Contained herein
</TABLE>
II-6
<PAGE>
Exhibit 1.1
BRE PROPERTIES, INC.
_____ Shares of
Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
----------------------
_____, 1998
_____
_____
_____
_____
As Representatives of the several Underwriters
c/o _____
Dear Sirs and Mesdames:
1. Introductory. BRE Properties, Inc., a corporation organized under the
------------
laws of the State of Maryland (the "Company"), proposes to issue and sell,
pursuant to the terms of this Agreement, to the several Underwriters named in
Schedule A hereto (the "Underwriters" which term also shall include any
underwriter substituted as hereinafter provided in Section 10), an aggregate of
_____ shares of common stock, par value $.01 per share ("Common Stock"), of the
Company (the "Firm Shares").
The Company also proposes to issue and sell to the several Underwriters, on
a pro rata basis, at the option of the Underwriters, an aggregate of not more
than _____ additional shares of Common Stock (the "Optional Shares") as provided
in Section 3 of this Agreement. The Firm Shares and the Optional Shares are
collectively referred to herein as the "Shares." _____,
<PAGE>
_____, _____ and _____ are acting as representatives of the several Underwriters
and in such capacity are hereinafter referred to as the "Representatives."
2. (a) Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the several Underwriters, as of the date hereof, as
of the First Closing Date (as defined in Section 3), and as of the Option
Closing Date (as defined in Section 3), if any, and agrees with the several
Underwriters, as follows:
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
_____) for the registration under the Securities Act of 1933, as amended
(the "1933 Act"), of the Shares and certain other securities and has filed
such amendments thereto, if any, as may have been required to the date
hereof. Such registration statement (including all exhibits thereto, and
all documents incorporated or deemed to be incorporated by reference
therein and the information, if any, deemed to be a part thereof pursuant
to Rule 430A(b) of the rules and regulations of the Commission under the
1933 Act (the "Rules and Regulations")), as amended (if applicable) at the
time such registration became effective, and as from time to time amended
or supplemented pursuant to the 1933 Act, the Securities Exchange Act of
1934, as amended (the "1934 Act"), or otherwise, is hereinafter referred to
as the "Registration Statement." The Company proposes to file with the
Commission pursuant to Rule 424(b) ("Rule 424(b)") of the Rules and
Regulations the Prospectus Supplement (as defined in Section 4(j) hereof)
and, if required pursuant to Rule 424(b), the related prospectus dated
_____ (the "Base Prospectus"), and has previously advised you of all
information (financial and other) set forth therein. The Base Prospectus
and the Prospectus Supplement, each in the form first provided to the
Underwriters by the Company for use in connection with the offering of the
Shares (being the forms in which they are to be filed with the Commission
pursuant to Rule 424(b) or, solely in the case of the Base Prospectus, if
the Base Prospectus is not required to be re-filed with the Commission
pursuant to Rule 424(b), being the form in which the Base Prospectus was
most recently filed with the Commission pursuant to Rule 424(b), including
all documents incorporated or deemed to be incorporated by reference
therein, are hereinafter referred to, collectively, as the "Prospectus",
except that if any revised prospectus or prospectus supplement shall be
provided to the Underwriters by the Company for use in connection with the
offering and sale of the Shares which differs from the Prospectus first
provided to the Underwriters for such purpose (whether or not such revised
prospectus or prospectus supplement is required to be filed by the Company
with the Commission pursuant to Rule 424(b) of the Rules and Regulations),
the term "Prospectus" shall refer to such revised prospectus or prospectus
supplement, as the case may be, from and after the time it is first
provided to the Underwriters for such use. Unless the context otherwise
requires, all references in this Agreement to documents, financial
statements and schedules and other information which is "contained",
"included", "stated", "described in" or "referred to" in the Registration
Statement or the Prospectus (and all other references of like import) shall
be deemed to mean and include all such documents, financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case
2
<PAGE>
may be; and all references in this Agreement to amendments or supplements
to the Registration Statement or the Prospectus shall be deemed to mean and
include the filing of any document under the 1934 Act after the date of
this Agreement which is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be. For
purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus supplement, any preliminary prospectus, the
Prospectus Supplement, the Prospectus or any amendment or supplement to any
of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
(ii) The Registration Statement has become effective under the 1933
Act, and no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part
of the Commission for additional information has been complied with.
At the respective times the Registration Statement and any post-
effective amendments thereto became or become effective, as the case may
be, and at the First Closing Date (and, if any Optional Shares are
purchased, at the Option Closing Date), the Registration Statement complied
and will comply in all material respects with the requirements of the 1933
Act and the Rules and Regulations, and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus does not and will not include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
-------- -------
foregoing representations, warranties and agreements shall not apply to
information contained in or omitted from the Registration Statement or the
Prospec tus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter, through the
Representatives specifically for use in the preparation thereof.
Any preliminary prospectus supplement, any preliminary prospectus
and the Prospectus and any amendment or supplement thereto delivered to the
Underwriters for use in connection with the offering of the Shares was
identical to the respective electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(iii) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, when they were
filed with the Commission, complied in all material respects to the
requirements of the 1934 Act and the published rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
any
3
<PAGE>
further documents so filed and incorporated or deemed to be incorporated by
reference, when they are filed with the Commission, will comply in all
material respects to the requirements of the 1934 Act and the published
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(iv) 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 Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement). Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus (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.
(v) The financial statements of the Company, of Promontory Point
Apartments ("PPA"), of Red Hawk Ranch ("RHR"), of Foster's Landing
Apartments ("FLA"), of Lakeshore Landing Apartments ("LLA"), and of certain
Trammell Crow Residential multifamily properties (collectively, "TCRW")
included in the Registration Statement and the Prospectus, in each case,
together with the related notes and supporting schedules (if any), present
fairly the financial position of the Company, of PPA, of RHR, of FLA, of
LLA, and of TCRW, respectively, at the dates indicated and the financial
condition, results of operations, cash flows and shareholders' equity of
the Company and its subsidiaries, the gross income and direct operating
expenses of PPA, of RHR, of FLA and of LLA, and combined gross income and
direct operating expenses of TCRW, respectively, 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
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved, except as may be set
forth therein or in the Prospectus. The selected financial data, if
applicable, and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the Company's audited financial
statements included in the Registration Statement.
(vi) The accountants who have certified the financial statements and
supporting schedules included in the Registration Statement and the
Prospectus are independent public accountants as required by the 1933 Act
and the Rules and Regulations.
4
<PAGE>
(vii) The pro forma condensed financial statements, together with
the related notes and any supporting schedules, included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared on a basis substantially consistent with
the audited 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
condensed 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 1933 Act and the Rules and
Regulations (including, without limitation, Regulation S-X promulgated by
the Commission), and such pro forma adjustments have been properly applied
to the historical amounts in the compilation of such statements.
(viii) 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 Registration
Statement and the Prospectus; the Company is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
Arizona, the State of California, the State of Colorado, the State of
Nevada, the State of New Mexico, the State of Oregon, the State of Utah and
the State of 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.
(ix) Attached hereto as Schedule D is a true and complete list of
all subsidiaries of the Company and all other corporations, partnerships,
joint ventures, limited liability companies and other entities in which the
Company directly or indirectly owns capital stock or any other equity or
ownership interest. Schedule D accurately sets forth the jurisdiction of
organization of, and the Company's approximate percentage ownership
interest in, each such subsidiary and other entity. The Company does not
have any subsidiaries other than those listed on Schedule D and, except as
set forth in Schedule D, the Company does not directly or indirectly own
any capital stock or other equity or other ownership interests in any
corporation, partnership, joint venture, limited liability company or other
entity. Schedule D also correctly indicates whether each such subsidiary
and other entity listed thereon is a corporation, partnership, limited
liability company or other type of entity.
(x) 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 Registration
Statement and the Prospectus, and is duly qualified 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
5
<PAGE>
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; and (A) all
of the issued and outstanding shares of capital stock of each such
subsidiary that is a corporation have been duly authorized and validly
issued, are fully paid and non-assessable and except as set forth on
Schedule D, are and, at all times since the date on which such subsidiary
was organized, have been owned by the Company, directly or through wholly-
owned subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity, (B) all of the issued and
outstanding limited liability company interests of each such subsidiary
that is a limited liability company have been duly authorized and validly
issued (under applicable law and the limited liability company agreement of
such subsidiary), are fully paid and non-assessable and, except as set
forth on Schedule D, are owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity, and (C) all of the issued and
outstanding limited and general partnership interests of each such
subsidiary that is a partnership have been duly authorized (if applicable)
and validly issued and, except as set forth on Schedule D, are owned by the
Company, directly or through subsidiaries free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(xi) 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 Prospectus.
(xii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xiii) The authorized, issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus under the caption
"Capitalization" (except for subsequent issuances, if any, of Common Stock
pursuant to employee benefit, employee and director stock option and
dividend reinvestment plans or upon conversion of convertible securities
or upon exchange of exchangeable securities referred to in the Prospectus
or other subsequent issuances of Common Stock referred to in the
Prospectus); the shares of issued and outstanding Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued and
fully paid and non-assessable; the Common Stock, the Company's charter and
bylaws, and the Rights Agreement (as hereinafter defined) conform in all
material respects to all statements relating thereto contained in the
Prospectus; the form of certificate used to evidence the Common Stock is in
due and proper form and complies with all applicable statutory
requirements; and the issuance
6
<PAGE>
of the Shares to be issued and sold by the Company is not subject to
preemptive or other similar rights.
(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 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, the
consummation of the transactions contemplated herein, and compliance by
the Company with its obligations hereunder, have been duly authorized by
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 Subject Agreement (as defined
below) or any other 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
is 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
subsidi aries 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 and distribution of the Shares by the Underwriters.
"Subject Agreements" means (i) the Loan Agreement dated as of January 31,
1994 between The Prudential Insurance Company of America and the Company
(as successor by merger to Real Estate Investment Trust of California), as
amended by the First Amendment to Loan Agreement dated as of July 7, 1995,
the Second Amendment to Loan Agreement dated as of April 30, 1996, the
Third Amendment to Loan Agreement dated as of November 20, 1996, the Fourth
Amendment to Loan Agreement dated as of February 25, 1997 and the Fifth
Amendment to Loan Agreement dated as of June 30, 1997, (ii) the Loan
Agreement dated as of July 7, 1995 between The Prudential Insurance Company
of America and the Company (as successor by merger to Real Estate
Investment Trust of California), as amended by the First Agreement to Loan
Agreement dated as of April 30, 1996, the Second Agreement to Loan
Agreement dated as of November 20, 1996, the Third Amendment to Loan
Agreement dated as of February 25, 1997 and the Fourth Amendment to Loan
Agreement dated as of June 30, 1997, (iii) the Unsecured Line of Credit
Loan Agreement dated as of
7
<PAGE>
November 17, 1997 (the "Credit Agreement") between Bank of America National
Trust and Savings Association ("Bank of America") and the Company, as
amended by the Modification Agreement to Syndicate Loan dated as of January
20, 1998 between the Company and Bank of America, as agent for the several
financial institutions a party thereto, together with all guarantees
entered into by any subsidiaries of the Company in connection therewith,
(iv) the Amended and Restated Credit Agreement between the Company and
Sanwa Bank California dated as of December 31, 1997 (the "Sanwa Credit
Agreement"), together with all guarantees entered into by any subsidiaries
of the Company in connection therewith, (v) the Contribution Agreement
dated as of September 29, 1997, as amended (the "Contribution Agreement"),
between the TCR signatories named on Schedule A thereto, the Company and
BRE Property Investors LLC, a Delaware limited liability company (the
"Operating Company"), together with the guarantee entered into by the
Company pursuant to the Contribution Agreement, as amended by Amendment No.
1 to the Contribution Agreement dated November 18, 1997, (vi) the Amended
and Restated Limited Liability Company Agreement of the Operating Company,
and (vii) the Amended and Restated Limited Liability Company Agreement of
Blue Ravine Investors, LLC, a Delaware limited liability company ("Blue
Ravine"); "Prudential Agreements" means the Loan Agreements, as amended,
referred to in clauses (i) and (ii) of this sentence; and "LLC Agreements"
means the Amended and Restated Limited Liability Company Agreements
referred to in clauses (vi) and (vii) of this sentence. All amendments,
supplements and restatements of the Subject Agreements are listed in
clauses (i) through (vii) of the preceding sentence. Except as otherwise
described in the Prospectus, no subsidiary of the Company is a guarantor
of, or is a party to or bound by any instrument or agreement pursuant to
which it has guaranteed or may be required to guarantee or cause another
subsidiary of the Company to guarantee, any borrowings or other
indebtedness of the Company. Except as otherwise described in the
Prospectus, the Company is not a party to or bound by any instrument or
agreement pursuant to which it is or may be required to cause any of its
subsidiaries to guarantee any borrowings or other indebtedness of the
Company.
(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, 1995, its short taxable year ended December 31, 1995, its taxable
year ended December 31, 1996 and its taxable year ended December 31, 1997,
and will continue to qualify as a "real estate investment trust" under the
Code after consummation of the transactions contemplated by the Prospectus;
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, 1994. As used in this paragraph (xv), the
term "Company" includes BankAmerica Realty Investors, a California business
trust and BRE Properties, Inc., a Delaware corporation which are both
predecessors to BRE Properties, Inc., a Maryland corporation.
