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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-5305
----------------
BRE PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 94-1722214
----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
44 MONTGOMERY STREET
36TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104-4809
----------------------------------- -----------------------------------
(Address of principal executive (Zip Code)
offices)
(415) 445-6530
------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
----------------------------------- REGISTERED
Common Stock, $.01 par value -----------------------------------
Common Stock Purchase Rights New York Stock Exchange
New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
At March 13, 1998, the aggregate market value of the registrant's shares of
Common Stock, $.01 par value, held by nonaffiliates of the registrant was
approximately $1,083,000,000. At that date 41,881,084 shares were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders of
BRE Properties, Inc. (the "Company") to be filed within 120 days of December
31, 1997 (the "Proxy Statement") are incorporated by reference in Part III of
this report.
FORWARD-LOOKING STATEMENTS
In addition to historical information, the information included and
incorporated by reference in this Annual Report on Form 10-K contains forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), such as those
pertaining to the Company's capital resources, portfolio performance and
results of operations. Forward-looking statements involve numerous risks and
uncertainties and should not be relied upon as predictions of future events.
Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma,"
"estimates," or "anticipates" or the negative thereof or other variations
thereof or comparable terminology, or by discussions of strategy, plans or
intentions. Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and may be
incapable of being realized. The following factors, among others, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to successfully integrate acquired
properties and operations, risks and uncertainties affecting property
development and construction (including, without limitation, construction
delays, cost overruns, inability to obtain necessary permits and public
opposition to such activities), failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code"),
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. The success of the Company also depends upon economic
trends generally, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
in Item 1 to this Annual Report on Form 10-K under the heading "Risk Factors."
Readers are cautioned not to place undue reliance on forward-looking
statements, which reflect management's analysis only. The Company assumes no
obligation to update forward-looking statements. See also the Company's
reports filed from time to time with the Securities and Exchange Commission
pursuant to the Securities Act or the Exchange Act.
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BRE PROPERTIES, INC.
PART I
ITEM 1. BUSINESS
CORPORATE PROFILE
BRE Properties, Inc. ("BRE" or the "Company"), formerly a Delaware
corporation that reincorporated in Maryland in March 1996, is a fully
integrated real estate operating company which owns, acquires, develops,
rehabilitates and manages apartment communities in 12 targeted metropolitan
markets in the western United States. At December 31, 1997, BRE's multifamily
portfolio included 74 completed communities aggregating 18,569 units in
California, Nevada, Arizona, Washington, Utah, New Mexico and Oregon and eight
apartment communities under development aggregating approximately 2,445 units.
On that date, BRE also owned five commercial and retail properties and held
limited partnership interests in two shopping centers and one apartment
community. Founded in 1970, the Company has paid 109 consecutive quarterly
dividends to shareholders since it commenced operations.
The Company's business objective is to become the preeminent owner,
developer and operator of apartment communities in key growth markets of the
western United States. To further this objective, the Company implemented a
strategic plan in 1996, many goals of which have been achieved, including the
establishment of internal property management, the disposition of
substantially all non-apartment assets and increased liquidity of the
Company's common stock. In addition, on November 18, 1997, the Company
completed the acquisition of certain assets and operations of Trammell Crow
Residential located in the western United States ("TCRW") (the "Transaction"),
which further advanced significant objectives of the strategic plan. As a
result of the Transaction, BRE:
. Increased the number of completed multifamily units owned on the
acquisition date from 13,543 to 18,329;
. Acquired eight apartment communities under development aggregating
approximately 2,445 units;
. Added development, construction and third party management capabilities,
creating fully-integrated multifamily real estate operations;
. Further strengthened and deepened the senior management team; and
. Significantly increased the geographic diversification of the portfolio
by expanding from nine western markets to 12, establishing a critical
mass of at least 1,000 multifamily units in seven markets, which the
Company believes will enable it to achieve additional operating
efficiencies.
The Company believes that its future growth will be supported by the
continued implementation of its strategic plan. Key characteristics of the
plan are:
. A research-driven investment focus which includes:
- The acquisition and development of apartment communities in defined
western United States markets;
- The balancing of its multifamily portfolio across western
metropolitan markets with diverse economic and employment
characteristics to reduce individual market risk;
- The selective sale of properties which management believes have
reached maximum cash flow potential;
. Utilization of the Company's fully-integrated multifamily operations to
continue to achieve operating efficiencies through internal property
management and to target attractive opportunities-acquisition,
development or rehabilitation-in each of its markets; and
. The maintenance of a strong balance sheet to enhance financial
flexibility.
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EVENTS DURING 1997
Transaction with Trammell Crow Residential-West
On November 18, 1997, BRE acquired certain assets and operations of TCRW
pursuant to a definitive agreement (the "Contribution Agreement"). The
consideration included the payment to certain entities of approximately $160
million in cash and $100 million in common stock based on a stock price of
$26.93 per share as provided in the Contribution Agreement. Further, certain
entities received 2,824,587 Operating Company Units ("OC Units") (valued at
$76 million assuming a stock price of $26.93 per share) in BRE Property
Investors LLC (the "Operating Company") and Blue Ravine Investors LLC, limited
liability companies and subsidiaries of BRE, exchangeable into common stock on
a 1:1 basis. The Operating Company also assumed approximately $120 million in
debt. The Operating Company and Blue Ravine Investors LLC are newly formed,
majority-owned subsidiaries of BRE; BRE is the sole managing member of each,
and owned an approximately 70% and 88% interest therein, respectively, at
December 31, 1997.
The OC Units are held by members representing the minority interest. After
November 1998, the members can exchange their OC Units for common stock of BRE
on a 1:1 basis. At BRE's option, these units may be converted into cash at the
then-current stock price.
The Contribution Agreement also provides for an additional issuance of
between 209,198 and 627,594 in OC Units (valued at between $6 million and $17
million using the assumed value pursuant to the Contribution Agreement of
$26.93 per share); the actual amount of units to be issued is dependent upon
the extent to which the Development Properties (defined below) included in the
Transaction attain certain completion schedules and budget objectives.
In addition, the Company acquired eight apartment properties in various
stages of development. These development properties are expected to include
approximately 2,445 units and are located in Arizona, Colorado, Utah, New
Mexico and Nevada (the "Development Properties"). The Company expects to incur
an estimated $107 million to complete development and construction of the
Development Properties over the next two years. The Company previously did not
engage in significant development projects.
The Company also acquired TCRW's development, construction and third-party
management operations in the transaction, including approximately 600 new
employees and three regional offices located in Arizona, California and Utah.
Prior to the Transaction, the Company was not engaged in the management of
properties owned by third parties.
Other
During 1997, excluding the TCRW Transaction, the Company (i) acquired five
apartment communities comprising 1,631 units at an aggregate gross cost of
approximately $152,500,000 and (ii) sold ten commercial and retail properties,
one apartment community and the ground lease underlying one apartment
community, at an aggregate gross sales price of approximately $110,000,000.
In May 1997, the Company issued 3,950,000 shares of common stock, for net
proceeds of approximately $90,804,000. In December 1997, the Company issued
728,929 shares of common stock for net proceeds of approximately $19,100,000.
In June 1997, the Company issued $50 million in unsecured notes due 2007,
with a coupon rate of 7.2% resulting, after related costs, in an effective
rate of 7.8%.
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STRUCTURE, TAX STATUS AND INVESTMENT POLICY
BRE is a real estate investment trust under Sections 856-860 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, the Company
generally will not be subject to Federal income tax to the extent it
distributes 95% of its taxable income to its shareholders. REITs are subject
to a number of complex organizational and operational requirements, and if the
Company fails to qualify as a REIT, its taxable income may be subject to
income tax at regular corporate rates. See "Risk Factors--Tax Risks."
The Company's long-range investment policy emphasizes the acquisition,
development and rehabilitation of multifamily communities located in the
western United States. As circumstances warrant, certain properties may be
sold and the proceeds reinvested into multifamily communities which management
believes offer better growth potential. Among other items, this policy is
intended to enable management to monitor developments in local real estate
markets and to take an active role in managing the Company's properties and
improving their performance. The policy is subject to ongoing review by the
Board of Directors and may be modified in the future to take into account
changes in business or economic conditions, as circumstances warrant.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,000 employees. None
of the employees are unionized.
INVESTMENT PORTFOLIO
See Items 2 and 7 of this report for a description of the Company's
individual investments and certain developments during the year with respect
to these investments. See Schedule III to the financial statements in Item 8,
Real Estate and Accumulated Depreciation, for additional information about the
portfolio, including location, costs and encumbrances.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons were executive officers of the Company as of December
31, 1997:
<TABLE>
<CAPTION>
NAME AGE AT DECEMBER 31, 1997 POSITION(S)
- ----------------- ------------------------ ---------------------------------------------------------------
<S> <C> <C>
Frank C. McDowell 49 President, Chief Executive Officer and Director
Jay W. Pauly 55 Senior Executive Vice President and Chief Operating Officer
LeRoy E. Carlson 52 Executive Vice President, Chief Financial Officer and Secretary
Bruce C. Ward 37 Executive Vice President, Development and Acquisitions
Byron M. Fox 58 Executive Vice President, Acquisitions and Portfolio Strategy
John H. Nunn 39 Senior Vice President, Property Management
Patrick W. Dukes 37 Senior Vice President, Construction and Development Finance
</TABLE>
Mr. McDowell was appointed to his current position in June, 1995. Mr. Fox
was appointed to his current position in October, 1992. Messrs. Pauly, Carlson
and Nunn joined the Company in March, 1996. Messrs. Ward and Dukes were
appointed in connection with the Transaction in November, 1997. Set forth
below is information regarding the business experience of each of the
executive officers:
From 1992 to 1995, Mr. McDowell was Chief Executive Officer and Chairman of
Cardinal Realty Services, Inc., a Columbus, Ohio-based apartment management
company and owner of multifamily housing. From 1988 to 1992, Mr. McDowell was
Senior Vice President, Head of Real Estate of First Interstate Bank of Texas.
Mr. McDowell holds a Bachelor of Business Administration Degree and a Master
of Business Administration Degree, both from the University of Texas, Austin.
Mr. Pauly served as President and Chief Executive Officer of Real Estate
Investment Trust of California ("RCT") from 1993 until its merger with BRE in
1996. Prior to joining RCT, from 1990 to 1992, Mr. Pauly served as First Vice
President and was on the Executive Committee of Home Savings of America ("Home
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Savings") and served as Chief Executive Officer of Ahmanson Commercial
Development Company, Ahmanson Residential Development Company and Ahmanson
Ranch. From 1986 to 1990, he was Senior Vice President, Director of Real
Estate Services for Home Savings, responsible for REO, major loan workouts,
asset valuation, premises owned, property management and leasing and
environmental risk management. Mr. Pauly holds a Bachelor's Degree in
Industrial Engineering and a Master's Degree in Business Administration both
from Stanford University.
Mr. Carlson served as Vice President and Chief Financial Officer of RCT from
1980 to 1996. Prior to joining RCT, Mr. Carlson was the Chief Financial
Officer of the William Walters Company, a large asset management company based
in Los Angeles, California. He is a licensed Certified Public Accountant in
the State of California. Mr. Carlson holds a Bachelor's Degree from the
University of Southern California.
Mr. Ward served as group managing partner of TCRW, one of the nation's
leading multi-family companies, prior to the acquisition of TCRW by BRE
Properties, Inc. While with TCRW, Mr. Ward served on the management board,
which is responsible for its strategic planning and governance. As the group
managing partner of TCRW, Mr. Ward oversaw the development and acquisition of
9,000 units and the management of over 18,000 units in the western United
States. Prior to 1987, Mr. Ward held the position of Vice President and
Regional Manager of Lomas Management, Inc. in Dallas. Mr. Ward holds a degree
in Business Administration from the University of Texas, Austin.
Mr. Fox served as a Senior Vice President of the Company from December 1987
until September 1992. From 1977 to 1987, he was Vice President and General
Manager of Dillingham Investment Corporation, a Hawaii land investment firm.
Mr. Fox holds a Bachelor of Arts Degree from Colgate University and a Master
of Business Administration Degree from Harvard Business School.
Mr. Nunn served as Vice President of Property Management of RCT from 1990 to
1996. Prior to joining RCT, Mr. Nunn was a Vice President and Property Manager
for the William Walters Company from 1986 to 1990. Mr. Nunn holds a bachelor's
degree from California State University, Long Beach.
Mr. Dukes served as Chief Financial Officer of TCRW until its acquisition by
BRE in 1997. Prior to 1988, Mr. Dukes held the position of Senior Tax Manager
with Ernst & Whinney in Phoenix, Arizona. He is a Certified Public Accountant
in the State of Arizona. Mr. Dukes holds a Bachelor of Science Degree in
Accountancy and a Master's of Accountancy Degree with a specialization in
Taxation, both from Arizona State University.
There is no family relationship among any of the Company's executive
officers or Directors.
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RISK FACTORS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report on Form 10-K. Certain statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may 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 elsewhere in this Form 10-
K, that could cause actual results to differ materially from those projected.
REAL ESTATE INVESTMENT RISKS
General
Real property investments are subject to varying degrees of risk. The yields
available from equity investments in real estate depend upon the amount of
revenues generated and expenses incurred. If properties do not generate
revenues sufficient to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its shareholders and to pay amounts due on its debt will be
adversely affected. The performance of the economy in each of the areas in
which the properties are located affects occupancy, market rental rates and
expenses and, consequently, has an impact on the revenues from the properties
and their underlying values. The financial results of major local employers
also may have an impact on the revenues and value of certain properties.
Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company
to provide adequate facilities maintenance, services and amenities, and
insurance premiums and real estate taxes. The Company's revenues would also be
adversely affected if residents or users were unable to pay rent or the
Company was unable to rent apartments or commercial properties on favorable
terms. If the Company were unable to promptly relet or renew the leases for a
significant number of apartment units or commercial properties, or if the
rental rates upon such renewal or reletting were significantly lower than
expected rates, then the Company's funds from operations would, and ability to
make expected distributions to shareholders and to pay amounts due on its debt
may, be adversely affected. There is also a risk that as leases on the
properties expire, residents or users will vacate or enter into new leases on
terms that are less favorable to the Company. Operating costs, including real
estate taxes, insurance and maintenance costs, and mortgage payments, if any,
do not, in general, decline when circumstances cause a reduction in income
from a property. If a property is mortgaged to secure payment of indebtedness,
and the Company is unable to meet its mortgage payments, a loss could be
sustained as a result of foreclosure on the property. In addition, revenues
from properties and real estate values are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties.
However, no assurance can be given that the Company will have the financial
resources to make suitable acquisitions or that properties that satisfy the
Company's investment policies will be available for acquisition. Acquisitions
of properties entail risks that investments will fail to perform in accordance
with expectations. Such risks may include that construction costs may exceed
original estimates, possibly making a project uneconomical, financing may not
be available on favorable terms or at all and construction and lease-up may
not be completed on schedule. Estimates of the costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are
general real estate investment risks associated with any new real estate
investment. Although the Company undertakes an evaluation of the physical
condition of each new investment before it is acquired, certain defects
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or necessary repairs may not be detected until after the investment is
acquired, which could significantly increase the Company's total acquisition
costs and which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
debt. Any statements included in or incorporated by reference in this Annual
Report on Form 10-K pertaining to anticipated growth rates in target markets,
anticipated growth in the Company's funds from operations and anticipated
market conditions, demographics or results of operations constitute forward-
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act and there can be no assurance that such
anticipated events or circumstances will be achieved or will occur due to,
among other things, the factors described herein as "Risk Factors."
Illiquidity of Real Estate and Reinvestment Risk
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to
changes in economic or other conditions. Additionally, the Internal Revenue
Code of 1986, as amended (the "Code") places certain limits on the number of
properties a REIT may sell without adverse tax consequences. To effect its
current operating strategy, the Company has in the past raised, and will seek
to continue to raise additional acquisition funds, both through outside
financing and through the orderly disposition of commercial and retail
properties, and, depending upon interest rates, current acquisition
opportunities and other factors, generally to reinvest the proceeds in
multifamily properties. In this respect, in the markets the Company has
targeted for future acquisition of multifamily properties, there is
considerable buying competition from other real estate companies, many of whom
may have greater resources, experience or expertise than the Company. In many
cases, this competition for acquisition properties has resulted in an increase
in property prices and a decrease in property yields. Due to the relatively
low capitalization rates currently prevailing in the pricing of potential
acquisitions of multifamily properties which meet the Company's investment
criteria, no assurance can be given that the proceeds realized from the
disposition of commercial and retail properties can be reinvested to produce
economic returns comparable to those being realized from the properties
disposed of, or that the Company will be able to acquire properties meeting
its investment criteria. To the extent that the Company is unable to reinvest
proceeds from the disposition of commercial and retail properties, or if
properties acquired with such proceeds produce a lower rate of return than the
properties disposed of, such results may have an adverse effect on the
Company. In addition, a delay in reinvestment of such proceeds may have an
adverse effect on the Company.
The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged
property. For an exchange of such properties to qualify for tax-free treatment
under Section 1031 of the Code, certain technical requirements must be met.
For example, both the property exchanged and the property acquired must be
held for use in a trade or business or for investment, and the property
acquired must be identified within 45 days, and must be acquired within 180
days, after the transfer of the exchanged property. If the technical
requirements of Section 1031 of the Code are not met, then the exchanged
property will be treated as sold in a taxable transaction for a sales price
equal to the fair market value of the property received, in which event a
distribution of cash to the shareholders may be required to avoid a corporate-
level income tax on the resulting capital gain. Given the competition for
properties meeting the Company's investment criteria, it may be difficult for
the Company to identify suitable properties within the foregoing time frames
in order to meet the requirements of Section 1031. Even if a suitable tax-
deferred exchange can be structured, as noted above, no assurance can be given
that the proceeds of any of these dispositions will be reinvested to produce
economic returns comparable to those currently being realized from the
properties which were disposed of.
Competition
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real
estate companies, many of which have greater financial and other resources
than the Company, within the market area of each of the properties which will
compete with the Company for
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tenants and development and acquisition opportunities. The number of
competitive multifamily properties and real estate companies in such areas
could have a material effect on (i) the Company's ability to rent the
apartments and the rents charged and (ii) development and acquisition
opportunities. The activities of these competitors could cause the Company to
pay a higher price for a new property than it otherwise would have paid or may
prevent the Company from purchasing a desired property at all, which could
have a material adverse effect on the Company and its ability to make
distributions to shareholders and to pay amounts due on its debt.
Geographic Concentration; Dependence on Western United States Regions
The Company's portfolio is principally located in the San Francisco Bay
Area, San Diego, Phoenix, Los Angeles/Orange County, Seattle, Sacramento, Las
Vegas, Tucson, Portland, Albuquerque, Salt Lake City and the Denver area. The
Company's performance could be adversely affected by economic conditions in,
and other factors relating to, these geographic areas, including supply and
demand for apartments in these areas, zoning and other regulatory conditions
and competition from other properties and alternative forms of housing. In
that regard, certain of these areas have in the recent past experienced
economic recessions and depressed conditions in the local real estate markets.
To the extent general economic or social conditions in any of these areas
deteriorate or any of these areas experiences natural disasters, the value of
the portfolio, the Company's results of operations and its ability to make
distributions to shareholders and to pay amounts due on its debt could be
materially adversely affected.
Risks of Development, Construction and Acquisition Activities
Pursuant to the TCRW Transaction, the Company acquired eight apartment
properties in various stages of development (the "Development Properties").
Prior to the Transaction, the Company was not engaged in significant
development and construction projects.
The Company intends to actively pursue development and construction of
multifamily apartment communities, including the Development Properties. There
can be no assurance that the Company will complete development of the
Development Properties or any other development project which may be
undertaken by the Company. As a general matter, property development and
construction projects typically have a higher, and sometimes substantially
higher, level of risk than the acquisition of existing properties. Risks
associated with the Company's development and construction activities may
include the following: development opportunities may be abandoned;
construction costs of multifamily apartment communities may exceed original
estimates, possibly making the communities uneconomical; occupancy rates and
rents at newly completed communities may not be sufficient to make the
communities profitable; financing for the construction and development of
projects may not be available on favorable terms or at all; construction and
lease-up may not be completed on schedule; and expenses of operating a
completed community may be higher than anticipated. In addition, development
and construction activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Development and construction activities are also subject to risks
relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations.
The Company also intends to continue actively to acquire multifamily
apartment communities. Acquisitions of multifamily apartment communities
entail risks that investments will fail to perform in accordance with
expectations. Estimates of the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property may prove inaccurate. In addition, there are general investment risks
associated with any new real estate investment. In that regard, the properties
acquired in the TCRW Transaction were acquired on an "as is" basis, meaning
that the properties were acquired without warranty by the sellers. Likewise,
due to the competitive nature of the bidding process for the TCRW properties,
the Company performed a more limited investigation with respect to the TCRW
properties prior to acquiring them. Both of these factors increased the risks
associated with acquiring the TCRW properties.
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The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under various construction loans, lines of
credit, other forms of secured or unsecured financing or through the issuance
of additional equity by the Company. The Company expects periodically to
review its financing options regarding the appropriate mix of debt and equity
financing. Equity, rather than debt, financing of future developments or
acquisitions could have a dilutive effect on the interests of existing
shareholders of the Company. Similarly, financing future developments and
acquisitions with debt entails certain risks, including those described below
under "--Real Estate Financing Risks." In addition, if new development
properties are financed through construction loans, there is a risk that, upon
completion of construction, permanent financing for such properties may not be
available or may be available only on disadvantageous terms or that the cash
flow from new properties will be insufficient to cover debt service. If a
newly developed or acquired property is unsuccessful, the Company may incur a
loss on its investment. Any of the foregoing could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its debt.
Risks Relating to Growth Strategy
Pursuant to the TCRW Transaction, the Company acquired 17 completed
apartment communities aggregating 4,786 units and eight Development Properties
aggregating approximately 2,445 units. This significant increase in the size
of the Company's operations after the acquisition has substantially increased
the demands placed upon the Company's management, including demands resulting
from the need to integrate the accounting systems, management information
systems and other operations acquired from TCRW with those of the Company.
Likewise, the Company added approximately 600 persons previously employed by
TCRW and its affiliates, which has also significantly increased the demands
upon the Company's management. Failure to effectively integrate the operations
of the acquired properties, operations and employees with those of the Company
could have an adverse effect on the Company.
A substantial portion of the Company's growth over the last several years
has been attributable to acquisitions. Further, a principal component of the
Company's strategy is to continue to grow in a controlled manner in both
existing and new markets by acquiring and developing new properties. The
Company's future growth will be dependent upon a number of factors, including
the Company's ability to identify acceptable properties for acquisition and
development, complete acquisitions and developments on favorable terms,
successfully integrate acquired and newly developed properties, and obtain
financing to support expansion. There can be no assurance that the Company
will be successful in implementing its growth strategy, that growth will
continue at historical levels or at all, or that any expansion will improve
operating results. The failure to identify, acquire, develop, and integrate
new properties effectively could have a material adverse effect on the Company
and its ability to make distributions to shareholders and to pay amounts due
on its debt.
Restrictions in the Operations of the Operating Company
A substantial portion of the properties acquired in the TCRW Transaction are
held by the Operating Company, a limited liability company. BRE is the sole
managing member of the Operating Company and, as of December 31, 1997, held
approximately a 70% equity interest therein. The remaining equity interests in
the Operating Company are held by third parties as non-managing members.
