<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-1722214
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
44 Montgomery Street
36th Floor
San Francisco, CA 94104-4809
- ---------------------------------- ------------------------------------
(Address of principal office) (Zip Code)
(415) 445-6530
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(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock
outstanding as of August 7, 1998 44,140,715
----------
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BRE PROPERTIES, INC.
INDEX TO FORM 10-Q
June 30, 1998
Page No.
--------
PART I FINANCIAL INFORMATION
ITEM 1:
Consolidated balance sheets - June 30, 1998
and December 31, 1997 2
Consolidated statements of income - quarters
ended June 30, 1998 and 1997 3
Consolidated statements of income - six months
ended June 30, 1998 and 1997 4
Consolidated statements of cash flows -six months
ended June 30, 1998 and 1997 5
Notes to consolidated financial statements 6
ITEM 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-16
ITEM 3:
Qualitative and Quantitative Disclosures
about Market Risk 16
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 17
ITEM 2 Changes in Securities and Use of Proceeds 17
ITEM 3 Defaults Upon Senior Securities 17
ITEM 4 Submission of Matters to a Vote
of Security Holders 17
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 18
<PAGE>
BRE Properties, Inc.
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
--------------------
Consolidated Balance Sheets (unaudited)
- --------------------------------------------------------------------------------
(Dollar amounts in thousands)
June 30, December 31,
1998 1997
------------ -------------
<S> <C> <C>
ASSETS
Investments in rental properties:
Multifamily ............................................. $ 1,415,688 $ 1,248,012
Commercial and retail ................................... 10,946 11,929
Construction in progress ................................ 102,678 84,202
Less: Accumulated depreciation and amortization ......... (62,263) (49,721)
----------- -----------
1,467,049 1,294,422
Investments in limited partnerships .......................... 824 2,780
----------- -----------
Real estate portfolio ........................................ 1,467,873 1,297,202
Mortgage loans, net .......................................... 4,713 4,871
Cash and short-term investments .............................. 1,925 4,216
Funds held in escrow ......................................... 14,500 15,833
Other ........................................................ 26,503 19,776
----------- -----------
TOTAL ASSETS ............................................ $ 1,515,514 $ 1,341,898
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans ............................................... $ 239,811 $ 232,367
Unsecured senior notes ....................................... 253,000 123,000
Unsecured lines of credit .................................... 212,000 186,000
Accounts payable and other liabilities ....................... 16,061 16,970
----------- -----------
TOTAL LIABILITIES ....................................... 720,872 558,337
----------- -----------
Commitments and contingencies (notes B and C) ................ -- --
MINORITY INTEREST ............................................ 76,066 76,066
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized
No shares outstanding at June 30, 1998 or December 31, 1997 -- --
Common stock, $.01 par value, 100,000,000 shares authorized ..
Shares issued and outstanding: 42,374,439 at June 30, 1998;
41,738,704 at December 31, 1997 ........................... 424 417
Additional paid-in capital ................................... 617,354 605,833
Accumulated net income in excess of cumulative dividends ..... 100,798 101,245
----------- -----------
Total shareholders' equity .............................. 718,576 707,495
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 1,515,514 $ 1,341,898
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BRE Properties, Inc.
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CONSOLIDATED STATEMENTS OF INCOME (unaudited)
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended
June 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUE
Rental income:
Multifamily .............................................. $ 45,526 $ 28,797
Commercial and retail .................................... 347 1,194
Other income .................................................. 3,358 2,215
-------- --------
TOTAL REVENUE ........................................ 49,231 32,206
-------- --------
EXPENSES
Real estate expenses:
Multifamily ................................................. 15,192 10,340
Commercial and retail ....................................... 35 84
Depreciation and amortization ................................. 6,668 4,128
Interest expense .............................................. 8,827 4,850
General and administrative .................................... 1,705 1,128
-------- --------
TOTAL EXPENSES ....................................... 32,427 20,530
-------- --------
Income before net gain (loss) on sales of investments in rental
properties and minority interest ........................... 16,804 11,676
Net gain (loss) on sales of investments in rental properties .. (46) 25,603
-------- --------
Income before minority interest ............................... 16,758 37,279
Minority interest in income ................................... 1,017 --
-------- --------
NET INCOME ........................................... $ 15,741 $ 37,279
======== ========
Net income per outstanding share:
Income before net gain (loss) on sales of investments in rental
properties less minority interest .......................... $ 0.37 $ 0.34
Net gain (loss) on sales of investments in rental properties .. -- $ 0.74
-------- --------
Net income per share - basic .................................. $ 0.37 $ 1.08
======== ========
Income before net gain (loss) on sales of investments in rental
properties and minority interest ........................... $ 0.37 $ 0.33
Net gain (loss) on sales of investments in rental properties .. -- $ 0.73
-------- --------
Net income per share - assuming dilution ...................... $ 0.37 $ 1.06
======== ========
Weighted average shares outstanding - basic ................... 42,170 34,520
======== ========
Weighted average shares outstanding - assuming dilution ....... 45,360 35,090
======== ========
Dividends declared and paid per share ......................... $ 0.360 $ 0.345
======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
BRE Properties, Inc.
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CONSOLIDATED STATEMENTS OF INCOME (unaudited)
- --------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
1998 1997
--------- ----------
<S> <C> <C>
REVENUE
Rental income:
Multifamily .............................................. $ 89,533 $ 55,597
Commercial and retail .................................... 662 4,255
Other income .................................................. 6,449 4,081
-------- --------
TOTAL REVENUE ........................................ 96,644 63,933
-------- --------
EXPENSES
Real estate expenses:
Multifamily .............................................. 29,922 19,707
Commercial and retail .................................... 50 332
Depreciation and amortization ................................. 13,153 8,296
Interest expense .............................................. 17,362 10,739
General and administrative .................................... 3,370 2,242
-------- --------
TOTAL EXPENSES ....................................... 63,857 41,316
-------- --------
Income before net gain (loss) on sales of investments in rental
properties and minority interest ........................... 32,787 22,617
Net gain (loss) on sales of investments in rental properties .. (871) 25,603
-------- --------
Income before minority interest ............................... 31,916 48,220
Minority interest in income ................................... 2,033 --
-------- --------
NET INCOME ........................................... $ 29,883 $ 48,220
======== ========
Net income per outstanding share:
Income before net (loss) gain on sales of investments in rental
properties less minority interest .......................... $ 0.73 $ 0.67
Net gain (loss) on sales of investments in rental properties .. ($ 0.02) $ 0.76
-------- --------
Net income per share - basic .................................. $ 0.71 $ 1.43
======== ========
Income before net gain (loss) on sales of investments in rental
properties and minority interest ........................... $ 0.73 $ 0.66
Net gain (loss) on sales of investments in rental properties .. ($ 0.02) $ 0.74
-------- --------
Net income per share - assuming dilution ...................... $ 0.71 $ 1.40
======== ========
Weighted average shares outstanding - basic ................... 42,000 33,770
======== ========
Weighted average shares outstanding - assuming dilution ....... 45,260 34,430
======== ========
Dividends declared and paid per share ......................... $ 0.72 $ 0.69
======== ========
</TABLE>
See notes to consolidated financial statements
4
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BRE Properties, Inc.
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CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
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(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 29,883 $ 48,220
Adjustments to reconcile net income to net cash generated by
operating activities:
Provision for depreciation and amortization ................. 13,153 8,296
Net loss (gain) on sales of investments in rental properties 871 (25,603)
Minority interest ........................................... 2,033 --
(Decrease) increase in accounts payable and other liabilities (909) 335
(Increase) in other assets .................................. (2,522) (1,378)
--------- ---------
Net cash flows generated by operating activities .............. 42,509 29,870
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Multifamily properties purchased .............................. (115,988) (84,912)
Decrease in funds held in escrow .............................. 1,333 --
Capital expenditures-multifamily .............................. (1,697) (735)
Capital expenditures-commercial and retail .................... (141) (414)
Rehabilitation expenditures ................................... (2,029) (1,776)
Additions to construction in progress ......................... (68,816) --
Payments on mortgage loans receivable ......................... 158 296
Proceeds from sales of property, net .......................... 12,170 83,115
--------- ---------
Net cash flows used in investing activities ................... (175,010) (4,426)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans .......................... (1,168) (860)
Issuance of unsecured senior notes ............................ 130,000 50,000
Costs of issuance of senior unsecured notes ................... (3,787) (3,121)
Lines of credit:
Advances .................................................... 226,000 37,500
Repayments .................................................. (200,000) (161,500)
Proceeds from equity offerings, net ........................... 9,386 90,999
Proceeds from exercises of stock options ...................... 2,141 3,125
Distributions to minority members ............................. (2,033) --
Dividends paid ................................................ (30,329) (24,150)
--------- ---------
Net cash flows generated by financing activities .............. 130,210 (8,007)
--------- ---------
(Decrease) increase in cash and short-term investments ........ (2,291) 17,437
Balance at beginning of period ................................ 4,216 184
--------- ---------
Balance at end of period ...................................... $ 1,925 $ 17,621
========= =========
Transfers of construction in progress ......................... $ 50,340 --
========= =========
Interest capitalized .......................................... $ 4,857 --
========= =========
Mortgage loans assumed ........................................ $ 8,612 --
========= =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
BRE Properties, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
June 30, 1998
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and should be read in
conjunction with the Annual Report of BRE Properties, Inc., (the "Company" or
"BRE"), on Form 10-K for the year ended December 31, 1997 (the "1997 10-K"). In
the opinion of management, all adjustments (consisting of normal recurring
adjustments only) have been made which are necessary for a fair statement of the
results for the interim periods presented herein.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
required to be adopted for fiscal years beginning after December 15, 1997. The
impact of the adoption of Statement No. 131 on the Company's operations is not
expected to be material.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted for fiscal years beginning after June 15, 1999. The
impact of the adoption of Statement No. 133 on the Company's operations is not
expected to be material.
NOTE B - LITIGATION
- -------------------
BRE is defending various claims and legal actions that arise from its normal
course of business. While it is not feasible to predict or determine the
ultimate outcome of these matters, in the opinion of management, none of these
actions will have a material adverse effect on BRE's results of operations or
financial position.
NOTE C - COMMITMENTS
- --------------------
The Company has commitments to acquire three multifamily communities with a
total estimated cost of approximately $100 million, with anticipated fundings of
$40 million in 1998 and the remainder in 2000. There can be no assurance that
these communities will be acquired or will be acquired for the number of units
and estimated cost indicated.
NOTE D - SUBSEQUENT EVENT
- -------------------------
In July 1998, the Company issued 1,750,000 shares of common stock at a price to
the public of $27.82 per share. Net proceeds to the Company after underwriting
discounts and other expenses were approximately $47 million. These proceeds were
used to paid down amounts on the Company's unsecured lines of credit.
6
<PAGE>
BRE Properties, Inc.
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ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
- --------------------------------------------------------------------------------
June 30, 1998
Overview
BRE Properties, Inc. (the "Company" or "BRE") is a regionally focused,
self-administered equity real estate investment trust ("REIT") which primarily
owns and manages a portfolio of 78 apartment communities (aggregating 19,641
units) in 12 major markets of the Western United States. The Company also owns
four commercial and retail properties and two properties held in partnerships in
which BRE is a minority limited partner. The Company's revenues consist
primarily of rental income (93% of total revenues in both quarters ended June
30, 1998 and 1997) derived from its portfolio of income-producing properties.
Other income includes various fees and charges to residents of multifamily
communities, and to a lesser extent, interest from notes receivable, fee
management income and income from partnership investments. The policy of the
Company is to emphasize cash flows from operations rather than the realization
of capital gains through property dispositions. As dispositions of real estate
assets are made, the Company typically seeks to reinvest net proceeds from sales
in income-producing real estate.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including statements regarding the
Company's beliefs, expectations or strategies regarding the future, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to
risks and uncertainties, including those discussed under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K"), that could cause actual results to differ
materially from those projected.
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED JUNE 30, 1998 AND 1997
REVENUES
Total revenues were $49,231,000 for the three months ended June 30, 1998
compared to $32,206,000 for the same period in 1997. This increase was primarily
due to an increase in multifamily rental revenues resulting from the acquisition
of 27 multifamily communities, which contributed approximately $16,830,000 and
$1,789,000 to multifamily rental revenues for the three months ended June 30,
1998 and 1997, respectively. This increase was offset in part by the disposition
of three communities. Further, multifamily rental revenues from "Same-Store"
communities (multifamily communities owned by the Company and stabilized as of
April 1, 1997 and consisting of 12,360 of BRE's 19,641 total units) increased
$1,688,000 for the three months ended June 30, 1998 compared to the same period
in 1997. This increase in same-store communities was due primarily to an average
increase in rental rates of approximately 6% as physical occupancy was
comparable for the two periods.
7
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
Rental revenues from commercial and retail properties decreased 71% in the
quarter ended June 30, 1998 when compared to the same period in 1997 due largely
to the sale of 11 such properties in these categories (which properties
contributed approximately $862,000 in revenues during the quarter ended June 30,
1997 and none in the quarter ended June 30, 1998).
Other income increased from $2,215,000 in the quarter ended June 30, 1997 to
$3,358,000 for the quarter ended June 30, 1998 due primarily to the acquisition
of 27 multifamily communities and offset in part by the sale of 11 commercial
and retail properties, and to a lesser extent, to net income from third party
property management in 1998. There were no third party property management
functions during the quarter ended in June 30, 1997.
A summary of the components of revenue for the quarters ended June 30, 1998 and
1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------- -------------------
% CHANGE
% OF TOTAL % OF TOTAL FROM 1997
REVENUES REVENUES REVENUES REVENUES TO 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Rental Revenue:
Multifamily:
Same-store .......................... $28,696 $27,008
Other ............................... 16,830 1,789
------- -------
Total Multifamily ...................... 45,526 93% 28,797 89% 58%
=======
Commercial and retail .................. 347 -- 1,194 4% (71%)
=======
Other income ........................ 3,358 7% 2,215 7% 52%
------- ------- ------- ------- =======
Total revenue ....................... $49,231 100% $32,206 100% 53%
======= ======= ======= ======= =======
</TABLE>
Portfolio physical occupancy rates as of June 30, 1998 and 1997 were as follows:
1998 1997
- --------------------------------------------------------------------------------
Multifamily: Same-store 96% 96%
- --------------------------------------------------------------------------------
Multifamily: All 96% 97%
- --------------------------------------------------------------------------------
Commercial and Retail/1/ 97% 93%
- --------------------------------------------------------------------------------
For multifamily properties, portfolio occupancy is calculated by dividing the
total occupied units by the total units in the portfolio. For commercial and
retail properties, portfolio occupancy is calculated by dividing the total
occupied square footage by the total rentable square footage in the portfolio.