8
<PAGE>
(xvi) Each entity listed on Schedule D either qualifies as a
partnership for federal, state and local income tax purposes or as a
"qualified REIT subsidiary" within the meaning of Section 856(i) of the
Code or qualifies to be disregarded as an entity separate from the Company
or one of its subsidiaries for federal, state and local income tax
purposes.
(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 Registration Statement or the Prospectus (other than as disclosed
therein) or which might result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, or which might materially and adversely affect the properties
or assets of the Company or any of its subsidiaries; and there are no
contracts or documents of the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration Statement or any
document incorporated or deemed to be incorporated therein by the 1933 Act,
the Rules and Regulations, the 1934 Act or the rules and regulations of the
Commission thereunder which have not been so filed.
(xviii) The Company is eligible to use a Form S-3 registration
statement under the 1933 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.
(xix) 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 1934 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 shares of Common Stock or
facilitation of the sale or resale of the Shares.
(xx) 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.
(xxi) The Company has full right, power and authority to enter into
this Agreement; this Agreement has been duly authorized, executed and
delivered by the Company.
(xxii) The outstanding shares of Common Stock are listed on the New
York Stock Exchange and the Shares to be sold by the Company have been
approved for listing, subject to official notice of issuance, on the New
York Stock Exchange.
(xxiii) Except as otherwise disclosed in the Prospectus: (A) the
Company and its subsidiaries have good and marketable title in fee simple
to all real property and improvements described in the Prospectus as being
owned by the Company (none of
9
<PAGE>
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 Prospectus are
disclosed therein; (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 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 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 (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.
(xxiv) 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 Prospectus.
(xxv) Except as otherwise set forth in the Registration Statement,
(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,
10
<PAGE>
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 Registration Statement and (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 Registration Statement and (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 (hereinafter
defined), except for such claims as (y) are not required to be disclosed in
the Registration Statement and (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 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 "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").
11
<PAGE>
(xxvi) The issuance, sale and public offering of the Shares to be
issued and sold by the Company have been approved by a majority of all of
the "Continuing Directors" and do not constitute a "Business Combination"
(as such terms are defined in Article IX of the Company's charter.
(xxvii) 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.
(xxviii) The common share purchase rights (the "Rights") issuable
pursuant to the Rights Agreement dated as of _____, as supplemented (the
"Rights Agreement"), between the Company and _____ have been duly
authorized by the Company and, when the Shares are issued by the Company
pursuant to this Agreement, the Rights attached to such Shares will be
validly issued.
(b) Any certificate signed by any officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. Purchase by and Sale and Delivery to, the Underwriters; Closing Date.
--------------------------------------------------------------------
On the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
hereby agrees to sell to the Underwriters and the Underwriters agree, severally
and not jointly, to purchase from the Company at the price per share set forth
in Schedule B hereto, the number of Firm Shares set forth opposite their
respective names in Schedule A, subject to adjustment in accordance with Section
10 hereof.
The Company will deliver the Firm Shares to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given not later
than one full business day prior to the First Closing Date or, if no such
direction is received, in the names of the respective Underwriters), against
payment of the purchase price therefor by wire transfer of immediately available
funds, at the offices of Brown & Wood llp, 555 California Street, San Francisco,
California 94104. The time and date of delivery and closing shall be at 10:00
A.M., New York time, on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day), business day after the date hereof; provided,
--------
however, that such date and time may be accelerated or extended by agreement
between the Company and the Representatives or postponed pursuant to the
provisions of Section 10 hereof. The time and date of such payment and delivery
are herein referred to as the "First Closing Date". The Company shall make the
certificates for the Firm Shares available to the Representatives for
examination on behalf of the Underwriters not later than 10:00 A.M., New York
time, on the business day preceding the First Closing Date in New York, New
York.
12
<PAGE>
In addition, on the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company hereby grants the Underwriters an option to purchase,
severally and not jointly, up to an additional _____ shares of Common Stock for
the purpose of covering any over-allotments in connection with the distribution
and sale of the Firm Shares as contemplated by the Prospectus. The purchase
price per share to be paid for the Optional Shares shall be the same price per
share as for the Firm Shares, less an amount per share equal to any dividends or
distributions declared by the Company and payable on any Firm Shares and not
payable on such Optional Shares. The option granted hereby may be exercised as
to all or any part of the Optional Shares at any time not more than 30 days
subsequent to the date of this Agreement. No Optional Shares shall be sold and
delivered unless the Firm Shares previously have been, or simultaneously are,
sold and delivered. The right to purchase the Optional Shares or any portion
thereof may be surrendered and terminated at any time upon notice by the
Representatives to the Company.
The option granted hereby may be exercised by the Representatives on behalf
of the Underwriters by giving written notice to the Company setting forth the
number of Optional Shares to be purchased by them and the date and time for
delivery of and payment for the Optional Shares. Such date and time for
delivery of and payment for the Optional Shares (which may be the First Closing
Date) is herein called the "Option Closing Date" (the First Closing Date and the
Option Closing Date are herein called, collectively, the "Closing Dates" and,
individually, a "Closing Date") and shall not be later than seven full business
days after written notice is given. Optional Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm Shares
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of Firm Shares (subject to adjustment by the Representatives to
eliminate fractional shares or odd lots). Upon exercise of the option by the
Representatives, the Company agrees to sell to the Underwriters the number of
Optional Shares set forth in the written notice of exercise and the Underwriters
agree, severally and not jointly, subject to the terms and conditions herein set
forth, to purchase such Optional Shares.
The Company will deliver the Optional Shares to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given not later
than one full business day prior to the Option Closing Date or, if no such
direction is received, in the names of the respective Underwriters), against
payment of the purchase price therefor by wire transfer of immediately available
funds, at the offices of Brown & Wood llp, 555 California Street, San Francisco,
California 94104. The Company shall make the certificates for the Optional
Shares available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York time, on the business day
preceding the Option Closing Date in New York, New York.
It is understood that _____, _____, _____ or _____ individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter or Underwriters for the
Shares to be purchased by such
13
<PAGE>
Underwriter or Underwriters. Any such payment by _____, _____, _____ or _____
shall not relieve such Underwriter or Underwriters from any of its or their
other obligations hereunder.
After the execution and delivery of this Agreement, the several
Underwriters propose to make an initial public offering of the Shares at the
initial public offering price.
4. Covenants and Agreements of the Company. The Company covenants and
---------------------------------------
agrees with the several Underwriters that:
(a) The Company will advise the Representatives promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for additional information, and will not at any time file any
amendment to the Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing or use thereof or to which the Representatives
shall reasonably object in writing or which is not in compliance with the 1933
Act and the Rules and Regulations. The Company will advise the Representatives
promptly when the Prospectus has been filed pursuant to Rule 424(b) of the Rules
and Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to continue
the distribution of the Shares and, in the case of any such amendments to the
Registration Statement, will use its best efforts to cause the same to become
effective as promptly as possible. The Company will promptly file all reports
and any definitive proxy or information statements required to be filed with the
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act for so long as
the delivery of a prospectus is required in connection with the offering or sale
of the Shares.
(c) If at any time when a prospectus relating to the Shares is required to
be delivered under the 1933 Act any event occurs as a result of which the
Prospectus would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the 1933 Act or the Rules and
Regulations, the Company will promptly notify the Representatives thereof and
will prepare an amended or supplemented Prospectus (in form and substance
reasonably satisfactory to counsel to the Underwriters) or, with the consent of
counsel to the Underwriters, make an appropriate filing pursuant to Section 13
or 14 of the 1934 Act which will correct such statement or omission; and, in
case any Underwriter is required to deliver a prospectus relating to the Shares
nine months or more after the date of this Agreement, the Company upon the
request of the Representatives and at the expense of such Underwriters will
prepare promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the 1933 Act.
14
<PAGE>
(d) The Company will deliver to the Representatives, at or before the First
Closing Date, signed copies of the Registration Statement and all amendments
thereto (including all financial statements and exhibits thereto and all
documents incorporated or deemed to be incorporated by reference therein) and
will deliver to the Representatives such number of copies of the Registration
Statement, including such financial statements and all documents incorporated or
deemed to be incorporated by reference therein but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the date of
the initial public offering, and thereafter from time to time during the period
when delivery of a prospectus relating to the Shares is required under the 1933
Act, as many copies of the Prospectus, in final form or as thereafter amended or
supplemented, as the Representatives may reasonably request; provided, however,
--------
that the expense of the preparation and delivery of any prospectus required for
use nine months or more after the date of this Agreement, shall be borne by the
Underwriters required to deliver such prospectus. The copies of the
Registration Statement and each amendment thereto and the copies of any
preliminary prospectus and any preliminary prospectus supplement and the
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than 60 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) which will be in reasonable detail
(but which need not be audited) and which will comply with Section 11(a) of the
1933 Act, covering a period of at least twelve months beginning not later than
the first day of the Company's fiscal quarter next following the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the
Shares to be qualified for sale under the securities laws and real estate
syndication laws of such states and other jurisdictions as the Representatives
may reasonably designate and at the request of the Representatives will make
such applications and furnish such information as may reasonably be required of
it as the issuer of the Shares for that purpose; provided, however, that the
-------- -------
Company shall not be required to qualify to do business or to file a general
consent to service of process in any such jurisdiction. The Company will, from
time to time, prepare and file such statements and reports as are or may be
required of it as the issuer of the Shares to continue such qualifications in
effect for so long a period as the Representatives may reasonably request for
the distribution of the Shares.
(g) The Company will furnish to its shareholders annual reports containing
financial statements certified by independent public accountants and with
quarterly summary financial information, in reasonable detail which may be
unaudited. During the period of five years from the date hereof, the Company
will deliver to the Representatives and, upon request, to each of the other
Underwriters, copies of each annual report of the Company and each other report
furnished by the Company to its shareholders; and will deliver to the
Representatives, as soon as they are available, copies of any other reports
(financial or other)
15
<PAGE>
which the Company shall publish or otherwise make available to any of its
security holders as such and, as soon as they are available, copies of any
reports and financial statements furnished to or filed with the Commission or
any national securities exchange.
(h) The Company will use its best efforts to effect the listing of the
Shares to be issued and sold by the Company on the New York Stock Exchange.
(i) The Company will use the net proceeds received by it from the sale of
the Shares sold by it in the manner specified in the Prospectus Supplement under
"Use of Proceeds".
(j) Immediately following the execution of this Agreement, the Company will
prepare a prospectus supplement, dated the date hereof (the "Prospectus
Supplement"), containing the public offering price of the Shares, the
underwriting discounts and commissions, the plan of distribution of the Shares
and such other information as may be required by the 1933 Act or the Rules and
Regulations or as the Representatives and the Company deem appropriate, and will
file or transmit for filing with the Commission in accordance with Rule 424(b)
of the Rules and Regulations copies of such Prospectus Supplement and, if
required by Rule 424(b), the Base Prospectus.
(k) During the period of 90 days from the date of this Agreement, the
Company agrees that it will not, without the prior written consent of _____ on
behalf of the Underwriters, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of
Common Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock, other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, or (B) any shares of Common Stock issued by the Company pursuant to
any employee stock option, director stock option or dividend reinvestment plan
of the Company, or the shareholder rights plan of the Company, referred to in
the Prospectus.
(l) The Company will use its best efforts to continue to meet the
requirements to qualify as a "real estate investment trust" under the Code.
(m) In accordance with the provisions of the Cuba Act, if applicable, and
without limitation to the provisions of Section 8 hereof, the Company will
indemnify each Underwriter against any and all losses, claims, damages,
liabilities and expenses (including attorneys' fees) arising out of or based
upon any violation by the Company of the Cuba Act.
5. Payment of Expenses. The Company will pay (directly or by
-------------------
reimbursement) all expenses incident to the performance of their obligations
under this Agreement, including but not limited to all expenses and taxes
incident to delivery of the Shares to the
16
<PAGE>
Representatives, all expenses incident to the registration of the Shares under
the 1933 Act and the printing of copies of the Registration Statement, any
preliminary prospectus, any preliminary prospectus supplement, the Prospectus,
any amendments or supplements thereto, all expenses incident to the preparation,
word processing, printing and delivery of all "Blue Sky" memoranda and this
Agreement and furnishing the same to the Underwriters and dealers except as
otherwise provided in Sections 4(c) and 4(d), the fees and disbursements of the
Company's counsel and accountants, all filing and printing fees and expenses
(including reasonable legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification or exemption of the
Shares for sale under securities laws and real estate syndication laws of such
jurisdictions as the Representatives may designate, all fees and expenses paid
or incurred in connection with any filings made with the National Association of
Securities Dealers, Inc., the fees and expenses incurred in connection with the
listing of the Shares on the New York Stock Exchange, the costs of preparing
certificates evidencing the Shares, the costs and fees of any custodian,
registrar or transfer agent and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus, any preliminary prospectus supplement or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that the
-------- -------
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (excluding documents
incorporated by reference therein) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (excluding documents incorporated by reference therein) would
have cured the defect giving rise to such losses, claims, damages or
liabilities.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each of the Company's directors, each of the
Company's officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any
17
<PAGE>
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus, any preliminary
prospectus supplement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, any preliminary prospectus
supplement, the Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to paragraph (a) or (b) of this Section 6, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act and (ii) the fees and expenses of more than one
separate firm (in addition to any local counsel) for the Company, its directors,
its officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of either such Section. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by _____. In the case of
any such separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
The indemnifying party 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 from and against any loss or liability 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 the second and third sentences of this paragraph, 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
18
<PAGE>
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 of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or (b)
of this Section 6 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 6 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 6 were determined by pro rata
--- ----
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) of this Section 6. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at
19
<PAGE>
which the Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 6 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 6,
and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter, or
the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Shares.