Under the terms of the limited liability company agreement governing the
operations of the Operating Company (the "LLC Agreement"), the Operating
Company is required to maintain certain debt service coverage, debt-to-asset
and other financial ratios intended to protect the members' rights to receive
distributions. In addition, with respect to certain tax-exempt financing for
certain completed properties, the Operating Company is restricted from
prepaying its debt or taking certain other specified actions which could have
adverse tax consequences for the members. Further, the Company, as the
managing member, is restricted from taking certain other specified actions --
either absolutely or without the consent of a majority in interest of the
non-managing members (or of the non-managing members affected thereby) --
including, but not limited to, any actions that would make it impossible to
carry out the business of the Operating Company, or that would subject
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<PAGE>
a non-managing member to liability as a managing member, or that would cause
the Operating Company to institute bankruptcy proceedings or confess a
judgment, or that would prohibit or restrict a member from exercising its
rights to exchange units in the Operating Company for Common Shares. Any such
requirement to maintain financial ratios and any such restrictions on the
actions of the Operating Company and its managing member could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its debt.
Further, under the terms of the LLC Agreement, the Operating Company may
not, without the consent of a majority in interest of the non-managing
members, (i) dispose of any of the properties held by the Operating Company in
a taxable sale or exchange prior to respective dates which are specified in
the LLC Agreement for each of the properties, ranging from one to ten years
from November 18, 1997, or (ii) dissolve the Operating Company other than in
certain limited circumstances specified in the LLC Agreement, such as a sale
of all or substantially all of the Company's assets, or any merger,
consolidation or other combination by the Company with or into another person,
or reclassification, recapitalization or change of the Company's outstanding
equity interests. These restrictions on the Company's ability to dispose of a
significant portion of its properties and to dissolve the Operating Company,
even when such a disposition or dissolution of the Operating Company would be
in the best interest of the Company, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its debt.
The Operating Company also must distribute all Available Cash (as defined in
the LLC Agreement) on a quarterly basis: first, to members (other than BRE)
until each member has received, cumulatively on a per Operating Company unit
basis, distributions equal to the cumulative dividends declared with respect
to one Common Share over the corresponding period (subject to adjustment from
time to time as applicable to account for stock dividends, stock splits and
similar transactions affecting the common shares) (the "Priority
Distribution"); and second, the balance to BRE.
If the Operating Company's Available Cash in any quarterly period is
insufficient to permit distribution of the full amount of the Priority
Distribution for that quarter, BRE is required to make a capital contribution
to the Operating Company in an amount equal to the lesser of (i) the amount
necessary to permit the full Priority Distribution or (ii) an amount equal to
the sum of any capital expenditures made by the Operating Company plus the sum
of any payments made by the Operating Company on account of any loans to or
investments in, or any guarantees of the obligations of, BRE or its affiliates
for that quarterly period.
In addition, BRE may not be removed as the managing member of the Operating
Company by the non-managing members, with or without cause, other than with
its consent. BRE may not voluntarily withdraw from the Operating Company or
transfer all or any portion of its interest in the Operating Company without
the consent of all of the non-managing members, except in certain limited
circumstances, such as a sale of all or substantially all of BRE's assets, or
any merger, consolidation or other combination by BRE with or into another
person, or any reclassification, recapitalization or change of BRE's
outstanding equity interests. Such restrictions on the withdrawal of BRE as
the managing member of the Operating Company, and on BRE's ability to transfer
its interest in the Operating Company, could have a material adverse effect on
the Company and its ability to make distributions to shareholders and to pay
amounts due on its debt.
Uninsured Loss; Limited Coverage
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company currently carries
flood and earthquake insurance for its properties with an aggregate annual
limit of $100 million, subject to substantial deductibles, no assurance can be
given that such coverage will continue to be available on acceptable terms or
at an acceptable cost, or at all, in the future, or if obtained, that the
limits of those policies will cover the full cost of repair or replacement of
covered properties. In addition, there may be certain extraordinary losses
(such as those resulting from civil unrest) that are not generally insured (or
fully insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a
11
<PAGE>
property, the Company could be required to use its own funds for restoration
or lose all or part of its investment in, and anticipated revenues from, the
property and would continue to be obligated on any mortgage indebtedness on
the property. Any such loss could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its debt.
Risks Associated with Survey Exceptions to Certain Title Insurance Policies
Although the Company believes that prior owners of the TCRW Properties in
the past obtained surveys of those properties, the Company did not obtain
updated surveys when it acquired the TCRW Properties. Because updated surveys
of the TCRW properties were not obtained, the title insurance policies
obtained by the Company for those properties contain exceptions for matters
which an updated survey might have disclosed. Such matters might include such
things as boundary encroachments, unrecorded easements or similar matters
which would have been reflected on a survey. Moreover, because no updated
surveys were prepared for those properties, there can be no assurance that the
title insurance policies in fact cover the entirety of the real property,
buildings, fixtures, and improvements which the Company believes they cover,
any of which could have an adverse effect on the Company.
Change in Laws
Increases in real estate taxes and income, service and transfer taxes cannot
always be passed through to residents or users in the form of higher rents,
and may adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders and to pay amounts due on its
debt. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions, as well as changes in laws affecting
development, construction and safety requirements, may result in significant
unanticipated expenditures, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its debt. In addition, future enactment of rent control or rent
stabilization laws or other laws regulating multifamily housing may reduce
rental revenues or increase operating costs.
Laws Benefiting Disabled Persons
A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved
access to such buildings by disabled persons and may require other structural
features which add to the cost of buildings under construction. Legislation or
regulations adopted in the future may impose further burdens or restrictions
on the Company with respect to improved access by disabled persons. The costs
of compliance with these laws and regulations may be substantial, and limits
or restrictions on construction or completion of certain renovations may limit
implementation of the Company's investment strategy in certain instances or
reduce overall returns on its investments, which could have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its debt. The Company reviews its properties
periodically to determine the level of compliance and, if necessary, takes
appropriate action to bring such properties into compliance. The Company's
management believes, based on property reviews to date, that the costs of such
compliance should not have a material adverse effect on the Company. Such
conclusions are based upon currently available information and data, and no
assurance can be given that further review and analysis of the Company's
properties, or future legal interpretations or legislative changes, will not
significantly increase the costs of compliance.
Risks of Assumed Liabilities
In the TCRW Transaction, pursuant to the Contribution Agreement the Company
(i) acquired the TCRW Properties either by acquiring title to the properties
and related assets (plus assumption of certain associated contractual
obligations, warranties and guarantees) or, as to certain TCRW Properties, by
acquiring all of the ownership interests in the partnerships or limited
liability companies which held such properties, and (ii) assumed
12
<PAGE>
certain loans secured by the TCRW properties. Under the terms of the
transaction, the Company has not expressly agreed to assume any liabilities
other than the assumed loans and the contractual obligations, warranties and
guarantees referenced above. However, as a matter of law, the Company
automatically assumed all of the liabilities (known, unknown or contingent) of
the partnerships and limited liability companies whose ownership interests
were acquired by the Company, potentially including liabilities unrelated to
the properties conveyed pursuant to such transfer. Moreover, even in cases
where title to the properties and related assets (rather than ownership
interests therein) was acquired by the Company, the legal doctrine of
successor liability may give creditors of and claimants against the prior
owners the right to hold the Company responsible for liabilities which arose
with respect to such properties prior to their acquisition by the Company,
whether or not such liabilities were expressly assumed by the Company under
the terms of the transaction.
As a result of the foregoing, there can be no assurance that the Company
will not be subject to liabilities and claims relating to the TCRW properties
arising from events which occurred or circumstances which existed prior to the
acquisition of those properties by the Company, which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its debt. In that regard, the terms of
the TCRW Transaction do not provide for the Company to be indemnified against
any such liabilities and claims. See "--Limited Indemnification" below.
Limited Indemnification
The Company acquired the TCRW properties on an "as is" basis, meaning that
the properties were acquired without warranty from the sellers. As a result,
the Company has no recourse against the sellers for matters relating to the
properties or the transaction, except to the limited extent described below.
The terms of the TCRW Transaction provide the Company with only limited
indemnification with respect to claims or liabilities that might arise out of
the transaction or actions taken by the sellers before the closing.
Specifically, certain Trammell Crow Residential entities and related parties
who are signatories to the Contribution Agreement (the "TCRW Parties") have
agreed to indemnify the Company and its affiliates only against claims arising
out of (i) any inaccuracy in the investment representations of any TCRW Party
or certain representations about employment matters, or any failure of a TCRW
Party to comply with any agreement with respect thereto, (ii) any breach by a
TCRW Party of its fiduciary duties (including duties of disclosure) to any
other person in connection with the transaction, or (iii) any document filed
by or on behalf of a TCRW Party or any affiliate with a governmental agency or
prepared or distributed in connection with the transaction (including any
document distributed in connection with the solicitation of consents by the
TCRW Parties for the TCRW Transaction) (provided, however, that the foregoing
does not apply to the information supplied by the Company or the Operating
Company in writing specifically for inclusion or incorporation by reference in
any such document or to any document prepared or filed by the Company or the
Operating Company). The Company has no recourse against the TCRW Parties with
respect to any claims which are not within the specific coverage of the
indemnity provisions.
In addition, in the event that the Company is entitled to indemnification,
the terms of the TCRW Transaction significantly limit the amount which the
Company would be entitled to recover. Specifically, the Company's sole
recourse under a claim for indemnity is the right to reduce the number of
Development OC Units (as defined below) which the Company might otherwise be
required to deliver in connection with the TCRW Transaction. A maximum of up
to 627,594 Development OC Units are issuable, each of which will be
exchangeable, commencing November 18, 1998, at the option of the holders
thereof for Common Shares (at the rate of one Common Share per Development OC
Unit, subject to adjustment under certain circumstances) or, at the Company's
election, into an equivalent amount of cash based on the value of the Common
Shares at the time of exchange. For purposes of determining the reduction in
the number of Development OC Units in the event of a claim for indemnity, the
Development OC Units will be deemed to have a value equal to the average of
the closing prices of a Common Share on the New York Stock Exchange for the
fifteen consecutive trading days concluding on the fifth trading day preceding
the day of the reduction. The TCRW Parties' indemnification
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<PAGE>
obligations (and such obligations of the Company and the Operating Company, as
described below) are limited, in the aggregate, to an amount which, as of any
date, is obtained by multiplying the number of Development OC Units which have
not been distributed by the lower of (i) $26.93 or (ii) the average of the
closing prices of a Common Share on the New York Stock Exchange for the
fifteen consecutive trading days concluding on the fifth trading day preceding
such date.
The "Development OC Units" are equity interests in the Operating Company
which will be issued to the TCRW Parties if certain completion schedule and
budget objectives are met for the Development Properties. The Company
currently anticipates that all of the Development OC Units will either be
awarded or will become ineligible for award by the end of 1999. Accordingly,
there can be no assurance that the amount of any claim for indemnity will be
made at a time when a sufficient amount or any of the Development OC Units
remain available for set-off or that, even if the full number of Development
OC Units is available, that the value of those units will be sufficient to
fully cover the claim for indemnity.
There can be no assurance that the Company will not be confronted in the
future with claims by third parties relating to the TCRW Transaction or to the
activities of the TCRW Parties or the operations of the TCRW Properties and
matters related thereto prior to the closing of the transaction. Likewise,
there can be no assurance that the properties acquired in the TCRW Transaction
will meet the Company's expectations. Accordingly, the limited scope of the
indemnification could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
debt. See "--Risks of Assumed Liabilities," above.
The Company and the Operating Company have also provided a limited indemnity
to the TCRW Parties. Under the terms of the Contribution Agreement, the
Company and the Operating Company have agreed to indemnify the TCRW Parties
and their affiliates against claims arising out of (i) any inaccuracy in
certain representations made by the Company about the registration rights it
agreed to provide to the TCRW Parties who become shareholders of the Company
or unitholders of the Operating Company, or any failure by the Company to
fulfill its obligations under terms of the transaction, or (ii) any material
misstatement or omission in the information statement provided to the TCRW
Parties with respect to the Company, the Operating Company, the Common Shares
or units of the Operating Company. The Company's indemnification obligations
are limited to an amount equal to the value of the remaining Development OC
Units outstanding from time to time, calculated in the same manner as the
limit on the indemnification obligations of the TCRW Parties, as described
above. Notwithstanding the limit upon the Company's indemnification
obligations, if claims within the coverage of the indemnity provisions were
brought against the Company, it could be required to incur costs in defending
against or satisfying the claims, which could have a material adverse effect
on the Company and its ability to make distributions to shareholders and to
pay amounts due on its debt.
Potential Litigation Related to the TCRW Transaction
Over the last several years, business reorganizations involving the
conversion of partnerships into REITs, the combination of several partnerships
into a single entity and the combination of multiple REITs into a single REIT
have given rise to investor lawsuits. If any lawsuits were filed in connection
with the TCRW Transaction, whether by any of the TCR Parties or other persons,
such lawsuits could require the Company to incur costs in defending such
lawsuits or to pay any judgment awards or make settlement payments, any of
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders and to pay amounts due on its debt.
REAL ESTATE FINANCING RISKS
Debt Financing and Maturities
The Company is subject to the normal risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid
or refinanced
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<PAGE>
when due or that the terms of any renewal or refinancing will not be as
favorable as the terms of such indebtedness. If the Company were unable to
refinance its indebtedness on acceptable terms, or at all, the Company might
be forced to dispose of one or more of the properties on disadvantageous
terms, which might result in losses to the Company, which losses could have a
material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its debt. Furthermore, if a property
is mortgaged to secure payment of indebtedness and the Company is unable to
meet mortgage payments, the mortgagee could foreclose upon the property,
appoint a receiver and receive an assignment of rents and leases or pursue
other remedies, all with a consequent loss of revenues and asset value to the
Company. Foreclosures could also create taxable income without accompanying
cash proceeds, thereby hindering the Company's ability to meet the REIT
distribution requirements of the Code.
Risk of Rising Interest Rates
The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. Accordingly, increases in interest
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by interest rate protection
arrangements), which could have a material adverse effect on the Company and
its ability to make distributions to shareholders and to pay amounts due on
its debt or cause the Company to be in default under certain debt instruments
(including its debt). In addition, an increase in market interest rates may
lead holders of the Company's common shares to demand a higher yield on their
shares from distributions by the Company, which could adversely affect the
market price for the common shares.
Additional Debt
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such
as sales of non-core properties. The organizational documents of the Company
do not contain any limitation on the amount of indebtedness that the Company
may incur. Accordingly, subject to limitations on indebtedness set forth in
various loans or other agreements, the Company could become more highly
leveraged, resulting in an increase in debt service, which could have a
material adverse effect on the Company and its ability to make distributions
to shareholders and to pay amounts due on its debt and an increased risk of
default on its obligations.
Terms of Certain Indebtedness
At December 31, 1997, the Company had outstanding borrowings of $73 million
under two loan agreements which, among other things, (i) contain a covenant
which requires the Company to maintain an investment grade rating for its
long-term unsecured debt and (ii) define "events of default" to include the
acquisition by any person of either (x) 20% or more of the Company's
outstanding shares or securities (or other securities convertible into such
securities) or (y) 10% or more of the Company's outstanding shares or
securities (or other securities convertible into such securities) if such
acquisition results in any change of the board of directors of the Company or
any change in the management of the Company or any of its assets. In the event
that the Company fails to maintain an investment grade rating for its long-
term unsecured debt or if such an event of default occurs, the lender may
declare all borrowings under such loan agreements to be due and payable
immediately, which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
debt.
ENVIRONMENTAL RISKS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the
costs of removal or remediation of certain hazardous or toxic substances in,
on, around or under such property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. The presence of, or
failure to remediate properly, such substances may adversely affect the
owner's or operator's
15
<PAGE>
ability to sell or rent the affected property or to borrow using such property
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removal or remediation
of such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for release of asbestos-containing materials into the air,
and third parties may also seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials
and other hazardous or toxic substances. The operation and subsequent removal
of certain underground storage tanks are also regulated by federal and state
laws. In connection with the current or former ownership (direct or indirect),
operation, management, development and/or control of real properties, the
Company may be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may be potentially liable for removal or remediation costs, as well
as certain other costs, including governmental fines, and claims for injuries
to persons and property.
The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental studies or other
environmental studies undertaken with respect to any of the Company's current
or future properties will reveal all or the full extent of potential
environmental liabilities, that any prior owner or operator of a property did
not create any material environmental condition unknown to the Company, that a
material environmental condition does not otherwise exist as to any one or
more of such properties or that environmental matters will not have a material
adverse effect on the Company and its ability to make distributions to
shareholders and to pay amounts due on its debt. The Company currently carries
no insurance for environmental liabilities.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by it or its predecessors.
RISKS OF THIRD PARTY MANAGEMENT BUSINESS
Possible Termination of Management Contracts
As part of the TCRW Transaction, the Company also acquired TCRW's third
party management contracts. A wholly-owned subsidiary of the Company (the
"Management Company") was organized to undertake this business.
Risks associated with the management of properties owned by third parties
include the risk that the management contracts (which are generally cancelable
upon a sale of the property or, in many cases, upon 30 days' notice) will be
terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms, and that the rental revenues
upon which management fees are based will decline as a result of general real
estate market conditions or market factors affecting specific properties,
resulting in decreased management fee income. As a result, there can be no
assurance that the Management Company will perform in accordance with the
Company's expectations.
Possible Adverse Consequences of REIT Status on the Business of the
Management Company
Certain requirements for REIT qualifications may in the future limit the
Company's ability to increase third party management operations conducted and
related services offered by the Management Company without jeopardizing the
Company's qualifications as a REIT. The taxable income generated by the
Management Company ("Third Party Management Income") will not qualify under
REIT gross income tests. However, the Company does not believe that the
receipt of this income will cause the Company to fail to satisfy such gross
income tests for the current or any future taxable year as this income, along
with other non-qualifying income, is expected to represent less than 5% of the
Company's gross income in any taxable year.
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<PAGE>
RANKING OF SECURITIES
A significant portion of the operations of the Company is conducted through
its subsidiaries, including the Operating Company. The cash flow of the
Company and the consequent ability to make distributions and other payments on
its equity securities and to service its debt, will be partially dependent
upon the earnings of such subsidiaries and the distribution of those earnings
to the Company, or upon loans or other payments of funds made by such
subsidiaries to the Company. In addition, debt or other agreements of the
Company's subsidiaries may impose restrictions that affect, among other
things, the ability of the Company's subsidiaries to pay dividends or make
other distributions or loans to the Company.
Likewise, a substantial portion of the Company's consolidated assets are
owned by its subsidiaries, effectively subordinating certain unsecured
indebtedness to all existing and future liabilities, including indebtedness,
trade payables, lease obligations and guarantees, of the Company's
subsidiaries. The Operating Company has guaranteed amounts due under the
Company's $265 million unsecured bank credit facility (the "Credit Facility")
with Bank of America National Trust and Savings Association and the Company's
$35 million unsecured line of credit with Sanwa Bank California (the "Sanwa
Line of Credit"). Likewise, any other subsidiary of the Company with assets or
net income which, when multiplied by the Company's effective percentage
ownership interest in such subsidiary exceeds $30 million or 5% of the
Company's consolidated net income, respectively, is required to guarantee the
repayment of borrowings under the Credit Facility and the Sanwa Line of
Credit. The Operating Company and other subsidiaries of the Company may also
from time to time guarantee other indebtedness of the Company. Therefore, the
Company's rights and rights of its creditors, including the holders of other
unsecured indebtedness, to participate in the assets of any subsidiary upon
the latter's liquidation or reorganization will be subject to the prior claims
of such subsidiary's creditors, except to the extent that the Company may
itself be a creditor with recognized claims against the subsidiary, in which
case the claims of the Company would be effectively subordinate to any
security interests in or mortgages or other liens on the assets of such
subsidiary and would be subordinate to any indebtedness of such subsidiary
senior to that held by the Company.
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to
include certain entities). In order to protect the Company against risk of
losing its status as a REIT due to a concentration of ownership among its
shareholders, the articles of incorporation of the Company provide, among
other things, that if the Board of Directors determines, in good faith, that
direct or indirect ownership of the Company's common shares have or may become
concentrated to an extent that would prevent the Company from qualifying as a
REIT, the Board of Directors may prevent the transfer of the common shares or
call for redemption (by lot or other means affecting one or more shareholders
selected in the sole discretion of the Board of Directors) of a number of
common shares sufficient in the opinion of the Board of Directors to maintain
or bring the direct or indirect ownership of the common shares into conformity
with the requirements for maintaining REIT status. These limitations may have
the effect of precluding acquisition of control of the Company by a third
party without consent of the Board of Directors.
In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company. For
example, such provisions may (i) deter tender offers for Common Shares which
offers may be attractive to the shareholders, or (ii) deter purchases of large
blocks of Common Shares, thereby limiting the opportunity for shareholders to
receive a premium for their Common Shares over then-prevailing market prices.
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<PAGE>
TAX RISKS
Tax Liabilities as a Consequence of Failure to Qualify as a REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within the Company's control. For example, in order to qualify as a REIT, at
least 95% of the Company's taxable gross income in any year must be derived
from qualifying sources and the Company must make distributions to
shareholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). Thus, to the extent Third Party Management
Income represents 5% or more of the Company's gross income in any taxable
year, the Company will not satisfy the 95% income test and may fail to qualify
as a REIT, unless certain relief provisions apply, and, even if those relief
provisions apply, a tax would be imposed with respect to excess net income,
any of which could have a material adverse effect on the Company and its
ability to make distributions to shareholders and to pay amounts due on its
debt. Additionally, to the extent the Operating Company or certain other
subsidiaries are determined to be taxable as a corporation, the Company would
not qualify as a REIT, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and to pay
amounts due on its debt. Finally, no assurance can be given that new
legislation, new regulations, administrative interpretations or court
decisions will not change the tax laws with respect to qualification as a REIT
or the federal income tax consequences of such qualification.
If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates, which would likely have a material adverse
effect on the Company and its ability to make distributions to shareholders
and to pay amounts due on its debt. In addition, unless entitled to relief
under certain statutory provisions, the Company would also be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This treatment would reduce funds available for
investment or distributions to security holders because of the additional tax
liability to the Company for the year or years involved. In addition,
distributions to shareholders would no longer be required to be made. To the
extent that distributions to shareholders would have been made in anticipation
of qualifying as a REIT, the Company might be required to borrow funds or to
liquidate certain of its investments to pay the applicable tax.
ITEM 2. PROPERTIES
GENERAL
In addition to the information set forth in this Item 2, information on the
Company's portfolio is set forth herein in Schedule III (financial statement
schedule) under Item 14(d).
MULTIFAMILY PROPERTY DATA
As reflected in the following chart, during the five years ended December
31, 1997, multifamily properties have increased as a percentage of the
Company's portfolio of income producing properties and revenues:
<TABLE>
<CAPTION>
MULTIFAMILY PROPERTIES 1997 1996 1995 1994 1993
---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of portfolio at cost, as of December
31............................................... 99% 87% 72% 65% 55%
Percentage of total revenue, for the year ended
December 31...................................... 89% 77% 76% 71% 51%
</TABLE>
During 1997 and 1996, multifamily revenues as a percentage of total revenues
did not increase in proportion to the increase in the relative size of the
multifamily portfolio due to the timing of purchases of multifamily properties
and the sales of commercial properties. No single multi-family property
accounted for more than 10% of revenues in 1997.