EXPENSES
Real Estate Expenses
Real estate expenses for multifamily properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the quarter ended June 30,
1998 increased 47% to $15,192,000 from the comparable period in 1997 primarily
due to expenses of 27 multifamily property acquisitions. Real estate expenses
for
- --------
/1/ For 1998 represents four properties with a gross book value of approximately
$11 million; in 1997, there were nine properties with a gross book value of
approximately $35 million.
8
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
commercial and retail properties changed from $84,000 in the quarter ended
June 30, 1997 to $35,000 in the same period in 1997 due primarily to the sale of
11 such properties during 1997 and 1998. Real estate expenses formultifamily
properties as a percentage of multifamily rental revenues decreased from 35.9%
for the second quarter in 1997 to 33.4% for the second quarter 1998.
A summary of the categories of real estate expenses for the quarters ended June
30, 1998 and 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------------- -----------------------
% OF % OF
MULTIFAMILY MULTIFAMILY % CHANGE
RENTAL RENTAL FROM 1997
EXPENSE REVENUES EXPENSE REVENUES TO 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Multifamily:
Same-store ................. $ 9,678 $ 9,922
Multifamily: Other ........ 5,288 461
Other ...................... 226 (43)
-------- --------
Total Multifamily .......... 15,192 33.4% 10,340 35.9% 47%
==== ==== ========
Commercial and retail ...... 35 84 (58%)
-------- -------- ========
Total real estate expense $ 15,227 $ 10,424 46%
======== ======== ========
</TABLE>
Provision For Depreciation And Amortization
The provision for depreciation and amortization increased by $2,540,000 to
$6,668,000 for the quarter ended June 30, 1998 from the comparable period of
1997. The increase in 1998 resulted primarily from multifamily property
acquisitions and was offset in part by dispositions of commercial and retail
properties.
Interest Expense
Interest expense was $8,827,000 (net of interest capitalized to the cost of
apartment communities under development of $2,831,000) for the quarter ended
June 30, 1998, up from $4,850,000 for the same period in 1997. This increase was
due largely to interest expense on the Company's $50 million and $130 million
unsecured senior notes and the mortgage indebtedness assumed in the November
1997 transaction with Trammell Crow Residential-West.
General And Administrative
General and administrative costs were $1,705,000 or 3.5% of total revenues for
the second quarter in 1998 and $1,128,000, also 3.5 % of total revenues, for the
second quarter in 1997. The increase in the total general and administrative
expense reflect the costs of administering a much larger portfolio in the
quarter ended June 30, 1998, with total revenues approximately 53% greater than
in the quarter ended June 30, 1997.
9
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
Net Gain (Loss) On Sales Of Real Estate Investments
The net loss on sales of real estate investments of ($46,000) for the quarter
ended June 30, 1998 was primarily due to the sale of Santa Paula Village
Apartments and the Santa Ana Industrial properties.
The gain on sales of real estate investments of $25,603,000 in the quarter ended
June 30, 1997 was primarily due to the sale of three retail properties.
Minority Interest In Income
Minority interest in income was $1,017,000 for the quarter ended June 30, 1998
due to the earnings attributable to the minority members of the Company's
consolidated subsidiaries. There were no minority members in consolidated
subsidiaries in the quarter ended June 30, 1997.
Net Income
Net income decreased from $37,279,000 to $15,741,000 for the quarters ended June
30, 1997 and 1998 respectively, a decrease of $21,538,000. This decrease is
primarily due the gain on sales of real estate investments in 1997 of
$25,603,000 and was offset in part by earnings from the addition of 27
multifamily apartment communities acquired since June 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Total revenues were $96,644,000 for the six months ended June 30, 1998 compared
to $63,933,000 for the same period in 1997. This increase was primarily due to
an increase in multifamily rental revenues resulting from the acquisition of 28
multifamily communities which contributed approximately $33,836,000 and
$3,633,000 to multifamily rental revenues for the six months ended June 30, 1998
and 1997, respectively. This increase was offset in part by the disposition of
three communities. Further, multifamily rental revenues from "Same-Store"
communities (multifamily communities owned by the Company and stabilized as of
January 1, 1997 and consisting of 12,310 of BRE's 19,341 total units) increased
$3,733,000 for the six months ended June 30, 1998 compared to the same period in
1997. This increase was due primarily to an average increase in rental rates of
approximately 6%.
Rental revenues from commercial and retail properties decreased 84% in the six
months ended June 30, 1998 when compared to the same period in 1997 due largely
to the sale of 11 such properties in these categories (which properties
contributed approximately $0 and $4,054,000 in revenues during the six months
ended June 30, 1998 and 1997, respectively).
Other income increased from $4,081,000 in the six months ended June 30, 1997 to
$6,449,000 for the six months ended June 30, 1998 due primarily to the
acquisition of 28 multifamily communities and offset in part by the sale of 11
commercial and retail properties, and to a lesser extent, to net income from
third part property management in 1998. There were no third party property
management functions during the six months ended June 30, 1997.
10
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
A summary of the components of revenue for the six months ended June 30, 1998
and 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------------- ---------------------
% CHANGE
% OF TOTAL % OF TOTAL FROM 1997
REVENUES REVENUES REVENUES REVENUES TO 1998
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Rental Revenue:
Multifamily:
Same-store ....... $55,697 $51,964
Other ............ 33,836 3,633
------- -------
Total Multifamily ... 89,533 93% 55,597 87% 61%
=======
Commercial and retail 662 1% 4,255 7% (84%)
=======
Other income ..... 6,449 6% 4,081 6% 58%
------- ------- ------- ------- =======
Total revenue .... $96,644 100% $63,933 100% 51%
======= ======= ======= ======= =======
</TABLE>
EXPENSES
Real Estate Expenses
Real estate expenses for multifamily properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the six months ended June
30, 1998 increased by 52% to $29,922,000 from the comparable period in 1997
primarily due to expenses of 28 multifamily property acquisitions. Real estate
expenses for commercial and retail properties changed from $332,000 in the six
months ended June 30, 1997 to $50,000 in the same period in 1998 due primarily
to the sale of 11 such properties during 1997 and 1998. Real estate expenses for
multifamily properties as a percentage of multifamily rental revenues decreased
from 35.4% for the first six months in 1997 to 33.4% for the first six months
1998.
A summary of the categories of real estate expenses for the six months ended
June 30, 1998 and 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------------------- ----------------------
% OF % OF
MULTIFAMILY MULTIFAMILY % CHANGE
RENTAL RENTAL FROM 1997
EXPENSE REVENUES EXPENSE REVENUES TO 1998
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Multifamily: Same-store $ 18,791 $ 18,758
Multifamily: Other ..... 10,781 1,029
Other ................... 350 (80)
-------- --------
Multifamily-total ....... 29,922 33.4% 19,707 35.4% 52%
==== ==== ========
Commercial and retail ... 50 332 (85%)
-------- -------- ========
Total real estate expense $ 29,972 $ 20,039 50%
======== ======== ========
</TABLE>
11
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
Provision for Depreciation and Amortization
The provision for depreciation and amortization increased by $4,857,000 to
$13,153,000 for the six months ended June 30, 1998 from the comparable period of
1997. The increase in 1998 resulted primarily from multifamily property
acquisitions and was offset in part by dispositions of commercial and retail
properties.
Interest Expense
Interest expense was $17,362,000 (net of interest capitalized to the cost of
apartment communities under development of $4,857,000) for the six months ended
June 30, 1998, up from $10,739,000 for the same period in 1997. This increase
was due largely to interest expense on the Company's $50 million and $130
million unsecured senior notes and the mortgage indebtedness assumed in the
November 1997 transaction with Trammell Crow Residential-West.
General and Administrative
General and administrative costs were $3,370,000 or 3.5% of total revenues for
the six months ended June 30, 1998 in 1998 and $2,242,000, also 3.5% of total
revenues, for the same period in 1997. The increase of the total general and
administrative expense reflect the costs of administering a much larger
portfolio in the six months ended June 30, 1998, with total revenues
approximately 51% greater than in the six months ended June 30, 1997.
Net Gain (Loss) on Sales of Real Estate Investments
The net loss on sales of real estate investments of ($871,000) for the six
months ended June 30, 1998 was primarily due to the sale of the Park Glenn
apartment community in Camarillo, CA and the limited partnership interest in the
Chateau de Ville partnership in Anaheim, CA.
The net gains on sales of real estate investments of $25,603,000 in the six
months ended June 30, 1997 was primarily due to the sale of three retail
properties.
Minority Interest in Income
Minority interest in income was $2,033,000 for the six months ended June 30,
1998 due to the earnings attributable to the minority members of the Company's
consolidated subsidiaries. There were no minority members in consolidated
subsidiaries in the six months ended June 30, 1997.
Net Income
Net income decreased $18,337,000 from $48,220,000 to $29,883,000 for the six
months ended June 30, 1997 and 1998 respectively. This decrease was primarily
due to the gain on sales of real estate investments in 1997 of $25,603,000 and
was offset in part by the addition of 28 multifamily apartment communities
acquired since June 30, 1997.
12
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
ACQUISITION AND DISPOSITION SUMMARY
During the quarter ended June 30, 1998, the Company acquired and sold the
following assets:
GROSS
PURCHASE OR
COMMUNITY NAME UNITS SALES PRICE
- --------------------- ----------- -----------
ACQUISITIONS:
Carriage House ........ 160 $ 9,100,000
Park Highlands ........ 250 27,700,000
Brentwood Townehomes .. 81 6,900,000
Arbors at Warner Center 250 23,600,000
----------- -----------
Total Acquisitions .... 741 $67,300,000
=========== ===========
DISPOSITIONS:
Santa Paula Village ... 56 $ 2,650,000
=========== ===========
Construction in Progress
The following table sets forth data with respect to the Company's nine
multifamily properties included in construction in progress at June 30, 1998.
Completion of these properties is subject to a number of risks and
uncertainties, including construction delays and cost overruns. No assurance can
be given that these properties will be completed or, if completed, that they
will be completed by the estimated dates or for the estimated amounts set forth
in the table below or that they will contain the number of proposed units set
forth in the table below.
<TABLE>
<CAPTION>
PROPOSED INVESTMENT ESTIMATED ESTIMATED
PROPERTY NAME AND NUMBER TO DATE COST TO ESTIMATED COMPLETION
LOCATION OF UNITS/2/ JUNE 30, 1998 COMPLETE TOTAL COST DATE
- ---------------------------- -------------- -------------------- --------------- ---------------- -----------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Pinnacle at Towne Centre,
Phoenix, AZ 350 $27.7 $2.3 $30.0 3Q/1998
Pinnacle Terrace,
Chandler, AZ 300 17.3 3.3 20.6 3Q/1998
Pinnacle at Hunters Glen,
Thornton, CO 264 12.7 7.1 19.8 4Q/1998
Pinnacle at West Flamingo,
Las Vegas, NV 324 18.6 7.6 26.2 1Q/1999
Pinnacle Estates,
Albuquerque, NM 294 17.6 5.2 22.8 3Q/1998
Pinnacle at High Resort,
Rio Ranch, NM 301 14.6 8.2 22.8 3Q/1998
Pinnacle at Sand Hill,
Orem, UT 288 19.5 3.3 22.8 3Q/1998
Pinnacle at Clearfield,
Clearfield, UT 324 15.6 7.2 22.8 4Q/1998
Pinnacle at Blue Ravine,
Folsom, CA 260 3.7 19.3 23.0 2Q/1999
-------------- -------------------- --------------- ----------------
2,705 $147.3 $63.5 $210.8
============== ==================== =============== ================
</TABLE>
- -----------------
/2/ As of June 30, 1998, 638 units had been completed.
13
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
Year 2000 Considerations
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in other normal
business activities.
The Company has completed an assessment which will replace portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The total Year 2000 project cost for the
Company's systems is estimated to be approximately $200,000 and such costs will
be expensed according to the Company's existing policy. The Company expects to
complete the necessary software replacement largely using existing employees.
The project is estimated to be completed no later than December 31, 1998, which
is prior to any anticipated impact on its operating systems. The Company
believes that with the conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems.
At this time, no estimates can be made as to any potential adverse impact
resulting from the failure of third parties, including tenants, vendors and
financial institutions, to address year 2000 issues. For example, to the extent
payments, deposits and other transactions are not timely processed by financial
institutions, the Company's ability to collect payments from tenants and/or make
payments to its creditors could be adversely affected. The Company is dependent
on such third parties to assess the impact of the year 2000 issue on their
systems and to take any necessary corrective action. However, as a component of
its year 2000 project, the Company is in the process of discussing year 2000
compliance issues with its key vendors and service providers and is developing
contingency plans, although there can be no assurance that these contingency
plans will successfully avoid service interruption.
The costs of the Company's Year 2000 project and the date on which the Company
expects to complete the project are based on management's best estimates and
reflect assumptions regarding the availability and cost of trained personnel,
the ability to locate and correct all relevant computer codes, the compliance
plans of third parties (including tenants, vendors and financial institutions
mentioned above) and similar uncertainties. However, due to the complexity and
pervasiveness of the year 2000 issue and in particular the uncertainty regarding
the compliance programs of third parties, no assurance can be given that these
estimates will be achieved, and actual results could differ materially from
those anticipated.
Impact Of Inflation
For the quarter ended June 30, 1998, over 90% of the Company's total revenues
were derived from apartment properties. Due to the short-term nature of most
apartment leases (typically one year or less), the Company may seek to adjust
rents to help counter the impact of inflation upon renewal of existing leases or
commencement of new leases, although there can be no assurance that the Company
will be able to adjust rents in response to inflation. In addition, occupancy
rates may fluctuate due to short-term leases, which permit apartment residents
to leave at the end of each lease term at minimal cost to the resident.
14
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash and cash equivalents totaled $1,925,000,
down from $4,216,000 at December 31, 1997. Borrowings under the Company's lines
of credit were $212,000,000 at June 30, 1998, compared to $186,000,000 at
December 31, 1997. Lines of credit are available to fund new acquisitions, fund
capital improvements and operating expenses and pay dividends to shareholders.
The Company typically reduces lines of credit with cash balances as available.
The Company's lines of credit provide for borrowings of up to $300,000,000, with
$88,000,000 available at June 30, 1998. The lines of credit expire in June 2000
as to $265,000,000 and April 2000 as to $35,000,000. The lines of credit bear
interest at LIBOR plus .70% or lower based on bids of the participating banks.
Costs of the lines of credit are .125% per annum on the total commitment amount
and an unuse fee of .125% per annum as to unused amounts on the $35,000,000
line.
Additionally, the Company had $73,000,000 of unsecured indebtedness at June 30,
1998, with an interest rate of 7.44% per annum as to $55,000,000 and 7.88% per
annum as to $18,000,000. This indebtedness is to be repaid through scheduled
principal payments in the years from 2000 to 2005. The Company also had a
$50,000,000 issue of unsecured notes due 2007, with an effective rate of 7.8%
and a $130,000,000 issue of unsecured notes due 2013 with an effective rate,
reflecting the settlement of a Treasury Lock Swap Agreement, underwriting fees
and other costs, of approximately 7.3%. At June 30, 1998, the Company also had
outstanding mortgage indebtedness of $239,811,000 at interest rates ranging from
5.8% to 9.3%, with an overall average of approximately 7.6%. The remaining terms
of the mortgage indebtedness range from less than one to 30 years.