7. Conditions of Underwriters' Obligations. The respective obligations
---------------------------------------
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date of this Agreement, the First
Closing Date and, if applicable, the Option Closing Date, of the respective
representations and warranties made herein by the Company, of the statements of
the Company's officers or directors in any certificates furnished pursuant to
the provisions hereof, to compliance at and as of the First Closing Date or
Option Closing Date (if any), as the case may be, by the Company with their
respective covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to such First Closing Date or Option Closing Date,
as the case may be, and to the following additional conditions:
(a) The Registration Statement shall be effective and, at such Closing
Date (i) no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives, and (ii) there shall not have come to the attention
of the Representatives any facts that would cause them to believe that the
Prospectus, at the time it was required to be delivered to a purchaser of
the Shares, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. If the Company has elected to rely upon Rule 430A of the Rules
and Regulations, the price of the Shares and any price related information
previously omitted from the Registration Statement pursuant to Rule 430A
shall have been transmitted to the Commission for filing pursuant to Rule
424(b) of the Rules and Regulations within the prescribed time period, and
before the First Closing Date the Company shall have provided evidence
satisfactory to the Representatives of such timely filing, or a post-
effective amendment providing such
20
<PAGE>
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) At the date of this Agreement, the Representatives shall have
received from Ernst & Young LLP a letter, dated the date of this Agreement,
in form and substance previously approved by the Representatives, together
with signed or reproduced copies of such letter for each of the
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus (including, without limitation,
as to any pro forma financial statements and as to all historical financial
statements of the Company, PPA, RHR, FLA, LLA and TCRW).
(c) The Representatives shall have received from Ernst & Young LLP a
letter dated the First Closing Date to the effect that they reaffirm the
statements made in the letter furnished pursuant to Section 7(b) above,
except that the specified date referred to therein shall be a date not more
than three business days prior to the First Closing Date.
(d) The Representatives shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for the Company, a favorable opinion dated
the First Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) To the best of such counsel's knowledge and information, the
Company and its subsidiaries are operating in compliance with all
material franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders required for the conduct
of their respective businesses, all of which are valid and in full
force and effect.
(ii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Arizona, the
State of California, the State of Colorado, the State of Nevada, the
State of New Mexico, the State of Oregon, the State of Utah and the
State of 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.
(iii) Each Covered Subsidiary (as hereinafter defined) has been
duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization and has power and
authority as a corporation, limited partnership or limited liability
company, as the case may be, to own, lease and operate its properties
and to conduct its business as described in the Registration Statement
and the Prospectus; each Covered Subsidiary of the
21
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Company is duly qualified 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 the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise; and
(A) all of the issued and outstanding shares of capital stock of each
Covered Subsidiary that is a corporation have been duly authorized and
validly issued, are fully paid and non-assessable and, to the best
knowledge of such counsel and except as otherwise set forth on
Schedule D, are and, at all times since the date on which such
subsidiary was organized, have been owned by the Company, directly or
through wholly-owned subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, and
(B) all of the issued and outstanding limited liability company
interests of each Covered Subsidiary that is a limited liability
company have been duly authorized and validly issued (under
applicable law and the limited liability company agreement of such
Covered Subsidiary), are fully paid and non-assessable and, to the
best knowledge of such counsel and except as set forth on Schedule D,
are owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity, and (C) all of the issued and outstanding partnership
interests of each Covered Subsidiary that is a partnership have been
duly authorized (if applicable) and validly issued and, to the best
knowledge of such counsel and except as set forth on Schedule D, are
owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity. As used herein, the term "Covered Subsidiary" means
each corporation, limited partnership, limited liability company and
other entity listed under Item A of Schedule D, other than those
entities designated on Schedule D as an "Excluded Subsidiary."
(iv) The authorized, issued and outstanding shares of capital
stock of the Company at _____ are as set forth in the Prospectus under
"Capitalization";
(v) The execution, delivery and performance of this Agreement,
the consummation of the transactions herein contemplated, and
compliance by the Company with its obligations hereunder, will not
result in a breach or violation of any of the terms or provisions of
or constitute a default under (A) any Subject Agreement, (B) any other
material contract, indenture, mortgage, deed of trust, note, loan
agreement or other agreement or instrument known to such counsel to
which the Company or any subsidiary is a party or by which the Company
or any subsidiary is bound or to which any of their respective
properties or assets are subject, (C) the Organizational Documents of
the Company or any of the Covered Subsidiaries, or (D) to the best of
such counsel's knowledge and information, any law, order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their respective properties (provided that such
22
<PAGE>
counsel need express no opinion as to state securities or real estate
syndication laws of the various jurisdictions where the Shares are to
be offered).
(vi) The Registration Statement is effective under the 1933 Act
and, to the best of such counsel's knowledge and information, no stop
order suspending the effectiveness of the Registration Statement has
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission.
(vii) At the time the Registration Statement became effective
and at the date of this Agreement, the Registration Statement (other
than the financial statements and supporting schedules and other
financial and statistical data included or incorporated by reference
therein or omitted therefrom, as to which no opinion need be rendered)
complied as to form in all material respects with the requirements of
the 1933 Act and the Rules and Regulations; and nothing has come to
such counsel's attention that would lead them to believe that the
Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at the date of the
Prospectus Supplement or at the date of such opinion, included or
includes an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (except that no statement need be made as to financial
statements or supporting schedules or other financial or statistical
data included or incorporated by reference in or omitted from the
Registration Statement or the Prospectus).
(viii) The documents incorporated or deemed to be incorporated
by reference in the Prospectus (other than the financial statements
and supporting schedules and other financial and statistical data
included or incorporated by reference therein or omitted therefrom, as
to which no opinion need be rendered), as of the dates they were filed
with the Commission (or, if such incorporated documents were amended,
when such amendment was filed), complied as to form in all material
respects with the requirements of the 1934 Act and the published rules
and regulations thereunder.
(ix) No filing with, or consent, approval, authorization,
license, registration, qualification, decree or order of, any court or
governmental authority or agency is required in connection with the
execution, delivery or performance of this Agreement, or the issuance
or sale of the Shares to be issued and sold by the Company to the
Underwriters, except such as has been obtained under the 1933 Act or
the Rules and Regulations or such as may be required under state
securities laws or real estate syndication laws (provided that such
counsel need express no opinion as to filings with, or consents,
23
<PAGE>
approvals, authorizations, licenses, registrations, qualifications,
decrees or orders of, any foreign court or foreign governmental
authority or agency).
(x) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xi) The Company is eligible to use a Form S-3 registration
statement under the 1933 Act and is also eligible to use a Form S-3
registration statement pursuant to the standards for that Form as in
effect immediately prior to October 21, 1992.
(xii) 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 "real estate investment trust" since its original
organization; the Company has qualified as a "real estate investment
trust" 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); it is anticipated that the
Company will qualify to be taxed as a "real estate investment trust"
under the Code for its taxable year ended December 31, 1997; and the
Company was and is organized and was operated and is operating in a
manner that enabled and will enable it to qualify to be taxed as a
"real estate investment trust" under the Code for its taxable year
ended December 31, 1997 and its taxable years ending December 31, 1998
and thereafter provided the Company met (in the case of its taxable
year ended December 31, 1997) and continues to meet (in the case of
its taxable years ending December 31, 1998 and thereafter), 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 "real estate investment
trust". As used in this paragraph (xii) and paragraph (xiii) below,
the term "Company" includes BankAmerica Realty Investors, a California
business trust and BRE Properties, a Delaware corporation which are
both predecessors to BRE Properties, Inc., a Maryland corporation.
(xiii) Each entity listed on Schedule D either qualifies as a
partnership for federal income tax purposes and for California or
Delaware, as the case may be, income tax purposes or as a "qualified
REIT subsidiary" within the meaning of Section 856(i) of the Code or
qualifies to be disregarded as an entity separate from the Company or
one of its subsidiaries for federal income tax purposes and for
California or Delaware, as the case may be, income tax purposes.
(xiv) The information in the Prospectus under the captions "The
Operating Company", "Risk Factors - Real Estate Investment Risks -
Restrictions
24
<PAGE>
in the Operations of the Operating Company", "Risk Factors - Real
Estate Investment Risks - Limited Indemnification" (only with respect
to the first, second and third paragraphs under such caption),
"Description of Common Shares", "Restrictions on Transfers of Capital
Stock; Redemption" and "Federal Income Tax Considerations" and the
information in the Company's 1996 Annual Report on Form 10-K under the
caption "Legal Proceedings", to the extent that it constitutes matters
of law or legal conclusions, or summaries of provisions of the
Company's charter or by-laws, the Subject Agreements, the Rights
Agreement (as defined in Section 2(a)(xxviii) hereof) or of other
documents, agreements or instruments, has been reviewed by such
counsel and is correct in all material respects; and the opinion of
such counsel under the caption "Federal Income Tax Considerations" is
confirmed.
(xv) There are no legal or governmental proceedings pending or,
to the best of such counsel's knowledge and information, threatened
against the Company or any of its subsidiaries which are required to
be disclosed in the Registration Statement, other than those disclosed
therein, and all pending legal or governmental proceedings to which
the Company or any of its subsidiaries is a party or of which any of
the property of the Company or any of its subsidiaries is the subject
which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material.
(xvi) To the best of such counsel's knowledge and information,
there are no contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in
the Registration Statement or in the documents incorporated by
reference therein or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference
as exhibits thereto, the descriptions thereof or references thereto
are correct in all material respects, and, to the best of such
counsel's knowledge and information, no default exists in the due
performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument so described, referred
to or filed.
(xvii) The issuance, sale and public offering of the Shares 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 VIII of the Company's amended
and restated articles of incorporation).
(xviii) The Rights have been duly authorized by the Company
and, when the Shares are issued by the Company pursuant to this
Agreement, the Rights attached to such Shares will be validly issued.
25
<PAGE>
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein. In giving their opinion, Paul,
Hastings, Janofsky & Walker llp may rely (i) as to the qualification of the
Company and its subsidiaries to do business in any state or jurisdiction,
upon certificates of appropriate government officials, (ii) as to matters
of fact, upon certificates and written statements of officers of and
accountants for the Company, and (iii) as to matters arising under the laws
of the State of Maryland, upon the opinion of _____ delivered pursuant to
Section 7(e) hereof.
(e) The Representatives have received from _____, Maryland counsel for
the Company, a favorable opinion dated the First Closing Date, in form and
substance satisfactory to the Representatives, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland.
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and conduct its business as described
in the Registration Statement and the Prospectus.
(iii) The authorized, issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any, of Common
Stock pursuant to the employee benefit, employee and director stock
option and dividend reinvestment plans referred to in the Prospectus);
and the shares of issued and outstanding Common Stock outstanding
prior to the issuance of the Shares to be sold by the Company have
been duly authorized and validly issued, are fully-paid and non-
assessable, and are not subject to any preemptive or other similar
rights arising by operation of law, under the charter or by-laws of
the Company, under any resolution adopted by the board of directors of
the Company or any committee thereof or, to the best of such counsel's
knowledge, otherwise.
(iv) The Shares to be sold by the Company have been duly
authorized by the Company for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid
and non-assessable; and the issuance of such Shares is not subject to
preemptive or other similar rights arising by operation of law, under
the charter or by-laws of the Company or under any resolution adopted
by the board of directors of the Company or any committee thereof.
(v) The Common Stock conforms to the description thereof
contained in the Prospectus in all material respects, and the form of
certificate used to evidence the Common Stock is in due and proper
form and complies in all material respects with all applicable
statutory requirements.
26
<PAGE>
(vi) This Agreement has been duly authorized, executed and
delivered by the Company; and the execution, delivery and performance
of this Agreement, the consummation of the transactions herein
contemplated, and compliance by the Company with its obligations
hereunder, will not result in a breach or violation of any of the
terms or provisions of or constitute a default under the Company's
charter or by-laws or, to the best of such counsel's knowledge, any
law, order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties.
(vii) No filing with, or consent, approval, authorization or
order of any court or governmental authority or agency is required in
connection with the issuance or sale of the Shares to the
Underwriters, except such as has been obtained under the 1933 Act or
the Rules and Regulations or such as may be required under state
securities laws or real estate syndication laws (provided that such
counsel need express no opinion as to consents, approvals,
authorizations or orders of any foreign court or governmental
authority or agency).