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The following table reflects certain operating data for the Company's
multifamily properties for each year-end presented:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
-------------------------------- --------
1997 1996 1995 1994 1993
------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Total available units............ 18,569 12,212 5,475 5,067 2,970
Occupancy percent (1)............ 95% 96% 93% 95% 95%
Average monthly rate per unit.... $ 817 $ 755 $ 699 $ 794 $ 792
Total number of properties....... 74 54 25 21 10
</TABLE>
- --------
(1) Portfolio occupancy is calculated by dividing the total occupied units by
the total units in the portfolio. Apartment units are generally leased to
residents for rental terms which do not exceed one year.
The following table reflects certain operating data as of and for the year
ended December 31, 1997 of multifamily properties in the 12 metropolitan
markets in which the Company operates:
<TABLE>
<CAPTION>
AVERAGE
PERCENTAGE RENT
MARKET OF NOI (1) UNITS COMMUNITIES OCCUPANCY (2) (3)
------ ---------- ------ ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
San Francisco Bay Area...... 27% 2,960 9 95% $1,249
San Diego................... 14 1,899 9 97% $ 785
Los Angeles/Orange County... 11 2,352 10 96% $ 704
Sacramento.................. 8 1,783 8 95% $ 801
Phoenix..................... 14 3,082 12 96% $ 720
Tucson...................... 5 1,836 9 95% $ 598
Seattle..................... 10 1,673 6 95% $ 779
Portland.................... 3 620 2 93% $ 694
Las Vegas................... 6 814 4 96% $ 814
Salt Lake City.............. 1 904 3 94% $ 762
Albuquerque................. 1 646 2 95% $ 787
Denver (4).................. -- -- -- -- --
--- ------ ---
Total/Weighted Average.. 100% 18,569 74 95% $ 817
=== ====== === === ======
</TABLE>
- --------
(1) Represents the aggregate net operating income of all properties in each
market divided by the total net operating income of multifamily properties
for the year ended December 31, 1997, and includes the results of 22
completed properties acquired during 1997 (including those acquired in the
Transaction) from the date of acquisition. Accordingly, these results do
not reflect a full year of operations for properties acquired in 1997.
(2) Represents physical occupancy at December 31, 1997.
(3) Represents total gross potential rent divided by total units as of
December 31, 1997.
(4) Represents a community under construction in this market.
19
<PAGE>
DEVELOPMENT PROPERTIES
The following table sets forth certain data with respect to the Company's
eight multifamily properties which were under construction at December 31,
1997. Completion of the Development 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>
ESTIMATED
ADDITIONAL
COST TO
PROPOSED COMPLETE (AT ESTIMATED ESTIMATED
NUMBER OF INVESTMENT DECEMBER 31, TOTAL COMPLETION
PROPERTY NAME (1) LOCATION UNITS (2) TO DATE (3) 1997) COST DATE
----------------- --------------- --------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pinnacle at Towne Centre Phoenix, AZ 350 $18.1 $ 11.9 $ 30.0 3Q/1998
Pinnacle Terrace Chandler, AZ 300 $ 8.5 $ 12.1 $ 20.6 3Q/1998
Pinnacle at Hunter's
Glen Thornton, CO 264 $ 6.3 $ 13.5 $ 19.8 4Q/1998
Pinnacle at West Fla-
mingo Las Vegas, NV 324 $10.9 $ 15.3 $ 26.2 1Q/1999
Pinnacle Estates Albuquerque, NM 294 $ 8.7 $ 14.1 $ 22.8 3Q/1998
Pinnacle at High Resort Rio Rancho, NM 301 $ 8.2 $ 14.6 $ 22.8 3Q/1998
Pinnacle at Sand Hill Orem, UT 288 $11.0 $ 11.8 $ 22.8 2Q/1998
Pinnacle at Clearfield Clearfield, UT 324 $ 9.5 $ 13.3 $ 22.8 4Q/1998
----- ----- ------ ------
Total 2,445 $81.2 $106.6 $187.8
===== ===== ====== ======
</TABLE>
- --------
(1) These properties were acquired by the Company on November 18, 1997 in the
TCRW Transaction.
(2) No units had been completed as of December 31, 1997.
(3) Represents the allocation by the Company of the purchase price of the TCRW
portfolio among the properties acquired, based on their estimated relative
fair market values plus expenditures subsequent to acquisition.
COMMERCIAL AND RETAIL PROPERTY DATA
The following table reflects certain operating data for the Company's
commercial and retail properties for each year-end presented:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
---------------------------- --------
1997 1996 1995 1994 1993
---- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Total available square feet (in
thousands)......................... 157 1,194 1,135 1,543 1,749
Occupancy percent (1)............... 93% 93% 96% 69% 88%
Average minimum annual rent per
square foot (2).................... $ 10 $ 13 $ 11 $ 9 $ 9
Total number of properties.......... 5 15 11 13 17
</TABLE>
- --------
(1) 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.
(2) Average minimum annual rent per square foot is calculated by dividing the
reported minimum rental income for commercial and retail properties by
total rentable square feet. The changes in the amounts shown are due to
variances in occupancy levels and the changing composition of the
properties due to acquisitions and dispositions.
During 1997, BRE substantially completed its orderly disposition of
commercial and retail properties. At December 31, 1997, there were five such
properties (plus three investments held in partnerships in which the Company
is a limited partner). Tenants in the commercial and retail properties consist
generally of various smaller enterprises and such properties included
industrial, professional and medical centers. These leases
20
<PAGE>
generally provide for reimbursement of certain expenses such as property
taxes, insurance and common area costs in addition to minimum rentals and in
some cases percentage rents in excess of stipulated minimums. For additional
information regarding leases on the commercial and retail properties, see Note
3 to Notes to Consolidated Financial Statements. No single tenant accounted
for more than 10% of revenues for the year ended December 31, 1997.
INSURANCE, PROPERTY TAXES AND INCOME TAX BASIS
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductible. In addition, the Company currently
carries flood and earthquake coverage with an annual aggregate limit of
$100,000,000 (after policy deductibles ranging from 2%-5% of damages). In the
opinion of management, the properties are adequately covered by such
insurance.
Property taxes on portfolio properties are assessed on asset values based on
the valuation method and tax rate used by the respective jurisdictions; such
rates ranged from approximately 1% to 2% of assessed values for 1997. The
gross carrying value of the Company's rental properties was $1,259,941,000 as
of December 31, 1997; at that date such assets had an underlying federal
income tax basis of approximately $1,120,941,000 which reflects, among other
factors, the carryover of basis on tax deferred exchanges.
HEADQUARTERS
The Company maintains its corporate headquarters at 44 Montgomery Street,
36th Floor, San Francisco, California, 94104-4809, pursuant to a lease with
OTR, an Ohio general partnership. The lease has an 8-year term, and covers
15,142 rentable square feet at annual per square foot rents which begin at
$37.00 and rise to $ 44.00 in the eighth year of the lease. The lease term
ends on January 31, 2006. The Company also maintains regional offices in
Washington state, Sacramento, San Diego, Phoenix, Tucson, Denver and Utah.
ITEM 3. LEGAL PROCEEDINGS
The Company is defending various claims and legal actions that arise from
its normal course of business, including certain environmental actions. 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 the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "BRE". As of March 13, 1998, there were approximately
6,600 recordholders of the Company's common stock and the last reported sales
price on the NYSE was $26.625. The number of holders does not include persons
whose shares are held of record by a broker or clearing agency, but does
include each such broker or clearing agency as one recordholder. As of March
13, 1998, there were approximately 31,000 beneficial holders of the Company's
common stock.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices of the common stock as reported on the NYSE
Composite Tape, and the dividends paid by the Company per common share for
each such calendar quarter. The prices reflect the two-for-one stock split of
the common stock effected in the form of a stock dividend to shareholders of
record on June 7, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996
----------------------- -----------------------
STOCK PRICE STOCK PRICE
----------------------- -----------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter................... $27.25 $23.75 $.345 $19.08 $17.63 $.3395*
Second Quarter.................. $25.38 $23.50 $.345 $19.58 $17.44 $.3300
Third Quarter................... $28.56 $23.38 $.345 $21.50 $19.50 $.3300
Fourth Quarter.................. $30.00 $26.75 $.345 $24.75 $20.13 $.3300
</TABLE>
- --------
(*) A portion of the dividend from this quarter ($.0245) was attributable to a
special cash dividend paid in connection with the merger with Real Estate
Investment Trust of California.
Since 1970, the year BRE was founded, the Company has made regular and
uninterrupted distributions to shareholders on a quarterly basis. However, the
payment of distributions by the Company has been and will continue to be at
the discretion of the Board of Directors and will depend on numerous factors,
including the cash flow of the Company, its financial condition, capital
requirements, the annual distribution requirement under the REIT provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and other factors
that the Board of Directors may deem relevant.
Recent Sales of Unregistered Securities
On December 23, 1997, the Company sold 728,929 shares of common stock to
Legg Mason Unit Investment Trust Series 7, Legg Mason REIT Trust, December
1997 Series (the "Trust") for cash proceeds of approximately $19.1 million.
The shares were issued in a transaction not involving a public offering
pursuant to Section 4(2) of the Securities Act of 1933, as amended. On January
27, 1998, the Company filed a registration statement with the Securities and
Exchange Commission covering the resale of the common stock issued to the
Trust.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and notes thereto included
elsewhere in this report. The 1997 and 1996 results were significantly
impacted by the transaction with TCRW, the RCT merger and numerous
acquisitions and dispositions as discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this report and, therefore,
are not directly comparable to prior years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 1994 1993
---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues................. $ 137,761 $ 101,651 $ 65,387 $ 56,970 $ 49,806
========== ========= ======== ======== ========
Net income............... $ 76,197 $ 89,839 $ 22,010 $ 24,212 $ 20,037
Less:
Net gain on sales of
investments........... 27,824 52,825 221 1,646 506
Plus:
Depreciation and
amortization.......... 17,938 13,283 7,864 7,080 6,097
Provision for
investment losses..... -- -- 2,000 -- --
Minority interest...... 972 -- -- -- --
---------- --------- -------- -------- --------
Funds from operations
(1)..................... $ 67,283 $ 50,297 $ 31,653 $ 29,646 $ 25,628
========== ========= ======== ======== ========
Net cash flows generated
from operating
activities.............. $ 63,818 $ 47,887 $ 27,068 $ 31,063 $ 24,121
Net cash flows used in
investing activities.... $ (235,293) $(132,082) $ (3,820) $(66,740) $(57,430)
Net cash flows from
financing activities.... $ 175,507 $ 68,322 $(11,077) $ 25,821 $ 42,216
Dividends to common
shareholders and
distributions to
minority members........ $ 52,035 $ 39,849 $ 27,596 $ 26,210 $ 23,659
Weighted average number
of shares outstanding... 35,750 30,520 21,905 21,840 20,150
Weighted average number
of shares outstanding
assuming dilution (2)... 36,610 30,790 21,935 21,870 20,195
Shares outstanding at end
of period............... 41,740 32,880 21,940 21,850 21,830
PER SHARE DATA:
Income excluding gain on
sales of investments.... $ 1.35 $ 1.21 $ 1.00 $ 1.03 $ 0.97
Net gain on sales of
investments............. 0.78 1.73 0.01 0.08 0.02
---------- --------- -------- -------- --------
Net income............... $ 2.13 $ 2.94 $ 1.01 $ 1.11 $ 0.99
========== ========= ======== ======== ========
PER SHARE DATA--ASSUMING
DILUTION (2):
Income excluding gain on
sales of investments.... $ 1.35 $ 1.20 $ 0.99 $ 1.03 $ 0.97
Net gain on sales of
investments............. 0.76 1.72 0.01 0.08 0.02
---------- --------- -------- -------- --------
Net income assuming
dilution................ $ 2.11 $ 2.92 $ 1.00 $ 1.11 $ 0.99
========== ========= ======== ======== ========
Dividends to common
shareholders............ $ 1.38 $ 1.33 $ 1.26 $ 1.20 $ 1.20
FINANCIAL POSITION
Total assets............. $1,341,898 $ 783,714 $354,895 $343,853 $293,628
Real estate portfolio,
before depreciation..... $1,346,923 $ 816,389 $371,438 $373,676 $310,003
Cash and short-term
investments............. $ 4,216 $ 184 $ 16,057 $ 3,887 $ 13,742
Long-term debt........... $ 541,367 $ 311,985 $112,290 $ 97,169 $ 45,416
Minority interest........ $ 76,066 -- -- -- --
Shareholders' equity..... $ 707,495 $ 464,114 $239,248 $243,436 $245,156
</TABLE>
- --------
Footnotes are on the following page.
23
<PAGE>
(1) Management considers Funds from Operations ("FFO") to be an appropriate
supplemental measure of the performance of an equity REIT because it is
predicated on cash flow analyses which facilitate an understanding of the
operating performances of the Company's properties without giving effect
to non-cash items such as depreciation. FFO is defined by the National
Association of Real Estate Investment Trusts as net income or loss
(computed in accordance with generally accepted accounting principles)
excluding gains or losses from debt restructuring and sales of property,
plus depreciation and amortization of real estate assets. FFO does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles, and therefore should not be
considered a substitute for net income as a measure of results of
operations or for cash flow from operations as a measure of liquidity.
Additionally, the application and calculation of FFO by other REITs may
vary materially from that of the Company, and therefore the Company's FFO
and the FFO of other REITs may not be directly comparable.
(2) Effective in 1997, the calculation of earnings per share was changed by
Statement of Financial Accounting Standards No. 128. This Statement
requires disclosure of the impact of the assumed conversion of stock
options and other dilutive securities, if any.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
BRE Properties, Inc. ("BRE" or the "Company") is a real estate investment
trust which primarily owns and internally manages a portfolio of apartment
communities in 12 major markets of the Western United States. The Company's
revenues consist primarily of rental income (93% of total revenues in 1997,
92% in 1996 and 96% in 1995) derived from its portfolio of income-producing
properties. 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 apartment communities
pursuant to its strategic plan.
The Company's strategic plan emphasizes equity investments in apartment
communities located across Western markets. Pursuant to this strategy, in
November 1997 the Company acquired certain assets and operations of Trammell
Crow Residential-West ("TCRW") (the "Transaction") which added 17 completed
properties totaling 4,786 units, eight properties under development comprising
approximately 2,445 units and management experience in development and
construction. Further, the Company merged with Real Estate Investment Trust of
California in 1996 (the "Merger) which added 22 apartment communities
(totaling 3,581 units) and 18 commercial and retail properties to the
portfolio. The Merger also provided increased depth in management and other
resources which allowed the Company to internalize property management during
1996. As planned, in keeping with its investment focus, the Company had
divested all but five of its commercial and retail properties (i.e., non-
apartment investments) at December 31, 1997.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this annual
report. Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may 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 elsewhere in this annual report, that
could cause actual results to differ materially from those projected.
25
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL
The results of operations for the two years ended December 31, 1997 were
significantly affected by acquisitions of apartment communities and the
repositioning of the Company's portfolio through the sale of commercial and
retail properties. The 1997 results include an entire year of revenue and
expense from the assets acquired in the Merger with Real Estate Investment
Trust of California, while the 1996 results include such items only from March
15, 1996. The 1997 results also include a full year of revenue and expense for
other properties acquired in 1996, and the partial year of 1997 acquisitions,
including the TCRW Transaction. During 1997, the Company substantially
completed the strategic repositioning of the portfolio to concentrate on
apartment communities; approximately $110,000,000 in gross sales proceeds,
primarily from the sale of commercial and retail assets, were received in
1997, significantly reducing the revenues received from such properties in
1997.
REVENUES
Total revenues (excluding net gain on sales of investments in rental
properties) were $137,761,000 in 1997, $101,651,000 in 1996 and $65,387,000 in
1995. Revenues in both 1997 and 1996 increased primarily as a result of the
Merger and new multifamily property acquisitions and were offset in part by
the disposition of certain retail and commercial properties. A summary of
revenues for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL % OF TOTAL
1997 TOTAL REVENUES 1996 TOTAL REVENUES 1995 TOTAL REVENUES
(DOLLARS IN THOUSANDS) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Multifamily rental...... $122,936 89% $ 77,834 77% $49,918 76%
Commercial and retail
rental................. 5,742 4 15,301 15 12,947 20
Other income............ 9,083 7 8,516 8 2,522 4
-------- --- -------- --- ------- ---
Total revenue......... $137,761 100% $101,651 100% $65,387 100%
======== === ======== === ======= ===
</TABLE>
<TABLE>
<CAPTION>
% CHANGE FROM
PRIOR YEAR
-----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Multifamily rental........................................ 58% 56% 23%
Commercial and retail rental.............................. (62%) 18% (9%)
Other income.............................................. 7% 238% 13%
Total revenue............................................. 36% 55% 15%
</TABLE>
Multifamily rental revenues have increased in each of the last three years
primarily due to property acquisitions. During 1997, the 17 assets acquired in
the Transaction and five other acquisitions added $4,900,000 and $10,500,000,
respectively, to multifamily revenues. Properties acquired in 1996 and held
for all of 1997 added $27,100,000 to 1997 revenues incrementally. On a same-
store basis (i.e. those properties owned by BRE for all of 1997 and 1996)
revenues increased by $3,300,000, or approximately 8% due largely to an
increase in average rental rates of 6%; occupancy was stable. During 1996, the
22 apartment communities acquired in the Merger and nine other direct
apartment investments contributed approximately $21,200,000 and $10,400,000,
respectively, to multifamily revenue. This revenue increase was offset in part
by the sale of the Westlake Village land lease property in 1996. Further,
same-store revenues (those properties owned by BRE for all of 1995 and 1996)
increased by approximately $2,000,000, or 5%, due largely to an increase in
occupancy of 3% and average rental rates of 4%.
Revenues from commercial and retail properties decreased 62% in 1997,
compared to 1996, due to the sale of ten such properties. Revenues increased
18% in 1996 when compared to 1995, primarily due to the 18 properties in these
categories acquired by the Company in the Merger (which properties contributed
26
<PAGE>
approximately $5,500,000 in revenues during 1996), offset in part by the loss
of revenues from property sales. Commercial and retail revenues as a
percentage of total revenues have declined in each of the last three years as
a result of the Company's strategy emphasizing redeployment of these
investments into apartment communities.
Portfolio occupancy rates as of December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Multifamily................................................... 95% 96% 93%
Number of properties........................................ 74 54 25
Commercial and retail....................................... 99% 93% 96%
Number of properties........................................ 5 15 11
</TABLE>
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.
The following table summarizes, by property classification, portfolio
acquisitions and dispositions for the years ended December 31, 1997, 1996 and
1995 (dollar amounts are gross acquisition costs in the case of acquisitions
and gross sales prices in the case of property sales):
ACQUISITION/DISPOSITION SUMMARY
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
# $ # $ # $
(DOLLARS IN THOUSANDS) --- -------- --- -------- --- -------
<S> <C> <C> <C> <C> <C> <C>
Multifamily
Property acquisitions (1)........... 22 $537,700 30 $446,412 2 $16,023
Property dispositions............... 2 12,550 1 58,000 -- --
Commercial and retail
Property acquisitions (2)........... -- -- 18 56,443 -- --
Property dispositions............... 10 97,300 14 49,600 2 15,406
</TABLE>
- --------
(1) Includes, for 1997, 17 properties acquired in the Transaction with an
aggregate consolidated cost of approximately $386,000,000, held by newly
formed subsidiaries of BRE. The 1996 amounts include 22 properties
acquired in the Merger with an aggregate cost of $216,612,000. Both the
Transaction and the Merger were accounted for under the purchase method of
accounting.
(2) Represents, for 1996, 18 properties acquired in the Merger with an
aggregate cost of $56,443,000, as determined under the purchase method of
accounting.
EXPENSES
Real Estate Expenses
A summary of real estate expenses for the years ended December 31, 1997,
1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Multifamily.............................. $44,049,000 $29,310,000 $17,034,000
Commercial and retail.................... 522,000 1,720,000 4,506,000
----------- ----------- -----------
Total.................................... $44,571,000 $31,030,000 $21,540,000
=========== =========== ===========
</TABLE>
Real estate expenses for rental properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) increased by $13,541,000
(44%) in the year ended December 31, 1997 as compared to the year ended
December 31, 1996 due largely to acquisitions in 1997 and the expenses for an
entire year for properties acquired in 1996. Real estate expenses for the year
ended December 31, 1996 increased 44% to $31,030,000 from 1995 primarily due
to expenses of
27
<PAGE>
properties acquired in the Merger and other multifamily property acquisitions.
Multifamily real estate expenses as a percentage of multifamily rental
revenues (after adjustment for net leased land revenue) decreased from 38.8%
in 1995 to 37.6% in 1996 and to 35.8% in 1997. Although not measurable with
precision, management believes that this decrease resulted in part from the
internalization of property management and economies of scale derived from
increased concentration of assets in the Company's markets.
Provision For Depreciation and Amortization
The provision for depreciation and amortization increased by $4,655,000 for
the year ended December 31, 1997 as compared to 1996 and increased $5,419,000
for the year ended December 31, 1996 from that of 1995. The increase in these
years resulted from additional depreciation on properties acquired in the
Transaction, the Merger and additional multifamily property acquisitions.
Depreciation expense for 1997 includes such expense on properties acquired in
the Transaction from November 18 to December 31, 1997 and does not include any
depreciation expense on the eight properties under construction because such
properties were not placed in service in 1997. Further, during 1997 and 1996,
dispositions of commercial and retail properties generally resulted in a
higher depreciable base (and depreciation expense) as the cost basis plus the
realized gain was reinvested.
Interest expense
Interest expense increased $5,281,000 to $21,606,000 in 1997 which amount is
net of $1,178,000 of capitalized interest for construction in progress. The
increase is due to additional debt assumed and incurred in the Transaction of
approximately $280,000,000, interest on the $50 million unsecured notes due
2007, a full year of interest on debt totaling $95,400,000 assumed in the
Merger and interest on subsequent borrowings on the Company's lines of credit
used to fund the acquisition of multifamily properties. The 1997 interest
expense was partially offset by the paydown of balances on the Company's lines
of credit using net proceeds from equity offerings in 1997 totaling
approximately $109,900,000 and net proceeds from sales of investments in
rental properties of approximately $105,318,000. Interest expense was
$16,325,000 net of $269,000 of capitalized interest for the year ended
December 31, 1996, up from $7,973,000 in 1995. This increase was due primarily
to interest on indebtedness assumed in the Merger and interest on subsequent
borrowings on the Company's lines of credit to fund multifamily property
acquisitions.
General and Administrative
General and administrative costs were as follows for the three years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
General and administrative expenses..... $4,301,000 $3,999,000 $4,221,000
As a percentage of total revenues....... 3.1% 3.9% 6.5%
</TABLE>
The decrease in these costs as a percentage of revenues in 1997 compared to
1996 is due primarily to efficiencies in the administration of a larger
portfolio with revenues 36% higher in 1997 compared to 1996; the decrease in
1996 compared to 1995 incorporates a full year of results based on reductions
in costs of administering the Company's day-to-day operations due to, among
other things, the reorganization of the Company's asset management staff to
handle direct property management duties previously handled by outside
property management firms and, to a lesser extent, improved efficiencies in
operating systems, computer systems and software upgrades. The 1995 expense
amount also reflects a reallocation of certain costs previously included in
general and administrative expense to real estate expense commencing August 1,
1995.
Provision for possible investment losses
During the quarter ended June 30, 1995, the Company recorded a $2,000,000
provision for possible investment losses; $1,750,000 was charged against the
investment in the Pomona Warehouse property (which
28
<PAGE>
was sold in the quarter ended December 31, 1995) to reflect management's
estimate of permanent impairment in value (which impairment was based on the
expected sales value). The remaining amount is currently available to provide
for possible losses on mortgage loans.