For additional information regarding the Company's lines of credit, unsecured
notes payable and mortgage loans payable, including scheduled principal payments
over the next five years, see Notes 5 and 6 to Notes to Consolidated Financial
Statements contained in the Company's 1997 Form 10-K. Certain of the Company's
indebtedness contains financial covenants as to minimum net worth, interest
coverage ratios, maximum secured debt and total debt to capital, among others.
The Company was in compliance with all such covenants during the quarter ended
June 30, 1998.
The Company purchased six apartment communities comprising 1,277 units during
the six months ended June 30, 1998 for a gross purchase price of $124.7 million.
There acquisitions were funded by borrowings on the lines of credit, the
assumption of debt and proceeds from the sale of properties. Because of
declining capitalization rates in its targeted western markets, the Company
currently expects that the aggregate purchase price of property acquisitions for
the remainder of 1998 will be less than $50 million.
The Company believes that its cash flow and cash available from lines of credit
will be sufficient to meet its short-term liquidity needs during 1998, which
include normal recurring expenses, debt service requirements, budgeted
expenditures for improvements to certain properties and distributions required
to maintain the Company's REIT qualification under the Internal Revenue Code.
However, the Company anticipates that it will continue to require outside
sources of financing to meet its long-term liquidity needs, such as scheduled
debt repayments and property acquisitions. At June 30, 1998, the Company has
committed to the purchase of approximately
15
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
$100,000,000 of multifamily communities and had an estimated cost to complete
for construction in progress of approximately $63,500,000.
DIVIDENDS AND DISTRIBUTIONS TO MINORITY MEMBERS
A cash dividend has been paid to shareholders each quarter since the Company's
inception in 1970. On February 24, 1997, the Company increased its dividend from
$1.38 per year to $1.44 per year. Total dividends paid to shareholders for the
six months ended June 30, 1998 and 1997 were $30,329,000 and $24,150,000
respectively.
Total distributions to minority members of the Company's consolidated
subsidiaries was $2,033,000 for the six months ended June 30, 1998. There were
no minority members in the Company's consolidated subsidiaries for the six
months ended June 30, 1997.
ITEM 3:
Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
16
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of shareholders held on April 14, 1998, the
shareholders elected two Directors for three-year terms, and approved one other
corporate action by the following votes:
<TABLE>
<CAPTION>
BROKER
WITH- NON-
FOR AGAINST HELD VOTE
--------------------------------------------- ---------- ---------- ----------
% of
Shares
Voted % of
on this Out- No. of No. of No. of
No. of shares Item standing Shares Shares Shares
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ITEM NO. 1
(Election of Directors)
Class I
Arthur G. von Thaden 29,377,395 99% 70% 255,017
Roger P. Kuppinger 29,391,772 99% 70% 240,640
ITEM NO. 2
Approval of increasing
the Director Stock
Option Plan 26,621,748 90% 64% 2,527,700 482,962 2
</TABLE>
17
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
The terms of office of the Company's six other directors continued after the
Annual meeting, as follows:
Term Expires Class
------------ -----
L. Michael Foley 1999 II
John McMahan 1999 II
Gregory M. Simon 1999 II
Frank C. McDowell 2000 I
C. Preston Butcher 2000 I
William E. Borsari 2000 I
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3 (ii) Amended and Restated Bylaws
10.1 First Amendment to Credit Agreement with Sanwa Bank dated
June 3, 1998
10.2 Form of Indemnification Agreement
27 Financial Data Schedule
99.1 Other Exhibits -Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
None
18
<PAGE>
BRE Properties, Inc.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRE PROPERTIES, INC.
(Registrant)
Date: August 13, 1998 /s/LeRoy E. Carlson
--------------- --------------------
LeRoy E. Carlson
Executive Vice President,
Chief Financial Officer and Secretary
19
<PAGE>
Exhibit 3 (ii)
--------------
BYLAWS
OF
BRE MARYLAND, INC.,
A Maryland corporation
As Amended through June 22, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - DEFINITIONS.................................................. 1
1.1 Definitions........................................................ 1
ARTICLE II - OFFICES..................................................... 1
2.1 Principal Office in Maryland....................................... 1
2.2 Principal Office................................................... 2
ARTICLE III - MEETINGS OF STOCKHOLDERS................................... 2
3.1 Place of Meetings.................................................. 2
3.2 Annual Meetings.................................................... 2
3.3 Special Meetings................................................... 2
3.4 Notice............................................................. 2
3.5 Record Date........................................................ 3
3.6 Notice to Stockholders............................................. 3
3.7 Waiver of Notice................................................... 3
3.8 Action Without Meeting............................................. 4
3.9 Quorum............................................................. 4
3.10 Voting............................................................ 4
3.11 Proxies........................................................... 4
3.12 Adjourned Meeting................................................. 4
3.13 List of Stockholders.............................................. 5
3.14 Inspectors of Election............................................ 5
ARTICLE IV - BOARD OF DIRECTORS.......................................... 6
4.1 Powers............................................................. 6
4.2 Number of Directors................................................ 6
4.3 Qualification of Directors......................................... 6
4.4 Election and Term of Office of Directors........................... 6
4.5 Removal............................................................ 6
4.6 Resignations....................................................... 6
4.7 Vacancies.......................................................... 6
4.8 Place of Meetings.................................................. 6
4.9 Organization Meetings.............................................. 7
</TABLE>
i
<PAGE>
4.10 Regular Meetings.................................................. 7
4.11 Special Meetings.................................................. 7
4.12 Notice............................................................ 7
4.13 Quorum............................................................ 7
4.14 Adjourned Meetings................................................ 7
4.15 Meetings Held Other Than in Person................................ 8
4.16 Waiver of Notice.................................................. 8
4.17 Action Without Meeting............................................ 8
4.18 Compensation of Directors......................................... 8
4.19 Interested Directors.............................................. 8
4.20 Executive Committee............................................... 9
4.21 Audit Committee................................................... 9
4.22 Other Committees' Limitations on Powers........................... 9
ARTICLE V - OFFICERS..................................................... 10
5.1 Officers........................................................... 10
5.2 Removal and Resignation of Officers................................ 10
5.3 Vacancies in Offices............................................... 10
5.4 Chairman........................................................... 10
5.5 Vice Chairman...................................................... 10
5.6 President.......................................................... 10
5.7 Secretary.......................................................... 10
5.8 Assistant Secretaries.............................................. 11
5.9 Treasurer.......................................................... 11
5.10 Assistant Treasurers.............................................. 11
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER AGENTS..... 11
6.1 Agents............................................................. 11
6.2 Action, Etc. Other Than By or in the Right of the Corporation...... 12
6.3 Action, Etc. By or in the Right of the Corporation................. 12
6.4 Advances of Expenses............................................... 12
6.5 Determination of Right to Indemnification or Advances; Procedure... 13
6.6 Other Rights and Remedies.......................................... 13
6.7 Contract Right..................................................... 13
6.8 Insurance.......................................................... 14
6.9 Constituent Corporations........................................... 14
6.10 Employee Benefit Plan............................................. 14
6.11 Severability; Statutory Indemnification........................... 14
ii
<PAGE>
ARTICLE VII - RECORDS AND REPORTS........................................ 15
7.1 Maintenance and Inspection of Corporate Records.................... 15
7.2 Inspection of Share Register....................................... 15
7.3 Scope of Right to Inspect.......................................... 15
7.4 Reports to Stockholders............................................ 15
ARTICLE VIII............................................................. 15
8.1 Stock Certificates................................................. 15
8.2 Share Register..................................................... 16
8.3 Transfer of Shares................................................. 16
8.4 Transfer Restrictions.............................................. 17
8.5 Lost Certificates.................................................. 17
8.6 Transfer Agent, Dividend Disbursing Agent and Registrar............ 17
ARTICLE IX - GENERAL CORPORATE MATTERS................................... 17
9.1 Tax Status......................................................... 17
9.2 Reliance........................................................... 18
9.3 Checks, Drafts, Evidences of Indebtedness.......................... 18
9.4 Corporate Contracts and Instruments; How Executed.................. 18
9.5 Representation of Shareholdings.................................... 18
9.6 Construction and Definitions....................................... 18
9.7 Seal............................................................... 18
ARTICLE X - AMENDMENTS................................................... 19
10.1 Amendments........................................................ 19
iii
<PAGE>
BYLAWS
OF
BRE MARYLAND, INC.
ARTICLE I
DEFINITIONS
-----------
Section 1.1. Definitions. For purposes of these Bylaws, the following terms
-----------
when capitalized shall have the meanings set forth below:
(a) Advisor. "Advisor" shall mean any Person appointed, employed or
-------
contracted with by the Board of Directors under the provisions of Article
VII hereof.
(b) Affiliate. "Affiliate" shall mean, as to any Person, any other
---------
Person who owns beneficially, directly or indirectly, one percent (1%) or
more of the outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled by or is under
common control with, such Person or is an officer, retired officer,
director, employee, partner or trustee of such Person or of any other
Person which controls, is controlled by or is under common control with,
such Person.
(c) Articles of Incorporation. "Articles of Incorporation" shall mean
-------------------------
the Articles of Incorporation of the Corporation, as from time to time
amended.
(d) Person. "Person" shall mean and include individuals, corporations,
------
limited partnerships, general partnerships, joint stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other entities and governments
and agencies and political subdivisions thereof.
(e) REIT. "REIT" shall mean a real estate investment trust as
----
described in the REIT Provisions of the Internal Revenue Code.
(f) REIT Provisions of the Internal Revenue Code. "REIT Provisions of
--------------------------------------------
the Internal Revenue Code" shall mean Part II, Subchapter M of Chapter 1,
of the Internal Revenue Code of 1986, as now enacted or hereafter amended,
or successor statutes, and regulations and rulings promulgated thereunder.
ARTICLE II
Section 2.1. Principal Office in Maryland. The principal office of
----------------------------
BRE Maryland, Inc. (hereinafter called the "Corporation") in the State of
Maryland shall be at 711 Mayton Court in the city of Belair, and the name and
address of the registered agent at that address shall be LEXIS Document
Services, Inc., 711 Mayton Court, Belair, Maryland, 21014. The Board of
Directors
1
<PAGE>
may, from time to time, designate a new agent and/or change the location of the
registered office to any place within the State of Maryland.
Section 2.2. Principal Office. The principal office of the Corporation
----------------
shall be in the City and County of San Francisco, California. The Board of
Directors may, from time to time, change such location and maintain other
offices or places of business.
ARTICLE III
MEETINGS OF STOCKHOLDERS
------------------------
Section 3.1. Place of Meetings. Meetings of the stockholders of the
-----------------
Corporation shall be held at a location selected by the Board of Directors in
the city where the principal office of the Corporation is located or at such
other location as is designated by the Board of Directors.
Section 3.2. Annual Meetings. The annual meeting of the stockholders for
---------------
the election of directors and for the transaction of any other proper business
shall be held after delivery of the annual report required by Section 7.4 and
within six (6) months after the end of the last full fiscal or calendar year
consisting of twelve months or the equivalent number of accounting periods, on
such date and at such time as are set by the Board of Directors and stated in
the notice of the meeting. Such annual report shall be submitted at the meeting
and placed on file at the principal office no later than twenty (20) days
following the meeting.
Section 3.3. Special Meetings. The Chairman, President or Board of
----------------
Directors may call special meetings of the stockholders. Special meetings of
stockholders shall also be called by the Secretary of the Corporation upon the
written request of the holders of shares entitled to cast not less than 25% of
all the votes entitled to be cast at such meeting. Such request shall state the
purpose of such meeting and the matters proposed to be acted on at such meeting.
The Secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Corporation
by such stockholders of such costs, the Secretary shall give notice to each
stockholder entitled to notice of the meeting. Unless requested by the
stockholders entitled to cast a majority of all the votes entitled to be cast at
such meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve months.
Section 3.4. Notice. Not less than ten (10) nor more than ninety (90)
------
days before each meeting of the stockholders, the Secretary shall give to each
stockholder entitled to vote at such meeting, and to each stockholder not
entitled to vote who is entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by presenting it to such stockholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the Corporation, with postage thereon prepaid. The
notice shall also
2
<PAGE>
designate the place where the stockholders list required by Section 3.13 is
available for examination, unless the list is kept at the place where the
meeting is to be held. The notice shall be given in the manner prescribed by
Section 3.6.
Section 3.5. Record Date. For purposes of determining the stockholders
-----------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may (i) fix, in advance, a record date which shall not be
more than ninety (90) days prior to the date of any such meeting or the taking
of such other actions; or (ii) direct that the stock transfer books be closed
for a period not to exceed twenty (20) days. A record date may not precede the
date on which the record date is fixed. In the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten (10) days before the meeting. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
If the Board of Directors does not so fix a record date or close the stock
transfer books; then:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the later of (i) at the close of
business on the day on which notice is mailed or (ii) at the close of business
on the thirtieth (30) day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto provided that the payment or allotment
may not be made more than sixty (60) days after the date on which such
resolution was adopted.
Section 3.6. Notice to Stockholders. Any notice of meeting or other
----------------------
notice, communication or report to any stockholder shall be deemed duly
delivered to such stockholder when such notice, communication or report is
delivered in person to such stockholder, left at his residence or usual place of
business, or deposited, with postage thereon prepaid, in the United States mail,
addressed to such stockholder at such stockholder's address as it appears on the
share register or theretofore given by the stockholder to the Corporation for
purpose of notice.
Section 3.7. Waiver of Notice. The transactions of any meeting of the
----------------
stockholders, either annual, special or adjourned, however called or noticed,
shall be as valid as though conducted at a meeting duly held after regular call
and notice if a quorum is present and if, either before or after the meeting,
each stockholder entitled to vote and not present in person or by proxy signs a
written waiver of notice or a consent to the holding of such meeting or an
approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of business because the meeting is not lawfully called or convened.
3
<PAGE>
Section 3.8. Action Without Meeting. Any action which is required or
----------------------
permitted to be taken at any annual or special meeting of shareholders may be
taken without a meeting and without prior notice, if (i) an unanimous written
consent, setting forth the action so taken, is signed by each stockholder
entitled to vote on the matter and (ii) a written waiver of any right to dissent
is signed by each stockholder entitled to notice of the meeting but not entitled
to vote at it. All such consents and waivers shall be filed with the Secretary
of the Corporation and shall be maintained with the records of the stockholders
meetings.
Section 3.9. Quorum. The presence in person or by proxy of the holders of
------
a majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. If, however, such quorum shall not be
present at any meeting of the stockholders, the stockholders entitled to vote at
such meeting, present in person or by proxy, shall have the power to adjourn the
meeting from day to day or from time to time to a date not more than 120 days
after the original record date.