(viii) The information in the Prospectus under the captions
"Description of Common Shares", "Restrictions on Transfers of Capital
Stock; Redemption" and "Risk Factors--Provisions Which Could Limit a
Change in Control or Deter a Takeover", and the information in the
Company's 1996 Annual Report on Form 10-K under the caption "Risk
Factors--Provisions Which Could Limit a Change in Control or Deter a
Takeover", to the extent that it constitutes matters of law or legal
conclusions, or summaries of provisions of the Company's charter or
by-laws, or of other documents, agreements or instruments, has been
reviewed by such counsel and is correct in all material respects.
(ix) The issuance, sale and public offering of the Shares have
been approved by the "Continuing Directors" and do not constitute a
"Business Combination" (as such terms are defined in Article VIII of
the Company's charter).
(x) The Rights have been duly authorized by the Company and,
when the Shares to be sold by the Company are issued by the Company
pursuant to this Agreement, the Rights attached to such Shares will be
validly issued.
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein. In giving their opinion, _____
(i) may rely as to matters of fact, to the extent not independently
verified by such counsel, upon certificates and written statements of
officers and accountants for the Company and (ii) shall state that Paul,
Hastings, Janofsky & Walker LLP and Brown & Wood LLP, in rendering their
opinions pursuant to Sections 7(d) and 7(f) of this Agreement, may rely on
such opinion of Maryland counsel as to all matters arising under the laws
of the State of Maryland.
27
<PAGE>
(f) The Representatives shall have received from Brown & Wood llp,
counsel for the Underwriters, their favorable opinion or opinions dated the
First Closing Date with respect to the organization of the Company, the
validity of the Shares to be sold by the Company, this Agreement, the
Registration Statement, the Prospectus and such other related matters as
the Representatives may require, and the Company shall have furnished to
such counsel such documents as they may request for the purpose of enabling
them to pass upon such matters.
(g) Subsequent to the execution and delivery of this Agreement and
prior to the applicable Closing Date (1) there shall not have occurred any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any
of the Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the 1933 Act; and (2) there shall not have occurred any
change, or any development involving a prospective 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 Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your judgment,
is material and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus. At the applicable Closing Date (i) the Registration Statement
and the Prospectus shall contain all statements which are required to be
stated therein in accordance with the 1933 Act and the Rules and
Regulations and in all material respects shall conform to the requirements
of the 1933 Act and the Rules and Regulations, and neither the Registration
Statement nor the Prospectus shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and no
action, suit or proceeding at law or in equity shall be pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries which would be required to be set forth in the Registration
Statement or the Prospectus other than as set forth therein, (ii) no
proceeding shall be pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries before or by any Federal,
state or other court, commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially and adversely
affect the business, property, financial condition or income of the
Company and its subsidiaries considered as one enterprise other than as set
forth in the Registration Statement and the Prospectus, (iii) neither the
Company nor any of its subsidiaries shall be in default in the performance
or observance of any contract to which it is a party, except such defaults
that would not have a material adverse effect on the condition, financial
or otherwise, of the Company and its subsidiaries considered as one
enterprise or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, (iv) no stop
order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceeding therefor shall have been
instituted or threatened by the Commission and (v) the Representatives
shall have received, at such First Closing Date, a certificate of the
President and the Chief Financial Officer of the
28
<PAGE>
Company, dated as of the First Closing Date, evidencing compliance with the
appropriate provisions of this subsection (g).
(h) The Representatives shall have received a certificate, dated the
First Closing Date, of the President and the Chief Financial Officer of the
Company to the effect that the representations and warranties of the
Company contained in Section 2(a) are true and correct with the same force
and effect as though expressly made at and as of the First Closing Date.
(i) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the relevant Closing Date, of
the representations and warranties made herein by the Company, as to
compliance at and as of such Closing Date by the Company with its covenants
and agreements herein contained and other provisions hereof to be satisfied
at or prior to such Closing Date and as to other conditions to the
obligations of the Underwriters hereunder.
(j) At the date of this Agreement, the Representatives shall have
received an agreement substantially in the form of Exhibit A hereto signed
by the persons listed on Schedule C hereto.
(k) In the event the Underwriters exercise the option granted in
Section 3 hereof to purchase all or any portion of the Optional Shares, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any of its
officers or directors hereunder shall be true and correct as of the Option
Closing Date, and the Representatives shall have received:
(i) A letter from Ernst & Young LLP in form and substance
satisfactory to the Representatives and dated the Option Closing
Date, substantially the same in scope and substance as the letter
furnished to the Representatives pursuant to Section 7(c), except that
the specified date in the letter furnished pursuant to this Section
7(k)(i) shall be a date not more than five days prior to the Option
Closing Date.
(ii) The favorable opinion of Paul, Hastings, Janofsky & Walker
LLP, counsel for the Company, in form and substance satisfactory to
the Representatives, dated the Option Closing Date, relating to the
Optional Shares and otherwise to the same effect as the opinion
required by Section 7(d).
(iii) The favorable opinion of _____, Maryland counsel for the
Company, in form and substance satisfactory to the Representatives,
dated the Option Closing Date, relating to the Optional Shares and
otherwise to the same effect as the opinion required by Section 7(e).
29
<PAGE>
(iv) The favorable opinion of Brown & Wood LLP, counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional
Shares and otherwise to the same effect as the opinion required by
Section 7(f).
(v) A certificate, dated the Option Closing Date, of the
President and the Chief Financial Officer of the Company confirming
that the certificate or certificates delivered at the First Closing
Date pursuant to Section 7(g) and Section 7(h) remains or remain true
as of the Option Closing Date.
(vi) Such additional certificates, dated the Option Closing
Date, as the Representatives may have reasonably requested pursuant to
Section 7(i).
If any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, (i) this Agreement
may be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram or telecopy at or prior to the First
Closing Date, and (ii) the obligations of the Underwriters to purchase Optional
Shares may be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram or by telecopy at or prior to the Option
Closing Date.
8. Termination. This Agreement may be terminated by the Representatives
-----------
by notice to the Company at or prior to the First Closing Date, and the
obligations of the Underwriters to purchase Optional Shares may be terminated by
the Representatives by notice to the Company at or prior to the Option Closing
Date, if (a) after the execution and delivery of this Agreement and prior to the
First Closing Date or the Option Closing Date, as the case may be, (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activates in New York or California shall have been declared
by either Federal, New York State or California State authorities or (iv) there
shall have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
9. Reimbursement of Underwriters. Notwithstanding any other provisions
-----------------------------
hereof, if this Agreement shall be terminated by the Representatives under
Section 7, Section 8 or Section 11, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to its obligations pursuant to
Section 6 hereof, the Company will reimburse the reasonable out-of-pocket
expenses of the several Underwriters (including reasonable fees and
disbursements of counsel for the Underwriters) incurred in connection with this
Agreement and the proposed purchase and offers of the Shares, and promptly upon
demand the Company
30
<PAGE>
will pay such amounts to you as Representatives. In addition, the provisions of
Section 6 hereof will survive any termination of this Agreement.
10. Default by Underwriters. If any Underwriter or Underwriters shall
-----------------------
default in its or their obligations to purchase any of the Shares which it or
they are obligated to purchase under this Agreement on the First Closing Date
(including, without limitation, any Optional Shares to be purchased on the First
Closing Date), and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Shares which the Underwriters are obligated to purchase at
the First Closing Date, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Shares
which such defaulting Underwriter or Underwriters agreed but failed to purchase.
If any Underwriter or Underwriters shall so default and the aggregate number of
Shares with respect to which such default or defaults occur is more than 10% of
the total number of Shares which the Underwriters are obligated to purchase at
the First Closing Date and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares by other persons are not made within
48 hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the Shares of a defaulting Underwriter
or Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the First Closing Date for a period of not more than five full
business days, in order that the Company may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of Shares to be
purchased by the remaining Underwriters or substituted underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company or the Underwriters for damages occasioned by its
default hereunder. Any termination of this Agreement pursuant to this Section
10 shall be without liability on the part of any non-defaulting Underwriter or
the Company, except for expenses to be paid or reimbursed pursuant to Section 5
and except for the provisions of Section 6.
11. Default by the Company. If the Company shall fail at the First
----------------------
Closing Date to sell and deliver the number of Shares which each is obligated to
sell hereunder, then this Agreement shall terminate without any liability on the
part of any non-defaulting party. No action taken pursuant to this Section
shall relieve the Company from liability, if any, in respect of such default.
12. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Underwriters shall be mailed, delivered or telecopied and confirmed
to you, as their Representatives c/o _____ at _____, except that notices given
to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter
at the address furnished by the Representatives or, if sent to the Company shall
be mailed, delivered or telecopied and confirmed at BRE Properties, Inc.,
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<PAGE>
44 Montgomery Street, Suite 3600, San Francisco, California 94104-4602,
attention: LeRoy E. Carlson.
13. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company,and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and the indemnities of the several Underwriters
shall also be for the benefit of each director or trustee of the Company, each
of the Company's officers who has signed the Registration Statement and the
person or persons, if any, who control the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act.
14. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said state. Unless otherwise expressly stated, specified
times of day refer to New York City time.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
BRE PROPERTIES, INC.
By:
---------------------------
Name:
Title:
[______________________________
By:
---------------------------
Name: Attorney-in-Fact]
Accepted and delivered, as of the date first above written:
_____________________________
_____________________________
_____________________________
_____________________________
Acting on their own behalf and as Representatives of the several Underwriters
referred to in the foregoing Agreement.
BY: ________________________
By:
-----------------------------
Name:
Title:
33
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
to be
Purchased
-----------
<S> <C>
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
__________ ............... _____
-----
Total.... _____
=====
</TABLE>
Sch. A-1
<PAGE>
SCHEDULE B
1. The initial public offering price per share for the Shares shall be
$_____ (the "Public Offering Price").
2. The purchase price per share for the Shares to be purchased by the
several Underwriters shall be $_____, being an amount equal to the
Public Offering Price set forth above less $_____ per share; provided
that the purchase price per share for any Optional Shares purchased
upon the exercise of the over-allotment option described in Section 3
shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Firm Shares
but not payable on the Optional Shares.
Sch. B-1
<PAGE>
SCHEDULE C
1. John McMahan
2. Frank C. McDowell
3. Jay W. Pauly
4. LeRoy E. Carlson
5. Byron M. Fox
6. John H. Nunn
7. William E. Borsari
8. C. Preston Butcher
9. L. Michael Foley
10. Roger P. Kuppinger
11. Malcolm R. Riley
12. Gregory Simon
13. Arthur G. von Thaden
Sch.C-1
<PAGE>
SCHEDULE D
<TABLE>
<CAPTION>
Company's
Percentage
Ownership
A. Subsidiaries of the Company Interest
--------------------------- -----------
1. Corporate Subsidiaries of the Corporation
-----------------------------------------
<S> <C>
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. Partnerships 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 70.00%
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%
</TABLE>
- -------------------
/*/ Excluded Subsidiary
Sch. D-1
<PAGE>
Exhibit A
[FORM OF LOCK-UP AGREEMENT]
_______________, 1997
_________________
_________________
_________________
_________________
c/o _____________
Dear Sirs and Mesdames:
The undersigned understands that _____ ("_____") proposes to enter into an
Underwriting Agreement (the "Underwriting Agreement") with BRE Properties, Inc.,
a Maryland corporation (the "Company"), providing for the public offering (the
"Public Offering") by the several underwriters named therein, including _____
(the "Underwriters"), of _____ shares (the "Shares") of the Common Stock, par
value $.01 per share of the Company (the "Common Stock").
To induce the Underwriters to continue their efforts in connection with the
Public Offering, the undersigned hereby agrees that, without the prior written
consent of _____ on behalf of the Underwriters, the undersigned will not, during
the period commencing on the date hereof and ending 90 days after the date of
the final prospectus relating to the Public Offering (the "Prospectus"), (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
now owned by the undersigned or are hereafter acquired), or (2) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the sale of any Shares to the Underwriters pursuant
to the Underwriting Agreement. In addition, the undersigned agrees that, without
the prior written consent of _____ on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 90 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
A-1
<PAGE>
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters. The terms of this
agreement shall be of no further force and effect if the first date that any
shares of Common Stock are released by the Underwriters for sale to the public
pursuant to the Public Offering does not occur prior to _____.
This agreement shall be governed by and construed in accordance with the
laws of the State of New York.
Very truly yours,
--------------------------------------
(Name)
--------------------------------------
(Address)
A-2
<PAGE>
EXHIBIT 1.2
$_________
BRE PROPERTIES, INC.
___% Notes due _____________
UNDERWRITING AGREEMENT
----------------------
________________, 1998
______________________
______________________
______________________
______________________
As Representatives of the several Underwriters
c/o ______________
Dear Sirs and Mesdames:
1. Introductory. BRE Properties, Inc., a corporation organized under the
------------
laws of the State of Maryland (the "Company"), proposes to issue and sell,
pursuant to the terms of this Agreement, to the several Underwriters named in
Schedule A hereto (the "Underwriters" which term also shall include any
underwriter substituted as hereinafter provided in Section 10), $_____ aggregate
principal amount of its _____% Notes due _____ (the "Securities") to be issued
pursuant to an Indenture dated as of June 23, 1997 (the "Indenture") between the
Company and Chase Manhattan Bank and Trust Company, National Association, as
successor trustee (the "Trustee").