Net Gain on Sales of Investments in Rental Properties
The net gain on sales in 1997 was $27,824,000, primarily due to the sale of
the Villa Serra, Central, Santa Fe Springs and Hub properties for a total
price of approximately $80,500,000. The net gain on sales in 1996 of
approximately $52,825,000 was primarily due to the sale of the Westlake
Village land leased property and the 525 Almanor industrial warehouse property
for a total price of approximately $64,300,000. Certain of these sales were
structured as tax-deferred exchanges, with the proceeds applied toward new
investments in apartment communities. As of December 31, 1997, the Company had
gains on sales totaling approximately $139,000,000 which have been deferred
for federal and state income tax purposes since the Company's organization in
1970.
Net Income
Net income was $76,197,000, $89,839,000 and $22,010,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The decrease in the year ended
1997 as compared to 1996 is due largely to lower gains on sales of investments
in rental properties; this decrease was offset in part by contributions to net
income from properties acquired. The increase from the year ended December 31,
1995 to 1996 is due primarily to the gain on sales of rental properties in
1996 and contributions to net income from properties acquired.
Impact of Inflation
Over 89% of the Company's total revenues for 1997 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 mitigate
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 also
fluctuate due to short-term leases that permit apartment residents to leave at
the end of each lease term at minimal cost to the resident.
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 estimated Year 2000 project
cost 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.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived from numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
29
<PAGE>
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties, as well as
the effects upon third parties who do business with the Company.
Liquidity and Capital Resources
At December 31, 1997, the Company's cash and cash equivalents totaled
$4,216,000, up from $184,000 at the end of 1996. Borrowings under the
Company's lines of credit totaled $186,000,000 at December 31, 1997, compared
to $124,000,000 at December 31, 1996. Lines of credit are available to pay
dividends to shareholders, distributions to minority members, to fund capital
improvements and operating expenses, as well as to fund property acquisitions
and development. The Company typically reduces lines of credit with available
cash balances.
Borrowings of up to $300,000,000 are available under the Company's lines of
credit, with $114,000,000 available at December 31, 1997. The current 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 prime or LIBOR plus .70%.
Costs of the lines of credit are 0.125% per annum on the total commitment
amount and a fee of 0.125% per annum as to unused amounts on the $35,000,000
line.
Pursuant to the TCRW Transaction, the Company assumed approximately
$120,000,000 of secured indebtedness at interest rates ranging from 6.1% to
9.3% with maturities ranging from one to ten years. Approximately $23,400,000
of this amount is tax-exempt variable rate debt. At December 31, 1997, the
Company also had total outstanding mortgage indebtedness of $232,367,000 at
interest rates ranging from 6.1% to 9.3%, with remaining terms of from one to
30 years.
Additionally, the Company had $73,000,000 of unsecured indebtedness at
December 31, 1997 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 $50,000,000 outstanding principal amount of unsecured notes
due 2007, with an effective interest rate, reflecting the settlement of a
treasury lock swap agreement, underwriting fees and other costs, of
approximately 7.8%.
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 the
Consolidated Financial Statements. 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 year ended
December 31, 1997.
The Company purchased 22 apartment investments (including those acquired in
the Transaction) for a total purchase price of approximately $537,700,000 in
1997. These acquisitions were funded with the issuance of common shares
(totaling approximately $109,900,000), proceeds of property sales (totaling
approximately $105,300,000), assumption of debt, the issuance of minority
interest in subsidiaries and additional borrowings under the Company's lines
of credit.
The 17 completed properties acquired in the TCRW Transaction are held
through newly-formed or newly-acquired subsidiaries of BRE. These include BRE
Property Investors LLC (the "Operating Company"), a Delaware limited liability
company, which acquired properties with a book value of approximately $430
million, and Blue Ravine Investors LLC ("Blue Ravine"), a Delaware limited
liability company which acquired a single property with a book value of
approximately $30 million. BRE is the sole managing member of the Operating
Company, and as of December 31, 1997 owned an approximately 70% equity
interest therein. The remaining equity interests in the Operating Company (all
of which will be exchangeable at the option of the holders thereof, commencing
on November 18, 1998, into common shares or, at the option of BRE, cash in an
amount equal to the market value of such common shares at the time of
exchange) are owned by other, non-managing members of the Operating Company.
BRE also holds an approximately 88% equity interest in and is the sole
managing member of Blue Ravine. The equity interests issued by Blue Ravine
will be exchangeable for common shares
30
<PAGE>
(or at BRE's option, cash) upon terms similar to those applicable to the
Operating Company. It is expected that Blue Ravine will be merged with and
into the Operating Company, with the Operating Company as the surviving
entity, on or after November 30, 1998. Upon such merger, the equity interests
issued by Blue Ravine will be exchanged into a like number of equity interests
in the Operating Company.
Under the terms of the limited liability company agreement governing the
operations of the Operating Company (the "LLC Agreement"), the non-managing
members are entitled to receive certain distributions of cash prior to the
Company. If the Operating Company's cash available for distribution is not
sufficient to permit such priority distributions, the Company is required to
make certain capital contributions to the Operating Company. The Operating
Company is also required to maintain certain debt service coverage, debt-to-
asset and other financial ratios intended to protect the members' rights to
receive priority distributions, and under the terms of the LLC Agreement,
among other items, the properties owned by the Operating Company may not be
sold in a taxable transaction without the consent of the non-managing members
prior to certain dates ranging from one to ten years from the closing of the
Transaction. The limited liability company agreement governing the operations
of Blue Ravine contains substantially similar terms and provisions to that of
the Operating Company. The Operating Company has also guaranteed repayment of
the Company's $300 million lines of credit.
In connection with the Transaction, the Company, through the Operating
Company, also acquired eight communities comprising approximately 2,445 units
in various stages of construction. These communities had a book value at
December 31, 1997 of approximately $81,200,000 and an estimated cost to
complete of $107,000,000. Further, between 209,198 and 627,594 units of
interest in the Operating Company (valued at between $6 million and $17
million using the Contribution Agreement's value of $26.93 per unit) are
issuable in connection with the completion of certain budget and schedule
objectives relating to these communities. Upon issuance, these units will also
be exchangeable into common shares of the Company on a 1:1 basis or cash.
There can be no assurance that these communities will be completed within the
budget and timeframe established.
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,
including normal recurring expenses, debt service requirements, completion of
construction in progress, 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. In February, 1998 the Company issued $130,000,000
principal amount of unsecured notes due 2013. These unsecured notes have an
effective interest rate of approximately 7.3%, after taking into account the
cost of settlement of a treasury rate lock agreement and other closing costs.
Net proceeds from this debt issuance were used to pay down outstanding
balances on the Company's lines of credit.
DIVIDENDS
A cash dividend has been paid to shareholders each quarter since the
Company's inception in 1970. Dividends per share were $1.38 in 1997, $1.33 in
1996 and $1.26 in 1995. Total dividends paid to shareholders for the three
years ended December 31, 1997, 1996 and 1995 were $51,063,000, $39,849,000 and
$27,596,000, respectively. Distributions to minority members were $972,000 in
1997; there were no minority members in 1996 or 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements. Such Financial Statements and
Schedules are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers. See "Executive Officers of the Registrant" in Part I of
this report.
(b) Directors. The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement, relating to the Company's 1998
Annual Meeting of Shareholders, under the headings "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance," to be filed
with the Securities and Exchange Commission within 120 days of December 31,
1997. A summary of the directors and their principal business for the last
five years follows:
<TABLE>
<C> <S>
John McMahan Chairman of the Board of the Company. Managing
Principal, The McMahan Group, real estate strategic
management consultants, since 1996. President, John
McMahan Associates, Inc., a management consulting firm,
and McMahan Real Estate Securities, Inc., a real estate
investment firm, 1994 to 1996. President and Chief
Executive Officer, Mellon/McMahan Real Estate Advisors,
Inc., a real estate advisory firm, 1990- 94.
William E. Borsari Chairman or President, The Walters Management Company,
a real estate asset management company, for more than
five years.
C. Preston Butcher President and Chief Executive Officer, Lincoln Property
Company, N.C., Inc., a real estate developer, and
President and Chief Executive Officer, Lincoln Property
Company Management Services, Inc., a real estate
management company, for more than five years. Director,
The Charles Schwab Corporation.
L. Michael Foley Principal, L. Michael Foley and Associates, real estate
and corporate consulting, since 1996. Senior Vice
President and Chief Financial Officer, Coldwell Banker
Corporation, 1995-1996. Chairman and Chief Executive
Officer, Sears Savings Bank, 1989-93. Senior Executive
Vice President, Coldwell Banker Real Estate Group,
Inc., 1986-93. Executive Vice President, Homart
Development Co., 1983-1993.
Roger P. Kuppinger Financial advisor to public and private companies,
since February 1994. Senior Vice President and Managing
Director, Sutro & Co., Inc., an investment banking
company, from 1969 to February 1994. Director, Realty
Income Corporation.
Frank C. McDowell President and Chief Executive Officer of the Company,
since June 1995. Chief Executive Officer and Chairman
of Cardinal Realty Services, Inc., 1992-95. Senior Vice
President, Head of Real Estate, First Interstate Bank
of Texas, 1988-92.
Gregory M. Simon Self employed as a private investor, since 1991. Senior
Vice President, H.F. Ahmanson & Co. and Home Savings of
America, from 1983 to 1991. Officer and Director,
Golden Orange Broadcasting, a privately held
corporation.
Arthur G. von Thaden President and Chief Executive Officer of the Company
from 1970 to June 1995. Chief Executive Officer,
BankAmerica Realty Services, Inc., a real estate
investment advisory firm, from 1970 to 1987.
</TABLE>
32
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement, relating to the Company's 1998 Annual Meeting
of Shareholders, under the headings "Executive Compensation and Other
Information" and "Board and Committee Meetings; Compensation of Directors," to
be filed with the Securities and Exchange Commission within 120 days of
December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement, relating to the Company's 1998 Annual Meeting
of Shareholders, under the headings "Security Ownership of Management" and
"Principal Shareholders," to be filed with the Securities and Exchange
Commission within 120 days of December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement, relating to the Company's 1998 Annual Meeting
of Shareholders, under the headings "Stock Loans" and "Employment Contracts
and Termination of Employment and Change in Control Arrangements-Mr. McDowell-
Stock Loan," to be filed with the Securities and Exchange Commission within
120 days of December 31, 1997.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
1. Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule III Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and, therefore, have been omitted.
3. See Index to Exhibits immediately following the Financial Statements.
Each of the exhibits listed is incorporated herein by reference.
(b) Reports on Form 8-K:
On October 15, 1997, the Company filed a Report on Form 8-K concerning a
definitive agreement to acquire certain assets and operations of
Trammell Crow Residential-West. No financial statements were filed.
On November 24, 1997, the Company filed a Report on Form 8-K concerning
the completion of the acquisition of certain assets and operations of
Trammell Crow Residential-West. Financial statements were filed.
On December 18, 1997, the Company filed a Report on Form 8-K concerning
a line of credit agreement and limited liability agreements for two
subsidiaries of the Company.
(c) Exhibits
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedule.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Frank C. McDowell
By___________________________________
FRANK C. MCDOWELL
Dated March 24, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATED
/s/ Frank C. McDowell President and March 24, 1998
- ------------------------------------- Director (Principal
FRANK C. MCDOWELL Executive Officer)
/s/ LeRoy E. Carlson Executive Vice March 24, 1998
- ------------------------------------- President
LEROY E. CARLSON (Principal
Financial and
Accounting Officer)
/s/ John McMahan Chairman and March 24, 1998
- ------------------------------------- Director
JOHN MCMAHAN
/s/ William E. Borsari Director March 24, 1998
- -------------------------------------
WILLIAM E. BORSARI
/s/ C. Preston Butcher Director March 24, 1998
- -------------------------------------
C. PRESTON BUTCHER
/s/ L. Michael Foley Director March 24, 1998
- -------------------------------------
L. MICHAEL FOLEY
/s/ Roger P. Kuppinger Director March 24, 1998
- -------------------------------------
ROGER P. KUPPINGER
/s/ Gregory M. Simon Director March 24, 1998
- -------------------------------------
GREGORY M. SIMON
/s/ Arthur G. von Thaden Director March 24, 1998
- -------------------------------------
ARTHUR G. VON THADEN
35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of
BRE Properties, Inc.:
We have audited the accompanying consolidated balance sheets of BRE
Properties, Inc. and its subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity, cash
flows and the related financial schedule for each of the three years in the
period ended December 31, 1997. These financial statements and the related
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
related financial schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
related financial schedule are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of BRE Properties, Inc. and its subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Francisco, California
January 14, 1998
36
<PAGE>
BRE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---------- --------
<S> <C> <C>
Investments in rental properties:
Multifamily............................................. $1,248,012 $710,240
Commercial and retail................................... 11,929 103,528
Construction in progress................................ 84,202 --
Less: Accumulated depreciation and amortization......... (49,721) (49,690)
---------- --------
1,294,422 764,078
Investments in limited partnerships...................... 2,780 2,621
---------- --------
Real estate portfolio................................... 1,297,202 766,699
Mortgage loans, net...................................... 4,871 9,716
---------- --------
1,302,073 776,415
Cash and short-term investments.......................... 4,216 184
Funds held in escrow..................................... 15,833 --
Other assets............................................. 19,776 7,115
---------- --------
Total assets........................................... $1,341,898 $783,714
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage loans payable................................... $ 232,367 $114,985
Unsecured senior notes................................... 123,000 73,000
Unsecured lines of credit................................ 186,000 124,000
Accounts payable and other liabilities................... 16,970 7,615
---------- --------
Total liabilities...................................... 558,337 319,600
Minority interest........................................ 76,066 --
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares autho-
rized.
No shares outstanding at December 31, 1997 or 1996...... -- --
Common stock, $.01 par value, 100,000,000 shares autho-
rized in 1997, 50,000,000 shares authorized in 1996.
Shares issued and outstanding: 41,738,704 at December
31, 1997; 32,879,741 at December 31, 1996............... 417 329
Additional paid-in capital............................... 605,833 387,674
Accumulated net income in excess of cumulative divi-
dends................................................... 101,245 76,111
---------- --------
Total shareholders' equity............................. 707,495 464,114
---------- --------
Total liabilities and shareholders' equity............. $1,341,898 $783,714
========== ========
</TABLE>
See Notes to Consolidated Financial Statements
37
<PAGE>
BRE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA) -------- ------- -------
<S> <C> <C> <C>
REVENUE
Rental income:
Multifamily.......................................... $122,936 $77,834 $49,918
Commercial and retail................................ 5,742 15,301 12,947
Other income.......................................... 9,083 8,516 2,522
-------- ------- -------
Total revenue....................................... 137,761 101,651 65,387
-------- ------- -------
EXPENSES
Real estate expenses.................................. 44,571 31,030 21,540
Provision for depreciation and amortization........... 17,938 13,283 7,864
Interest expense...................................... 21,606 16,325 7,973
General and administrative............................ 4,301 3,999 4,221
Provision for possible investment losses.............. -- -- 2,000
-------- ------- -------
Total expenses...................................... 88,416 64,637 43,598
-------- ------- -------
Income before gain on sales of investments in rental
properties and minority interest..................... 49,345 37,014 21,789
Net gain on sales of investments in rental proper-
ties................................................. 27,824 52,825 221
-------- ------- -------
Income before minority interest....................... 77,169 89,839 22,010
Minority interest in income........................... 972 -- --
-------- ------- -------
Net Income.......................................... $ 76,197 $89,839 $22,010
======== ======= =======
Earnings per common share:
Income excluding net gain on sales of investments in
rental properties................................... $ 1.35 $ 1.21 $ 1.00
Net gain on sales of investments in rental proper-
ties................................................ $ 0.78 $ 1.73 $ 0.01
-------- ------- -------
Net income per common share......................... $ 2.13 $ 2.94 $ 1.01
======== ======= =======
Earnings per common share assuming dilution:
Income excluding net gain on sales of investments in
rental properties................................... $ 1.35 $ 1.20 $ 0.99
Net gain on sales of investments in rental proper-
ties................................................ $ 0.76 $ 1.72 $ 0.01
-------- ------- -------
Net income per common share--assuming dilution...... $ 2.11 $ 2.92 $ 1.00
======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE>
BRE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 76,197 $ 89,839 $ 22,010
Adjustments to reconcile net income to net
cash generated by operating activities:
Net gain on sales of investments............ (27,824) (52,825) (221)
Provision for depreciation and amortiza-
tion....................................... 17,938 13,283 7,864
Provision for possible investment losses.... -- -- 2,000
Minority interest........................... 972 -- --
(Increase) decrease in other assets......... (12,820) 1,522 (4,694)
Increase (decrease) in accounts payable and
other liabilities.......................... 9,355 (3,932) 109
--------- --------- --------
Net cash flows generated by operating activi-
ties......................................... 63,818 47,887 27,068
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Apartments purchased from TCRW.............. (86,155) -- --
Construction in progress -- purchased from
TCRW....................................... (74,389) -- --
Other apartments purchased.................. (152,700) (230,967) (16,023)
(Increase) decrease in funds held in es-
crow....................................... (15,833) -- --
Additions to construction in progress....... (9,813) -- --
Capital expenditures - multifamily.......... (1,542) (748) (505)
Capital expenditures - commercial and re-
tail....................................... (446) (757) (1,662)
Rehabilitation expenditures................. (4,578) -- --
Mortgage loans receivable advanced.......... (5,950) (4,268) (1,195)
Mortgage loans receivable repayments........ 10,795 279 159
Proceeds from sales of property, net........ 105,318 104,379 15,406
--------- --------- --------
Net cash flows used in investing activities... (235,293) (132,082) (3,820)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage loans payable:
New mortgage loans........................ -- -- 16,227
Principal payments........................ (2,736) (1,450) (1,107)
Proceeds from issuance of unsecured notes... 50,000 -- --
Lines of credit:
Advances.................................. 240,500 127,300 --
Principal repayments...................... (178,500) (21,500) --
Proceeds from equity offerings, net......... 109,903 -- --
Proceeds from exercises of options.......... 8,375 3,821 1,399
Distribution to minority members............ (972) -- --
Dividends paid.............................. (51,063) (39,849) (27,596)
--------- --------- --------
Net cash flows generated by (used in) financ-
ing activities.............................. 175,507 68,322 (11,077)
--------- --------- --------
Increase (decrease) in cash and short-term
investments................................. 4,032 (15,873) 12,171
Balance at beginning of period............... 184 16,057 3,886
--------- --------- --------
Balance at end of period...................... $ 4,216 $ 184 $ 16,057
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
39
<PAGE>
BRE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK SHARES
Balance at beginning of year.............. 32,879,741 21,941,730 21,850,966
Issuance of shares pursuant to purchase
transactions............................. 3,713,331 10,684,436 --
Restricted shares granted and stock op-
tions exercised.......................... 364,752 246,451 90,764
Shares issued pursuant to dividend rein-
vestment plan............................ 101,951 7,124 --
Issuance of shares pursuant to equity of-
ferings.................................. 4,678,929 -- --
----------- ----------- -----------
Balance at end of year................... 41,738,704 32,879,741 21,941,730
=========== =========== ===========
COMMON STOCK
Balance at beginning of year.............. $ 329 $ 219 $ 219
Issuance of shares pursuant to purchase
transactions............................. 37 107 --
Restricted shares granted and stock op-
tions exercised.......................... 4 3 --
Issuance of shares pursuant to dividend
reinvestment plan........................ 1 -- --
Issuance of shares pursuant to equity of-
ferings.................................. 46 -- --
----------- ----------- -----------
Balance at end of year................... 417 329 219
=========== =========== ===========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year.............. 387,674 212,908 211,510
Issuance of shares pursuant to purchase
transactions............................. 99,932 170,948 --
Restricted shares granted and stock op-
tions exercised.......................... 5,764 3,681 1,398
Issuance of shares pursuant to dividend
reinvestment plan........................ 2,606 137 --
Issuance of shares pursuant to equity of-
ferings.................................. 109,857 -- --
----------- ----------- -----------
Balance at end of year................... 605,833 387,674 212,908
----------- ----------- -----------
ACCUMULATED NET INCOME IN EXCESS OF CUMULA-
TIVE DIVIDENDS
Balance at beginning of year.............. 76,111 26,121 31,707
Net income for year....................... 76,197 89,839 22,010
Cash dividends paid: $1.38 per share for
the year ended December 31, 1997, $1.3295
per share for the year ended December 31,
1996 and $1.26 per share for the year
ended December 31, 1995.................. (51,063) (39,849) (27,596)
----------- ----------- -----------
Balance at end of year................... 101,245 76,111 26,121
----------- ----------- -----------
Total shareholders' equity................. $ 707,495 $ 464,114 $ 239,248
=========== =========== ===========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the federal income tax
components of its dividends are as follows (unaudited):
<TABLE>
<CAPTION>
UNRECAPTURED
------------
ORDINARY 28% CAPITAL 20% CAPITAL SECTION 1250 RETURN OF
-------- ----------- ----------- ------------ ---------
INCOME GAIN GAIN GAIN CAPITAL
-------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997....... 83% 13% 2% 2% 0%
December 31, 1996....... 92% 1% -- -- 7%
December 31, 1995....... 94% -- -- -- 6%
</TABLE>
See Notes to Consolidated Financial Statements
40
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY
BRE Properties, Inc. ("BRE" or "the Company") is a self-administered real
estate investment trust ("REIT") which owns and operates multifamily
communities and other income producing properties in the Western United
States. At December 31, 1997, BRE's portfolio owned directly or through
subsidiaries consisted of 82 properties, including 74 multifamily communities
(aggregating 18,569 units), five commercial and retail properties and three
properties held in partnerships in which BRE is a limited partner. Of these
properties, 42 were located in California, 23 in Arizona, six in Washington,
four in Nevada, three in Utah, two in New Mexico, and two in Oregon.
Additionally, at December 31, 1997, there were eight properties under
development aggregating 2,445 units.
Transaction with Trammell Crow Residential-West
On September 29, 1997, BRE entered into a definitive agreement (the
"Contribution Agreement") to acquire certain real estate assets and operations
of certain entities of Trammell Crow Residential Western Region ("TCRW") (the
"Transaction"). On November 18, 1997, the Transaction was completed and BRE
paid to certain entities a total of approximately $160 million in cash and
$100 million in common stock based on a stock price of $26.93 per share as
provided in the Contribution Agreement. Further, certain entities received
2,824,587 Operating Company Units ("OC Units") (valued at $76 million assuming
a stock price of $26.93 per share) in BRE Property Investors LLC and Blue
Ravine Investors LLC (collectively, the "Operating Company"), limited
liability companies and subsidiaries of BRE, exchangeable into common stock on
a 1:1 basis. The Operating Company also assumed approximately $120 million in
debt. BRE Property Investors LLC and Blue Ravine Investors LLC are newly
formed, majority-owned subsidiaries of BRE; BRE is the sole managing member of
each, and owned an approximately 70% and 88% interest therein, respectively,
at December 31, 1997. The TCRW Transaction is summarized as follows:
<TABLE>
<S> <C>
Total consideration............................................ $460,835,000
Less non-cash items:
Common shares issued......................................... (100,000,000)
Assumption of mortgages...................................... (120,118,000)
Issuance of minority interest................................ (76,066,000)
Other assets acquired........................................ (4,107,000)
------------
Total cash paid............................................ $160,544,000
============
Allocation of cash paid for presentation
in the statement of cash flows:
Construction in progress..................................... $ 74,389,000
Operating properties purchased............................... 86,155,000
------------
Total...................................................... $160,544,000
============
</TABLE>
The Operating Company units are held by members representing the minority
interest. After November 1998, the members can exchange their units for common
stock of BRE on a 1:1 basis. At BRE's option, these units may be converted
into cash at the then-current stock price. The minority members are entitled
to priority distributions regardless of the cash flow of the Operating
Company. The Operating Company is also required to maintain certain financial
ratios in order to protect the minority member's distributions. Further, the
Company is restricted from selling assets of the Operating Company for a
period of up to ten years. BRE Property Investors LLC has guaranteed the
repayment of the Company's $300 million line of credit.