Section 3.10. Voting. A stockholder may vote in person or by proxy.
------
Except as otherwise provided by law, the Articles of Incorporation, or these
Bylaws, the affirmative vote of a majority of shares entitled to vote on the
subject matter and present in person or represented by proxy at a meeting at
which a quorum is present shall be the act of the stockholders.
Section 3.11. Proxies. The appointment of a proxy or proxies shall
-------
be made by an instrument in writing executed by the stockholder or his duly
authorized agent and filed with the Secretary of the Corporation. The Board of
Directors may solicit such proxies from all of the stockholders or any of them
with respect to any matter requiring or permitting the stockholders' vote or
consent. No proxy shall be valid after the expiration of eleven (11) months from
the date of its execution unless otherwise expressly provided in the proxy. At a
meeting of the stockholders, all questions concerning the qualifications of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by the Secretary of the Corporation unless inspectors of election are
appointed pursuant to Section 3.14, in which event such inspectors shall pass
upon all questions and shall have all other duties specified therein.
Section 3.12. Adjourned Meetings. Any meeting of the stockholders,
------------------
whether or not a quorum is present, may be adjourned from day to day or from
time to time by the vote of the holders of a majority of the shares represented
at the meeting. Unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting or unless the adjournment is for more
than 120 days, notice of an adjourned meeting need not be given if the place,
date and time to which the meeting shall be adjourned is announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting as originally notified.
Section 3.13. List of Stockholders. The Secretary or other officer who
--------------------
has charge of the share register of the Corporation shall prepare and make
available, at least ten (10) days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the
4
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examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 3.14. Inspectors of Election. Before any meeting of stockholders,
----------------------
the Board of Directors may appoint inspectors of election during the meeting or
any adjournment thereof. If no inspectors of election are appointed, the
Chairman of the meeting may, and on the request of any stockholder or his proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall either be one (1) or three (3). If inspectors are appointed at a meeting
on the request of one or more stockholders or proxies, the holders of a majority
of shares or their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment by the Board of Directors before the meeting, or by the Chairman
at the meeting.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine the election results; and
(f) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
If there are three (3) inspectors of election, the decision, act or
certificate of a majority of the inspectors shall be effective in all respects
as the decision, act or certificate of all. On request of the Chairman of the
meeting or of a stockholder or his proxy, the inspectors shall make a report in
writing of any challenge or question or matter determined by them and execute a
certificate of any facts found by them.
5
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ARTICLE IV
BOARD OF DIRECTORS
------------------
Section 4.1. Powers. Except as otherwise provided by law, the Articles
------
of Incorporation or these Bylaws, the business and affairs of the Corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the Board of Directors.
Section 4.2. Number of Directors. The Board of Directors shall consist of
-------------------
not less than three (3) and not more than fifteen (15) members. Within these
limits, the authorized number of directors may be reduced or increased from time
to time by resolution of the Board of Directors or by amendment of this Section
by the stockholders, but no such decrease may shorten the term of an incumbent
director. Until such action is taken, the authorized number of directors shall
be six (6).
Section 4.3. Qualification of Directors. A director shall be an individual
--------------------------
at least twenty-one (21) years of age who is not under legal disability. No
person shall be eligible for election, re-election or appointment as a director
after having obtained the age of seventy (70) years. Directors need not be
stockholders.
Section 4.4. Election and Term of Office of Directors. To the extent
----------------------------------------
provided in the Articles of Incorporation, directors shall be elected by the
stockholders at each annual meeting following the end of a full calendar or
fiscal year consisting of twelve months or the equivalent number of accounting
periods. Subject to Sections 4.5 and 4.6, each director, including a director
elected or approved to fill a vacancy, shall hold office until a successor has
been elected and qualified. If directors are not elected at an annual meeting
or if such meeting is not held, the directors may be elected at a special
meeting. Directors may be reelected.
Section 4.5. Removal. A director may be removed as provided in the
-------
Articles of Incorporation.
Section 4.6. Resignations. Any director may resign by giving written
------------
notice to the Board of Directors. A notice of resignation shall be effective on
the date given unless a later time is specified in the notice, in which case
such resignation shall be effective at the time specified. Unless such
resignation specifies otherwise, its acceptance by the Corporation shall not be
necessary to make it effective. A director shall be deemed to have resigned if
(i) such director is adjudicated insane or incompetent, (ii) an order for relief
or similar provision for the benefit of creditors is entered against such
director under any federal or state bankruptcy or insolvency laws, or (iii) a
receiver, guardian, or conservator is appointed for such director or such
director's affairs. The effective date of the resignation of a director deemed
to have resigned pursuant to this Section shall be as of the date of such
adjudication, order, or appointment.
Section 4.7. Vacancies. Any vacancy in the Board of Directors may be
---------
filled as provided in the Articles of Incorporation.
Section 4.8. Place of Meetings. Meetings of the Board of Directors shall
-----------------
be held at the principal office of the Corporation or at such place as is
designated by the Board of Directors.
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Whenever a place other than the principal office is fixed as the place at which
meetings are to be held, written notice thereof shall be sent not later than the
third business day following such designation to all directors who did not
participate in the decision so designating such place.
Section 4.9. Organization Meetings. Immediately following each annual
---------------------
meeting of stockholders, a regular meeting of the Board of Directors shall be
held for the purpose of organizing, electing any officers, and transacting other
business. Notice of such meetings need not be given.
Section 4.10. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held on such dates and at such places and times as the Board
of Directors determines. Notice of such regular meetings need not be given. If
any day designated for a meeting is a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day that is not a legal holiday.
Section 4.11. Special Meetings. Special meetings of the Board of
----------------
Directors for any purpose or purposes may be called at any time by the Chairman
or the President (if the President is a member of the Board of Directors) and
the Chairman shall call a special meeting at any time upon the written request
of two (2) directors.
Section 4.12. Notice. Notice of any special meeting of the Board of
------
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two (2) days prior to the meeting. Notice by mail shall
be given at least five (5) days prior to the meeting and shall be deemed to be
given when deposited prepaid. Telephone notice shall be deemed to be given when
the director is personally given such notice in a telephone call to which he is
a party. Facsimile transmission notice shall be deemed to be given upon
completion of the transmission of the message to the number given to the
Corporation by the director and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted, nor the purpose of, any annual,
regular or special meeting of the Board of Directors need be stated in the
notice, unless specifically required by statute or these Bylaws.
Section 4.13. Quorum. At all meetings of the Board of Directors, a
------
majority of the authorized number of directors shall constitute a quorum for the
transaction of business. Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, the vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors. Common or interested directors may be counted in determining the
existence of a quorum. The directors at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 4.14. Adjourned Meetings. Any meetings of the Board of Directors,
------------------
whether or not a quorum is present, may be adjourned from day to day and from
time to time by the vote of a majority of the directors present, without notice
of the place, date and time of the adjourned meeting other than announcement
thereof at the meeting.
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Section 4.15. Meetings Held Other Than in Person. Members of the Board of
----------------------------------
Directors or any committee may participate in a meeting of the Board of
Directors or committee by conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
Section 4.16. Waiver of Notice. The transactions of a special meeting of
----------------
the Board of Directors, however called and noticed or wherever held, shall be as
valid as though taken at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to the holding
of the meeting or an approval of the minutes thereof. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except when the director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 4.17. Action Without Meeting. Any action required or permitted to
----------------------
be taken at a meeting of the Board of Directors, or any committee thereof, may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent in writing to such action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors.
Section 4.18. Compensation of Directors. The Directors shall be entitled
-------------------------
to receive such reasonable compensation for their services as directors and/or
as members of committees of the Board of Directors as the Board of Directors
determines from time to time. The directors may be paid their expenses, if any,
for attendance at each meeting of the Board of Directors or a committee of
directors, and each director may be paid a fixed sum for attendance at each
meeting and/or a fixed salary, as determined from time to time by the Board of
Directors. The directors, either directly or indirectly, shall also be entitled
to receive remuneration for services rendered to the Corporation in any other
capacity. Such services may include, without limitation, services as an officer
of the Corporation, legal, accounting or other professional services, or
services as a broker, transfer agent or underwriter, whether performed by a
director or any person affiliated with a director.
Section 4.19. Interested Directors. The Corporation shall not enter into
--------------------
a contract or transaction with any director or officer, or with any Person in
which any officer or director holds a material financial interest or serves as
an officer or director, unless:
(a) The fact of such director's or officer's relationship or interest is
disclosed or known to the Board of Directors or the committee thereof approving
such contract or transaction, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
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(b) The material fact of such director's or officer's relationship or
interest is disclosed or known to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by vote of
the holders of a majority of the outstanding shares entitled to vote thereon
other than shares held by the interested director or such other Person; or
(c) The contract or transaction is fair and reasonable to the
Corporation.
Section 4.20. Executive Committee. The Board of Directors may appoint an
-------------------
Executive Committee of three (3) or more directors to whom they may delegate any
of the powers and authorities of the Board of Directors, subject to the
limitations set forth in Section 4.22 below. The Board of Directors may
prescribe the procedures of the Executive Committee, change the membership
thereof and appoint one or more directors to act as alternate members to replace
absent or disqualified members. The Chairman shall be a member of the Executive
Committee.
Section 4.21. Audit Committee. The Board of Directors may appoint an
---------------
Audit Committee of two (2) or more directors and may establish its procedures
and determine duties. The Audit Committee shall recommend to the Board of
Directors a firm of independent certified public accountants to conduct the
annual audit of the Corporation's books and records; review with such accounting
firm the scope and results of the annual audit; review the performance by such
independent accountants of professional services in addition to those which are
related to the audit; consult with independent auditors with regard to the
adequacy of the Corporation's system of internal controls; and to perform any
other services requested by the Board of Directors in connection with audit
policies and procedures.
Section 4.22. Other Committees' Limitations on Powers. The Board of
---------------------------------------
Directors may appoint such other committees of directors, with each committee to
consist of two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any such committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the Board of
Directors or the Bylaws of the Corporation, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it, except that no committee,
including any committee described in Section 4.20 or Section 4.21 above, shall
have the power to (i) declare dividends or distributions on stock; (ii)
recommend to the stockholders any action which requires stockholder approval;
(iii) approve any merger or share exchange which does not require stockholder
approval; or (iv) authorize the issuance of any shares of stock except in
accordance with Section 2-411 (or any successor provisions thereto), as the same
may be amended or supplemented from time to time, of the General Corporation Law
of Maryland.
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ARTICLE V
OFFICERS
--------
Section 5.1. Officers. The officers of the Corporation shall be a
--------
Chairman, Vice Chairman, President, Secretary and a Treasurer. The Board of
Directors may appoint or may empower the Chairman to appoint such other officers
as the business of the Corporation may require. The terms, compensation and
duties of all officers of the Corporation shall be determined by these Bylaws or
by the Board of Directors. All officers shall serve at the pleasure of the Board
of Directors, subject to the rights, if any, of any officer under any employment
contract.
Section 5.2. Removal and Resignation of Officers. Subject to the rights,
-----------------------------------
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors if it finds
that it is in the best interest of the Corporation to do so, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors. Any such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the Corporation under any contract to which the officer is a party.
Section 5.3. Vacancies in Offices. A vacancy in any office because of
--------------------
death, resignation, removal, disqualification or any other cause shall be filled
in the manner described in these Bylaws for regular appointments to such office.
Section 5.4. Chairman. The Chairman shall preside at all meetings of the
--------
stockholders and the Board of Directors and shall exercise and perform such
other powers and duties as may from time to time be assigned to the Chairman by
the Board of Directors or prescribed by these Bylaws. Unless otherwise provided
by the Board of Directors, the Chairman shall also be the chief executive
officer of the Corporation.
Section 5.5. Vice Chairman. In the absence or disability of the
-------------
Chairman, the Vice Chairman shall perform all of the duties of the Chairman, and
when so acting shall have all of the powers of, and be subject to all of the
restrictions upon, the Chairman. The Vice Chairman shall have such other powers
and perform such other duties as the Board of Directors may from time to time
prescribe.
Section 5.6. President. The President shall have such powers and perform
---------
such duties as the Board of Directors may from time to time prescribe.
Section 5.7. Secretary. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of the stockholders and record all
proceedings of such meetings in a book to be kept for that purpose and shall
perform like duties for the standing committees when required.
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<PAGE>
The Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors. The Secretary shall
have such other powers and perform such other duties as the Board of Directors
or the Chairman may from time to time prescribe.
The Secretary shall have custody of the seal of the Corporation and the
Secretary or an Assistant Secretary shall have authority to affix the same to
any instrument requiring it and, when so affixed, it may be attested by the
Secretary's signature or by the signature of such Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by such officer's signature.
Section 5.8. Assistant Secretaries. In the absence of the Secretary or
---------------------
in the event of the Secretary's inability or refusal to act, any Assistant
Secretary may perform the duties and exercise the powers of the Secretary and
shall have such other powers and perform such other duties as the Board of
Directors or the Chairman may from time to time prescribe.
Section 5.9. Treasurer. The Treasurer shall be the chief accounting
---------
and financial officer of the Corporation. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements and books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall also disburse the funds of the Corporation as may
be ordered by the Board of Directors, and shall render to the Chairman and the
Board of Directors, at their regular meetings, or when the Board of Directors so
require, an account of all of the Treasurer's transactions and of the financial
condition of the Corporation. The Treasurer shall have such other powers and
perform such other duties as the Board of Directors or the Chairman may from
time to time prescribe.
Section 5.10. Assistant Treasurers. In the absence of the Treasurer or
--------------------
in the event of the Treasurer's inability or refusal to act, any Assistant
Treasurer may perform the duties and exercise the powers of the Treasurer and
shall have such other powers and perform such other duties as the Board of
Directors or the Chairman may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER AGENTS
-------------------------------------------------------
Section 6.1. Agents. For purposes of this Article, "Agent" means (i) any
------
person who is or was a director or officer of this Corporation, or is or was
serving at the request of this Corporation as a director, officer, employee,
trustee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including employee benefit plans, and (ii) any other
employee or agent of this Corporation (or of any such other corporation,
partnership, joint venture, trust or other enterprise) to whom the Board of
Directors, in its sole discretion, elects to extend, in whole or in part, the
benefits of this Article.
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Section 6.2. Action, Etc. Other Than By or in the Right of the
-------------------------------------------------
Corporation. The Corporation shall indemnify any person 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 Corporation (other than a judicial
action or suit brought by or in the right of the Corporation), by reason of the
fact that he or she is or was an Agent, 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 Agent in connection with such action, suit, proceeding or investigation,
or any appeal therein, unless 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; or (ii) the Agent actually received an improper
personal benefit in money, property or services; or (iii) with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, or its equivalent, shall not, of itself, create a
presumption that the Agent did not meet the standard of conduct set forth above
in this paragraph. Notwithstanding the foregoing, indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to have failed to meet the foregoing standard of conduct but only if
and to the extent that a court of appropriate jurisdiction shall determine upon
application that, despite such adjudication but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for any
such expenses, 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.