_____, _____, _____ and _____ are acting as representatives of the several
underwriters and in such capacity are hereinafter referred to as the
"Representatives".
<PAGE>
2. (a) Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the several Underwriters, as of the date hereof and
as of the Closing Date (as defined in Section 3), and agrees with the several
Underwriters, as follows:
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
_____) for the registration under the Securities Act of 1933, as amended
(the "1933 Act"), of the Securities and certain other securities and has
filed such amendments thereto, if any, as may have been required to the
date hereof. Such registration statement (including all exhibits thereto,
and all documents incorporated or deemed to be incorporated by reference
therein and the information, if any, deemed to be a part thereof pursuant
to Rule 430A(b) of the rules and regulations of the Commission under the
1933 Act (the "Rules and Regulations")), as amended (if applicable) at the
time such registration became effective, and as from time to time amended
or supplemented pursuant to the 1933 Act, the Securities Exchange Act of
1934, as amended (the "1934 Act"), or otherwise, is hereinafter referred to
as the "Registration Statement." The Company proposes to file with the
Commission pursuant to Rule 424(b) ("Rule 424(b)") of the Rules and
Regulations the Prospectus Supplement (as defined in Section 4(i) hereof)
and, if required pursuant to Rule 424(b), the related prospectus dated
_____ (the "Base Prospectus"), and has previously advised you of all
information (financial and other) set forth therein. The Base Prospectus
and the Prospectus Supplement, each in the form first provided to the
Underwriters by the Company for use in connection with the offering of the
Securities (being the forms in which they are to be filed with the
Commission pursuant to Rule 424(b) or, solely in the case of the Base
Prospectus, if the Base Prospectus is not required to be re-filed with the
Commission pursuant to Rule 424(b), being the form in which the Base
Prospectus was most recently filed with the Commission pursuant to Rule
424(b)), including all documents incorporated or deemed to be incorporated
by reference therein, are hereinafter referred to, collectively, as the
"Prospectus", except that if any revised prospectus or prospectus
supplement shall be provided to the Underwriters by the Company for use in
connection with the offering and sale of the Securities which differs from
the Prospectus first provided to the Underwriters for such purpose (whether
or not such revised prospectus or prospectus supplement is required to be
filed by the Company with the Commission pursuant to Rule 424(b) of the
Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus or prospectus supplement, as the case may be, from and after the
time it is first provided to the Underwriters for such use. Unless the
context otherwise requires, all references in this Agreement to documents,
financial statements and schedules and other information which is
"contained", "included", "stated", "described in" or "referred to" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such documents, financial
statements and schedules and other information which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed
to mean and include the filing of any document under the 1934 Act after the
date of this Agreement which is or is deemed to be incorporated by
reference in the
2
<PAGE>
Registration Statement or the Prospectus, as the case may be. For purposes
of this Agreement, all references to the Registration Statement, any
preliminary prospectus supplement, any preliminary prospectus, the
Prospectus Supplement, the Prospectus or any amendment or supplement to any
of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
(ii) The Registration Statement has become effective under the 1933
Act, and no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part
of the Commission for additional information has been complied with. The
Indenture has been duly qualified under the Trust Indenture Act of 1939, as
amended (the "1939 Act"), and the predecessor trustee under the Indenture
duly filed with the Commission a Statement of Eligibility on Form T-1 (a
"Form T-1") as part of the Registration Statement and no Form T-1 is
required to be filed by the Trustee, as successor trustee under the
Indenture, in connection with the Securities.
At the respective times the Registration Statement and any post-
effective amendments thereto became or become effective, as the case may
be, and at the Closing Date, the Registration Statement complied and will
comply in all material respects with the requirements of the 1933 Act and
the Rules and Regulations and with the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus does not and will not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing
-------- -------
representations, warranties and agreements shall not apply to information
contained in or omitted from the Registration Statement or the Prospectus
in reliance upon, and in conformity with, written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for use in the preparation thereof.
Any preliminary prospectus supplement, any preliminary prospectus
and the Prospectus and any amendment or supplement thereto delivered to the
Underwriters for use in connection with the offering of the Securities was
identical to the respective electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(iii) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, when they were
filed with the Commission, complied in all material respects to the
requirements of the 1934 Act and the published rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a
3
<PAGE>
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and any further documents so filed and incorporated
or deemed to be incorporated by reference, when they are filed with the
Commission, will comply in all material respects to the requirements of the
1934 Act and the published rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(iv) 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 Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement). Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus (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.
(v) The financial statements of the Company, of Promontory Point
Apartments ("PPA"), of Red Hawk Ranch ("RHR"), of Foster's Landing
Apartments ("FLA"), of Lakeshore Landing Apartments ("LLA"), and of certain
Trammell Crow Residential multifamily properties (collectively, "TCRW")
included in the Registration Statement and the Prospectus, in each case,
together with the related notes and supporting schedules (if any), present
fairly the financial position of the Company, of PPA, of RHR, of FLA, of
LLA, and of TCRW, respectively, at the dates indicated and the financial
condition, results of operations, cash flows and shareholders' equity of
the Company and its subsidiaries, the gross income and direct operating
expenses of PPA, of RHR, of FLA and of LLA, and combined gross income and
direct operating expenses of TCRW, respectively, 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
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved, except as may be set
forth therein or in the Prospectus. The selected financial data, if
applicable, and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the Company's audited financial
statements included in the Registration Statement.
(vi) The accountants who have certified the financial statements and
supporting schedules included in the Registration Statement and the
Prospectus are
4
<PAGE>
independent public accountants as required by the 1933 Act and the Rules
and Regulations.
(vii) The pro forma condensed financial statements, together with
the related notes and any supporting schedules, included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared on a basis substantially consistent with
the audited 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
condensed 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 1933 Act and the Rules and
Regulations (including, without limitation, Regulation S-X promulgated by
the Commission), and such pro forma adjustments have been properly applied
to the historical amounts in the compilation of such statements.
(viii) 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 Registration
Statement and the Prospectus; the Company is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
Arizona, the State of California, the State of Colorado, the State of
Nevada, the State of New Mexico, the State of Oregon, the State of Utah and
the State of 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.
(ix) Attached hereto as Schedule C is a true and complete list of
all subsidiaries of the Company and all other corporations, partnerships,
joint ventures, limited liability companies and other entities in which the
Company directly or indirectly owns capital stock or any other equity or
ownership interest. Schedule C accurately sets forth the jurisdiction of
organization of, and the Company's approximate percentage ownership
interest in, each such subsidiary and other entity. The Company does not
have any subsidiaries other than those listed on Schedule C and, except as
set forth in Schedule C, the Company does not directly or indirectly own
any capital stock or other equity or other ownership interests in any
corporation, partnership, joint venture, limited liability company or other
entity. Schedule C also correctly indicates whether each such subsidiary
and other entity listed thereon is a corporation, partnership, limited
liability company or other type of entity.
(x) 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
5
<PAGE>
described in the Registration Statement and the Prospectus, and is duly
qualified 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; and (A) all of the issued and outstanding shares of capital
stock of each such subsidiary that is a corporation have been duly
authorized and validly issued, are fully paid and non-assessable and,
except as set forth on Schedule C, are and, at all times since the date on
which such subsidiary was organized, have been owned by the Company,
directly or through wholly-owned subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity,
(B) all of the issued and outstanding limited liability company interests
of each such subsidiary that is a limited liability company have been duly
authorized and validly issued (under applicable law and the limited
liability company agreement of such subsidiary), are fully paid and non-
assessable and, except as set forth on Schedule C, are owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, and (C) all
of the issued and outstanding limited and general partnership interests of
each such subsidiary that is a partnership have been duly authorized (if
applicable) and validly issued and, except as set forth on Schedule C, are
owned by the Company, directly or through subsidiaries free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(xi) 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 Prospectus.
(xii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xiii) The authorized, issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus under the caption
"Capitalization" (except for subsequent issuances, if any, of the Company's
common stock, par value $.01 per share (the "Common Stock"), pursuant to
employee benefit, employee and director stock option and dividend
reinvestment plans or upon conversion of convertible securities or upon
exchange of exchangeable securities referred to in the Prospectus or other
subsequent issuances of Common Stock referred to in the Prospectus). 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.
6
<PAGE>
(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 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, the
Indenture and the Securities, the consummation of the transactions
contemplated herein and therein (including, without limitation, the
incurrence of the indebtedness evidenced by the Securities), and compliance
by the Company with its obligations hereunder and thereunder, have been
duly authorized by 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 Subject
Agreement (as defined below) or any other 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 is 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, the Indenture or the Securities, 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 and distribution of the Securities by the Underwriters. "Subject
Agreements" means (i) the Loan Agreement dated as of January 31, 1994
between The Prudential Insurance Company of America and the Company (as
successor by merger to Real Estate Investment Trust of California), as
amended by the First Amendment to Loan Agreement dated as of July 7, 1995,
the Second Amendment to Loan Agreement dated as of April 30, 1996, the
Third Amendment to Loan Agreement dated as of November 20, 1996, the
Fourth Amendment to Loan Agreement dated as of February 25, 1997 and the
Fifth Amendment to Loan Agreement dated as of June 30, 1997, (ii) the Loan
Agreement dated as of July 7, 1995 between The Prudential Insurance Company
of America and the Company (as successor by merger to Real Estate
Investment Trust of California), as amended by the First Agreement to Loan
Agreement dated as of April 30, 1996, the Second Agreement to Loan
Agreement dated as of November 20, 1996, the Third Amendment to Loan
Agreement dated as of February 25, 1997 and the Fourth Amendment to Loan
Agreement dated as of June 30, 1997, (iii) the Unsecured Line of Credit
Loan Agreement dated as of November 17, 1997 (the "Credit Agreement")
between Bank of America
7
<PAGE>
National Trust and Savings Association ("Bank of America") and the Company,
as amended by the Modification Agreement to Syndicate Loan dated as of
January 20, 1998 between the Company and Bank of America, as agent for the
several financial institutions a party thereto, together with all
guarantees entered into by any subsidiaries of the Company in connection
therewith, (iv) the Amended and Restated Credit Agreement between the
Company and Sanwa Bank California dated as of December 31, 1997 (the "Sanwa
Credit Agreement"), together with all guarantees entered into by any
subsidiaries of the Company in connection therewith, (v) the Contribution
Agreement dated as of September 29, 1997, as amended (the "Contribution
Agreement"), between the TCR signatories named on Schedule A thereto, the
Company and BRE Property Investors LLC, a Delaware limited liability
company (the "Operating Company"), together with the guarantee entered into
by the Company pursuant to the Contribution Agreement, as amended by
Amendment No. 1 to the Contribution Agreement dated November 18, 1997, (vi)
the Amended and Restated Limited Liability Company Agreement of the
Operating Company, and (vii) the Amended and Restated Limited Liability
Company Agreement of Blue Ravine Investors, LLC, a Delaware limited
liability company ("Blue Ravine"); "Prudential Agreements" means the Loan
Agreements, as amended, referred to in clauses (i) and (ii) of this
sentence; and "LLC Agreements" means the Amended and Restated Limited
Liability Company Agreements referred to in clauses (vi) and (vii) of this
sentence. All amendments, supplements and restatements of the Subject
Agreements are listed in clauses (i) through (vii) of the preceding
sentence. Except as otherwise described in the Prospectus, no subsidiary
of the Company is a guarantor of, or is a party to or bound by any
instrument or agreement pursuant to which it has guaranteed or may be
required to guarantee or cause another subsidiary of the Company to
guarantee, any borrowings or other indebtedness of the Company. Except as
otherwise described in the Prospectus, the Company is not a party to or
bound by any instrument or agreement pursuant to which it is or may be
required to cause any of its subsidiaries to guarantee any borrowings or
other indebtedness of the Company.
(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, 1995, its short taxable year ended December 31, 1995, its taxable
year ended December 31, 1996 and its taxable year ended December 31, 1997,
and will continue to qualify as a "real estate investment trust" under the
Code after consummation of the transactions contemplated by the Prospectus;
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, 1994. As used in this paragraph (xv), the
term "Company" includes BankAmerica Realty Investors, a California business
trust, and BRE Properties, Inc., a Delaware corporation, which are both
predecessors to BRE Properties, Inc., a Maryland corporation.
8
<PAGE>
(xvi) Each entity listed on Schedule C either qualifies as a
partnership for federal, state and local income tax purposes or as a
"qualified REIT subsidiary" within the meaning of Section 856(i) of the
Code or qualifies to be disregarded as an entity separate from the Company
or one of its subsidiaries for federal, state and local income tax
purposes.
(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 Registration Statement or the Prospectus (other than as disclosed
therein) or which might result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, or which might materially and adversely affect the properties
or assets of the Company or any of its subsidiaries; and there are no
contracts or documents of the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration Statement or any
document incorporated or deemed to be incorporated therein by the 1933 Act,
the Rules and Regulations, the 1934 Act or the rules and regulations of the
Commission thereunder which have not been so filed.
(xviii) The Company is eligible to use a Form S-3 registration
statement under the 1933 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.