The Contribution Agreement also provides for an additional issuance of
between 209,198 and 627,594 in OC Units (valued at between $6 million and $17
million using the assumed value pursuant to the Contribution
41
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement of $26.93 per unit); the actual amount of units to be issued is
dependent upon the extent to which the development properties included in the
Transaction attain completion schedules and budget objectives.
TCRW contributed real estate assets consisting of 17 completed properties
and eight properties in varying stages of development and construction. BRE
anticipates incurring approximately $107 million to complete these properties
as of December 31, 1997. In addition, BRE acquired TCRW's development,
construction and third party management operations by the assignment of third
party contracts and by BRE hiring certain key employees.
Merger with Real Estate Investment Trust of California
On March 15, 1996, Real Estate Investment Trust of California ("RCT") merged
with and into BRE ("the Merger"). Following consummation of the Merger, BRE
changed its state of incorporation from Delaware to Maryland, amended the BRE
Certificate of Incorporation to authorize preferred stock, and approved the
Amended and Restated Non-Employee Director Stock Option Plan. The Merger was
completed in accordance with the terms and conditions of the Agreement and
Plan of Merger dated October 11, 1995, as amended ("the Merger Agreement").
Under the terms of the Merger Agreement, upon the Merger, each issued and
outstanding share of beneficial interest of RCT was converted into the right
to receive 1.14 shares of BRE Common Stock. The Merger was unanimously
approved by the Boards of both companies and by the requisite vote of the
shareholders of both. The Merger has been accounted for in 1996 as a purchase
business combination.
Pursuant to the Merger with RCT on March 15, 1996, BRE (i) acquired
$274,400,000 aggregate book value in equity investments in real estate, (ii)
assumed secured and unsecured RCT notes payable of $95,400,000, and other
liabilities totaling $8,000,000, and (iii) issued 10,684,436 shares of Common
Stock valued at $171,000,000 for the conversion of RCT shares of beneficial
interest.
Equity Offering
In May 1997, the Company issued 3,950,000 shares of common stock, for net
proceeds of approximately $90,804,000. In December, 1997 the Company issued
728,929 shares of common stock for net proceeds of approximately $19,100,000.
Debt Offering
In June 1997, the Company issued $50 million in unsecured notes due 2007,
with a coupon rate of 7.2% resulting, after related costs, in an effective
rate of 7.8%.
2. ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, the Operating Company and other subsidiaries which hold title to
individual properties. All significant intercompany balances and transactions
have been eliminated in consolidation. Due to the Company's ability to control
the Operating Company and other subsidiaries, it has been consolidated with
the Company for financial reporting purposes.
Rental property
Rental property is recorded at cost less accumulated depreciation less an
adjustment, if any, for impairment. Rental properties are evaluated for
impairment when conditions may indicate that it is probable that the sum of
42
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expected future cash flows (undiscounted) from a rental property during the
expected holding period is less than its carrying value. Upon determination
that such impairment has occurred, rental properties are reduced to fair
value. There were no properties where an adjustment for impairment in value
was made in 1997 or 1996. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets, which range from 35 to 45 years
for buildings and 5 to 25 years for other property.
Development projects are considered placed in service when a certificate of
occupancy is issued and property becomes ready for occupancy.
During 1995, the Company recorded a $2,000,000 provision for possible
investment losses: $1,750,000 was credited against the investment in the
Pomona Warehouse property (which was sold in the quarter ended December 31,
1995) to reflect management's estimate of permanent impairment in value (which
impairment was based on the expected sales value). The remaining amount was
used to provide for possible losses on mortgage loans.
Real estate held for sale
Real estate classified as held for sale is stated at the lower of its
carrying amount or estimated fair value less disposal costs. Depreciation is
not recorded on assets classified as held for sale.
In the normal course of business, BRE will receive offers for sale of its
properties, either solicited or unsolicited. For those offers that are
accepted, the prospective buyer will usually require a due diligence period
before consummation of the transaction. It is not unusual for matters to arise
which result in the withdrawal or rejection of the offer during this process.
As a result, real estate is not classified as "held for sale" until it is
likely, in the opinion of management, that a property will be disposed of in
the near term, even if sales negotiations for such property are currently
under way. No properties are considered "held for sale" for this purpose as of
December 31, 1997 or 1996.
Rental expenses and capitalized costs
For multifamily properties, costs of replacements, such as appliances,
carpets and drapes, are expensed. Leasing commissions and tenant improvement
costs for retail and commercial properties are expensed when the lease term is
less than five years and are capitalized on leases of five years or more and
amortized using the straight-line method over the lease terms, which range
from 5 to 40 years. For all properties, improvements and betterments that
increase the value of the property or extend its life are capitalized.
Cash and short-term investments
BRE considers highly liquid short-term investments with initial maturities
of three months or less to be cash equivalents. Funds held in escrow are
designated for the completion of tax-deferred exchanges and accordingly are
not considered cash equivalents by BRE. Financial instruments that potentially
subject BRE to concentrations of credit risk include cash, short-term
investments and funds held in escrow. BRE places its cash deposits and
temporary cash investments with creditworthy, high-quality financial
institutions. Cash and cash-equivalent balances are held with various
financial institutions and may at times exceed the applicable Federal Deposit
Insurance Corporation limit of $100,000.
Deferred costs
Included in Other assets are costs incurred in obtaining debt financing that
are deferred and amortized over the terms of the respective debt agreements.
Related amortization expense is included in interest expense (non-
43
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cash) in the accompanying consolidated statements of income. Net deferred
financing costs included in Other Assets in the accompanying balance sheets
are $4,572,000 and $850,000 as of December 31, 1997 and 1996, respectively,
the increase primarily due to costs related to the $50 million unsecured
notes. Additionally, $4,107,000 was included in Other assets for contingent
consideration related to the TCRW Transaction that, in the opinion of
management, will likely be paid. This amount is being amortized to rental
properties over the five-year term of the applicable provisions of the
Contribution Agreement.
Income taxes
BRE has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended ("the Code"). As a result, BRE will not be subject to federal
taxation at the corporate level to the extent it distributes, annually, at
least 95% of its REIT taxable income, as defined by the Code, to its
shareholders and satisfies certain other requirements. In addition, the states
in which BRE owns and operates real estate properties have provisions
equivalent to the federal REIT provisions. Accordingly, no provision has been
made for federal or state income taxes in the accompanying financial
statements.
Gains on sales of investments in rental properties
Sales are generally recorded at the close of escrow or after title has been
transferred to the buyer and after appropriate payments have been received and
other criteria met.
Fair value of financial instruments
The fair values of BRE's financial instruments (including cash and other
short-term investments, funds held in escrow, accounts receivable, mortgage
loans receivable, accounts payable, other accrued expenses, mortgage loans
payable, lines of credit and other financial instruments) approximate their
carrying or contract values based on their nature, terms, and interest rates
which approximate current market rates.
During 1997, BRE acquired real estate using proceeds from the lines of
credit, which proceeds were expected to be refinanced in part in February,
1998 (see Note 14). In connection with such acquisitions and anticipated
refinancing, in November 1997, BRE entered into a treasury rate lock with a
major financial institution in the notional amount of $100,000,000 which is
expected to be settled in February 1998. BRE did not provide any collateral
for this transaction. The rate is fixed at 5.9% as compared to the rate on a
United States Government 10-Year Treasury Note due August 15, 2007 with a
coupon rate of 6.125%. The agreement acts to effectively lock in the borrowing
cost associated with the debt issuance. The change in the value of the
treasury lock in response to interest rate changes effectively offsets any
increase or decrease in the interest rate on the debt issued. Had the
transaction been settled as of December 31, 1997, BRE would have been required
to pay approximately $700,000. The fair value of the lock agreement is not
recognized in the financial statements at December 31,1997. Once settled,
gains or losses on derivative transactions are deferred as an asset or
liability and amortized over the term of the debt as an adjustment to its
interest rate yield. If the hedge transaction becomes no longer likely to
occur, realized and unrealized changes in the fair value of the derivative
will be recorded currently as a gain or loss.
Legal and other general and administrative expenses
In 1994 the Company incurred legal expenses of approximately $600,000 in
connection with litigation regarding the Baldwin Place property which the
Company owned from 1974 to 1983; in 1995 approximately $570,000 of such costs
were recovered and credited to general and administrative expenses.
Additionally, non-recurring financial advisory costs of approximately $300,000
were incurred in 1995 in connection with strategic planning issues.
44
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the presentation of the current period financial
statements.
3. INVESTMENTS IN RENTAL PROPERTIES
Investments in rental properties consist of the following:
<TABLE>
<CAPTION>
COMMERCIAL
DECEMBER 31, 1997 MULTIFAMILY AND RETAIL TOTAL
----------------- ----------- ---------- -----
<S> <C> <C> <C>
Land........................... $ 245,892,000 $ 4,599,000 $ 250,491,000
Improvements................... 1,002,120,000 7,330,000 1,009,450,000
-------------- ----------- --------------
Subtotal..................... 1,248,012,000 11,929,000 1,259,941,000
Accumulated depreciation....... (49,483,000) (238,000) (49,721,000)
-------------- ----------- --------------
Total........................ $1,198,529,000 $11,691,000 $1,210,220,000
============== =========== ==============
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C> <C> <C>
Land........................... $ 139,770,000 $18,764,000 $ 158,534,000
Improvements................... 570,470,000 84,764,000 655,234,000
-------------- ----------- --------------
Subtotal..................... 710,240,000 103,528,000 813,768,000
Accumulated depreciation....... (33,096,000) (16,594,000) (49,690,000)
-------------- ----------- --------------
Total........................ $ 677,144,000 $86,934,000 $ 764,078,000
============== =========== ==============
</TABLE>
The future minimum lease payments to be received from commercial and retail
lessees under operating leases at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $1,024,000
1999.............................................................. 846,000
2000.............................................................. 573,000
2001.............................................................. 328,000
2002.............................................................. 178,000
Thereafter........................................................ 389,000
----------
Total........................................................... $3,338,000
==========
</TABLE>
45
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leases with residents or users at wholly owned shopping centers provide for
percentage rents based upon the gross revenue of the residents or users. These
percentage rents are in excess of stipulated minimums. Percentage rents under
these operating leases, which are included in rental income, amounted to:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Percentage rent portion attributable to:
Land leases*.................................. $244,000 $3,044,000 $5,313,000
Wholly owned real estate...................... 225,000 403,000 183,000
-------- ---------- ----------
Total percentage rent....................... $469,000 $3,447,000 $5,496,000
======== ========== ==========
</TABLE>
- --------
* Consists largely of percentage rent from the Westlake Village property
which was sold in July, 1996.
During the years ended December 31, 1997 and 1996, approximately $18,000,000
and $65,000,000, respectively, of taxable gain (unaudited) was deferred under
Section 1031 of the Internal Revenue Code for certain properties sold. BRE's
carrying value of its assets exceeded the tax basis by approximately
$139,000,000 (unaudited) at December 31, 1997.
4. MORTGAGE LOANS RECEIVABLE
BRE has various mortgage loans and notes receivable to be paid in monthly
installments through 2008. The notes bear interest at rates ranging from eight
to twelve percent. Amounts remaining due to BRE at December 31, 1997 and 1996
aggregate $5,960,000 and $10,966,000, respectively. The allowance for possible
investment losses was $1,089,000 and $1,250,000 as of December 31, 1997 and
1996, respectively. All loans are secured by real estate.
5. LINES OF CREDIT AND UNSECURED NOTES PAYABLE
As of December 31, 1997, two banks had extended to BRE unsecured lines of
credit aggregating $300,000,000, with $35,000,000 expiring in April 2000 and
$265,000,000 expiring in June 2000. Borrowings totaled $186,000,000 at
December 31, 1997 and $124,000,000 at December 31, 1996. In connection with
the $35,000,000 line of credit, a fee is charged on the unused amounts. The
interest rate is variable and the average interest rate was approximately 6.6%
in both the years ended December 31, 1997 and 1996.
As of December 31, 1997, there were $123,000,000 in unsecured notes
outstanding with an average fixed interest rate of 7.7% with interest only due
until 1999. Included in this effective interest rate is the amortization of
the costs related to the issuance of the $50 million unsecured notes due 2007
including approximately $2,400,000 paid to settle a related treasury rate lock
agreement entered into in August 1996. These unsecured notes are to be repaid
through scheduled principal payments from 2000 through 2005 and 2007.
The lines of credit and unsecured note agreements contain various covenants
which include, among other factors, tangible net worth and requirements to
maintain certain financial ratios. BRE was in compliance with such covenants
as of December 31, 1997.
46
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. MORTGAGE LOANS PAYABLE
BRE has acquired certain investments in rental properties which are subject
to existing mortgage loans payable and has obtained mortgage loans on other
investments in rental properties. The following data pertains to mortgage
loans payable at December 31, 1997, and 1996, respectively:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Mortgage loans payable........................... $232,367,000 $114,985,000
Cost of investments in real estate securing
mortgage loans payable.......................... $332,392,000 $182,729,000
Annual principal and interest payments........... $ 24,900,000 $ 10,137,000
Remaining terms of mortgage loans payable........ 1-30 years 1-31 years
Interest rates on fixed rate mortgages........... 6.5%-9.3% 6.5%-8.4%
</TABLE>
Included in the $232,367,000 mortgage loans payable is $36,623,000 of tax-
exempt debt with a variable interest rate, which was 4.1% at December 31,
1997. The effective interest rate on this debt is 6.1% which includes
amortization of related fees and costs. Interest on all other mortgage loans
is fixed.
Scheduled principal payments required on lines of credit, unsecured notes
payable and mortgage loans payable for the next five years are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 17,217,000
1999............................................................ 6,972,000
2000............................................................ 232,864,000
2001............................................................ 12,869,000
2002............................................................ 40,952,000
Thereafter...................................................... 230,493,000
------------
Total......................................................... $541,367,000
============
</TABLE>
Interest expense on mortgage loans and unsecured senior notes including
amortization of related costs aggregated $18,214,000, $12,328,000 and
$7,824,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Interest capitalized was $1,178,000, $269,000 and $0 for the years ended
December 31, 1997, 1996 and 1995, respectively. Total interest paid on long-
term debt did not differ materially from interest expense.
7. STOCK OPTION PLANS
BRE has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee and non-employee director stock
options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board Statement No. 123,
"Accounting and Disclosure of Stock-Based Compensation" ("Statement 123"),
requires the use of option valuation models that were not developed for use in
valuing employee and non-employee director stock options. Under APB 25,
because the exercise price equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
47
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee plan
The 1984 and 1992 Stock Option Plans ("Plans") provide for the issuance of
Incentive Stock Options, Non-Qualified Stock Options, and Restricted Shares.
The maximum number of shares that may be issued under the Plans is 2,350,000,
which was increased by 1,000,000 in 1997. The option price may not be less
than the fair market value of a share on the date that the option is granted
and the options generally vest over five years. Changes in options outstanding
during the years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................. 752,600 $16.90 668,200 $15.62 635,200 $15.55
Granted................. 397,500 $25.87 354,000 $18.13 115,000 $15.94
Exercised............... (236,700) $16.89 (259,100) $15.27 (75,000) $15.44
Canceled................ (49,200) $21.14 (10,500) $17.18 (7,000) $14.46
--------- -------- --------
Balance at end of
period............... 864,200 $20.96 752,600 $16.90 668,200 $15.62
========= ====== ======== ====== ======== ======
Exercisable............. 319,600 $16.59 438,766 $16.04 550,200 $15.58
Restricted shares
granted................ -- -- 13,764
Shares available for
granting future
options................ 755,936 105,436 448,336
Weighted average fair
value of options
granted during the
year................... $ 3.23 $ 3.66 $ 2.34
</TABLE>
At December 31, 1997, the exercise price of shares under option ranged from
$12.97 to $28.06, with a weighted average exercise price of $20.96. The
exercise price of all options granted in the years ended December 31, 1997,
1996 and 1995 was equal to the market price on the date of grant. Expiration
dates range from August 22, 1998 through November 18, 2007 and the weighted
average remaining contractual life of these options is 8.03 years. Stock
options were exercised during 1997 on options originally granted from $14.09
to $24.63. At December 31, 1997, there were 24,864 restricted shares
outstanding under the Plans.
In addition to the options granted under the Plans, the following stock
options are also outstanding: An option for 100,000 shares (at $15.32) is held
by the President and Chief Executive Officer. This option was registered with
the Securities and Exchange Commission on a Form S-8 and is not part of the
Plans. This option had a fair value of $2.28 in 1995, the year of the grant.
In conjunction with the Merger, options on 381,900 BRE shares equivalent to
options previously granted under the RCT plan were issued to officers with
exercise prices ranging from $11.41 to $14.70. During 1997, 66,000 such
options were exercised at $11.41.
The Company has instituted a direct stock purchase and dividend reinvestment
plan (the "DRIP") where shareholders may purchase either newly issued or
previously issued shares. The total amount of shares authorized under the DRIP
is 1,500,000; through December 31, 1997, 116,199 newly issued shares have been
issued.
Non-Employee Director Stock Plan
The 1994 Non-Employee Director Stock Plan, as amended in 1996, provides for
the issuance of 25,000 Non-Qualified Stock Options per year to each non-
employee member of the Board of Directors and an additional 25,000 shares to
the Chairman of the Board of Directors. The maximum number of shares that may
be issued under the Plan is 800,000. As with the Employee Plan, the option
price may not be less than the fair market
48
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value of a share on the date the option is granted. Changes in options
outstanding for the years ended December 31, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
----------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................... 420,000 $18.71 195,000 $16.48 20,000 $15.25
Granted................... 240,000 $26.82 225,000 20.63 175,000 16.63
Exercised................. (60,000) $18.97 -- -- -- --
Canceled.................. -- -- -- -- --
------- ------- -------
Balance at end of
period................. 600,000 $21.92 420,000 $18.71 195,000 $16.48
======= ====== ======= ====== ======= ======
Exercisable............... 445,828 $19.94 244,999 $17.18 49,166 $16.06
Shares available for
granting future options.. 140,000 380,000 55,000
Weighted average fair
value of options granted
during the year.......... $ 3.64 $ 4.17 $ 2.47
</TABLE>
At December 31, 1997, the exercise prices of shares under option ranged
between $15.25 and $27.88, with expiration dates from September 25, 2004 to
October 16, 2007. The exercise price of all options granted in the years ended
December 31, 1997, 1996 and 1995 was equal to the market price on the date of
grant. The options vest ratably over one year. The weighted average remaining
contractual life of these options is 8.8 years.
Pro forma information regarding net income and earnings per share required
by Statement 123 has been determined as if BRE had accounted for the employee
and non-employee director stock options granted only in the years ended
December 31, 1997, 1996 and 1995 under the fair value method of that
Statement. The impact on the years ended December 31, 1997, 1996 and 1995 of
options granted prior to 1995 has been excluded from this presentation. The
fair value for these options was estimated as of the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................ 6.12% 7.12% 7.12%
Dividend yield................................. 5.7% 5.6% 7.1%
Volatility..................................... .18 .26 .26
Weighted average option life................... 7 years 9 years 9 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price
volatility. Because the above stock option plans have characteristics
significantly different from those of traded options, and because, in
management's opinion, changes in the subjective input assumptions can
materially affect the fair value estimate, the existing models do not
necessarily provide a reliable single measure of the fair value of the above
stock option plans.
49
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. BRE's pro forma
information, as if the Company had adopted Statement 123 as discussed above,
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income................... $74,721,000 $88,720,000 $21,606,000
Pro forma earnings per share........... $ 2.09 $ 2.91 $ 0.99
Pro forma earnings per share assuming
dilution.............................. $ 2.07 $ 2.88 $ 0.99
</TABLE>
The effect of the application of Statement 123 is not necessarily
representative of the effect on net income for future years.
8. SHAREHOLDER RIGHTS
On August 14, 1989, the Directors adopted a Shareholder Rights Plan and
declared a dividend distribution of one Right for each share of BRE's Common
Stock outstanding on September 7, 1989 representing approximately 15,800,000
shares. The Rights entitle holders to purchase, under certain conditions,
shares of Common Stock at a cash purchase price of $45.00 per share, subject
to adjustment. The Rights may also, under certain conditions, entitle the
holders to receive Common Stock, or other consideration, having a value equal
to two times the exercise price of each Right. The Rights are redeemable by
BRE at a price of $.005 per Right. If not so redeemed, the Rights expire on
September 7, 1999.
50
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share with respect to income from continuing operations:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Numerator:
Net income.......................... $ 76,197,000 $ 89,839,000 $22,010,000
Less gain on sales of investments in
rental properties available to
common shareholders................ (27,824,000) (52,825,000) (221,000)
------------ ------------ -----------
Numerator for basic earnings per share
income from continuing
operations available to common
shareholders....................... 48,373,000 37,014,000 21,789,000
Effect of dilutive securities:
Minority interest in Operating
Company............................ 972,000 -- --
------------ ------------ -----------
Numerator for diluted earnings per
share................................ $ 49,345,000 $ 37,014,000 $21,789,000
============ ============ ===========
Denominator:
Denominator for basic earnings per
share--weighted-average shares..... 35,750,000 30,520,000 21,905,000
Effect of dilutive securities:
Employee stock options............. 570,000 270,000 30,000
Convertible operating company
units............................. 290,000 -- --
------------ ------------ -----------
Dilutive potential common shares.... 860,000 270,000 30,000
------------ ------------ -----------
Denominator for diluted earnings per
share adjusted weighted-average
shares and assumed conversion...... 36,610,000 30,790,000 21,935,000
============ ============ ===========
Basic earnings per share excluding
gains on sale...................... $ 1.35 $ 1.21 $ 1.00
============ ============ ===========
Diluted earnings per share excluding
gains on sale...................... $ 1.35 $ 1.20 $ 0.99
============ ============ ===========
Change from earnings per share
previously reported:
Basic.............................. $ 0.00 $ 0.00 $ 0.00
============ ============ ===========
Diluted............................ $ 0.00 $ (0.01) $ (0.01)
============ ============ ===========
</TABLE>
10. RETIREMENT PLAN
BRE has a defined contribution retirement plan covering all employees with
more than one year of continuous full-time employment. In addition to employee
elective deferrals, BRE contributed an amount equal to 10% of the compensation
expense of participating employees until March 15, 1996; from March 16, 1996
to December 31, 1997, BRE's contribution was limited to 1.5% of the
participating employee's salary. The amounts contributed by BRE were $63,000,
$78,000 and $164,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
11. RELATED PARTY TRANSACTIONS
Certain executives of BRE have purchased stock, the consideration for which
was interest-bearing recourse loans. The loans may be forgiven in whole or in
part upon the achievement of certain performance goals for
51
<PAGE>
BRE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BRE related to growth in assets, funds from operations and stock price. A
portion of the loans expected to be forgiven are expensed currently as
compensation. At December 31, 1997, the carrying amount of the loans was
$1,961,000. The amounts of such loans expected to be forgiven and treated as
compensation expense were $151,000, $128,000 and $50,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
12. LITIGATION
BRE is defending various claims and legal actions that arise from its normal
course of business, including certain environmental actions. 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.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ $31,727 $32,206 $33,878 $39,950
Income before gain on
sales.................. $10,941 $11,676 $12,986 $12,770
Net income.............. $10,941 $37,279 $15,543 $12,434
Net income per share:
Income before gain on
sales................ $ 0.33 $ 0.34 $ 0.35 $ 0.33
Net income............ $ 0.33 $ 1.06 $ 0.42 $ 0.32
Net income per share-
assuming dilution:
Income before gain on
sales................ $ 0.33 $ 0.34 $ 0.35 $ 0.33
Net income............ $ 0.33 $ 1.06 $ 0.42 $ 0.32
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30* DECEMBER 31
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ $18,825 $26,849 $26,269 $29,708
Income before gain on
sales.................. $ 7,385 $ 9,852 $ 9,767 $10,010
Net income.............. $ 7,384 $10,078 $59,119 $13,258
Net income per share:
Income before gain on
sales................ $ 0.31 $ 0.30 $ 0.30 $ 0.30
Net income.............. $ 0.31 $ 0.31 $ 1.92 $ 0.40
Net income per share-
assuming dilution:
Income before gain on
sales................ $ 0.30 $ 0.30 $ 0.30 $ 0.30
Net income............ $ 0.30 $ 0.30 $ 1.92 $ 0.40
</TABLE>
- --------
* The quarter ended September 30, 1996 included a gain on sale of property of
$49,352,000, primarily from the disposition of the Westlake Village
property.