Section 6.3. Action, Etc. By or in the Right of the Corporation. The
--------------------------------------------------
Corporation 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 Corporation to procure a judgment in its favor
by reason of the fact that such person is or was an Agent, 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 Corporation 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.
Section 6.4. Advances of Expenses. All costs, charges and expenses
--------------------
(including attorneys' fees) incurred by an Agent in defense of any action, suit,
proceeding or investigation of the nature referred to in Sections 6.2 or 6.3 or
any appeal therefrom shall be paid or reimbursed by the Corporation in advance
of the final disposition of such matter upon receipt by the Corporation of (i) a
written affirmation by the Agent of his or her good faith belief that the
standard of conduct necessary for indemnification has been satisfied; and (ii)
an undertaking by or on behalf of such Agent to reimburse the Corporation for
such payment in the event that it is ultimately determined that such person is
not entitled to indemnification under this Article VI or otherwise.
12
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Section 6.5. Determination of Right to Indemnification or Advances;
------------------------------------------------------
Procedure. Unless otherwise ordered by a court, any indemnification under
- ---------
Sections 6.2 or 6.3, or advance under Section 6.4, shall be made promptly and in
any event within ninety (90) days following written application by the Agent,
unless with respect to an application for indemnification under Sections 6.2 or
6.3 a determination that such Agent did not meet the applicable standard of
conduct set forth in Sections 6.2 and 6.3 is reasonably made within the ninety
(90) day period, either (i) by the Board of Directors acting by a majority vote
of a quorum consisting of Directors who are not parties to such action, suit or
proceeding, or, if such a quorum cannot be obtained, then by a majority vote of
a committee of the board consisting solely of two or more directors not, at the
time, parties to such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the designated directors
who are parties may participate; (ii) special legal counsel selected by the
Board of Directors or a committee of the board by vote as set forth in clause
(i), or if the requisite quorum of the full board cannot be obtained therefor
and the committee cannot be established, by a majority vote of the full board in
which directors who are parties may participate; or (iii) the stockholders
provided that shares held by directors who are parties to the proceeding may not
be voted. Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in clause (ii) of this section for selection of
such counsel. The right to indemnification or advances as granted by this
Article shall be enforceable by the Agent in any court of competent jurisdiction
if the Board of Directors or independent legal counsel improperly denies the
claim, in whole or in part, or if no disposition of such claim is made within
ninety (90) days. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any action,
suit, proceeding or investigation in advance of its final disposition where the
required undertaking has been tendered to the Corporation) that the Agent has
not met the standards of conduct which would require the Corporation to
indemnify the amount claimed, but the burden of proving such defense shall be on
the Corporation. The Agent's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification or advances, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
Section 6.6. Other Rights and Remedies. The rights to indemnification
-------------------------
and advancement of expenses provided by any provision of this Article shall not
be deemed exclusive of, and shall not affect, any other rights to which an Agent
seeking indemnification or advancement of expenses may be entitled under any
provision of any law, certificate of incorporation, bylaw, agreement, contract
or by any vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while serving as an Agent, and shall continue as to a person who has ceased to
be an Agent and shall inure to the benefit of the heirs, executors and
administrators of such Agent.
Section 6.7. Contract Right. All rights to indemnification and
--------------
advancement of expenses under this Article VI shall be deemed to be provided by
a contract between the Corporation and the Agent who serves as such at any time
while these Bylaws and other relevant provisions of the
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General Corporation Law of Maryland and other applicable law, if any, are in
effect. Any repeal, amendment or modification thereof shall not affect any
rights or obligations then existing.
Section 6.8. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any Agent against any liability asserted against or
incurred by that Agent in any capacity or arising out of the Agent's status as
such, whether or not the Corporation would have the power to indemnify the Agent
against such liability under the provisions of this Article. The Corporation may
create a trust fund, grant a security interest or use other means, including,
without limitation, a letter of credit or surety bond, to ensure the payment of
such sums as may become necessary to effect indemnification as provided herein.
Section 6.9. Constituent Corporations. For purposes of this Article,
------------------------
references to "the Corporation" include all constituent corporations (including
any constituent of a constituent) absorbed in a consolidation or merger as well
as the resulting or surviving corporation, so that any person who is or was an
Agent of the constituent corporation shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as the Agent would if he or she had served the resulting or
surviving corporation in the same capacity.
Section 6.10. Employee Benefit Plan. The Corporation shall be deemed
---------------------
to have requested an Agent to serve an employee benefit plan where the
performance of the Agent's duties to the Corporation also imposes duties on, or
otherwise involves services by, the Agent to the plan or participants or
beneficiaries of the plan. Action taken or omitted by the Agent with respect to
an employee benefit plan in the performance of the Agent's duties for a purpose
reasonably believed by the Agent to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
Section 6.11. Severability; Statutory Indemnification. If this Article
---------------------------------------
or any portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless indemnify each
Agent as to all expenses (including attorneys' fees), liability and loss
reasonably incurred by such Agent in connection with any action, suit,
proceeding or investigation referred to in Section 6.2 or 6.3 to the fullest
extent permitted by any portion of this Article that shall not have been
invalidated, or by any other applicable law. Notwithstanding any other provision
of this Article but subject to the provisions of Section 6.7 regarding contract
rights, the Corporation shall indemnify any Agent and advance expenses incurred
by such Agent in any action, suit or proceeding of the nature referred to in
Sections 6.2 or 6.3 to the fullest extent permitted by the General Corporation
Law of Maryland, as the same may be amended from time to time.
14
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ARTICLE VII
RECORDS AND REPORTS
Section 7.1. Maintenance and Inspection of Corporate Records. The
annual reports, these bylaws, the minutes of proceedings of the stockholders
and any copies of any voting trust agreements on file at the principal office
of the Corporation shall be open to inspection at the principal office by any
stockholder or holder of a voting trust certificate during normal business
hours.
Section 7.2. Right of Inspection - Shareholders of 5 Percent of Stock.
--------------------------------------------------------
One or more persons who together are and for at least six months have been
stockholders of record or holders of voting trust certificates of at least 5
percent of the outstanding stock of any class of the Corporation may (i) in
person or by agent, on written request, inspect and copy during usual business
hours the corporation's books of account; (ii) present to any officer or agent
of the Corporation a written request for a statement of its affairs and a list
of its stockholders. Within 20 days after such request for information is made,
the Corporation shall prepare and have available on file at its principal
office; (iii) in the case of a request for a statement of affairs, a statement
verified under oath by the Chairman, Vice Chairman, President or Treasurer which
sets forth in reasonable detail the corporation's assets and liabilities as of a
reasonably current date; and (iv) in the case of a request for a list of
stockholders, a list verified under oath by one of its officers or its stock
transfer agent or registrar which sets forth the name and address of each
stockholder and the number of shares of each class which the stockholder holds.
Section 7.3. Scope of Right to Inspect. The right of inspection created
-------------------------
by this Article shall extend to the records of each subsidiary of the
Corporation. Any inspection authorized by this Article may be made in person by
the stockholder or holder of a voting trust certificate or by agent or attorney,
and the right of inspection includes the right to copy and make extracts.
Section 7.4. Reports to Stockholders. The Board of Directors shall cause
----------------------
an annual report to the stockholders no later than one hundred twenty (120) days
after the close of the fiscal year adopted by the Board of Directors. The annual
report shall contain a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position of such fiscal
year, accompanied by a report thereon of an independent certified accountant. A
manually signed copy of the accountant's report shall be filed with the Board of
Directors.
At least quarterly the Board of Directors shall send interim reports to the
stockholders, having such form and content as the Board of Directors deems
proper.
15
<PAGE>
ARTICLE VIII
STOCK AND CERTIFICATES
----------------------
Section 8.1. Stock Certificates. Every holder of stock of the Corporation
------------------
shall be entitled to have a certificate signed by or in the name of the
Corporation by the President, the Chairman or any Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such stockholder in
the Corporation. Where a certificate is countersigned by a transfer agent other
than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the officers of the Corporation
or the transfer agent or registrar may be facsimiles. In case any officer,
transfer agent or registrar who was signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or a registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
was holding such position at the date of issue.
Except as otherwise provided by law or these Bylaws, certificates shall be
issued, listed and transferred in accordance with procedures established by the
Board of Directors. Stock certificates shall contain such legends or other
statements as the Board of Directors determine may be necessary or desirable to
carry out any agreement or the provisions of the Articles of Incorporation or
Section 8.3, or to conform with the REIT Provisions of the Internal Revenue Code
or other law or regulation.
Section 8.2. Share Register. A share register shall be kept by or on
--------------
behalf of and under the direction of the Board of Directors containing the names
and addresses of the stockholders, the number of shares held by them
respectively, the numbers of the certificates representing the shares, and a
record of all transfers of shares. The Persons in whose name certificates are
registered on the records of the Corporation shall be deemed the absolute owners
of the shares represented thereby, but nothing herein shall be deemed to
preclude the Board of Directors or officers, or their agents or representatives,
from inquiring as to the actual ownership of shares. The receipt of dividends or
distributions by the Person in whose name any shares are registered on the
records of the Corporation or of the duly authorized agent of such Person, or if
such shares are so registered in the names of more than one Person, the receipt
of any one of such Persons, or of the duly authorized agent of such Person,
shall be a sufficient discharge for all dividends or distributions payable or
deliverable in respect of such shares and from all liability to see to the
application thereof.
Section 8.3. Transfer of Shares. Until a transfer is duly effected on the
------------------
records of the Corporation, the Board of Directors shall not be affected by any
notice of such transfer, either actual or constructive. Shares shall be
transferable on the records of the Corporation only by the record holder thereof
or by such holder's agent thereunto duly authorized in writing upon delivery to
the Board of Directors or a transfer agent of the certificate or certificates
properly endorsed or accompanied by duly executed instruments of transfer. Such
delivery of certificates shall be accompanied by all necessary documentary
stamps together with such evidence of the genuineness of each such endorsement,
execution or authorization and of other matters as may reasonably be required by
the Board of Directors or such transfer agent. Upon such delivery, the
16
<PAGE>
transfer shall be recorded in the records of the Corporation and a new
certificate for the shares so transferred shall be issued to the transferee. In
case of a transfer of only a part of the shares represented by any certificate,
a new certificate for the balance shall be issued to the transferor.
Any Person becoming entitled to any shares in consequence of the death of a
stockholder or otherwise by operation of law shall be recorded as the holder of
such shares and shall receive a new certificate therefor but only upon delivery
to the Board of Directors or a transfer agent of instruments and other evidence
required by the Board of Directors or the transfer agent to demonstrate such
entitlement, the existing certificate for such shares and any necessary releases
from applicable governmental authorities.
Nothing herein shall impose upon the Board of Directors or a transfer agent
a duty or limit their rights to inquire into adverse claims.
Section 8.4. Transfer Restrictions. The Board of Directors may require a
---------------------
statement or affidavit from each stockholder or proposed transferee of shares
setting forth the number of shares already owned by such stockholder or
transferee, or any related Person, in the form prescribed by the Board of
Directors if the Board of Directors determines that such action is reasonably
necessary to protect the Corporation's tax status as a REIT. If, in the opinion
of the Board of Directors, which shall be conclusive upon any proposed
transferor or proposed transferee of shares, any proposed transfers would
jeopardize the status of the Corporation as a REIT under the REIT Provisions of
the Internal Revenue Code, the Board of Directors may refuse to permit such
transfer. Any attempted transfer that the Board of Directors has refused to
permit shall be void and of no effect as to transfer any legal or beneficial
interest in the shares. All contracts for the sale or for the transfer of
shares shall be subject to this provision.
Section 8.5. Lost Certificates. Except as provided in this Section, no new
-----------------
certificate for shares shall be issued in lieu of an old certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Board of Directors may, in case any share certificate is lost, stolen or
destroyed, authorize the issuance of a new certificate in lieu thereof, upon
such terms and conditions as the Board of Directors, in its sole discretion, may
require, including provision for indemnification of the Corporation and/or a
bond sufficient to protect the Corporation from any claim or liability on
account of the alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.
Section 8.6. Transfer Agent, Dividend Disbursing Agent and Registrar. The
-------------------------------------------------------
Board of Directors shall have power to employ one or more transfer agents,
dividend disbursing agents and registrars and to authorize them on behalf of the
Corporation to keep records, to hold and disburse any dividends and
distributions and to have and perform in respect of all original issues and
transfers of shares, dividends and distributions and reports and communications
to stockholders, the powers and duties usually had and performed by transfer
agents, dividend disbursing agents and registrars of a Maryland corporation.
17
<PAGE>
ARTICLE IX
GENERAL CORPORATE MATTER
------------------------
Section 9.1. Tax Status. It is intended that the Corporation shall qualify
----------
as a REIT under the REIT Provisions of the Internal Revenue Code during such
period as the Board of Directors shall deem advisable to qualify the
Corporation. The failure of the Corporation to qualify as a REIT or the loss of
such status shall not render the Board of Directors liable to the stockholders
or to any other Person or operate in any manner to dissolve the Corporation.
Section 9.2. Reliance. Each director, officer, employee and agent of the
---------
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 9.3. Checks, Drafts, Evidences of Indebtedness. All checks, drafts
-----------------------------------------
or other orders for payment of money, notes or other evidence of indebtedness,
issued in the name of or payable to the Corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 9.4. Corporate Contracts and Instruments; How Executed. Except as
-------------------------------------------------
otherwise provided by law, the Articles of Incorporation or these Bylaws, the
Board of Directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized or ratified by the Board of Directors or
within the agency power of any officer, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or to any amount.
Section 9.5. Representation of Shareholdings. The Chairman, Vice-Chairman
-------------------------------
and the Secretary or Assistant Secretary or any person authorized by resolution
of the Board of Directors is authorized to vote, represent and exercise on
behalf of the Corporation all rights incident to any and all shares of any other
corporation, business trust or other entities, foreign or domestic, standing in
the name of the Corporation. The authority herein granted may be exercised in
person or by proxy.
Section 9.6. Construction and Definitions. Unless the context requires
----------------------------
otherwise, the general provisions, rules of construction and definitions in the
Maryland Corporation Law shall govern the construction of these Bylaws.
Section 9.7. Seal. The Corporation's seal shall be in such form as is
----
required by law and as shall be approved by the Board of Directors.
18
<PAGE>
ARTICLE X
AMENDMENTS
----------
Section 10.1. Amendments. The power to adopt, amend, repeal or rescind
----------
in whole or part these Bylaws is solely and exclusively vested in the Board of
Directors. The stockholders shall have no power to adopt, amend, repeal or
rescind any part of the Bylaws of the Corporation.
19
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (the "First
-----
Amendment") is entered into as of the 3rd day of June, 1998 by and between Sanwa
- ---------
Bank California, a California banking corporation (the "Bank"), and BRE
----
Properties, Inc., a Maryland corporation (the "Borrower").