(xix) 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 1934 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.
(xx) 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.
(xxi) The Company has full right, power and authority to enter into
this Agreement, the Indenture and the Securities; this Agreement has been
duly authorized, executed and delivered by the Company.
(xxii) Except as otherwise disclosed in the Prospectus: (A) the
Company and its subsidiaries have good and marketable title in fee simple
to all real property and improvements described in the Prospectus 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 Prospectus are disclosed therein; (C) neither the Company nor any of
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<PAGE>
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
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 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 (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) 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 Prospectus.
(xxiv) Except as otherwise set forth in the Registration Statement,
(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
10
<PAGE>
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
Registration Statement and (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 Registration
Statement and (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 Registration Statement and (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 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 "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").
(xxv) The issuance, sale and public offering of the Securities to
be issued and sold by the Company have been approved by a majority of all
of the "Continuing Directors" and do not constitute a "Business
Combination" (as such terms are defined in Article IX of the Company's
charter).
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(xxvi) 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.
(xxvii) The Indenture has been duly authorized by the Company and,
at the Closing Date, will have been duly executed and delivered by the
Company and will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditor's rights generally or by general equitable principles.
(xxviii) The Securities have been duly authorized and, at the
Closing Date, will have been duly executed by the Company and, when
authenticated in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor specified in this Agreement,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and will be
entitled to the benefits of the Indenture.
(xxix) The Securities and the Indenture will conform in all
material respects to the respective statements relating thereto contained
in the Prospectus and will be in substantially the respective forms filed
or incorporated by reference, as the case may be, as exhibits to the
Registration Statement.
(xxx) The Securities rank and will rank on a parity with all
unsecured indebtedness of the Company (other than subordinated indebtedness
of the Company) that is outstanding on the date hereof or that may be
incurred hereafter, and senior to all subordinated indebtedness of the
Company that is outstanding on the date hereof or that may be incurred
hereafter.
(xxxi) The Company has notified the Lender (as defined in the
Prudential Agreements) of the terms and conditions of the Securities and
the offering made hereby and the Company has obtained a written consent
from the Lender to the issuance of the Securities (the "Written Consent"),
which Written Consent is in full force and effect.
(xxxii) The Securities and the indebtedness evidenced thereby do
not and will not constitute "Funding Debt" (within the meaning of the LLC
Agreements) and no portion of the proceeds from the issuance of the
Securities will be applied to make any Managing Member Loan (within the
meaning of the LLC Agreements).
(xxxiii) Immediately prior to the issuance of the Securities on the
Closing Date, securities with an aggregate initial public offering price of
$162.7 million will have been issued under the Registration Statement.
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<PAGE>
(b) Any certificate signed by any officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. Purchase by and Sale and Delivery to, the Underwriters; Closing Date.
--------------------------------------------------------------------
On the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
hereby agrees to sell to the Underwriters and the Underwriters agree, severally
and not jointly, to purchase from the Company at the price set forth in Schedule
B hereto, the aggregate principal amount of Securities set forth opposite their
respective names in Schedule A, subject to adjustment in accordance with Section
10 hereof.
The Company will deliver the Securities to the Representatives, for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given not later
than one full business day prior to the Closing Date or, if no such direction is
received, in the name of Cede & Co.), against payment of the purchase price
therefor by wire transfer of immediately available funds, at the offices of
Brown & Wood llp, 555 California Street, San Francisco, California 94104. The
time and date of delivery and closing shall be at 10:00 A.M., New York time, on
the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any
given day), business day after the date hereof; provided, however, that such
--------
date and time may be accelerated or extended by agreement between the Company
and the Representatives or postponed pursuant to the provisions of Section 10
hereof. The time and date of such payment and delivery are herein referred to
as the "Closing Date". The Company shall make the certificates for the
Securities available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York time, on the business day
preceding the Closing Date in New York, New York.
It is understood that _____ and _____, _____ or _____ individually may (but
shall not be obligated to) make payment to the Company on behalf of any
Underwriter or Underwriters for the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by _____, _____, _____ or _____
shall not relieve such Underwriter or Underwriters from any of its or their
other obligations hereunder.
After the execution and delivery of this Agreement, the several
Underwriters propose to make an initial public offering of the Securities at the
initial public offering price set forth in Schedule B hereto.
4. Covenants and Agreements of the Company. The Company covenants and
---------------------------------------
agrees with the several Underwriters that:
(a) The Company will advise the Representatives promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of any request by the
Commission for
13
<PAGE>
any amendment of or supplement to the Registration Statement or the Prospectus
or for additional information, and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall not
previously have been submitted to the Representatives a reasonable time prior to
the proposed filing or use thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the 1933 Act and
the Rules and Regulations. The Company will advise the Representatives promptly
when the Prospectus has been filed pursuant to Rule 424(b) of the Rules and
Regulations.
(b) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to continue
the distribution of the Securities and, in the case of any such amendments to
the Registration Statement, will use its best efforts to cause the same to
become effective as promptly as possible. The Company will promptly file all
reports and any definitive proxy or information statements required to be filed
with the Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act for so
long as the delivery of a prospectus is required in connection with the offering
or sale of the Securities.
(c) If at any time when a prospectus relating to the Securities is required
to be delivered under the 1933 Act any event occurs as a result of which the
Prospectus would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the 1933 Act or the Rules and
Regulations, the Company will promptly notify the Representatives thereof and
will prepare an amended or supplemented Prospectus (in form and substance
reasonably satisfactory to counsel to the Underwriters) or, with the consent of
counsel to the Underwriters, make an appropriate filing pursuant to Section 13
or 14 of the 1934 Act which will correct such statement or omission; and, in
case any Underwriter is required to deliver a prospectus relating to the
Securities nine months or more after the date of this Agreement, the Company
upon the request of the Representatives and at the expense of such Underwriters
will prepare promptly such prospectus or prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the 1933 Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Date, signed copies of the Registration Statement and all amendments
thereto (including all financial statements and exhibits thereto and all
documents incorporated or deemed to be incorporated by reference therein) and
will deliver to the Representatives such number of copies of the Registration
Statement, including such financial statements and all documents incorporated or
deemed to be incorporated by reference therein but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the date of
the initial public offering, and thereafter from time to time during the period
when delivery of a prospectus relating to the Securities is required under the
1933 Act, as many copies of the Prospectus, in final form or as thereafter
amended or supplemented, as the Representatives may reasonably request;
provided, however, that the expense of the preparation and delivery of any
- -------- -------
prospectus required for use nine months or more after the date of this
Agreement, shall be borne by the Underwriters
14
<PAGE>
required to deliver such prospectus. The copies of the Registration Statement
and each amendment thereto and the copies of any preliminary prospectus and any
preliminary prospectus supplement and the Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than 60 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) which will be in reasonable detail
(but which need not be audited) and which will comply with Section 11(a) of the
1933 Act, covering a period of at least twelve months beginning not later than
the first day of the Company's fiscal quarter next following the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the
Securities to be qualified for sale under the securities laws and real estate
syndication laws of such states and other jurisdictions as the Representatives
may reasonably designate and at the request of the Representatives will make
such applications and furnish such information as may reasonably be required of
it as the issuer of the Securities for that purpose; provided, however, that the
-------- -------
Company shall not be required to qualify to do business or to file a general
consent to service of process in any such jurisdiction. The Company will, from
time to time, prepare and file such statements and reports as are or may be
required of it as the issuer of the Securities to continue such qualifications
in effect for so long a period as the Representatives may reasonably request for
the distribution of the Securities.
(g) The Company will furnish to its shareholders annual reports containing
financial statements certified by independent public accountants and with
quarterly summary financial information, in reasonable detail which may be
unaudited. During the period of five years from the date hereof, the Company
will deliver to the Representatives and, upon request, to each of the other
Underwriters, copies of each annual report of the Company and each other report
furnished by the Company to its shareholders; and will deliver to the
Representatives, as soon as they are available, copies of any other reports
(financial or other) which the Company shall publish or otherwise make available
to any of its security holders as such and, as soon as they are available,
copies of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange.
(h) The Company will use the net proceeds received by it from the sale of
the Securities sold by it in the manner specified in the Prospectus Supplement
under "Use of Proceeds".
(i) Immediately following the execution of this Agreement, the Company will
prepare a prospectus supplement, dated the date hereof (the "Prospectus
Supplement"), containing the public offering price of the Securities, the
underwriting discounts and commissions, the plan of distribution of the
Securities and such other information as may be required by the 1933 Act or the
Rules and Regulations or as the Representatives and the Company deem
appropriate, and will file or transmit for filing with the Commission in
15
<PAGE>
accordance with Rule 424(b) of the Rules and Regulations copies of such
Prospectus Supplement and, if required by Rule 424(b), the Base Prospectus.
(j) During the period beginning on the date hereof and continuing through
and including the Closing Date, the Company will not offer, sell, contract to
sell or otherwise dispose of any debt securities of the Company or any of its
subsidiaries which are substantially similar to the Securities (other than the
Securities) or any securities convertible into or exchangeable or exercisable
for any debt securities of the Company or any of its subsidiaries which are
substantially similar to the Securities or any rights, warrants or options to
purchase any debt securities of the Company or any of its subsidiaries which are
substantially similar to the Securities, without your prior written consent.
(k) The Company will use its best efforts to continue to meet the
requirements to qualify as a "real estate investment trust" under the Code.
(l) In accordance with the provisions of the Cuba Act, if applicable, and
without limitation to the provisions of Section 6 hereof, the Company will
indemnify each Underwriter against any and all losses, claims, damages,
liabilities and expenses (including attorneys' fees) arising out of or based
upon any violation by the Company of the Cuba Act.
5. Payment of Expenses. The Company will pay (directly or by
-------------------
reimbursement) all expenses incident to the performance of its obligations under
this Agreement, including but not limited to all expenses and taxes incident to
delivery of the Securities to the Representatives, all expenses incident to the
registration of the Securities under the 1933 Act and the printing of copies of
the Registration Statement, any preliminary prospectus, any preliminary
prospectus supplement, the Prospectus, any amendments or supplements thereto,
all expenses incident to the preparation, word processing, printing and delivery
of all "Blue Sky" memoranda, this Agreement, the Securities and the Indenture
and furnishing the same to the Underwriters and dealers except as otherwise
provided in Sections 4(c) and 4(d), the fees and disbursements of the Company's
counsel and accountants, all filing and printing fees and expenses (including
reasonable legal fees and disbursements of counsel for the Underwriters)
incurred in connection with qualification or exemption of the Securities for
sale under securities laws and real estate syndication laws of such
jurisdictions as the Representatives may designate, all fees and expenses paid
or incurred in connection with any filings made with the National Association of
Securities Dealers, Inc., the fees and expenses of the Trustee, including, if
required, the fees and disbursements of counsel for the Trustee in connection
with the Indenture and the Securities, any fees payable in connection with the
rating of the Securities, the fees and expenses of any depositary in connection
with holding the Securities in book-entry form, the costs of preparing
certificates evidencing the Securities, and all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any
16
<PAGE>
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus, any preliminary
prospectus supplement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided, however,
-------- -------
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling such Underwriter, if a copy of the
Prospectus (excluding documents incorporated by reference therein) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Securities to such person, and if the Prospectus (excluding documents
incorporated by reference therein) would have cured the defect giving rise to
such losses, claims, damages or liabilities.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each of the Company's directors, each of the
Company's officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus, any preliminary prospectus
supplement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
with reference to information relating to such Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, any preliminary prospectus
supplement, the Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to paragraph (a) or (b) of this Section 6, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of
17
<PAGE>
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act and
(ii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section. In the case of any such separate firm for
the Underwriters and such control persons of any Underwriters, such firm shall
be designated in writing by _____. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. The indemnifying party 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
from and against any loss or liability 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 the second and third
sentences of this paragraph, 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 of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or (b)
of this Section 6 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims,
18
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damages or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of the Securities (before deducting expenses) received by the
Company and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price (as defined in Schedule
B hereto) (excluding accrued interest) of the Securities. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant to this Section 6
are several in proportion to the respective aggregate principal amount of
Securities they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 6 were determined by pro rata
--- ----
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) of this Section 6. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The remedies provided for in this Section 6
are not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 6,
and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
the Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Securities.
7. Conditions of Underwriters' Obligations. The respective obligations
---------------------------------------
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date of this Agreement and the
Closing Date, of the representations and warranties made herein by the Company
and of the statements of the Company's officers
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or directors in any certificates furnished pursuant to the provisions hereof, to
compliance at and as of the Closing Date by the Company with the covenants and
agreements herein contained and other provisions hereof to be satisfied at or
prior to the Closing Date and to the following additional conditions:
(a) The Registration Statement shall be effective and, at the Closing
Date (i) no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus
or otherwise) shall have been complied with to the reasonable satisfaction
of the Representatives, and (ii) there shall not have come to the attention
of the Representatives any facts that would cause them to believe that the
Prospectus, at the time it was required to be delivered to a purchaser of
the Securities, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Securities and any price
related information previously omitted from the Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and before the Closing Date the Company shall have
provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have
been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At the date of this Agreement, the Representatives shall have
received from Ernst & Young LLP a letter, dated the date of this Agreement,
in form and substance previously approved by the Representatives, together
with signed or reproduced copies of such letter for each of the
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus (including, without limitation,
as to any pro forma financial statements and as to all historical financial
statements of the Company, PPA, RHR, FLA, LLA and TCRW).