14. SUBSEQUENT EVENT (UNAUDITED)
In February, 1998 the Company issued $130,000,000 principal amount of
unsecured notes due 2013. These unsecured notes have an effective interest
rate of approximately 7.3%, after taking into account the cost of settlement
of a treasury rate lock agreement and other closing costs. Net proceeds from
this debt issuance were used to pay down outstanding balances on the Company's
lines of credit.
52
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(000S OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COSTS
BUILDINGS CAPITALIZED
DATES & SUBSEQUENT DEPRECIABLE
ACQUIRED/ IMPROVE- TO LIVES-
NAME LOCATION CONSTRUCTED LAND MENTS ACQUISITION YEARS
- ---- ------------------- ------------ ------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
APARTMENTS
Sharon Green Menlo Park, CA 1971/1970 $ 1,250 $ 5,770 $ 218 45
Verandas Union City, CA 1993/1989 3,233 12,932 73 40
Foster's Landing Foster City, CA 1996/1987 11,742 47,846 -- 40
Promontory Point San Ramon, CA 1996/1992 8,724 34,895 100 40
Redhawk Ranch Fremont, CA 1997/1995 11,747 47,082 -- 40
Lakeshore Land-
ing San Mateo, CA 1997/1988 8,548 34,228 -- 40
Deer Valley * San Rafael, CA 1997/1996 6,042 24,169 -- 40
Blue Rock I * Vallejo, CA 1997/1996 3,417 13,672 -- 40
Blue Rock II * Vallejo, CA 1997/1996 3,419 13,680 -- 40
------- -------- ------
SAN FRANCISCO
BAY AREA $58,122 $234,274 $ 391
======= ======== ======
Montanosa San Diego, CA 1992/1989-90 $ 6,005 $ 24,065 $ 217 40
Lakeview Village Spring Valley, CA 1996/1985 3,977 15,910 95 40
Terra Nova Vil-
las Chula Vista, CA 1994/1985 2,925 11,699 169 40
Cimmaron San Diego, CA 1993/1985 1,899 7,517 195 40
Hacienda San Diego, CA 1993/1985 1,979 8,027 7 40
Westpark San Diego, CA 1993/1985 991 3,949 63 40
Canyon Villa Chula Vista, CA 1996/1981 3,064 12,258 327 40
Winchester San Diego, CA 1994/1987 1,482 5,928 25 40
Countryside Vil-
lage El Cajon, CA 1996/1989 1,002 4,007 59 40
------- -------- ------
SAN DIEGO $23,324 $ 93,360 $1,157
======= ======== ======
Windrush Colton, CA 1996/1985 $ 3,747 $ 14,989 $ 100 40
Village Green La Habra, CA 1972/1971 372 2,763 387 45
Candlewood North Northridge, CA 1996/1964-95 2,110 8,477 60 40
Park Glenn Camarillo, CA 1996/1963 1,750 7,000 54 40
The Summit Chino, CA 1996/1989 1,839 7,354 47 40
Santa Paula Santa Paula, CA 1996/1970 550 2,200 1 40
Sycamore Valley Fountain Valley, CA 1996/1969 4,617 18,691 797 40
Parkside Village
* Riverside, CA 1997/1987 3,417 13,674 -- 40
Parkside Court * Santa Ana, CA 1997/1987 2,013 8,632 -- 40
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31,
1997
---------------------------------------------
BUILDINGS
&
IMPROVE- ACCUMULATED ENCUMB-
NAME LAND MENTS TOTAL DEPRECIATION RANCES
- ---- ------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
APARTMENTS
Sharon Green $ 1,250 $ 5,988 $ 7,238 $(3,296) $18,586
Verandas 3,233 13,005 16,238 (1,515) 11,740
Foster's Landing 11,742 47,846 59,588 (1,471)
Promontory Point 8,724 34,995 43,719 (872)
Redhawk Ranch 11,747 47,082 58,829 (783)
Lakeshore Land-
ing 8,548 34,228 42,776 (284)
Deer Valley * 6,042 24,169 30,211 (75)
Blue Rock I * 3,417 13,672 17,089 (42) 12,883
Blue Rock II * 3,419 13,680 17,099 (42) 14,500
------- --------- -------- ------------ -------
SAN FRANCISCO
BAY AREA $58,122 $234,665 $292,787 $(8,380) $57,709
======= ========= ======== ============ =======
Montanosa $ 6,005 $ 24,282 $ 30,287 $(3,026) $16,683
Lakeview Village 3,977 16,005 19,982 (714)
Terra Nova Vil-
las 2,925 11,868 14,793 (1,101) 9,240
Cimmaron 1,899 7,712 9,611 (814) 12,723
Hacienda 1,979 8,034 10,013 (846) ***
Westpark 990 4,013 5,003 (423) ***
Canyon Villa 3,064 12,585 15,649 (551)
Winchester 1,482 5,953 7,435 (559)
Countryside Vil-
lage 1,002 4,066 5,068 (250)
------- --------- -------- ------------ -------
SAN DIEGO $23,323 $ 94,518 $117,841 $(8,284) $38,646
======= ========= ======== ============ =======
Windrush $ 3,747 $ 15,089 $ 18,836 $ (671)
Village Green 372 3,150 3,522 (1,780)
Candlewood North 2,110 8,537 10,647 (388)
Park Glenn 1,750 7,054 8,804 (239)
The Summit 1,839 7,401 9,240 (330)
Santa Paula 550 2,201 2,751 (74)
Sycamore Valley 4,617 19,488 24,105 (623)
Parkside Village
* 3,417 13,674 17,091 (42) 9,158
Parkside Court * 2,013 8,632 10,645 (25) 8,055
</TABLE>
53
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(000S OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COSTS
CAPITALIZED
SUBSEQUENT DEPRECIABLE
DATES ACQUIRED/ BUILDINGS & TO LIVES-
NAME LOCATION CONSTRUCTED LAND IMPROVEMENTS ACQUISITION YEARS
- ---- ------------------ --------------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
APARTMENTS
Parkside Terrace
* Santa Ana, CA 1997/1986 3,016 12,180 -- 40
------- -------- ------
LOS ANGELES/ORANGE COUNTY $23,431 $ 95,960 $1,446
======= ======== ======
Selby Ranch Sacramento, CA 1986/1971-74 $ 2,660 $ 18,340 $ 375 40
Hazel Ranch Fair Oaks, CA 1996/1985 2,471 9,885 24 40
Canterbury Downs Roseville, CA 1996/1993 2,297 9,190 55 40
Shaliko Rocklin, CA 1996/1990 2,049 8,198 19 40
Rocklin Gold Rocklin, CA 1996/1990 1,558 6,232 15 40
Quail Chase Folsom, CA 1996/1990 1,303 5,211 35 40
Arbor Point Rancho Cordova, CA 1997/ 1988 1,814 7,256 -- 40
Overlook at Blue
Ravine * Folsom, CA 1997 / 1991 6,050 24,203 -- 40
------- -------- ------
SACRAMENTO $20,202 $ 88,515 $ 523
======= ======== ======
Scottsdale Cove Scottsdale, AZ 1991-94/1992-94 $ 3,243 $ 14,468 $ 75 40
Fairway Cross-
ings Phoenix, AZ 1996/1985 3,657 14,629 47 40
Newport Landing Glendale, AZ 1995-96/1987-96 4,467 18,171 106 40
Brentwood Phoenix, AZ 1996/1980 1,712 6,849 26 40
Posada Del Este Phoenix, AZ 1996/1981 1,670 6,679 45 40
Park Scottsdale Scottsdale, AZ 1996/1979 1,319 5,279 47 40
Los Senderos Phoenix, AZ 1996/1980 1,284 5,134 34 40
Shadow Bend Scottsdale, AZ 1996/1982 1,284 5,134 41 40
Arcadia Cove Phoenix, AZ 1996/1996 4,909 19,902 68 40
Pinnacle at S.
Mountain I * Phoenix, AZ 1997/1996 7,039 28,163 -- 40
Pinnacle at S.
Mountain II * Phoenix, AZ 1997/1996 4,023 16,094 -- 40
Pinnacle at
Union Hills * Phoenix, AZ 1997/1996 4,626 18,507 -- 40
------- -------- ------
PHOENIX $39,233 $159,009 $ 489
======= ======== ======
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31,
1997
---------------------------------------------
BUILDINGS
&
IMPROVE- ACCUMULATED ENCUMB-
NAME LAND MENTS TOTAL DEPRECIATION RANCES
- ---- ------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
APARTMENTS
Parkside Terrace
* 3,016 12,180 15,196 (37) 9,577
------- --------- -------- ------------ -------
LOS ANGELES/ORANGE COUNTY $23,431 $ 97,406 $120,837 ($4,209) $26,790
======= ========= ======== ============ =======
Selby Ranch $ 2,660 $ 18,715 $ 21,375 ($5,385) $12,175
Hazel Ranch 2,471 9,909 12,380 (443)
Canterbury Downs 2,297 9,245 11,542 (413)
Shaliko 2,049 8,217 10,266 (367)
Rocklin Gold 1,558 6,247 7,805 (279)
Quail Chase 1,303 5,246 6,549 (233)
Arbor Point 1,814 7,256 9,070
Overlook at Blue
Ravine * 6,050 24,203 30,253 (75)
------- --------- -------- ------------ -------
SACRAMENTO $20,202 $ 89,038 $109,240 ($7,195) $12,175
======= ========= ======== ============ =======
Scottsdale Cove $ 3,243 $ 14,543 $ 17,786 ($1,748)
Fairway Cross-
ings 3,657 14,676 18,333 (657)
Newport Landing 4,467 18,277 22,744 (691)
Brentwood 1,712 6,875 8,587 (307)
Posada Del Este 1,670 6,724 8,394 (300)
Park Scottsdale 1,320 5,325 6,645 (237)
Los Senderos 1,284 5,168 6,452 (230)
Shadow Bend 1,284 5,175 6,459 (230)
Arcadia Cove 4,909 19,970 24,879 (635)
Pinnacle at S.
Mountain I * 7,039 28,163 35,202 (87) 15,481
Pinnacle at S.
Mountain II * 4,023 16,094 20,117 (50) 10,647
Pinnacle at
Union Hills * 4,626 18,507 23,133 (57)
------- --------- -------- ------------ -------
PHOENIX $39,234 $159,497 $198,731 ($5,229) $26,128
======= ========= ======== ============ =======
</TABLE>
54
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(000S OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COSTS
BUILDINGS CAPITALIZED
DATES & SUBSEQUENT DEPRECIABLE
ACQUIRED IMPROVE- TO LIVES-
NAME LOCATION CONSTRUCTED LAND MENTS ACQUISITION YEARS
- ---- ------------------ ----------- ------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
APARTMENTS
Hacienda Del Rio Tucson, AZ 1994/1983 $ 1,859 $ 7,437 $139 40
Springhill Tucson, AZ 1994/1987 1,733 6,933 48 40
Fountain Plaza Tucson, AZ 1994/1975 907 3,628 87 40
Colonia Del Rio Tucson, AZ 1994/1985 1,774 7,094 59 40
Camino Seco
Village Tucson, AZ 1994/1984 1,335 5,360 31 40
Casas Lindas Tucson, AZ 1994/1987 1,513 6,051 33 40
Oracle Village Tucson, AZ 1994/1983 1,209 4,837 74 40
Pinnacle Heights
* Tucson, AZ 1997/1995 4,625 18,504 -- 40
Pinnacle Canyon
* Tucson, AZ 1997/1996 3,218 12,876 -- 40
------- ------- ----
TUCSON $18,173 $72,720 $471
======= ======= ====
Ballinger
Commons Seattle, WA 1996/1989 $ 5,824 $23,519 $230 40
Shadowbrook Redmond, WA 1987/1986 3,605 12,709 179 40
Parkwood Mill Creek, WA 1989/1989 3,947 15,811 84 40
Thrasher's Mill Bothell, WA 1996/1988 2,031 8,223 126 40
Citywalk Seattle, WA 1988/1988 1,123 4,276 22 40
Park at
Dashpoint Federal Way, WA 1997/1989 3,074 12,411 -- 40
------- ------- ----
SEATTLE $19,604 $76,949 $641
======= ======= ====
Brookdale Glen Portland, OR 1993/1985 $ 2,797 $11,188 $133 40
Berkshire Court Wilsonville, OR 1996/1996 3,284 13,200 34 40
------- ------- ----
PORTLAND $ 6,081 $24,388 $167
======= ======= ====
Desert Lakes Las Vegas, NV 1996/1991 $ 2,779 $11,116 $374 40
Cypress Springs Las Vegas, NV 1996/1993 1,965 7,861 8 40
Tango Las Vegas, NV 1996/1990 1,729 6,916 17 40
Talavera Las Vegas, NV 1997/1996 5,237 20,996 -- 40
------- ------- ----
LAS VEGAS $11,710 $46,889 $399
======= ======= ====
Pinnacle Fort
Union * Salt Lake City, UT 1997/1997 $ 3,008 $12,034 -- 40
Pinnacle Reserve
* Salt Lake City, UT 1997/1997 8,650 34,781 -- 40
Pinnacle
Lakeside * Salt Lake City, UT 1997/1985 3,217 12,876 -- 40
------- ------- ----
SALT LAKE CITY $14,875 $59,691 --
======= ======= ====
Pinnacle at High
Desert * Albuquerque, NM 1997/1995 $ 8,851 $35,415 -- 40
Pinnacle View * Albuquerque, NM 1997/1985 2,287 9,157 -- 40
------- ------- ----
ALBUQUERQUE $11,138 $44,572 --
======= ======= ====
Miscellaneous $ 108 --
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31,
1997
---------------------------------------------
BUILDINGS
&
IMPROVE- ACCUMULATED ENCUMB-
NAME LAND MENTS TOTAL DEPRECIATION RANCES
- ---- ------- --------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
APARTMENTS
Hacienda Del Rio $ 1,859 $ 7,576 $ 9,435 ($ 591) $ 5,477
Springhill 1,733 6,981 8,714 (565) 5,198
Fountain Plaza 907 3,715 4,622 (289) 3,078
Colonia Del Rio 1,774 7,153 8,927 (578) 5,138
Camino Seco
Village 1,335 5,391 6,726 (325) 4,126
Casas Lindas 1,513 6,084 7,597 (517) 4,082
Oracle Village 1,209 4,911 6,120 (394)
Pinnacle Heights
* 4,625 18,504 23,129 (57)
Pinnacle Canyon
* 3,218 12,876 16,094 (40) 11,568
------- --------- ------- ------------ -------
TUCSON $18,173 $73,191 $91,364 ($3,356) $38,667
======= ========= ======= ============ =======
Ballinger
Commons $ 5,824 $23,749 $29,573 ($ 986)
Shadowbrook 3,605 12,888 16,493 (3,375)
Parkwood 3,947 15,895 19,842 (3,228)
Thrasher's Mill 2,031 8,349 10,380 (345)
Citywalk 1,123 4,298 5,421 (1,041)
Park at
Dashpoint 3,074 12,411 15,485 (128)
------- --------- ------- ------------ -------
SEATTLE $19,604 $77,590 $97,194 ($9,103) --
======= ========= ======= ============ =======
Brookdale Glen $ 2,797 $11,321 $14,118 ($1,334)
Berkshire Court 3,284 13,234 16,518 (467)
------- --------- ------- ------------ -------
PORTLAND $ 6,081 $24,555 $30,636 ($1,801) --
======= ========= ======= ============ =======
Desert Lakes $ 2,779 $11,490 $14,269 ($ 507)
Cypress Springs 1,965 7,869 9,834 (352)
Tango 1,729 6,933 8,662 (310) $ 4,082
Talavera 5,237 20,996 26,233 (435)
------- --------- ------- ------------ -------
LAS VEGAS $11,710 $47,288 $58,998 ($1,604) $ 4,082
======= ========= ======= ============ =======
Pinnacle Fort
Union * $ 3,008 $12,034 $15,042 ($ 37)
Pinnacle Reserve
* 8,650 34,781 43,431 (107)
Pinnacle
Lakeside * 3,217 12,876 16,093 (40) $ 9,170
------- --------- ------- ------------ -------
SALT LAKE CITY $14,875 $59,691 $74,566 ($ 184) $ 9,170
======= ========= ======= ============ =======
Pinnacle at High
Desert * $ 8,851 $35,415 $44,266 ($ 110)
Pinnacle View * 2,287 9,157 11,444 (28)
------- --------- ------- ------------ -------
ALBUQUERQUE $11,138 $44,572 $55,710 ($ 138) --
======= ========= ======= ============ =======
Miscellaneous $ 108 $ 108
</TABLE>
55
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
(000S OMITTED)
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
-----------------------
COSTS
BUILDINGS CAPITALIZED
DATES & SUBSEQUENT DEPRECIABLE
ACQUIRED/ IMPROVE- TO LIVES-
NAME LOCATION CONSTRUCTED LAND MENTS ACQUISITION YEARS
- ---- -------- ----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
APARTMENTS
Subtotal Apartments $245,893 $ 996,435 $5,684
-------- ---------- ------
OTHER PROPERTIES
Buena Ventura Medical 1996/1960 $ 1,200
Hawthorne Del Amo 1996/1985 1,500
Valencia Medical 1996/1985 987 $ 3,949 $ 126 40
Vista Village 1996/1989 600 2,400 50 40
Santa Ana Industrial 1996-1985 312 805 40
- ---------------------------------------------------------------------------------------
Subtotal Other Prop-
erties $ 4,599 $ 7,154 $ 176
-------- ---------- ------
Total $250,492 $1,003,589 $5,860
======== ========== ======
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1997
--------------------------------------------------
BUILDINGS
&
IMPROVE- ACCUMULATED ENCUMB-
NAME LAND MENTS TOTAL DEPRECIATION RANCES
- ---- -------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
APARTMENTS
Subtotal Apartments $245,893 $1,002,119 $1,248,012 ($49,483) $213,367
-------- ---------- ---------- ------------ -------- ---
OTHER PROPERTIES
Buena Ventura Medical $ 1,200 $ 1,200
Hawthorne Del Amo 1,500 1,500
Valencia Medical 987 $ 4,075 5,062 ($ 117)
Vista Village 600 2,450 3,050 (108)
Santa Ana Industrial 312 805 1,117 (13)
- ---------------------------------------------------------------------------------------
Subtotal Other Prop-
erties $ 4,599 $ 7,330 $ 11,929 ($ 238)
-------- ---------- ---------- ------------
Total $250,492 $1,009,449 $1,259,941 ($49,721) $213,367
======== ========== ========== ============ ======== ===
</TABLE>
* Property held by a consolidated subsidiary of the Company.
** Additionally, $19,000,000 was secured by the Towne Centre property under
construction.
*** These properties are also collateral for the loan shown on the Cimmaron
property.
56
<PAGE>
BRE PROPERTIES, INC.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(000S OMITTED)
The activity in investments in rental properties and related depreciation
for the three year period ended December 31, 1997 is as follows:
INVESTMENTS IN RENTAL PROPERTIES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year.................. $ 813,768 $370,116 $372,478
Investments acquired in the Transaction and
the Merger (excluding partnership
investments)................................. 382,766 273,055 --
Investments purchased......................... 152,700 230,967 16,023
Transfers (to) from construction in progress
and other miscellaneous capitalization....... (764) 1,550 --
Investments sold.............................. (95,095) (63,425) (18,802)
Reduction in carrying value................... -- -- (1,750)
Capital expenditures.......................... 1,988 1,505 2,167
Rehabilitation expenditures................... 4,578 -- --
---------- -------- --------
Balance at end of year........................ $1,259,941 $813,768 $370,116
========== ======== ========
</TABLE>
ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year................. $ 49,690 $ 48,036 $ 43,789
Depreciation expense......................... 17,938 13,283 7,864
Transfers of other miscellaneous capitaliza-
tion........................................ (317) -- --
Accumulated depreciation on investments
sold........................................ (17,590) (11,629) (3,617)
--------- --------- ---------
Balance at end of year....................... $ 49,721 $ 49,690 $ 48,036
========= ========= =========
</TABLE>
57
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTITY OF EXHIBIT PAGE
------- ------------------- ----
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Company's Current Report on
Form 8-K, dated March 15, 1996.)
3.2 Articles of Amendment (Incorporated by reference to Exhibit 4.2
of the Company's Registration Statement on Form S-3 (No. 333-
24915), filed with the Securities and Exchange Commission on
April 10, 1997, as amended.)
3.3 By-Laws (Incorporated by reference to Exhibit 4.5 of the
Company's Registration Statement on Form S-4 (No. 33-65365),
filed with the Securities and Exchange Commission on December
22, 1995, as amended.)
4.1 Indenture dated as of June 23, 1997 between the Company and
Chase Trust Company of California as Trustee (Incorporated by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K, dated June 23, 1997.)
4.2 Form of Note due 2007 (Incorporated by reference to Exhibit 4.2
of the Company's Current Report on Form 8-K, dated June 23,
1997.)
4.3 Form of Note due 2013 (Incorporated by reference to Exhibit 4.3
of the Company's Current Report on Form 8-K, dated June 23,
1997.)
4.4 Rights Agreement between the Company and Bank of America, N.T.
& S.A., dated August 14, 1989 (Incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on Form S-3
(No. 333-24915), filed with the Securities and Exchange
Commission on April 10, 1997, as amended.)
4.5 Supplement to Rights Agreement between the Company and Chemical
Trust Company of California dated July 30, 1992 (Incorporated
by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-3 (No. 333-24915), filed with the
Securities and Exchange Commission on April 10, 1997, as
amended.)
10.1 1984 Stock Option Plan, as amended to date (Incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on
Form 10-K, filed October 19, 1992.)