--------
RECITALS
--------
A. Pursuant to an Amended and Restated Credit Agreement dated as of
December 31, 1997 (as amended, modified, or waived, the "Credit Agreement"), the
----------------
Bank agreed to extend credit to the Borrower on the terms and conditions
contained therein.
B. Within the Credit Limit (as such term and all other capitalized terms
used in this First Amendment, but not otherwise defined, are defined in the
Credit Agreement) and in addition to LIBOR Loans and Reference Rate Loans, the
Borrower has asked the Bank to make Loans to the Borrower on which the interest
is calculated for a period of up to thirty (30) days at a fixed rate quoted from
time to time by the Bank to the Borrower and accepted by the Borrower.
C. The Bank has agreed to make such Loans available to the Borrower on the
terms and conditions contained in this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree that the
Credit Agreement shall be amended as follows:
1. AMENDMENTS.
----------
1.1 Amendments to Definitions. The following definitions in Section 1.1
-------------------------
of the Credit Agreement are amended to read as follows:
"'Interest Period' shall mean:
---------------
"(a) with respect to any LIBOR Loan, the period commencing on
the date advanced and ending one, two, three, six or twelve months
thereafter, as designated in the relevant Loan Request; provided,
however, that (1) any Interest Period which would otherwise end on a day
which is not a LIBOR Business Day shall be extended to the next
succeeding LIBOR Business Day unless by such
1
<PAGE>
extension it would fall in another calendar month, in which case such
Interest Period shall end on the immediately preceding LIBOR Business
Day, (2) any Interest Period applicable to a LIBOR Loan which begins on a
day for which there is no numerically corresponding day in the calendar
month during which such Interest Period is to end shall, subject to the
provisions of clause (1) hereof, end on the last day of such calendar
month, and (3) no such Interest Period shall extend beyond the relevant
Expiration Date; and
"(b) with respect to any Bid Rate Loan, the period commencing on
the date advanced and ending on the number of days thereafter (but not
more than thirty (30) days thereafter) specified in the Borrower's Loan
Request for such Bid Rate Loan."
"'Loan' shall mean a Revolving Loan or Bid Rate Loan."
----
"'Loan Request' shall mean a written request for a Loan in form and
------------
substance satisfactory to the Bank. In the case of a request for a Bid
Rate Loan, a Loan Request shall include a request for the Bank to submit
an offer to make such Bid Rate Loan for a specified Interest Period at a
fixed interest rate per annum to be specified by the Bank."
1.2 New Definitions. The following new definitions are added to Section
---------------
1.1 of the Credit Agreement in correct alphabetical order:
"'Bid Rate Loans' shall have the meaning set forth in Section 2.1(b)
-------------- --------------
below."
"'Revolving Loans' shall have the meaning set forth in Section 2.1(a)
--------------- --------------
below."
1.3 Amendments to Credit Facilities and Miscellaneous Provisions. Articles
------------------------------------------------------------
2 and 3 of the Credit Agreement are amended to read as follows:
"2. CREDIT FACILITIES.
-----------------
"2.1 Credit Limits.
-------------
"(a) Revolving Loans. On the terms and subject to the
---------------
conditions set forth herein, the Bank agrees that it shall, from time to
time, until the Expiration Date (as such term and capitalized terms not
otherwise defined herein are defined in Section 1 above) make revolving
loans (each a 'Revolving Loan' and, collectively, the 'Revolving Loans')
to the Borrower in an aggregate amount with all its other outstanding
Loans not to exceed the Credit Limit minus the face amount of Outstanding
Letters of Credit. Revolving Loans may be repaid and reborrowed in
accordance with this Agreement.
"(b) Bid Rate Loans. On the terms and subject to the
--------------
conditions set forth herein, the Bank agrees that it may, from time to
time in its discretion,
2
<PAGE>
until the Expiration Date make bid rate loans (each a 'Bid Rate Loan'
and, collectively, the 'Bid Rate Loans') to the Borrower in an aggregate
amount not to exceed at any one time the lesser of (i) $15,000,000 or
(ii) the Credit Limit minus outstanding Revolving Loans and Outstanding
Letters of Credit. Bid Rate Loans may be repaid and reborrowed in
accordance with this Agreement.
"(c) Letters of Credit. On the terms and subject to the
-----------------
conditions set forth herein, the Bank agrees to issue for the account of
the Borrower from time to time from the date hereof to and including the
30th day immediately preceding the Expiration Date, its standby Letters
of Credit (a 'Letter of Credit' and collectively the 'Letters of Credit')
in an aggregate face amount with the face amount of other Outstanding
Letters of Credit not to exceed at any one time the lesser of (i) the L/C
Sublimit or (ii) the Credit Limit minus Loans outstanding.
"2.2 Maintenance of Loans. Revolving Loans shall be maintained, at the
--------------------
election of the Borrower made from time to time as permitted herein, as
Reference Rate Loans and/or LIBOR Loans or any combination thereof.
"2.3 Calculation of Interest. The Borrower shall pay interest on Loans
-----------------------
outstanding hereunder from the date disbursed to but not including the
date of payment at a rate per annum equal to, at the option of and as
selected by the Borrower from time to time (subject to the provisions of
Sections 2.6, 2.7 and 2.8 below): (1) with respect to each Revolving
-------------------------
Loan which is a LIBOR Loan, at the Applicable LIBOR Rate for the
applicable Interest Period, (2) with respect to each Revolving Loan which
is a Reference Rate Loan, at a fluctuating rate per annum equal to the
Reference Rate during the applicable calculation period, and (3) with
respect to each Bid Rate Loan, at the rate quoted to the Borrower by the
Bank in the Bank's sole discretion in accordance with Section 2.6(c)
--------------
below.
"2.4 Payment of Interest.
-------------------
"(a) Interest accruing on Reference Rate Loans outstanding
hereunder shall be payable monthly, in arrears, for each month on or
before the tenth Business Day of the next succeeding month and a final
payment shall be payable on the Expiration Date in the amount of interest
then accrued but unpaid.
"(b) Interest accruing on LIBOR Loans outstanding hereunder
shall be payable in arrears: (1) in the case of LIBOR Loans with Interest
Periods ending from not more than three (3) months from the date
advanced, at the end of the applicable Interest Period therefor; and (2)
in the case of LIBOR Loans with Interest Periods ending later than three
(3) months from the date advanced, at the end of each three (3) month
period from the date advanced, and then at the end of the applicable
Interest Period therefor.
3
<PAGE>
"(c) Interest accruing on Bid Rate Loans outstanding hereunder
shall be payable in arrears at the end of the applicable Interest Period
therefor.
"(d) The Borrower hereby irrevocably authorizes and directs the
Bank to collect interest when due by debiting the amount of interest
payable from any collected funds then on deposit in such account
maintained by the Borrower with the Bank as the Borrower shall designate,
but no failure by the Bank to so debit such account and no insufficiency
in the amount on deposit in such account shall excuse the Borrower from
making any payment in full when due. In accordance with its usual
procedures, the Bank will notify the Borrower of the date and approximate
amount of any such debit prior to the date thereof.
"2.5 Repayment of Principal. Unless converted on the last day
----------------------
of an Interest Period in accordance with Section 2.6 below, Eurodollar
-----------
Loans and Bid Rate Loans shall be repaid on the last day of the relevant
Interest Period. Subject to the prepayment requirements of this
Agreement, the Borrower shall pay the principal amount of all Loans
remaining outstanding on the Expiration Date. The Borrower hereby
irrevocably authorizes and directs the Bank to collect principal on the
Loans when due by debiting the amount of principal payable from any
collected funds then on deposit in such account maintained by the
Borrower with the Bank as the Borrower shall designate, but no failure by
the Bank to so debit such account and no insufficiency in the amount on
deposit in such account shall excuse the Borrower from making any payment
in full when due.
"2.6 Election of Type of Loan; Conversion Options.
--------------------------------------------
"(a) The Borrower may elect from time to time to have Revolving
Loans funded (i) as Reference Rate Loans by giving the Bank prior
irrevocable notice no later than 10:00 a.m. (Los Angeles time) on the
proposed date of borrowing of such election, and (ii) as LIBOR Loans by
giving the Bank at least three LIBOR Business Days' prior irrevocable
notice of such election. The Borrower may elect from time to time to (i)
convert Loans outstanding as LIBOR Loans or Bid Rate Loans to Reference
Rate Loans by giving the Bank at least one Business Day's prior
irrevocable notice of such election, and (ii) convert Loans outstanding
as Reference Rate Loans or Bid Rate Loans to LIBOR Loans by giving the
Bank at least three Business Days' prior irrevocable notice of such
election. Any such conversion of LIBOR Loans may only be made on the last
day of the applicable Interest Period. All such elections shall be
evidenced by the delivery by the Borrower to the Bank within the required
time frame of a duly executed Loan Request. No Reference Rate Loan or Bid
Rate Loans shall be converted into a LIBOR Loan if an Event Of Default or
Potential Default has occurred and is continuing on the day occurring
three LIBOR Business Days prior to the date
4
<PAGE>
of the conversion requested by the Borrower. All or any part of
outstanding Loans may be converted as provided in this Section 2.6(a),
--------------
provided that partial conversions shall be in a principal amount of
$500,000 or whole multiples of $100,000 in excess thereof, and in the
case of conversions into LIBOR Loans, after giving effect thereto the
aggregate of the then number of respective LIBOR Loans having a different
Interest Period does not exceed five.
"(b) Any LIBOR Loan may be continued as such upon the
expiration of the Interest Period with respect thereto by giving the Bank
at least three LIBOR Business Days' prior irrevocable notice of such
election as set forth on a duly executed Loan Request; provided, however,
that no LIBOR Loan may be continued as such when any Event Of Default or
Potential Default has occurred and is continuing, but shall be
automatically converted to a Reference Rate Loan on the last day of the
then current Interest Period applicable thereto. If the Borrower shall
fail to give notice as provided above, the Borrower shall be deemed to
have elected to convert the affected LIBOR Loan to a Reference Rate Loan
on the last day of the relevant Interest Period.
"(c) The Borrower may request a Bid Rate Loan by transmitting
to the Bank by telephone (promptly confirmed in writing by telecopy) a
Loan Request to be received no later than 9:00 a.m. (Los Angeles time)
one Business Day prior to the date (which shall be a Business Day) when
such Bid Rate Loan is requested to be made (the 'Bid Rate Loan Funding
Date'). Upon receipt of such a Loan Request for a Bid Rate Loan, the Bank
may, in its sole discretion, but shall not be obligated to, submit to the
Borrower no later than 7:30 a.m. (Los Angeles time) on the relevant Bid
Rate Loan Funding Date by telephone (confirmed in writing by telecopy) an
offer to make a Bid Rate Loan for the requested Interest Period in a
principal amount equal to all or any portion of the Bid Rate Loan
requested at the fixed rate of interest per annum specified in such
offer. No later than 7:45 a.m. (Los Angeles time) on the Bid Rate Loan
Funding Date, the Borrower shall irrevocably notify the Bank by telephone
(promptly confirmed in writing by telecopy) if the Borrower accepts or
rejects such offer. Any offer not so accepted shall be deemed to be
rejected.
"2.7 Inability to Determine Rate. In the event that the Bank shall have
---------------------------
determined (which determination shall be conclusive and binding upon the
Borrower) that by reason of circumstances affecting the interbank market
adequate and reasonable means do not exist for ascertaining the LIBOR
Rate for any Interest Period, the Bank shall forthwith give notice to the
Borrower. If such notice is given: (1) no Loan may be funded as a LIBOR
Loan, (2) any Loan that was to have been or would be converted to a LIBOR
Loan shall, subject to the provisions hereof, be continued as a Reference
Rate Loan, and (3) any outstanding LIBOR Loan shall be converted, on the
last day of the then current Interest Period with respect thereto, to a
Reference Rate Loan.
5
<PAGE>
"2.8 Illegality. Notwithstanding any other provisions herein, if any
----------
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for Bank to
make or maintain LIBOR Loans as contemplated by this Agreement: (1) the
commitment of the Bank hereunder to make or to continue LIBOR Loans or to
convert Reference Rate Loans or Bid Rate Loans to LIBOR Loans shall
forthwith be canceled and (2) Loans then outstanding as LIBOR Loans, if
any, shall be converted automatically to Reference Rate Loans at the end
of their respective Interest Periods or within such earlier period as
required by law. In the event of a conversion of any such Loan prior to
the end of its applicable Interest Period the Borrower hereby agrees
promptly to pay the Bank, upon demand in writing setting forth in
reasonable detail the calculation of the amount so demanded, the amounts
required pursuant to Section 2.11 below, it being agreed and understood
------------
that such conversion shall constitute a prepayment for all purposes
hereof. The provisions hereof shall survive the termination of this
Agreement and payment of the outstanding Loans and all other amounts
payable hereunder.
"2.9 Requirements Of Law; Increased Costs. In the event that any
------------------------------------
applicable law, order, regulation, treaty or directive issued by any
central bank or other Governmental Authority, agency or instrumentality
or in the governmental or judicial interpretation or application thereof,
or compliance by Bank with any request or directive (whether or not
having the force of law) issued by any central bank or other Governmental
Authority, agency or instrumentality:
"(1) Does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement or any Loans made or Letters Of
Credit issued hereunder, or change the basis of taxation of payments to
the Bank of principal, fee, interest or any other amount payable
hereunder (except for change in the rate of tax on the overall net income
of the Bank);
"(2) Does or shall impose, modify or hold applicable any
reserve, capital requirement, special deposit, compulsory loan or similar
requirements against assets held by, or deposits or other liabilities in
or for the account of, advances or Loans by, or other credit extended by,
or any other acquisition of funds by, any office of such Bank which are
not otherwise included in the determination of interest payable on the
Obligations; or
"(3) Does or shall impose on the Bank any other condition;
"and the result of any of the foregoing is to increase the cost to the
Bank of making, renewing or maintaining any Loan or Letter of Credit or
to reduce any amount receivable in respect thereof or the rate of return
on the capital of the Bank or any corporation controlling the Bank, then,
in any such case, the Borrower shall promptly pay to the Bank, upon its
written demand made to the Borrower, any additional amounts necessary to
compensate the Bank for
6
<PAGE>
such additional cost or reduced amounts receivable or rate of return as
determined by the Bank with respect to this Agreement or Loans made or
Letters Of Credit issued hereunder. If the Bank becomes entitled to claim
any additional amounts pursuant to this Section 2.9, it shall promptly
-----------
notify the Borrower of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to
the foregoing sentence containing the calculation thereof in reasonable
detail submitted by the Bank to the Borrower shall be conclusive in the
absence of manifest error. The provisions hereof shall survive the
termination of this Agreement and payment of the outstanding Loans and
all other amounts payable hereunder.