(c) The Representatives shall have received from Ernst & Young LLP a
letter dated the Closing Date to the effect that they reaffirm the
statements made in the letter furnished pursuant to Section 7(b) above,
except that the specified date referred to therein shall be a date not more
than three business days prior to the Closing Date.
(d) The Representatives shall have received from Paul, Hastings,
Janofsky & Walker LLP, counsel for the Company, a favorable opinion dated
the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
20
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(i) To the best of such counsel's knowledge and information, the
Company and its subsidiaries are operating in compliance with all
material franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders required for the conduct
of their respective businesses, all of which are valid and in full
force and effect.
(ii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Arizona, the
State of California, the State of Colorado, the State of Nevada, the
State of New Mexico, the State of Oregon, the State of Utah and the
State of 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.
(iii) Each Covered Subsidiary (as hereinafter defined) has been
duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization and has power and
authority as a corporation, limited partnership or limited liability
company, as the case may be, to own, lease and operate its properties
and to conduct its business as described in the Registration Statement
and the Prospectus; each Covered Subsidiary of the Company is duly
qualified 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
the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise; and (A) all of the
issued and outstanding shares of capital stock of each Covered
Subsidiary that is a corporation have been duly authorized and validly
issued, are fully paid and non-assessable and, to the best knowledge
of such counsel and except as otherwise set forth on Schedule C, are
and, at all times since the date on which such subsidiary was
organized, have been owned by the Company, directly or through wholly-
owned subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity, and (B) all of the issued
and outstanding limited liability company interests of each Covered
Subsidiary that is a limited liability company have been duly
authorized and validly issued (under applicable law and the limited
liability company agreement of such Covered Subsidiary), are fully
paid and non-assessable and, to the best knowledge of such counsel and
except as set forth on Schedule C, are owned by the Company, directly
or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, and (C) all of
the issued and outstanding partnership interests of each Covered
Subsidiary that is a partnership have been duly authorized (if
applicable) and validly issued and, to the best knowledge of such
counsel and except as set forth on Schedule C, are owned by the
Company, directly or
21
<PAGE>
through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity. As used herein,
the term "Covered Subsidiary" means each corporation, limited
partnership, limited liability company and other entity listed under
Item A of Schedule C, other than those entities designated on Schedule
C as an "Excluded Subsidiary."
(iv) The authorized, issued and outstanding shares of capital
stock of the Company at _____ are as set forth in the Prospectus under
"Capitalization".
(v) The execution, delivery and performance of this Agreement,
the Indenture and the Securities, the consummation of the transactions
herein and therein contemplated (including, without limitation, the
incurrence of the indebtedness evidenced by the Securities), and
compliance by the Company with its obligations hereunder and
thereunder, will not result in a breach or violation of any of the
terms or provisions of or constitute a default under (A) any Subject
Agreement, (B) any other material contract, indenture, mortgage, deed
of trust, note, loan agreement or other agreement or instrument known
to such counsel to which the Company or any subsidiary is a party or
by which the Company or any subsidiary is bound or to which any of
their respective properties or assets are subject, (C) the
Organizational Documents of the Company or any of the Covered
Subsidiaries, or (D) to the best of such counsel's knowledge and
information, any law, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their respective properties
(provided that such counsel need express no opinion as to state
securities or real estate syndication laws of the various
jurisdictions where the Securities are to be offered).
(vi) Assuming that the net proceeds from the issuance of the
Securities are used solely to repay indebtedness under the Credit
Agreement, neither the Securities nor any proceeds therefrom will
constitute Funding Debt or a Managing Member Loan.
(vii) The Registration Statement is effective under the 1933
Act and, to the best of such counsel's knowledge and information, no
stop order suspending the effectiveness of the Registration Statement
has been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission.
(viii) At the time the Registration Statement became effective
and at the date of this Agreement, the Registration Statement (other
than the financial statements and supporting schedules and other
financial and statistical data included or incorporated by reference
therein or omitted therefrom and any trustee's Statement of
Eligibility on Form T-1 (a "Form T-1"), as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the Rules and Regulations; and
nothing has come to such counsel's attention that would lead them to
believe that the Registration Statement, at the time it became
effective, contained an untrue
22
<PAGE>
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at the date of the
Prospectus Supplement or at the date of such opinion, included or
includes an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (except that no statement need be made as to financial
statements or supporting schedules or other financial or statistical
data included or incorporated by reference in or omitted from the
Registration Statement or the Prospectus or any Form T-1).
(ix) The documents incorporated or deemed to be incorporated by
reference in the Prospectus (other than the financial statements and
supporting schedules and other financial and statistical data included
or incorporated by reference therein or omitted therefrom, as to which
no opinion need be rendered), as of the dates they were filed with the
Commission (or, if such incorporated documents were amended, when such
amendment was filed), complied as to form in all material respects
with the requirements of the 1934 Act and the published rules and
regulations thereunder.
(x) No filing with, or consent, approval, authorization,
license, registration, qualification, decree or order of, any court or
governmental authority or agency is required in connection with the
execution, delivery or performance of this Agreement, the Indenture or
the Securities by the Company, or in connection with the issuance or
sale of the Securities to be issued and sold by the Company to the
Underwriters, except such as has been obtained under the 1933 Act, the
Rules and Regulations, the 1939 Act or the 1939 Act Regulations or
such as may be required under state securities laws or real estate
syndication laws (provided that such counsel need express no opinion
as to filings with, or consents, approvals, authorizations, licenses,
registrations, qualifications, decrees or orders of, any foreign court
or foreign governmental authority or agency).
(xi) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xii) The Company is eligible to use a Form S-3 registration
statement under the 1933 Act and is also eligible to use a Form S-3
registration statement pursuant to the standards for that Form as in
effect immediately prior to October 21, 1992.
(xiii) 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 "real estate investment trust" since its original
organization; the Company has qualified as a "real estate investment
23
<PAGE>
trust" 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); it is anticipated that the
Company will qualify to be taxed as a "real estate investment trust"
under the Code for its taxable year ended December 31, 1997; and the
Company was and is organized and was operated and is operating in a
manner that enabled and will enable it to qualify to be taxed as a
"real estate investment trust" under the Code for its taxable year
ended December 31, 1997 and its taxable years ending December 31, 1998
and thereafter provided the Company met (in the case of its taxable
year ended December 31, 1997) and continues to meet (in the case of
its taxable years ending December 31, 1998 and thereafter), 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 "real estate investment
trust". As used in this paragraph (xiii) and paragraph (xiv) below,
the term "Company" includes BankAmerica Realty Investors, a California
business trust and BRE Properties, Inc., a Delaware corporation, which
are both predecessors to BRE Properties, Inc., a Maryland corporation.
(xiv) Each entity listed on Schedule C either qualifies as a
partnership for federal income tax purposes and for California or
Delaware, as the case may be, income tax purposes or as a "qualified
REIT subsidiary" within the meaning of Section 856(i) of the Code or
qualifies to be disregarded as an entity separate from the Company or
one of its subsidiaries for federal income tax purposes and for
California or Delaware, as the case may be, income tax purposes.
(xv) The information in the Prospectus under the captions "The
Operating Company", "Description of Notes", "Risk Factors--Real Estate
Investment Risks--Restrictions in the Operations of the Operating
Company", "Risk Factors--Real Estate Investment Risks--Limited
Indemnification" (only with respect to the first, second and third
paragraphs under such caption), "Description of Debt Securities" and
"Federal Income Tax Considerations", and the information in the
Company's 1996 Annual Report on Form 10-K under the caption "Legal
Proceedings", to the extent that it constitutes matters of law or
legal conclusions, or summaries of provisions of the Company's charter
or by-laws, the Subject Agreements, the Indenture, the Securities or
of other documents, agreements or instruments, has been reviewed by
such counsel and is correct in all material respects; and the opinion
of such counsel in the Prospectus under the caption "Federal Income
Tax Considerations" is confirmed.
(xvi) There are no legal or governmental proceedings pending
or, to the best of such counsel's knowledge and information,
threatened against the Company or any of its subsidiaries which are
required to be disclosed in the
24
<PAGE>
Registration Statement, other than those disclosed therein, and all
pending legal or governmental proceedings to which the Company or any
of its subsidiaries is a party or of which any of the property of the
Company or any of its subsidiaries is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, are, considered in the
aggregate, not material.
(xvii) To the best of such counsel's knowledge and information,
there are no contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in
the Registration Statement or in the documents incorporated by
reference therein or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference
as exhibits thereto, the descriptions thereof and references thereto
are correct in all material respects, and, to the best of such
counsel's knowledge and information, no default exists in the due
performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument so described, referred
to or filed.
(xviii) The Indenture has been qualified under the 1939 Act.
Such opinion shall be rendered to the Underwriters at the request of the
Company and shall so state therein. In giving their opinion, Paul, Hastings,
Janofsky & Walker llp (A) shall state that insofar as such opinion concerns the
Indenture, the Securities or any other instrument, agreement or other document
which by its terms is not governed by the laws of the State of California, the
General Corporation Law of the State of Delaware or the Limited Liability
Company Act of the State of Delaware, such counsel has assumed that the
Indenture, the Securities and such other instruments, agreements and other
documents are governed by the laws of the State of California and (B) may rely
(i) as to the qualification of the Company and its subsidiaries to do business
in any state or jurisdiction, upon certificates of appropriate government
officials and (ii) as to matters of fact, upon certificates and written
statements of officers of and accountants for the Company and (C) shall state
that such counsel has relied, as to matters arising under the laws of the State
of Maryland and the State of New York, upon the opinion of _____ delivered
pursuant to Section 7(e) hereof.
(e) The Representatives have received from _____, Maryland and New
York counsel for the Company, a favorable opinion dated the Closing Date,
in form and substance satisfactory to the Representatives, to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland.
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and conduct its business as described
in the Registration Statement and the Prospectus.
25
<PAGE>
(iii) The authorized, issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any, of Common
Stock pursuant to the employee benefit, employee and director stock
option and dividend reinvestment plans referred to in the Prospectus);
and the shares of issued and outstanding Common Stock have been duly
authorized and validly issued, are fully-paid and non-assessable, and
are not subject to any preemptive or other similar rights arising by
operation of law, under the charter or by-laws of the Company, under
any resolution adopted by the board of directors of the Company or any
committee thereof or, to the best of such counsel's knowledge,
otherwise.
(iv) The Indenture has been duly authorized, executed and
delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the Trustee) constitutes a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(v) The Securities have been duly authorized and executed by the
Company and, when duly authenticated by the Trustee in the manner
provided in the Indenture (assuming the due authorization, execution
and delivery of the Indenture by the Trustee) and delivered against
payment of the purchase price therefor pursuant to this Agreement,
will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditor's rights generally or by general equitable
principles, and will be entitled to the benefits of the Indenture.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company; and the execution, delivery and performance
of this Agreement, the Indenture and the Securities, the consummation
of the transactions herein and therein contemplated, and compliance by
the Company with its obligations hereunder and thereunder, will not
result in a breach or violation of any of the terms or provisions of
or constitute a default under the Company's charter or by-laws or, to
the best of such counsel's knowledge, any law, order, rule or
regulation of any Maryland or New York court, governmental agency or
body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties.
(vii) No filing with, or consent, approval, authorization or
order of, any Maryland or New York court, governmental authority or
agency is required in connection with the execution, delivery or
performance of this Agreement, the Indenture or the Securities by the
Company, or in connection with the issuance
26
<PAGE>
or sale of the Securities to the Underwriters, except such as may be
required under Maryland or New York securities laws or real estate
syndication laws.
(viii) The information in the Prospectus under the captions
"Description of Notes", "Description of Debt Securities" and "Risk
Factors--Provisions Which Could Limit a Change in Control or Deter a
Takeover", and the information in the Company's 1996 Annual Report on
Form 10-K under the caption "Risk Factors--Provisions Which Could
Limit a Change in Control or Deter a Takeover", to the extent that it
constitutes matters of Maryland or New York law or legal conclusions
under Maryland or New York law, or summaries of provisions of the
Company's charter or by-laws, the Indenture, the Securities or of any
other documents specifically referred to therein (excluding two loan
agreements specifically referred to under the caption "Description of
Notes" in the Prospectus) is correct in all material respects.
(ix) The issuance, sale and public offering of the Securities
have been approved by the "Continuing Directors" and do not constitute
a "Business Combination" (as such terms are defined in Article VIII of
the Company's charter).