10.2 1992 Employee Stock Option Plan, as amended and restated to
date (Incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K, filed October 19, 1992.)
10.3 1994 Non-Employee Director Stock Plan (Incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on
Form 10-K, as amended by Form 10-K/A, filed April 25, 1997.)
10.4 1992 Payroll Investment Plan (Incorporated by reference to
Exhibit 10.6 of the Company's Annual Report on Form 10-K, filed
October 19, 1992.)
10.5 Form of Indemnification Agreement (Incorporated by reference to
Exhibit 10.5 of the Company's Annual Report on Form 10-K, as
amended by Form 10-K/A, filed April 25, 1997.)
10.6 Employment agreement with Frank C. McDowell (Incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on
Form 10-K, filed October 24, 1995.)
10.7 BRE Properties, Inc. Retirement Plan (Incorporated by reference
to Exhibit 10.11 of the Company's Annual Report on Form 10-K,
filed October 24, 1988.)
10.8 Sublease with Wells Fargo Bank on 10,142 square feet at Suite
2500, One Montgomery Street, San Francisco, California
(Incorporated by reference to Exhibit 10.12 of the Company's
Annual Report on Form 10-K, filed October 14, 1988.)
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.9 Amended and Restated Non-Employee Director Stock Option Plan, as
amended (Incorporated by reference to Exhibit 10.31 of the
Company's Registration Statement on Form S-4 (No. 33-65365),
filed with the Securities and Exchange Commission on December 22,
1995, as amended.)
10.10 Amendment to the Amended and Restated Non-Employee Director Stock
Option Plan, dated as of April 29, 1996 (Incorporated by
reference to Exhibit 10.16 of the Company's Annual Report on Form
10-K, as amended by Form 10-K/A, filed April 25, 1997.)
10.11 Treasury Lock Swap Transaction (Incorporated by reference to
Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q,
filed November 14, 1996.)
10.12 Employment Agreement with Jay W. Pauly (Incorporated by reference
to Exhibit 10.18 of the Company's Annual Report on Form 10-K, as
amended by Form 10-K/A, filed April 25, 1997.)
10.13 Employment Agreement with LeRoy E. Carlson (Incorporated by
reference to Exhibit 10.19 of the Company's Annual Report on Form
10-K, as amended by Form 10-K/A, filed April 25, 1997.)
10.14 Employment Agreement with John H. Nunn (Incorporated by reference
to Exhibit 10.20 of the Company's Annual Report on Form 10-K, as
amended by Form 10-K/A, filed April 25, 1997.)
10.15 Dividend Reinvestment Plan (Incorporated by reference to Exhibit
10.20 of the Company's Annual Report on Form 10-K, as amended by
Form 10-K/A, filed April 25, 1997.)
10.16 1991 Stock Option Plan for Real Estate Investment Trust of
California (Incorporated by reference to Exhibit 10.22 of the
Company's Annual Report on Form 10-K, as amended by Form 10-K/A,
filed April 25, 1997.)
10.17 Loan Agreement between the Prudential Insurance Company of
America, as Lender, and Real Estate Investment Trust of
California, as Borrower, dated as of January 31, 1994
(Incorporated by reference to Exhibit 10.30 of the Company's
Annual Report on Form 10-K, as amended by Form 10-K/A, filed
April 25, 1997.)
10.18 First Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and Real Estate Investment Trust of
California, dated July 7, 1995 (Incorporated by reference to
Exhibit 10.31 of the Company's Annual Report on Form 10-K, as
amended by Form 10-K/A, filed April 25, 1997.)
10.19 Second Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
April 30, 1996 (Incorporated by reference to Exhibit 10.32 of the
Company's Annual Report on Form 10-K, as amended by Form 10-K/A,
filed April 25, 1997.)
10.20 Third Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
November 20, 1996 (Incorporated by reference to Exhibit 10.33 of
the Company's Annual Report on Form 10-K, as amended by Form 10-
K/A, filed April 25, 1997.)
10.21 Loan Agreement between The Prudential Insurance Company of
America, as Lender, and Real Estate Investment Trust of
California, as Borrower, dated as of July 7, 1995 (Incorporated
by reference to Exhibit 10.34 of the Company's Annual Report on
Form 10-K, as amended by Form 10-K/A, filed April 25, 1997.)
10.22 First Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
November 20, 1996 (Incorporated by reference to Exhibit 10.36 of
the Company's Annual Report on Form 10-K, as amended by Form 10-
K/A, filed April 25, 1997.)
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.23 Second Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
November 20, 1996 (Incorporated by reference to Exhibit 10.36 of
the Company's Annual Report on Form 10-K, as amended by Form 10-
K/A, filed April 25, 1997.)
10.24 Fourth Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
February 25, 1997 (Incorporated by reference to Exhibit 10.37 of
the Company's Quarterly Report on Form 10-Q, filed August 12,
1997.)
10.25 Third Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated
February 25, 1997 (Incorporated by reference to Exhibit 10.38 of
the Company's Quarterly Report on Form 10-Q, filed August 12,
1997.)
10.26 Fifth Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated June
30, 1997 (Incorporated by reference to Exhibit 10.39 of the
Company's Quarterly Report on Form 10-Q, filed August 12, 1997.)
10.27 Fourth Amendment to Loan Agreement by and between The Prudential
Insurance Company of America and BRE Properties, Inc., dated June
30, 1997 (Incorporated by reference to Exhibit 10.40 of the
Company's Quarterly Report on Form 10-Q, filed August 12, 1997.)
10.28 Amended and Restated 1992 Employee Stock Plan (Incorporated by
reference to Exhibit 10.44 of the Company's Quarterly Report on
Form 10-Q, filed November 14, 1997.)
10.29 Contribution Agreement dated as of September 29, 1997 between the
Company, BRE Property Investors LLC and the TCR Signatories
(Incorporated by reference to Exhibit 10.45 of the Company's
Quarterly Report on Form 10-Q, filed November 14, 1997.)
10.30 The Registration Rights Agreement among the Company, BRE Property
Investors LLC and the other signatories thereto dated November
18, 1997 (Incorporated by reference to Exhibit 4.6 of the
Company's Registration Statement on Form S-3 (No. 333-41433)
which was filed with the Securities and Exchange Commission on
December 3, 1997, as amended.)
10.31 Amended and Restated Limited Liability Company Agreement of BRE
Property Investors LLC, dated as of November 18, 1997, by and
among BRE Properties, Inc., and the other parties named therein
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, dated December 18, 1997.)
10.32 Limited Liability Company Agreement of Blue Ravine Investors LLC,
dated as of November 18, 1997, by and between BRE Properties,
Inc. and Blue Ravine Realty Partners (Incorporated by reference
to Exhibit 10.2 of the Company's Current Report on Form 8-K,
dated December 18, 1997.)
10.33 Unsecured Line of Credit Loan Agreement, dated as of November 17,
1997, by and between BRE Properties, inc., and Bank of America
National Trust and Savings Association (Incorporated by reference
to Exhibit 10.3 of the Company's Current Report on Form 8-K,
dated December 18, 1997.)
10.34 The Registration Rights Agreement between the Company and Legg
Mason Unit Investment Trust Series 7, Legg Mason REIT Trust,
December 1997 Series, dated as of December 23, 1997,
(Incorporated by reference to Exhibit 4.6 of the Company's
Registration Statement on Form S-3 (No. 333-44997) which was
filed with the Securities and Exchange Commission on January 27,
1998, as amended)
10.35 Amended and Restated Credit Agreement with Sanwa Bank, dated 61
December 31, 1997.
10.36 Treasury rate guarantee hedge with Morgan Stanley, dated November 88
21, 1997.
10.37 Office Lease between OTR, an Ohio general partnership, and the 90
Company dated September 26, 1997.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.38 Loan Modification Agreement to syndicate loan to BRE Properties, 126
Inc. made by various financial institutions with Bank of America
NT&SA as agent.
10.39 Employment agreement with Bruce C. Ward. 158
12 Statements re: computation of ratios 166
21 Subsidiaries of the Registrant 167
23.1 Consent of Ernst & Young LLP 168
27.1 Financial Data Schedule -- 1997
27.2 Financial Data Schedule -- 1996 (amended)
27.3 Financial Data Schedule -- 1995 (amended)
</TABLE>
61
<PAGE>
EXHIBIT 10.35
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") is made and
---------
entered into as of the 31st day of December, 1997 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 that certain Line of Credit Agreement dated as of
June 21, 1991 between the Bank and the predecessor in interest of the Borrower
(as amended, the "Line of Credit Agreement"), Bank agreed to extend a revolving
line of credit to the Borrower secured by a Collateral Pool (as therein
defined).
B. Thereafter, Bank agreed to extend an unsecured line of credit to
the Borrower pursuant to the terms of a Credit Agreement dated as of April 9,
1996 (as amended, the "Prior Agreement") which superseded the Line of Credit
Agreement.
C. To modify terms applicable to interest payable on credit extended
under the Prior Agreement, to revise certain financial covenants, to require the
delivery of guaranties in favor of Bank, and to make certain other revisions in
the agreements between the Borrower and Bank, the parties have agreed to amend
and restate the terms of the Prior Agreement in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree that the Prior Agreement is
amended and restated to read as follows and all Loans and Letters of Credit
outstanding under the Prior Agreement shall remain outstanding under this
Agreement on the following terms and conditions:
1. DEFINITIONS
-----------
1.1 Definitions. The following terms, as used in this Agreement, shall
-----------
have the following meanings:
"Affiliate" shall mean any corporation, association, partnership, joint
---------
venture or other business entity of which more than 20% of the voting stock or
other equity interests (in the case of entities other than corporations) is
owned or controlled directly or indirectly by the Borrower, or one or more of
the Subsidiaries of the Borrower, or a combination thereof.
"Aggregate Distributions to Shareholders" shall mean (a) any Dividend
----------------------------------------
Payments in respect of the Borrower or any Subsidiary of the Borrower (other
than on account of capital stock or other equity interests of a Subsidiary of
the Borrower), including, without limitation, any Dividend Payments resulting
in the acquisition by the Borrower of securities which would constitute
treasury stock, and (b) any payment, repayment, redemption, retirement,
repurchase or other acquisition, direct or indirect, by the Borrower or any
Subsidiary of, on account of, or in respect of, the principal of any
Subordinated Debt (or any installment thereof) prior to the regularly
scheduled maturity date
61
<PAGE>
thereof (as in effect on the date such subordinated debt was originally
incurred). For purposes of this Agreement, the amount of any Aggregate
Distributions to Shareholders made in property shall be the greater of (x) the
fair market value of such property (as determined in good faith by the board
of directors (or equivalent governing body) of the Person making such
distribution) and (y) the net book value thereof on the books of such Person,
in each case determined as of the date on which such distribution is made.
"Applicable LIBOR Rate" shall mean, with respect to any Interest Period for
---------------------
a LIBOR Loan, the rate per annum (rounded upward, if necessary, to the next
higher 1/100 of one percent (0.01%)) equal to the LIBOR Rate for such Interest
Period plus the LIBOR Rate Spread.
"Business Day" shall mean a day other than a Saturday or Sunday on which
------------
the Bank is open for business in Los Angeles, California.
"Capital Lease" shall mean a lease with respect to which the lessee is
-------------
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Continuing Guaranty" shall mean a continuing guaranty substantially in the
-------------------
form of Exhibit A hereto.
---------
"Credit Limit" shall mean $35,000,000, as such amount shall be modified
------------
from time to time pursuant to this Agreement.
"Debt" shall mean, with respect to the Borrower on a consolidated basis,
----
without duplication (a) its liabilities for borrowed money; (b) its
liabilities for the deferred purchase price of property acquired (excluding
accounts payable arising in the ordinary course of business but including,
without limitation, all liabilities created or arising under any conditional
sale or other title retention agreement with respect to any such property);
(c) its obligations to make payments under Capital Leases; (d) all liabilities
for borrowed money secured by any Lien with respect to any property owned by
the Borrower or any of its Subsidiaries (whether or not it has assumed or
otherwise become liable for such liabilities); and (e) liability on any
Guaranty of such Person with respect to liabilities of a type described in any
of clauses (a) through (d) hereof. Debt shall include all obligations of the
character described in clauses (a) through (e) to the extent that the Borrower
or any of its Subsidiaries remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extinguished under
GAAP.
"Debt Service" shall mean, with respect to any period, the sum of the
-------------
following (a) Interest Charges for such period and (b) all payments of
principal in respect of Debt of the Borrower and its Subsidiaries (including
the principal component of any payments in respect of capital lease
obligations) paid or payable during such period after eliminating all
offsetting debits and credits between the Borrower and its Subsidiaries and
all other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Borrower and its Subsidiaries in
accordance with GAAP.
"Default Interest Rate" shall mean a rate per annum equivalent to the
---------------------
Reference Rate plus 3%, adjusted concurrently with any change in the Reference
Rate and calculated on the basis of 360 days per year but charged on the
actual number of days elapsed.
"Development Units" shall mean housing units Under Construction by the
-----------------
Borrower, any of its Subsidiaries or any Person in which the Borrower is a
general partner, joint venturer or otherwise fully liable for the Indebtedness
of such Person.
62
<PAGE>
"Dividend Payments" shall mean (a) dividends or other distributions or
-----------------
payments on capital stock or other equity interest thereof (except
distributions in such stock or other equity interest); and (b) the redemption
or acquisition of such stock or other equity interests or of warrants, rights
or other options to purchase such stock or other equity interests (except when
solely in exchange for such stock or other equity interests) unless made,
contemporaneously, from the net proceeds of a sale of such stock or other
equity interests.
"Drawing" shall mean the presentation of a draft(s) together with any
-------
accompanying documents by a beneficiary under a Letter of Credit seeking
payment under such Letter of Credit.
"EBITDA" shall mean the sum of (a) net income of the Borrower and its
------
Subsidiaries, on a consolidated basis, for the relevant period, plus (b)
interest expense deducted in determining such net income plus (c) tax
provision deducted in determining such net income plus (d) depreciation and
amortization deducted in determining such net income.
"Environmental Claims" shall mean all claims, however asserted, by any
--------------------
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release of
Hazardous Materials or injury to the environment as a result thereof.
"Environmental Laws" shall have the meaning set forth in Section 5.9 below.
------------------
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
it may from time to time be amended, supplemented or otherwise modified or
replaced.
"Event of Default" shall have the meaning set forth in Section 8 below.
----------------
"Expiration Date" shall mean April 30, 2000, as such date may be extended
---------------
in the sole discretion of the Bank.
"FFO" shall mean "funds from operations" as such terms are defined by
---
NAREIT from time to time.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GAAP" shall mean generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the American Institute of
Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such other entity as may be in general use by significant
segments of the U.S. accounting profession, which are applicable to the
circumstances as of the date of determination.
"Gross Offering Proceeds" shall mean all cash proceeds received by the
-----------------------
Borrower and its Subsidiaries as a result of the sale of common, preferred or
other classes of stock in the Borrower or any of its Subsidiaries (if and only
to the extent reflected in stockholders' equity on the consolidated balance
sheet of the Borrower prepared in accordance with GAAP), without deduction for
-----------------
any costs and discounts of issuance paid by the Borrower and its Subsidiaries.
63
<PAGE>
"Guarantor" shall mean BRE Property Investors LLC and each other Material
---------
Subsidiary of the Borrower which, from time to time, executes and delivers a
Continuing Guaranty pursuant to the terms of this Agreement.
"Guaranty" shall mean, with respect to any Person, any obligation (except
--------
the endorsement in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any other
Person in any manner, whether directly or indirectly.
"Hazardous Material" shall mean any flammable materials (excluding wood
------------------
products normally used in construction), explosives, radioactive materials,
hazardous wastes, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," or "toxic
substances" under any applicable federal, state, county, regional or local
laws, ordinances, regulations or guidelines.
"Indebtedness" shall mean, with respect to the Borrower and its
------------
Subsidiaries, all items of indebtedness which, in accordance with GAAP, would
be included in determining liabilities as shown on the liability side of a
statement of condition thereof as of the date as of which indebtedness is to
be determined, including, without limitation, all Debt of the Borrower and its
Subsidiaries.
"Intangible Assets" shall mean all assets that would be classified as
-----------------
intangible assets under GAAP, including, without limitation, goodwill,
patents, trademarks, trade names, copyrights and franchises, treasury stock
held by the Borrower and it Subsidiaries, and deferred charges (including but
not limited to unamortized debt discount and expense, organization expenses,
experimental and development expenses, but excluding prepaid expenses).
"Interest Charges" shall mean, with respect to any period, the sum (without
----------------
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Borrower and its Subsidiaries, all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Borrower and its Subsidiaries in accordance with
GAAP) (a) all interest in respect of Debt of the Borrower and its
Subsidiaries deducted in determining Net Income for such period and (b) all
debt discount and expense with respect to Debt amortized or required to be
amortized in the determination of Net Income for such period.
"Interest Period" shall mean 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 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.
"L/C Sublimit" shall mean $2,000,000, as such amount shall be reduced from
------------
time to time pursuant to the terms of this Agreement.
"L/C Documents" shall have the meaning given such term in Section 3.2
------------- -----------
below.
64
<PAGE>
"Letter of Credit" shall mean a letter of credit issued by Bank for the
----------------
account of the Borrower pursuant to the terms of this Agreement.
"Letter of Credit Obligations" shall mean, at any time, the aggregate
----------------------------
obligations of the Borrower then outstanding, or which may thereafter arise in
respect of Letters of Credit then issued by the Bank, to reimburse the amount
paid by Bank with respect to a past, present or future Drawing under Letters
of Credit.
"Letter of Credit Request" shall mean a request for a Letter of Credit in
------------------------
form satisfactory to the Bank.
"LIBOR Business Day" shall mean a Business Day upon which commercial banks
------------------
in London, England, New York, New York and Los Angeles, California are open
for domestic and international business.
"LIBOR Loans" shall mean Loans hereunder at such time as they are made
-----------
and/or being maintained at a rate of interest based upon the LIBOR.
"LIBOR Rate" shall mean with respect to any Interest Period for a LIBOR
----------
Loan, the rate per annum (rounded upward, if necessary to the next higher
1/100 of one percent (0.01%); calculated in accordance with the following
formula:
LIBOR = IR
------------
1 - IRP
where
-----
IR = with respect to any Interest Period for a LIBOR Loan, the rate
per annum quoted to the Bank by major banks in the interbank eurocurrency
market at approximately 11:00 a.m. London time two LIBOR Business Days prior
to the first day of the proposed Interest Period for LIBOR Loans for deposits
in immediately available U.S. Dollars in an amount equal to the aggregate
amount of LIBOR Loans proposed to be subject to such rate during such Interest
Period.
IRP = for any day, that percentage, expressed as a decimal, which is
in effect on such day, as specified by the Board of Governors of the Federal
Reserve System for determining the maximum aggregate reserve requirement which
is imposed on eurocurrency liabilities.
"LIBOR Rate Spread" shall mean, as of any date of determination, (i) :if no
-----------------
Rating is then in effect, 1.35%; or (ii) effective on the first day of the
fiscal quarter following the Borrower's obtaining a Rating (or a change in the
then-effective Rating) and giving written notice thereof to the Bank, the LIBOR
Rate Spread set forth below opposite the then Rating (as hereinbelow determined)
of the Borrower:
<TABLE>
"Category LIBOR
-------- ------
Rate Spread
-----------
<S> <C>
A- or higher by S&P 0.55%
A3 or higher by Moody's
A- or higher by D&P
BBB+ by S&P 0.60%
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
Baa1 by Moody's
BBB+ by D&P
BBB by S&P 0.70%
Baa2 by Moody's
BBB by D&P
BBB- by S&P 1.00%
Baa3 by Moody's
BBB- by D&P
Lower than BBB- by S&P 1.35%
Lower than Baa3 by Moody's
Lower than BBB- by D&P
</TABLE>
Each change in the LIBOR Rate Spread shall apply to all LIBOR Rate
Loans that are outstanding at any time during the period commencing on
the effective date. If the rating system of any Rating Agency shall
change, or if any such Rating Agency shall cease rating the corporate
debt obligations of the Borrower (other than by reason of any action
or nonaction by the Borrower following or in anticipation of a ratings
downgrade), the parties hereto shall negotiate in good faith to amend
the references to specific ratings in this definition (including by
way of substituting another Rating Agency mutually acceptable to the
Borrower for the Rating Agency with respect to which the rating system
has changed or for which no Rating is then in effect) to reflect such
changed rating system or the nonavailability of Ratings from such
Rating Agency, and pending agreement on such amendment, the Rating in
effect immediately prior to such change or cessation will be used in
determining the LIBOR Rate Spread.
If the Borrower's senior long-term debt has only one Rating, then
LIBOR Rate Spread shall be determined by reference solely to such
Rating. If two Ratings are maintained by the Borrower, then the lower
Rating shall control for purposes of determining the LIBOR Rate
Spread; provided, however, that if the difference between the two
Ratings is greater than two levels, then the Bank shall reasonably
determine the average of such Ratings, which shall control (and, if
such average is greater than one of the rating levels specified in the
foregoing table, but less than the next higher rating level, the lower
of the two rating levels shall be deemed the average of the two
Ratings for purposes of determining the LIBOR Rate Spread). If three
or more Ratings are obtained by the Borrower, than all but the two
highest Ratings shall be disregarded, and the LIBOR Rate Spread shall
be determined in accordance with the preceding sentence as if such two
highest Ratings were the only two Ratings obtained.
For purposes of this definition, the following terms shall have the
following meanings:
"D&P" shall mean Duff & Phelps Rating Agency
-----
"Moody's" shall mean Moody's Investors Service, Inc.
--------
"Rating Agencies" shall mean D&P, Moody's and S&P and any substitute
----------------
rating
66
<PAGE>
agencies agreed upon by the Borrower and the Bank.
"Ratings" shall mean the rating from time to time established by the
--------
Rating Agencies by the Borrower's long term unsecured debt.
"S&P" shall mean Standard and Poor's Ratings Group
----
"Lien" shall mean any security interest, mortgage, pledge, lien, claim on
----
property, charge or encumbrance (including any conditional sale or other title
retention agreement), any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction.
"Loan" shall have the meaning set forth in Section 2.1 below
---- -----------
"Loan Documents" has the meaning set forth in Section 4.1 below.
-------------- -----------
"Loan Request" shall mean written request for a loan in form and substance
------------
satisfactory to Bank.
"Market Value" shall mean, with respect to Unencumbered Property owned by a
------------
Person:
(i) if such Unencumbered Property has not been owned and operated for at
least one full fiscal quarter after the Stabilized Occupancy Date by
such Person, the cost thereof, as reflected on the Borrower's
consolidated books and records in accordance with GAAP;
(ii) if such Unencumbered Property has been so owned and operated for more
than one fiscal quarter but less than four after the Stabilized
Occupancy Date, (1) the product of (x) the relevant Net Operating
Income of such Unencumbered Property for the number of fiscal
quarters, up to four, such Unencumbered Property has been so owned
and operated times (y) (1) if owned and operated for not more than
one fiscal quarter, four (4); (2) if owned and operated for at least
two but less than three fiscal quarters, two (2); and (z) if owned
and operated for at least three but less than four fiscal quarters,
four-one-thirds (4/3) divided by (2) a capitalization rate reasonably
determined by the Borrower; and
(iii) in all other cases, (1) the Net Operating Income of such Unencumbered
Property for the four fiscal quarters most recently ended divided by
(2) a capitalization rate reasonably determined by the Borrower.