"2.10 Funding. The Bank shall be entitled to fund all or any portion of
-------
its Loans in any manner it may determine in its sole discretion,
including, without limitation, in the Grand Cayman inter-bank market, the
London inter-bank market and within the United States, but all
calculations and transactions hereunder shall be conducted as though the
Bank actually funds all LIBOR Loans through funding dollar deposits in
the amount of the relevant Loan in maturities corresponding to the
applicable Interest Period in a manner consistent with the method based
on which the LIBOR Rate was calculated by the Bank.
"2.11 Prepayment Premium. In addition to all other payment obligations
------------------
hereunder, in the event: (1) any Loan which is outstanding as a LIBOR
Loan or Bid Rate Loan is prepaid prior to the last day of the applicable
Interest Period, whether following a voluntary prepayment, a mandatory
prepayment or otherwise, or (2) the Borrower shall fail to continue or to
make a conversion to a LIBOR Loan after the Borrower has given notice
thereof as provided in Section 2.6 above, or (3) the Borrower shall fail
-----------
to borrow a LIBOR Loan or Bid Rate Loan which has been irrevocably
requested, then promptly on written demand (which shall be deemed to be
accurate in the absence of manifest error) the Borrower shall pay to the
Bank, an additional premium sum compensating the Bank for losses, costs
and expenses incurred by the Bank in connection with such prepayment,
including, without limitation, those incurred in connection with
redeployment of funds.
"3. MISCELLANEOUS PROVISIONS.
--------------
"3.1 Use of Proceeds. Loans and Letters of Credit will be used by the
---------------
Borrower in connection with the acquisition and development of
Properties, for working capital, and payment of distributions.
"3.2 Request For Loans and Letters Of Credit; Making of Loans and
---------------------- -------------------------------
Issuance of Letters Of Credit.
-----------------------------
"(a) The Revolving Loans. If the Borrower desires to borrow
-------------------
Revolving Loans hereunder, the Borrower shall deliver a Loan Request to
the Bank, which shall be delivered telephonically no later than 10:00
a.m. (Los
7
<PAGE>
Angeles time) and immediately confirmed by facsimile transmission, on the
day notice of borrowing is required to be given for the type of Revolving
Loan being requested pursuant to Section 2.6 above. Each Revolving Loan
-----------
that is a Reference Rate Loan shall be in a minimum amount not less than
$100,000 and in increments of $50,000 in excess thereof. Each Revolving
Loan that is a LIBOR Loan shall be in a minimum amount not less than
$500,000 and in increments of $100,000 in excess thereof.
"(b) The Bid Rate Loans. If the Borrower desires to borrow
------------------
Bid Rate Loans hereunder, the Borrower shall deliver a Loan Request and
acceptance of an offer by the Bank pursuant to Section 2.6 above. Each
-----------
Bid Rate Loan requested by the Borrower shall be in a minimum amount not
less than $500,000 and in increments of $100,000 in excess thereof.
"(c) Letters Of Credit. If the Borrower desires to request a
-----------------
Letter Of Credit hereunder, the Borrower shall deliver a Letter Of Credit
Request (which shall be completed in form and substance satisfactory to
the Bank) to the Bank which shall be delivered by telefacsimile
transmission at least three (3) Business Days prior to the requested date
of issuance. Each such Letter Of Credit Request shall be accompanied by
all other documents, instruments, and agreements as the Bank may
reasonably request in connection with such request (the 'L/C Documents').
"3.3 Evidence of Repayment Obligations.
---------------------------------
"(a) The Loans. The obligation of the Borrower to repay the
---------
Loans shall be evidenced by the book, records and accounts of the Bank.
Upon any advance, conversion or prepayment as provided in this Agreement
with respect to any Loan, the Bank is hereby authorized to record the
date and amount of each such advance and conversion, or the date and
amount of each such payment or prepayment of principal of the Loan, the
applicable Interest Period and interest rate with respect thereto, by any
method the Bank may elect consistent with its customary practices and any
such recordation shall constitute prima facie evidence of the accuracy of
----- -----
the information so recorded absent manifest error. The failure of the
Bank to make any such notation shall not affect in any manner or to any
extent the Borrower's Obligations hereunder.
"(b) Letters Of Credit. Each Drawing under a Letter Of Credit
-----------------
shall be payable in full by the Borrower on the date thereof, without
demand or notice of any kind. If the Borrower desires to repay a Drawing
from the proceeds of a Loan, the Borrower may request a Loan in
accordance with the other terms and conditions of this Agreement and, if
disbursed on the date of such Drawing, such Reference Rate Loan shall be
applied in payment of such reimbursement obligation by the Borrower. The
obligation of the Borrower to reimburse the Bank for Drawings shall be
absolute, irrevocable and unconditional under any and all circumstances
whatsoever and irrespective of
8
<PAGE>
any set-off, counterclaim or defense to payment which the Borrower may
have or have had against the Bank (except such as may arise out of the
Bank's gross negligence or willful misconduct hereunder) or any other
Person, including, without limitation, any set-off, counterclaim or
defense based upon or arising out of:
"(i) Any lack of validity or enforceability of this Agreement
or any of the other Loan Documents;
"(ii) Any amendment or waiver of or any consent to departure
from the terms of any Letter Of Credit;
"(iii) The existence of any claim, set-off, defense or other
right which the Borrower or any other Person may have at any time against
any beneficiary or any transferee of any Letter Of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting); or
"(iv) Any allegation that any demand, statement or any other
document presented under any Letter Of Credit is forged, fraudulent,
invalid or insufficient in any respect, or any statement therein being
untrue or inaccurate in any respect whatsoever or any variations in
punctuation, capitalization, spelling or format of the drafts or any
statements presented in connection with any Drawing.
"3.4 Nature and Place of Payments. All payments made on account of the
----------------------------
Obligations shall be made by the Borrower, without setoff or
counterclaim, in lawful money of the United States of America in
immediately available funds, free and clear of and without deduction for
any taxes, fees or other charges of any nature whatsoever imposed by any
taxing authority and must be received by the Bank by 1:00 p.m. (Los
Angeles time) on the day of payment, it being expressly agreed and
understood that if a payment is received after 1:00 p.m. (Los Angeles
time) by the Bank, such payment will be considered to have been made by
the Borrower on the next succeeding Business Day and interest thereon
shall be payable by the Borrower at the Reference Rate during such
extension. If any payment required to be made by the Borrower hereunder
becomes due and payable on a day other than a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the then applicable rate during such
extension.
"3.5 Default Interest. After the occurrence of and during the
----------------
continuance of an Event Of Default, the Bank, in its sole discretion, may
determine that all Obligations shall bear interest from the date due
until paid in full at a per annum rate equal to the Default Rate.
"3.6 Computations. All computations of interest and fees payable
------------
hereunder shall be based upon a year of 360 days for the actual number of
days elapsed.
9
<PAGE>
"3.7 Prepayments.
-----------
"(a) The Borrower may prepay Reference Rate Loans hereunder in
whole or in part at any time. LIBOR Loans and Bid Rate Loans may only be
paid at the end of their respective Interest Periods.
"(b) The Borrower shall pay in connection with any prepayment
hereunder, whether voluntary or mandatory, all interest accrued but
unpaid on Loans to which such prepayment is applied, and all prepayment
premiums, if any, on LIBOR Loans and Bid Rate Loans to which such
prepayment is applied, concurrently with payment to the Bank of any
principal amounts.
"(c) Subject to the other terms and conditions of this
Agreement, the Borrower may, from time to time upon five (5) Business
Days' prior written notice to the Bank, reduce the Credit Limit, in
increments of not less than $1,000,000, to an amount not less than the
aggregate Loans outstanding and Outstanding Letters Of Credit.
"3.8 Fees.
----
"(a) Unused Credit. The Borrower shall pay to the Bank an
-------------
unused credit fee on the average daily amount by which the Credit Limit
exceeds the sum of outstanding Loans and Letter of Credit Obligations,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter, based upon the daily utilization for such quarter,
equal to .125% per annum. Such fee shall accrued from the date of the
Second Amendment to this Agreement and shall be due and payable quarterly
in arrears on the last Business Day of each calendar quarter, commencing
on September 30, 1997 with the final payment to be made on the Maturity
Date.
"(b) Letter Of Credit Fees. The Borrower shall pay to the
---------------------
Bank (i) on the date of issuance of each Letter of Credit a non-
refundable letter of credit commission computed at the per annum rate of
1.5% on the face amount of such standby Letters Of Credit and (ii) on
demand, such other fees as may be required by the Bank in accordance with
its standard fee structure for such Letters of Credit.
"(c) Other Fees. The Borrower shall pay such other fees as it
----------
shall from time to time agree upon in connection with this Agreement
pursuant to letter agreements entered into with reference to this
paragraph."
2. CONDITIONS TO EFFECTIVENESS OF FIRST AMENDMENT. As conditions precedent to
----------------------------------------------
the effectiveness of this First Amendment:
2.1 Delivery of Documents. The Borrower shall have delivered to the Bank,
---------------------
in form and substance satisfactory to the Bank and its counsel, each of the
following:
10
<PAGE>
(a) First Amendment Documents. This First Amendment and any other
-------------------------
documents, instruments, and agreements required or necessary to
consummate the transactions contemplated under this First Amendment (the
"First Amendment Documents"), all duly executed.
-------------------------
(b) Evidence of Authority. Certified resolutions of the Board of
---------------------
Directors of the Borrower approving the execution, delivery and
performance of each of the First Amendment Documents.
(c) Incumbency. A certificate of the Secretary or an Assistant
----------
Secretary of the Borrower and each Material Subsidiary certifying the
names and true signatures of the officers of the Borrower authorized to
sign the First Amendment Documents and, on an ongoing basis, to act under
and to perform the First Amendment Documents.
(d) Miscellaneous Documents. Such other documents as the Bank may
-----------------------
reasonably require with respect to the transactions described in this
First Amendment.
2.2 Other Actions. All acts and conditions (including, without
-------------
limitation, the obtaining of necessary regulatory approvals and the making of
any required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of the First Amendment Documents and to constitute the same legal,
valid and binding obligations, enforceable in accordance with their respective
terms, shall have been done and performed and shall have happened in due and
strict compliance with all applicable laws.
2.3 Payment of Fees. The Bank shall have received payment in full of all
---------------
its expenses and fees (including attorneys' fees and the allocated cost of
inside counsel) incurred in connection with the preparation and negotiation of
the First Amendment and the other First Amendment Documents.
2.4 Documentation Satisfactory. All documentation, including, without
--------------------------
limitation, documentation for corporate and legal proceedings in connection with
the transactions contemplated by the First Amendment Documents shall be in form
and substance satisfactory to the Bank and its counsel.
2.5 Representations and Warranties. The representations and warranties
------------------------------
set forth in Section 5 of the Credit Agreement and Section 3 of this First
Amendment and in any other document, instrument, agreement or certificate
delivered to the Bank hereunder shall be true and correct in all material
respects.
2.6 Event of Default. No event shall have occurred and be continuing
----------------
which constitutes, or with the lapse of time or giving of notice or both, would
constitute an Event of Default.
11
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes the following
------------------------------
representations and warranties to the Bank, which representations and warranties
shall be continuing:
3.1 Status. The Borrower (a) is duly organized, validly existing and in
------
good standing under the laws of the jurisdiction of its creation, and is in good
standing under the laws of each jurisdiction where it is organized; (b) has the
power and authority and all governmental licenses, authorizations, consents and
approvals to own its assets, carry on its business and to execute, deliver, and
perform its obligations under the First Amendment Documents and the Loan
Documents, as amended thereby; (c) is duly qualified as a foreign Person,
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification; and (d) is in compliance with all applicable laws
and regulations; except, in each case referred to in clauses (b), (c), or (d),
to the extent that the failure to do so could not reasonably be expected to have
a Material Adverse Effect.
3.2 Authority. The execution, delivery and performance by the Borrower of
---------
the First Amendment Documents have been duly authorized and do not and will
not: (i) violate, in any material respect, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having application to the Borrower or any of its
Subsidiaries; (ii) result in a breach of or constitute a default under any
material indenture or loan or credit agreement or other material agreement,
lease or instrument to which the Borrower or any of its Subsidiaries is a party
or by which it or its properties may be bound or affected; or (iii) require any
consent or approval of its stockholders or members or violate any provision of
its articles of incorporation or by-laws or other organizational documents.
3.3 Governmental Authorization. No approval, consent, exemption,
--------------------------
authorization, or other action by, or notice to, or filing with, any
governmental authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower or
any Material Subsidiary of this First Amendment or any other First Amendment
Document.
3.4 Legal Effect. Each First Amendment Document has been duly executed
------------
and delivered on behalf of the Borrower and constitutes, and any instrument,
document or agreement required hereunder when delivered hereunder will
constitute, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms subject to
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors rights generally and by general equitable principles.
4. MISCELLANEOUS PROVISIONS
------------------------
4.1 Conflicting Provisions. To the extent that any of the terms or
----------------------
provisions contained in this First Amendment are inconsistent with those
contained in any other document, instrument or agreement executed pursuant
hereto, the terms and provisions contained herein shall control. Otherwise,
such provisions shall be considered cumulative.
12
<PAGE>
4.2 Binding Effect; Assignment. This First Amendment shall be binding
--------------------------
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell, assign or grant participations in all or
any portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower.
4.3 Jurisdiction. THIS FIRST AMENDMENT AND ANY DOCUMENTS, INSTRUMENTS OR
------------
AGREEMENTS MENTIONED OR REFERRED TO HEREIN SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICT OF
LAW PRINCIPLES, TO THE JURISDICTION OF WHOSE COURTS THE PARTIES HEREBY SUBMIT.
4.4 Counterparts. This First Amendment may be executed in one or more
------------
counterparts and each set of counterparts signed by all the parties shall
constitute one original.
4.5 Severability. If any provision of this First Amendment shall be
------------
unenforceable for any reason, then the remaining provisions of this First
Amendment shall be enforced without regard to such provision.
4.6 Headings. The headings set forth herein are solely for the purpose of
--------
identification and have no legal significance.
4.7 Entire Agreement. This First Amendment and any other First Amendment
----------------
Documents shall constitute the entire and complete understanding of the parties
with respect to the transactions contemplated hereunder. All previous
conversations, memoranda and writings between the parties or pertaining to the
transactions contemplated hereunder that are not incorporated or referenced in
this First Amendment or any other First Amendment Documents are superseded
hereby
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA BRE PROPERTIES, INC.
By: /s/ Frank C. McDowell By: Frank C. McDowell
--------------------- Title: President
Title: President
-----------
By: /s/ LeRoy E. Carlson By: LeRoy Carlson
-------------------- Title: Executive Vice President and
Title: EVP and Secretary Secretary
--------------------
REAFFIRMATION BY GUARANTOR
The undersigned Guarantor hereby acknowledges receipt of the foregoing First
Amendment and reaffirms that its Guaranty remains in full force and effect with
respect to Obligations of the Borrower under the Credit Agreement as amended
thereby.