Such opinion shall be rendered to the Underwriters at the request of
the Company and shall so state therein. In giving their opinion, _____
(i) may rely as to matters of fact, to the extent not independently
verified by such counsel, upon certificates and written statements of
officers and accountants for the Company, (ii) shall state that such
opinion is limited to matters arising under the laws of the State of
Maryland, the State of New York and the General Corporation Law of the
State of Delaware and that, insofar as such opinion concerns any
instrument, agreement or other document which by its terms is not governed
by the laws of the State of Maryland, the State of New York or the General
Corporation Law of the State of Delaware, such counsel has assumed that
such instruments, agreements and other documents are governed by the laws
of the State of Maryland and (iii) shall expressly state that Paul,
Hastings, Janofsky & Walker llp and Brown & Wood llp, in rendering their
opinions pursuant to Sections 7(d) and 7(f) of this Agreement, may rely on
such opinion as to all matters arising under the laws of the State of
Maryland and, solely with respect to Paul, Hastings, Janofsky & Walker llp,
the State of New York, as if such opinion were addressed to them.
(f) The Representatives shall have received from Brown & Wood LLP,
counsel for the Underwriters, their favorable opinion or opinions dated the
Closing Date with respect to the organization of the Company, the validity
of the Securities to be sold by the Company, this Agreement, the Indenture,
the Registration Statement, the Prospectus and such other related matters
as the Representatives may require, and the Company shall have furnished to
such counsel such documents as they may request for the purpose of enabling
them to pass upon such matters.
27
<PAGE>
(g) At the date of this Agreement and at the Closing Date, the
Securities shall be rated at least Baa2 by Moody's Investor's Service Inc.,
BBB by Standard & Poor's Corporation, and the Company shall have delivered
to the Representatives a letter, dated the Closing Date, from each such
rating agency, or other evidence satisfactory to the Representatives,
confirming that the Securities have such ratings.
(h) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date (1) there shall not have occurred any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded the
Securities or any of the Company's other securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the 1933 Act; and (2) there shall not have
occurred any change, or any development involving a prospective 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 Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your judgment,
is material and adverse and that makes it, in your judgment, impracticable
to market the Securities on the terms and in the manner contemplated in the
Prospectus. At the Closing Date (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated
therein in accordance with the 1933 Act and the Rules and Regulations and
in all material respects shall conform to the requirements of the 1933 Act
and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and no action, suit or
proceeding at law or in equity shall be pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries which
would be required to be set forth in the Registration Statement or the
Prospectus other than as set forth therein, (ii) no proceeding shall be
pending or, to the knowledge of the Company, threatened against the Company
or any of its subsidiaries before or by any Federal, state or other court,
commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the
business, property, financial condition or income of the Company and its
subsidiaries considered as one enterprise other than as set forth in the
Registration Statement and the Prospectus, (iii) neither the Company nor
any of its subsidiaries shall be in default in the performance or
observance of any contract to which it is a party, except such defaults
that would not have a material adverse effect on the condition, financial
or otherwise, of the Company and its subsidiaries considered as one
enterprise or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, (iv) no stop
order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceeding therefor shall have been
instituted or threatened by the Commission and (v) the Representatives
shall have received, at the Closing Date, a certificate of the President
and the Chief Financial Officer of the Company, dated as of the Closing
Date, evidencing compliance with the appropriate provisions of this
subsection (h).
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(i) The Representatives shall have received a certificate, dated the
Closing Date, of the President and the Chief Financial Officer of the
Company to the effect that the representations and warranties of the
Company contained in Section 2(a) are true and correct with the same force
and effect as though expressly made at and as of the Closing Date.
(j) The Company shall have furnished to the Representatives, prior to
the date of this Agreement, a copy of the Written Consent and the Written
Consent shall be in full force and effect on the Closing Date with the same
force and effect as though expressly given by the Lender at and as of the
Closing Date.
(k) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Date, of the
representations and warranties made herein by the Company, as to compliance
at and as of the Closing Date by the Company with its covenants and
agreements herein contained and other provisions hereof to be satisfied at
or prior to the Closing Date and as to other conditions to the obligations
of the Underwriters hereunder.
If any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, this Agreement may
be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram or telecopy at or prior to the Closing
Date.
8. Termination. This Agreement may be terminated by the Representatives
-----------
by notice to the Company at or prior to the Closing Date if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activates in New York or California shall have
been declared by either Federal, New York State or California State authorities
or (iv) there shall have occurred any outbreak or escalation of hostilities or
any change in financial markets or any calamity or crisis that, in your
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses (a)(i) through (iv), such event, singly or together with
any other such event, makes it, in your judgment, impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus.
9. Reimbursement of Underwriters. Notwithstanding any other provisions
-----------------------------
hereof, if this Agreement shall be terminated by the Underwriters or shall
otherwise terminate under Section 7, Section 8 or Section 11, the Company will
bear and pay the expenses specified in Section 5 hereof and, in addition to its
obligations pursuant to Section 6 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection
29
<PAGE>
with this Agreement and the proposed purchase and offers of the Securities, and
promptly upon demand the Company will pay such amounts to you, as
Representatives of the Underwriters. In addition, the provisions of Section 6
hereof will survive any termination of this Agreement.
10. Default by Underwriters. If any Underwriter or Underwriters shall
-----------------------
default in its or their obligations to purchase any of the Securities which it
or they are obligated to purchase under this Agreement on the Closing Date, and
the aggregate principal amount of Securities which such defaulting Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the
aggregate principal amount of all of the Securities which the Underwriters are
obligated to purchase on the Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Securities which such defaulting Underwriter or Underwriters agreed
but failed to purchase. If any Underwriter or Underwriters shall so default and
the aggregate principal amount of Securities with respect to which such default
or defaults occur is more than 10% of the aggregate principal amount of all of
the Securities which the Underwriters are obligated to purchase on the Closing
Date and arrangements satisfactory to the Representatives and the Company for
the purchase of such Securities by other persons are not made within 48 hours
after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the Securities of a defaulting
Underwriter or Underwriters as provided, in this Section 10, (i) the Company
shall have the right to postpone the Closing Date for a period of not more than
five full business days, in order that the Company may effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective
principal amounts of Securities to be purchased by the remaining Underwriters or
substituted underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company or the
Underwriters for damages occasioned by its default hereunder. Any termination
of this Agreement pursuant to this Section 10 shall be without liability on the
part of any non-defaulting Underwriter or the Company, except for expenses to be
paid or reimbursed pursuant to Section 5 and except for the provisions of
Section 6.
11. Default by the Company. If the Company shall fail at the Closing Date
----------------------
to sell and deliver the total principal amount of Securities which it is
obligated to sell hereunder, then this Agreement shall terminate without any
liability on the part of any non-defaulting party. No action taken pursuant to
this Section shall relieve the Company from liability in respect of such
default.
12. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Underwriters shall be mailed, delivered or telecopied and confirmed
to you, as their Representatives c/o _____ at _____, attention: _____, except
that notices given to an Underwriter pursuant to Section 6 hereof shall be sent
to such Underwriter at the address furnished by the
30
<PAGE>
Representatives or, if sent to the Company shall be mailed, delivered or
telecopied and confirmed at BRE Properties, Inc., 44 Montgomery Street, Suite
3600, San Francisco, California 94104-4602, attention: LeRoy E. Carlson.
13. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right, remedy
or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and the indemnities of the several Underwriters
shall also be for the benefit of each director of the Company, each of the
Company's officers who has signed the Registration Statement and the person or
persons, if any, who control the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act.
14. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said state. Unless otherwise expressly stated, specified
times of day refer to New York City time.
31
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
BRE PROPERTIES, INC.
By:
-----------------------------------
Name:
Title:
Accepted and delivered, as of the date first above written:
______________________
______________________
______________________
______________________
Acting on their own behalf and as Representatives of the several Underwriters
referred to in the foregoing Agreement.
BY: ____________________
By:
-------------------------------------
Name:
Title:
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Aggregate
Principal
Amount of
Securities
to be
Purchased
----------
<S> <C>
_____ ............... ______
_____ ............... ______
_____ ............... ______
_____ ............... ______
_____ ............... ______
-----------
Total..... $______
===========
</TABLE>
Sch. A-1
<PAGE>
SCHEDULE B
1. The initial public offering price for the Securities shall be ___% of
the principal amount thereof (the "Public Offering Price"), plus accrued
interest from February 15, 1998.
2. The purchase price for the Securities to be purchased by the several
Underwriters shall be ___% of the principal amount thereof, plus accrued
interest from February 15, 1998.
Sch. B-1
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
A. Subsidiaries of the Company Company's
Percentage
Ownership
Interest
-----------
1. Corporate Subsidiaries of the Corporation
<S> <C>
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. Partnerships 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%
</TABLE>
/*/ Excluded Subsidiary
Sch. C-1
<PAGE>
[LETTERHEAD OF THE LAW OFFICES OF PAUL, HASTINGS, JANOFSKY & WALKER LLP]
Exhibit 5
March 6, 1998
BRE Properties, Inc.
44 Montgomery Street, Suite 3600
San Francisco, California 94104-4602
Re: Legality of Securities to be Registered under Registration Statement
--------------------------------------------------------------------
on Form S-3
-----------
Dear 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 (the "REGISTRATION STATEMENT") being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), on or about the date hereof, with respect to the
offering from time to time by the Company of an aggregate of up to Seven Hundred
Fifty Million Dollars ($750,000,000) of the following securities (collectively,
the "OFFERED SECURITIES"): (i) unsecured debt securities (the "DEBT
SECURITIES"), which may be senior debt securities or subordinated debt
securities, (ii) shares of Preferred Stock, $0.01 per share par value
("PREFERRED SHARES"), (iii) depositary shares representing fractional interests
in Preferred Shares, (iv) warrants ("COMMON STOCK WARRANTS") to purchase shares
of Common Stock, $0.01 per share par value ("COMMON SHARES") or (v) 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 and restated to the date hereof and on file with the Maryland State
Department of Assessments and
<PAGE>
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.
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, when specifically
and fully authorized for issuance by the Company's Board of Directors or an
authorized committee thereof ("AUTHORIZING RESOLUTION") and when issued as
described in the Registration Statement and a Prospectus Supplement that is
consistent with the Authorizing Resolution, and upon receipt by the Company of
the full consideration provided for in the Authorizing Resolution, the Offered
Securities will be legally issued, fully paid and non-assessable and, in the
case of Debt Securities, binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, subject to the effect of
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors, and the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought.
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 therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement. This opinion is rendered to you in connection with the
Registration Statement and is solely for your benefit. This opinion may not be
relied upon by you for any other purpose, or relied upon by any other person,
firm or other entity for any purpose, without our prior written consent.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
-----------------------------------------
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
[LETTERHEAD OF THE LAW OFFICES OF PAUL, HASTINGS, JANOFSKY & WALKER LLP]
Exhibit 8
March 6, 1998
BRE Properties, Inc.
44 Montgomery Street, Suite 3600
San Francisco, California 94104-4602
Re: Form S-3 Shelf Registration of Securitiesof BRE Properties, Inc.
----------------------------------------------------------------
(the "COMPANY")
---------------
Ladies and Gentlemen:
In connection with the registration statement on Form S-3 being filed
by you on March 6, 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 statements on Forms S-3 and S-4 previously filed with the
Securities and Exchange Commission (the "PRIOR REGISTRATIONS"). 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
<PAGE>
BRE Properties, Inc.
March 6, 1998
Page 2
accordance with the method of operation described in the Registration Statement
and the Prior Registrations.
Based on such assumptions and representations, it is our opinion that
the Company has qualified as a REIT for its fiscal years ending July 31, 1994,
July 31, 1995, its short taxable year ended December 31, 1995 and its fiscal
year ending 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, recordkeeping, and other
requirements of the Code necessary for the Company to qualify as a REIT. 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 dates thereof, 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 form the factual
statements set forth in the Registration Statement, the Prior Registrations 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 Paul, Hastings, Janofsky & Walker, 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.
<PAGE>
BRE Properties, Inc.
March 6, 1998
Page 2
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/ Paul, Hastings, Janofsky & Walker LLP
-----------------------------------------
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
Exhibit 12
BRE PROPERTIES, INC.
STATEMENT OF COMPUTATION OF RATIOS
OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE
MONTHS YEAR ENDED DECEMBER 31,
ENDED
(DOLLAR AMOUNTS IN THOUSANDS) SEPTEMBER 30, 1996 1995 1994 1993 1992
1997
<S> <C> <C> <C> <C> <C> <C>
Net income before gains on
sales and provision for
investment loss.............. $35,603 $37,014 $23,789 $22,566 $19,531 $14,538
Fixed charges:
Interest................. 15,344 16,325 7,973 5,599 5,656 6,074
Capitalized interest..... 269
Other.................... 84 108 105 101 98 95
------- ------- ------- ------- ------- -------
$15,428 $16,702 $ 8,078 $ 5,700 $ 5,754 $ 6,169
Net income before gains on
sales and provision for
investment loss and fixed
charges, excluding
capitalized interest......... $51,031 $53,447 $31,867 $28,266 $25,285 20,707
Divided by fixed charges...... $15,428 $16,702 $ 8,078 $ 5,700 $ 5,754 $ 6,169
Ratio of earnings to fixed
charges...................... 3.31 3.20 3.95 4.96 4.39 3.36
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of BRE Properties, Inc.
for the registration of $750,000,000 in Debt Securities, Preferred Shares,
Depositary Shares, Common Stock Warrants and Common Stock, and to the
incorporation by reference therein of our report 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 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
- -----------------------------
March 3, 1998
San Francisco, California