BRE PROPERTY INVESTORS LLC
By: : /s/ LeRoy E. Carlson
--------------------
Title: EVP and Secretary
-----------------
14
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of
July ____, 1998, is entered into by and among BRE Properties, Inc., a Maryland
corporation (the "Company"), and the undersigned director and/or officer of the
Company (the "Indemnitee").
RECITALS
WHEREAS, the Indemnitee has agreed to serve as a director and/or
officer of the Company and the Company wishes the Indemnitee to continue in such
capacity. The Indemnitee is willing, under certain circumstances, to continue
serving as a director and/or officer of the Company;
WHEREAS, Section 2-418 of the General Corporation Law of the State of
Maryland (the "Maryland Statute"), under which law the Company is organized,
empowers the Company to indemnify any person who is or was serving as a
director, officer, employee or agent of the Company or any person who, while a
director of the Company, is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, limited liability company, association, joint venture, trust or
other enterprise. As used in this Agreement, the term "other enterprise" shall
include, without limitation, employee benefit plans and administrative
committees thereof. In addition, the term "Company" includes any domestic or
foreign predecessor entity of the Company in a merger, consolidation or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction, including, without limitation, BRE Properties, Inc., a Delaware
corporation, and Real Estate Investment Trust of California, a California real
estate investment trust; and
WHEREAS, the Maryland Statute and the Bylaws of the Company specify
that the indemnification set forth in the Maryland Statute and in the Bylaws,
respectively, shall not be deemed to limit the right of the Company to indemnify
any other person against any liability and expenses to the fullest extent
permitted by law, nor shall it be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any agreement, the Articles
or Bylaws of the Company, a vote of stockholders or directors or otherwise, both
as to action in such person's official capacity as an officer or director and as
to action in another capacity, at the request of the Company, while acting as an
officer or director of the Company;
NOW, THEREFORE, in order to induce the Indemnitee to serve as a
director and/or officer of the Company and in consideration of his continued
service, the Company hereby agrees to indemnify the Indemnitee as follows:
<PAGE>
AGREEMENT
1. Indemnity. The Company will indemnify, save and hold harmless the
---------
Indemnitee, his executors, administrators or assigns, or, if the Indemnitee is
deceased, his estate, spouse, heirs, executors and administrators, for any
Indemnified Amounts (as defined in Section 2 hereof) which the Indemnitee
actually incurs arising from, related to or in connection with any Proceeding.
As used in this Agreement, the term "Proceeding" shall mean any threatened,
pending or completed claim, action, suit, arbitration or proceeding (or any
inquiry or investigation that the Indemnitee in good faith believes might lead
to the institution of any such claim, action, suit, arbitration or proceeding)
including any appeals, whether brought by or in the right of the Company or
otherwise and whether of a civil, criminal, administrative or investigative
nature, and whether arising prior to or after the date of this Agreement, in
which the Indemnitee may be or may have been involved as a party, a witness or
otherwise, based upon, arising from, relating to or by reason of (i) the fact
that the Indemnitee is, was or at any time becomes a director or officer of the
Company, (ii) any action taken by the Indemnitee or any inaction on the
Indemnitee's part while acting as such director or officer, or (iii) the
Indemnitee's serving at the request of the Company as a director, trustee,
officer, employee or agent of another corporation, partnership, limited
liability company, association, joint venture, trust or other enterprise.
2. Indemnified Amounts. As used in this Agreement, the term "Indemnified
-------------------
Amounts" shall mean all expenses, liabilities and losses incurred by the
Indemnitee arising from, related to, or in connection with a Proceeding,
including, without limitation, damages, judgments, fines, penalties, costs,
attorneys' fees and expenses, costs of attachment or similar bonds,
investigation expenses, expert witness fees, amounts paid or to be paid in
settlement, and any such expenses of establishing a right to indemnification
under this Agreement. "Fines" shall include, without limitation, any excise tax
assessed with respect to any employee benefit plan. Indemnified Amounts shall
be paid by the Company to the Indemnitee in advance pursuant to the provisions
of Section 4.
3. Limitations on Contractual Indemnity. The Indemnitee shall not be
------------------------------------
entitle to indemnification under Section 1:
(a) if it is established by final judgment in a court of law or other
final adjudication that (i) the act or omission of the Indemnitee was material
to the matter giving rise to the Proceeding and was committed in bad faith or
was the result of active and deliberate dishonesty, (ii) the Indemnitee actually
received an improper personal benefit in money, property or services, or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful;
2
<PAGE>
(b) on account of any suit for which a final judgment is rendered for
a disgorgement of profits made from the purchase and sale by the Indemnitee of
securities pursuant to Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any state statutory law or common
law; or
(c) for any Indemnified Amounts which the Company is prohibited by
applicable law from paying as indemnity.
4. Advance Payment of Indemnified Amounts.
--------------------------------------
(a) The Indemnitee hereby is granted the right to receive in advance
of a final, nonappealable judgment or other final adjudication of a Proceeding
(a "Final Determination") any and all Indemnified Amounts, including, without
limitation, investigation expenses, expert witnesses' and attorney's fees and
other Indemnified Amounts expended or incurred by the Indemnitee in connection
with any Proceeding or otherwise expended or incurred by the Indemnitee (such
amounts so expended or incurred being referred to as "Advanced Amounts").
(b) In making any request for Advanced Amounts, the Indemnitee shall
submit to the Company in writing a schedule setting forth in reasonable detail
the dollar amount expended or incurred and/or an estimate of the current amount
expected to be expended. Each such schedule shall be supported by the bill,
agreement or other documentation relating thereto (if reasonably available at
that time). In addition, before the Indemnitee may receive Advanced Amounts
from the Company, the Indemnitee shall provide to the Company a written
undertaking by or on behalf of the Indemnitee to repay all Advanced Amounts if
it shall ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement. The written undertaking
required from the Indemnitee shall not be secured. The Company shall pay to the
Indemnitee all Advanced Amounts within ten (10) days after receipt by the
Company of all information and documentation required to be provided by the
Indemnitee pursuant to this paragraph.
5. Enforcement. If a claim or request for Indemnified Amounts under this
-----------
Agreement is not paid by the Company, or on its behalf, within thirty (30) days
after a written claim or request has been received by the Company, the
Indemnitee may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim or request, and if successful in whole or in
part, the Indemnitee shall be entitled to be paid all of his costs and expenses,
including attorneys' fees, of prosecuting such suit. The burden of proving that
the Indemnitee is not entitled to indemnification under this Agreement for any
reason shall be upon the Company and neither the termination of any Proceeding
by judgment, order or settlement, nor in the case of a criminal Proceeding, by
conviction or a plea of nolo contendre or its equivalent, shall create a
presumption that the Indemnitee is not entitled to indemnification hereunder.
This Section 5 shall not affect the timing or amount, or the right of Indemnitee
to payment, of any Advanced Amounts pursuant to Section 4.
3
<PAGE>
6. Agreement Not Exclusive: Subrogation Rights, etc.
------------------------------------------------
(a) This Agreement shall not be deemed exclusive of and shall not
diminish any other rights the Indemnitee may have to be indemnified or insured
or otherwise protected against any Indemnified Amounts by the Company, any
subsidiary of the Company, or any other person or entity under any charter,
bylaws, law, agreement, policy of insurance or similar protection, vote of
stockholders or directors, disinterested or not, or otherwise, whether or not
now in effect, both as to actions in the Indemnitee's official capacity with the
Company, and as to actions in another capacity while holding such office,
including Indemnitee's right to contribution as may be available under
applicable law. The Company's obligations to make payments of Indemnified
Amounts hereunder shall be satisfied to the extent that payments with respect to
the same Proceeding (or part thereof) have been made to or for the benefit of
the Indemnitee by reason of the indemnification of the Indemnitee pursuant to
any other arrangement made by the Company for the benefit of the Indemnitee.
(b) In the event the Indemnitee shall receive payment from any
insurance carrier or from the plaintiff in any Proceeding against such
Indemnitee in respect of Indemnified Amounts after payments on account of all or
part of such Indemnified Amounts have been made by the Company pursuant hereto,
the Indemnitee shall promptly reimburse to the Company the amount, if any, by
which the sum of such payment by such insurance carrier or such plaintiff and
payments by the Company or pursuant to arrangements made by the Company to
Indemnitee exceeds such Indemnified Amounts; provided, however, that such
portions, if any, of such insurance proceeds that are required to be reimbursed
to the insurance carrier under the terms of its insurance policy, such as
deductible or co-insurance payments, shall not be deemed to be payments to the
Indemnitee hereunder. In addition, upon payment of Indemnified Amounts
hereunder, the Company shall be subrogated to the rights of the Indemnitee
receiving such payments (to the extent thereof) against any insurance carrier
(to the extent permitted under such insurance policies) or plaintiff in respect
of such Indemnified Amounts and the Indemnitee shall execute and deliver any and
all instruments and documents and perform any and all other acts or deeds which
the Company deems necessary or advisable to secure such rights. Such right of
subrogation shall be terminated upon receipt by the Company of the amount to be
reimbursed by the Indemnitee pursuant to the first sentence of this paragraph.
7. Indemnification of Expenses of Successful Party. Notwithstanding any
-----------------------------------------------
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
the Indemnitee shall be indemnified against any and all Indemnified Amounts
incurred in connection therewith.
8. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of his Indemnified Amounts, but not, however, for the total amount
thereof, the Company shall nevertheless
4
<PAGE>
indemnify the Indemnitee for the portion of such Indemnified Amounts to which
the Indemnitee is entitled.
9. Coverage. The provisions of this Agreement shall apply with respect to
--------
the Indemnitee's service as a director and/or officer of the Company prior to
the date of this Agreement and with respect to all periods of such service after
the date of this Agreement, even though the Indemnitee may have ceased to be a
director or officer of the Company.
10. General Provisions.
-------------------
10.1 Notice of Claim for Indemnified Amounts. The Indemnitee, as a
---------------------------------------
condition precedent to his right to be indemnified under this Agreement, shall
give to the Company notice in writing as soon as practicable of any Proceeding
or prospective Proceeding for which indemnity will or could be sought under this
Agreement. Notice to the Company shall be given at its principal office (or
such other address as the Company shall designate in writing to the Indemnitee)
and shall be directed to the Chief Financial Officer. Any notice under this
Agreement shall be deemed duly given when addressed as follows and (i) when
personally delivered, (ii) when transmitted by telecopy, electronic or digital
transmission with receipt confirmed, (iii) one day after delivery by an
overnight air courier guaranteeing next day delivery, or (iv) upon receipt if
sent by certified or registered mail. In each case notice shall be sent to:
If to the Indemnitee: ________________________
If to the Company: BRE Properties, Inc.
44 Montgomery Street, Suite 3600
San Francisco, CA 94104
Attention: Chief Financial Officer
Facsimile: (415) 445-6505
10.2 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Maryland without giving
effect to the principles of conflict of laws thereof.
10.3 Assignment. This Agreement may not be assigned by the
----------
Indemnitee, but may be assigned by the Company to any successor to its business
and will inure to the benefit and be binding upon any such successor.
10.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same instrument.
5
<PAGE>
10.5 Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
10.6 Miscellaneous. No provision of this Agreement may be modified,
-------------
waived, or discharged unless such modification, waiver, or discharge is agreed
to in a writing signed by Indemnitee and by an officer of the Company
specifically designated by the Board of Directors. No waiver by either party at
any time of any breach by the other, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The Indemnitee may bring an action seeking resolution of disputes or
controversies arising under or in any way related to this Agreement in the state
or federal court jurisdiction in which Indemnitee resides or in which his place
of business is located, and in any related appellate courts, and the Company
hereby consents to the jurisdiction of such courts and to such venue.
(Signature Page Follows)
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and signed as of the day and year first above written.
"COMPANY"
BRE Properties, Inc.,
a Maryland corporation
By: ______________________
Name: ______________________
Title: ______________________
"INDEMNITEE"
[Name]
____________________________
Name: ______________________
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1998 JAN-01-1998 APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1998 JUN-30-1997 JUN-30-1997
<CASH> 1,925 0 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 47,540 0 0 0
<ALLOWANCES> (1,000) 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 1,529,312 0 0 0
<DEPRECIATION> (62,263) 0 0 0
<TOTAL-ASSETS> 1,515,514 0 0 0
<CURRENT-LIABILITIES> 16,061 0 0 0
<BONDS> 704,811 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 424 0 0 0
<OTHER-SE> 794,218 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,515,514 0 0 0
<SALES> 49,231 96,644 0 0
<TOTAL-REVENUES> 49,231 96,644 0 0
<CGS> 15,227 29,972 0 0
<TOTAL-COSTS> 15,227 29,972 0 0
<OTHER-EXPENSES> 8,373<F1> 16,523<F3> 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 8,827 17,362 0 0
<INCOME-PRETAX> 16,804 32,787 0 0
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 16,804 32,787 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 1,063<F2> 2,904<F4> 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 15,741 29,883 0 0
<EPS-PRIMARY> .37 .71 1.08 1.43
<EPS-DILUTED> .37 .71 1.06 1.40
<FN>
<F1> Includes $6,668 of depreciation, a non cash charge
<F2> Includes $46 loss on sale and $1,017 minority interest
<F3> Includes $13,153 of depreciation
<F4> Includes $871 of loss on sale and $2,033 of minority interest
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
<TABLE>
<CAPTION>
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
- --------------------------------------------------------------------------------
(Dollar amounts in thousands)
Quarter Ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Income before gain (loss) on sales of investments in
rental properties and minority interest in consolidated
subsidiary $16,804,000 $11,676,000
=========== ===========
Fixed charges:
Interest $ 8,827,000 $ 4,850,000
Capitalized interest 2,831,000 --
Other 12,000 28,000
----------- -----------
$11,670,000 $ 4,878,000
=========== ===========
Income before gain (loss) on sales of investments in
rental properties and minority interest and fixed
charges, excluding capitalized interest $25,643,000 $16,554,000
=========== ===========
Divided by fixed charges $11,670,000 $ 4,878,000
=========== ===========
Ratio of earnings to fixed charges 2.2 3.4
=========== ===========
Six Months Ended June 30,
1998 1997
----------- -----------
<S> <C> <C>
Income before gain (loss) on sales of investments in
rental properties and minority interest in consolidated
subsidiary $32,787,000 $22,617,000
=========== ===========
Fixed charges:
Interest $17,362,000 $10,740,000
Capitalized interest 4,857,000 --
Other 23,000 139,000
----------- -----------
$22,242,000 $10,879,000
=========== ===========
Income before gain (loss) on sales of investments in
rental properties and minority interest and fixed
charges, excluding capitalized interest $50,172,000 $33,496,000
=========== ===========
Divided by fixed charges $22,242,000 $10,879,000
=========== ===========
Ratio of earnings to fixed charges 2.3 3.1
=========== ===========
</TABLE>