"Material Adverse Effect" shall mean, with respect to a Person, a material
-----------------------
adverse effect upon the condition (financial or otherwise), operations,
performance or properties of such Person.
"Material Subsidiary" shall mean a Subsidiary with assets or net income
-------------------
which, when multiplied by the Borrower's effective ownership percentage,
exceed, respectively, $30,000,000 or five percent (5%) of the Borrower's
consolidated net income. For purposes of this definition, the Borrower's
"effective ownership percentage" of a Subsidiary shall mean the percentage of
outstanding voting interests of all classes in such Subsidiary owned or
controlled by the Borrower.
"NAREIT" shall mean the National Association of Real Estate Investment
------
Trusts.
"Net Operating Income of Unencumbered Property" shall mean, with reference
---------------------------------------------
to any period, the net income (or loss) of the Borrower and its Subsidiaries
from operation of Unencumbered Property during
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such period (taken as a cumulative whole), as determined in accordance with
GAAP, after eliminating all offsetting debits and credits between the Borrower
and its Subsidiaries and all other items required to be eliminated in the
course of the preparation of consolidated financial statements of the Borrower
and its Subsidiaries in accordance with GAAP; provided that there shall be
excluded (i) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Borrower or a
Subsidiary, and the income (or loss) of any Person, substantially all of the
assets of which have been acquired in any manner, realized by such other
Person prior to the date of acquisition, (ii) the income (or loss) of any
Person (other than a Subsidiary) in which the Borrower or any Subsidiary has
an ownership interest, except to the extent that any such income has been
actually received by the Borrower or such Subsidiary in the form of cash
dividends or similar cash distributions, (iii) the undistributed earnings of
any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary, (iv)
any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of income accrued during such
period, (v) any aggregate net gain (including any aggregate net loss) during
such period arising from the sale, conversion, exchange or other disposition
of capital assets (such term to include, without duplication, (y) all non-
current assets and, without duplication (z) the following whether or not
current: all fixed assets, whether tangible or intangible, all inventory sold
in conjunction with the disposition of fixed assets, and all securities), (vi)
any net gain from the collection of the proceeds of life insurance policies,
(vii) any gain arising from the acquisition of any security, or the
extinguishment, under GAAP, of any Indebtedness of the Borrower or any
Subsidiary, (viii) any net income or gain (but not any net loss) during such
period from (w) any change in accounting principles in accordance with GAAP,
any prior period adjustments resulting from any change in accounting
principles in accordance with GAAP, (y) any extraordinary items, or (z) any
discontinued operations or the disposition thereof, (ix) any deferred credit
representing the excess of equity in any Subsidiary at the date of acquisition
over the cost of the investment in such Subsidiary, (x) in the case of a
successor to the Borrower by consolidation or merger or as a transferee of its
assets, any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets, and (xi) any portion of such net income that
cannot be freely converted into United States Dollars.
"Obligations" shall mean all amounts owing by the Borrower to the Bank
-----------
pursuant to this Agreement including, but not limited to Loans and the Letter
of Credit Obligations.
"Ordinary Course of Business" shall mean, in respect of any transaction
---------------------------
involving the Borrower or any Subsidiary, the ordinary course of the
Borrower's or such Subsidiary's business, as conducted by the Borrower or such
Subsidiary in accordance with past practice and undertaken by the Borrower or
such Subsidiary in good faith.
"Outstanding Letters of Credit" shall mean (i) any Letter of Credit which
-----------------------------
has not been canceled, expired un-utilized or fully drawn down and (ii) the
amount of any unreimbursed Drawings.
"Permitted Liens" shall mean:
---------------
(i) Liens and security interests securing indebtedness owed by the
Borrower to the Bank;
(ii) Liens for taxes, assessments or similar charges either not yet due
or being contested in good faith;
(iii) Liens of materialmen, mechanics, warehousemen, or carriers or other
like Liens arising in the
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<PAGE>
Ordinary Course of Business and securing obligations which are not yet
delinquent;
(iv) Liens on real estate securing Indebtedness in an aggregate amount
outstanding at any one time not to exceed 30% of the Borrower's and its
Subsidiaries' Total Assets;
(v) Liens on equipment leased by the Borrower to the extent rents payable
in connection therewith which are not otherwise prohibited under Section 7;
and
(vi) Liens which, as of the date hereof, have been disclosed to and
approved by the Bank in writing or which may hereafter be approved by the
Bank in writing.
"Person" shall mean an individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, joint venture
or Governmental Authority.
"Potential Event of Default" shall mean an event or occurrence which with
--------------------------
the passage of time or the giving of notice or of both would become an Event
of Default.
"Property" shall mean, collectively and severally, any and all real
--------
property, including all improvements and fixtures thereon, owned, occupied, or
leased by the Borrower or by any Person whose financial condition is
consolidated with the financial condition of the Borrower on financial
statements prepared in accordance with GAAP.
"Reference Rate" shall mean an index for a variable interest rate which is
--------------
quoted, published or announced from time to time by the Bank as its reference
rate and as to which loans may be made by the Bank at, below or above such
rate.
"Reference Rate Loans" shall mean Loans bearing interest calculated based
--------------------
on the Reference Rate.
"Stabilized Occupancy Date" shall mean, with respect to any Property, the
-------------------------
last day of the first fiscal quarter when the Occupancy Percentage of such
Property has reached 90%, where "Occupancy Percentage" means (i) the number of
residential units comprising such Property which are occupied pursuant to
written lease or rental agreements in accordance with the Borrower's customary
business practice divided by (ii) the total number of units comprising such
Property.
"Subordinated Debt" shall mean such liabilities of the Borrower which have
-----------------
been subordinated to those owed to the Bank in a manner acceptable to the
Bank.
"Subsidiary" shall mean, as to any Person, any corporation, association,
----------
limited liability company or other business entity in which such Person or one
or more of its Subsidiaries or such person and one or more of its Subsidiaries
own sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the
directors (or Persons performing similar functions) of such entity, and any
partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can
and does ordinarily take major business actions without the prior approval of
such Person or one or more of its Subsidiaries). In the case of the Borrower,
"Subsidiary" shall include BRE Property Investors LLC and each other "Down
REIT" with which it may, from time to time, be affiliated.
"Tangible Net Worth" shall mean, at any time, (i) shareholders' equity, as
------------------
shown on the Borrower's consolidated financial statement prepared in
accordance with GAAP, exclusive of minority interests, minus
69
<PAGE>
(ii) all Intangible Assets.
"Total Assets" shall mean the total assets of the Borrower and its
------------
Subsidiaries which would be shown as assets on a consolidated balance sheet of
the Borrower and its Subsidiaries determined on a current value basis.
"Under Construction" shall mean that a Person has agreed to incur, or has
------------------
incurred, any liability to (i) obtain entitlement to develop land, (ii)
improve land, or (iii) construct one or more buildings on land which are not
ready for immediate occupancy (whether through sale or lease). The number of
housing units deemed Under Construction, as of any date of determination,
shall be the maximum number of housing units that the Borrower reasonably
determines can or will be constructed on such land.
"Unencumbered Property" shall mean a Property fee title to which is vested
---------------------
in the Borrower or any of its Wholly-Owned Subsidiaries or BRE Property
Investors LLC and which is free and clear of all Liens except for Liens for
taxes, assessments or similar charges either not yet due or being contested in
good faith;
"Unsecured Interest Expense" shall mean, with respect to any period, the
--------------------------
Interest Charges calculated for Unsecured Debt.
"Unsecured Debt" shall mean Debt not secured directly or indirectly by a
--------------
Lien, including, without limitation, Debt under (i) this Agreement and (ii)
that certain Credit Agreement dated as of November 17, 1997 between the
Borrower and Bank of America National Trust and Savings Association."
1.2 Accounting Terms. All references to financial statements, assets,
----------------
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with GAAP consistently applied, and, except where otherwise
specified, all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
1.3 Other Terms. Other terms not otherwise defined shall have the meanings
-----------
attributed to such terms in the California Uniform Commercial Code.
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, to and including the
Expiration Date (as such term and capitalized terms not otherwise defined herein
are defined in Section 1 above) make revolving loans (each a "Loan" and,
collectively, the "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. Loans may be repaid and reborrowed in accordance
with this Agreement.
(b) 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
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<PAGE>
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 Revolving Loans outstanding.
2.2 Maintenance of Loans. 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 Loan which is a LIBOR Loan, at the
- ---
Applicable LIBOR Rate for the applicable Interest Period, and (2) with respect
to each Loan which is a Reference Rate Loan, at a fluctuating rate per annum
equal to the Reference Rate during the applicable calculation period.
2.4 Payment of Interest. 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. 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. 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. 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 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 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 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
71
<PAGE>
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 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 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.
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.
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
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
72
<PAGE>
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 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 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 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,
-----------
then the Borrower shall immediately 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 Loans. If the Borrower desires to borrow hereunder, the Borrower
---------
shall deliver a Loan Request to the Bank, which shall be delivered
telephonically no later than 10:00 a.m. (Los Angeles time)
73
<PAGE>
and immediately confirmed by facsimile transmission, on the day notice of
borrowing is required to be given for the type of Loan being requested pursuant
to Section 2.6 above. Each 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 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) 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 Reference Rate 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 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,
74
<PAGE>
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.
3.7 Prepayments.
-----------
(1) The Borrower may prepay Reference Rate Loans hereunder in whole or in
part at any time. LIBOR Loans may only be paid at the end of their respective
Interest Periods.
(2) 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 to which such prepayment is applied, concurrently with payment to
the Bank of any principal amounts.
(3) 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.
----
(1) . 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.
(2) 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
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<PAGE>
may be required by the Bank in accordance with its standard fee structure for
such Letters of Credit.
(3) 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.
4. CONDITIONS TO EXTENDING CREDIT. As conditions precedent to the obligation
------------------------------
of the Bank to make any Loan and to issue any Letter of Credit:
4.1 Conditions Precedent to First Credit Extension. With respect to the
----------------------------------------------
first such credit extension under this Agreement:
(a) Delivery of Documents. The Borrower shall have delivered to the Bank, in
---------------------
form and substance satisfactory to the Bank and each of its counsel, each of the
following:
(i) Loan Documents. This Agreement and all other documents,
--------------
instruments and agreements required or necessary to consummate the
transactions contemplated under this Agreement (collectively with the
Continuing Guaranties, the "Loan Documents"), all duly executed.
--------------
(ii) Continuing Guaranty. A Continuing Guaranty from each Material
-------------------
Subsidiary, duly executed.
(iii) Evidence of Authority. Certified resolutions of the Board of
---------------------
Directors of the Borrower and each Material Subsidiary approving the
execution, delivery and performance of each of the Loan Documents to which
it is a party.
(iv) 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
Loan Documents to which it is party and, on an ongoing basis, to act under
and to perform the Loan Documents.
(iv) Bylaws. A copy of the Bylaws of the Borrower and each Material
------
Subsidiary, certified by the Secretary or an Assistant Secretary of the
Borrower and each Material Subsidiary as being accurate and complete.
(v) Articles of Incorporation. A copy of the Articles of
-------------------------
Incorporation or other organizational documents of the Borrower and each
Material Subsidiary certified by the Secretary of State or other official
of the state or jurisdiction of incorporation as of a recent date.
(vii) Opinions. An opinion of counsel in form and substance
--------
satisfactory to the Bank with respect to the matters set forth in Sections
--------
5.1, 5.2, 5.3 and 5.4 below.
----------------------
(viii) Credit Applications, Etc. Such credit applications, financial
-------------------------
statements, authorizations and such information concerning the Borrower as
the Bank may reasonably request.
(ix) Miscellaneous Documents. Such other documents as the Bank may
-----------------------
reasonably require with respect to the transactions described in this
Agreement.
(b) Other Actions. All acts and conditions (including, without limitation,
-------------
the obtaining of any necessary regulatory approvals and the making of any
required filings, recordings or registrations) required
76
<PAGE>
to be done and performed and to have happened precedent to the execution,
delivery and performance of the Loan 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.
(c) Documentation Satisfactory. All documentation, including, without
---------------------------
limitation, documentation for corporate and legal proceedings in connection with
the transactions contemplated by the Loan Documents shall be in form and
substance satisfactory to the Bank and its counsel.
4.2 Conditions to Each Credit Extension . As conditions precedent to the
------------------------------------
Bank's obligation to make any Loan and to issue any Letter of Credit, including
the first such credit extension, at and as of the date of the funding or
issuance thereof.
(i) Representations and Warranties. The representations and warranties
------------------------------
set forth in Section 5 hereof and in any other document, instrument,
agreement or certificate delivered to the Bank hereunder are true and
correct in all material respects.
(ii) Event of Default. No event has occurred and is continuing which
----------------
constitutes, or, with the lapse of time or giving of notice or both, would
constitute an Event of Default.
For the purposes hereof, the Borrower's request for a Loan or a Letter of Credit
shall be deemed to constitute the Borrower's representation and warranty that
the statements set forth in clauses (i) and (ii) of this Section 4.2 are true
-----------
and correct.
5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes the following
-------------------------------
representations and warranties to the Bank, which representations and warranties
are continuing:
5.1 Status. That the Borrower and each Material Subsidiary:
------
(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 Loan Documents to which it is a
party;
(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.
5.2 Authority. The execution, delivery and performance by the Borrower and
---------
by the Material Subsidiaries of the Loan Documents to which it is a party and
any instrument, document or agreement required hereunder 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
77
<PAGE>
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.
5.3 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 Agreement or any other Loan Document.
5.4 Legal Effect. Each Loan Document has been duly executed and delivered on
------------
behalf of the Borrower or the Material Subsidiary party thereto and constitutes,
and any instrument, document or agreement required hereunder when delivered
hereunder will constitute, legal, valid and binding obligations of the Borrower
or such Material Subsidiary enforceable against the Borrower or such Material
Subsidiary in accordance with their respective terms subject to bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors rights
generally and by general equitable principles.
5.5 Financial Statements. All financial statements which may have been or
--------------------
which may hereafter be submitted by the Borrower to the Bank are true, accurate
and correct in all material respects, as of their respective dates and with
respect to year end financial statements, have been or will be prepared in
accordance with GAAP consistently applied, and, with respect to other financial
statements, fairly represent the Borrower's consolidated financial condition or,
as applicable, the other information disclosed therein. Since the most recent
submission of any such financial statement, information or other data to the
Bank, the Borrower represents and warrants that no material adverse change in
the Borrower's consolidated financial condition has occurred which has not been
fully disclosed to the Bank in writing.
5.6 Litigation. Except as have been disclosed to the Bank in writing, there
----------
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower, any of its Subsidiaries
or the Borrower's or any Subsidiary's properties before any court or
administrative agency which, if determined adversely to the Borrower or such
Subsidiary, would have a material adverse effect on the Borrower's consolidated
financial condition or operations.
5.7 ERISA. If the Borrower has a pension, profit sharing or retirement plan
-----
subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and will continue to
comply with the requirements of ERISA.
5.8 Taxes. The Borrower and each of its Subsidiaries have filed all tax
-----
returns required to be filed and paid all taxes shown thereon to be due,
including interest and penalties, other than taxes which are currently payable
without penalty or interest or those which are being duly contested in good
faith.
5.9 Environmental Matters. Except as otherwise disclosed to the Bank in a
---------------------
writing referencing this Agreement or the Prior Agreement, the operations of the
Borrower and each of its Subsidiaries comply, and during the term of this
Agreement will at all times comply, in all material respects with all federal,
state and local laws, statutes, common law duties, rules, regulations,
ordinances and codes applicable to the Borrower ("Environmental Laws"); the
------------------
Borrower and each of its Subsidiaries have obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for their respective Ordinary Course of
- -----------------------
Business, all such Environmental Permits are in good standing, and the Borrower
and each of its Subsidiaries are in compliance with all material terms and
conditions of such Environmental Permits; neither the Borrower nor any of its
Subsidiaries nor any of their
78
<PAGE>
respective present Property or operations is subject to any outstanding written
order from or agreement with any governmental authority nor subject to any
judicial or docketed administrative proceeding respecting any Environmental Law,
Environmental Claim or Hazardous Material which would have a material adverse
effect on the Borrower's consolidated financial condition or operations; there
are no conditions or circumstances existing, or arising from operations prior to
the date of this Agreement, with respect to any Property of the Borrower or any
of its Subsidiaries that would reasonably be expected to give rise to
Environmental Claims which would have a material adverse effect on the
Borrower's consolidated financial condition or operations; provided, however,
--------
that with respect to property leased from an unrelated third party, the
foregoing representation is made to the best knowledge of the Borrower. In
addition, (i) neither the Borrower nor any of its Subsidiaries have any
underground storage tanks (x) that are not properly registered or permitted
under applicable Environmental Laws, or (y) that are leaking or disposing
Hazardous Materials, and (ii) the Borrower and each of its Subsidiaries have
notified all of their respective employees of the existence, if any, of any
health hazard arising from the conditions of their employment and have met all
notification requirements under all Environmental Laws.
6. FINANCIAL CONDITION; REPORTING. The Borrower promises and agrees, during
-------------------------------
the term of this Agreement and until full payment of all of Borrower's
Obligations hereunder, to:
6.1 Reporting and Certification Requirements. Deliver or cause to be
----------------------------------------
delivered to the Bank in form and detail satisfactory to the Bank:
(a) Annual Statements. As soon as available, and in any event not later than
-----------------
ninety (90) days after the close of each fiscal year of the Borrower,
consolidated and consolidating financial statements for the Borrower for such
fiscal year, including a balance sheet, cash flow statement, income statement
and such other statements as may be reasonably required by the Bank prepared in
accordance with GAAP accompanied by an unqualified report of a firm of
independent certified accountants acceptable to the Bank and including therewith
a copy of the management letter from such certified public accountants;
(b) Quarterly Statements. As soon as available, and in any event not later
--------------------
than sixty (60) days after the last day of each fiscal quarter, consolidated and
consolidating financial statements for the Borrower for the quarter just ended
and the fiscal year to date, including a balance sheet, cash flow statement,
income statement and such other statements as may be reasonably required by the
Bank prepared in accordance with GAAP and certified as true and complete by the
Chief Financial Officer of the Borrower.
(c) Compliance Certificate. Together with the delivery of the financial
----------------------
statements of the Borrower pursuant to the preceding clauses (a) and (b), a
certificate of the Chief Financial Officer of the Borrower substantially in the
form of Exhibit B;
---------
(d) Two-Year Statements. As soon as available, and in any event not later
-------------------
than ninety (90) days after the close of each fiscal year of the Borrower,
consolidated and consolidating financial projections for the Borrower for the
succeeding two (2) fiscal years, including a balance sheet, cash flow statement,
income statements and such other statements as may be reasonably required by the
Bank prepared.
(e) SEC Filings, Etc. Promptly after sending, filing or publishing the same,
-----------------
copies of all proxy statements, financial statements and reports which the
Borrower sends to its public stockholders and copies of all regular and periodic
reports and all registration statements which the Borrower files with the
Securities and Exchange Commission. Delivery of such documents to the Bank
shall satisfy the requirements of Sections 6.1(a) and (b) to the extent the
-----------------------
contents, date, and delivery of such documents are consistent with the
requirements of such Sections.
79
<PAGE>
(f) Management Reports. As soon as available and in any event not later than
------------------
sixty (60) days after the last day of each fiscal quarter, a Summary of Net
Operating Income and such other information as the Bank may reasonably request,
all certified as true and complete by the Chief Financial Officer of the
Borrower.
6.2 Accounting Records: Maintain adequate books and records in accordance
------------------
with GAAP consistently applied and in a manner otherwise acceptable to the Bank,
and, at any reasonable time and from time to time, upon three Business Days'
notice, permit the Bank or any representative thereof to examine and make copies
of the records and visit the Properties of the Borrower and any of its
Subsidiaries and discuss the business and operations of the Borrower and any of
its Subsidiaries with any of its officers and employees. If the Borrower or any
of its Subsidiaries shall maintain any records (including, but not limited to,
computer generated records or computer programs for the generation of such
records) in the possession of a third party, the Borrower hereby agrees to
provide the Bank with copies of any such records that it may request, all at the
Bank's expense, the amount of which shall be payable immediately upon demand.
In addition, the Bank may, at any reasonable time and from time to time, upon
three Business Days' notice, conduct inspections and audits of the Borrower's
and its Subsidiaries' accounts payable, the cost and expenses of which shall be
paid by the Bank.
7. OTHER COVENANTS During the term of this Agreement and until payment in full
---------------
of the Borrower's Obligations hereunder, the Borrower promises and agrees to and
to cause each of its Subsidiaries to:
7.1 Preservation of Existence; Compliance with Applicable Laws. Maintain and
----------------------------------------------------------
preserve its existence and all rights and privileges material to its business as
conducted as of the date of this Agreement; not liquidate or dissolve, merge or
consolidate with or into any other business organization; and conduct its
business and operations in accordance with all applicable laws, rules and
regulations, except that (i) any Subsidiary may merge into another Subsidiary so
long as the surviving entity which is owned by the Borrower in a percentage not
less than the percentage of the non-surviving entity owned by the Borrower and
(ii) any Subsidiary may merge into the Borrower so long as the Borrower is the
surviving entity.
7.2 Maintenance of Insurance. Maintain insurance in such amounts and
------------------------
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower and each of its Subsidiaries operate and maintain such other insurance
and coverages as may be reasonably required by the Bank. All such insurance
shall be in form and amount and with companies satisfactory to the Bank. Upon
the Bank's request, the Borrower shall furnish the Bank with a copy of the
policy or binder of all such insurance.
7.3 Payment of Obligations and Taxes. Make timely payment of all assessments
--------------------------------
and taxes and all of its liabilities and obligations including, but not limited
to, trade payables, unless the same are being contested in good faith by
appropriate proceedings with the appropriate court or regulatory agency. For
purposes hereof, the issuance of a check, draft or similar instrument without
delivery to the intended payee shall not constitute payment.
7.4 Redemption or Repurchase of Stock; Repurchase of Partnership Interests:
----------------------------------------------------------------------
Except as pursuant to any provision in any security agreement, instrument or
undertaking by which it is bound, not redeem or repurchase any class of its
stock now or hereafter outstanding or purchase or repurchase, in whole or in
part, any partnership interest; provided that any Subsidiary wholly owned by the
Borrower may do any of the foregoing.
7.5 Liens and Encumbrances: Not create, assume or permit to exist any
----------------------
security interest, encumbrance, mortgage, deed of trust, or other lien
(including, but not limited to, a lien of attachment, judgment or execution)
affecting any of its properties, or execute or allow to be filed any financing
statement or
80
<PAGE>
continuation thereof affecting any of such properties, except for Permitted
Liens or as otherwise provided in this Agreement.
7.6 Indebtedness. Not create, incur, assume or suffer to exist, or otherwise
------------
become liable for, Indebtedness or accept a commitment for Indebtedness except:
(a) The Obligations;
(b) Trade debt incurred in the ordinary course of business and outstanding
less than thirty (30) days after the same has become due and payable or which is
being contested in good faith, provided provision is made to the satisfaction of
the Bank for the eventual payment thereof in the event it is found that such
contested trade debt is payable by the Borrower or Subsidiary;
(c) Indebtedness secured by Liens permitted under Section 7.5 above;
(d) Unsecured Debt which is revolving Indebtedness and incurred under lines
of credit with financial institutions and which, when aggregated with
commitments (including, without limitation, under this Agreement) to extend
unsecured Indebtedness to the Borrower and or one or more of its Subsidiaries,
does not to exceed $300,000,000 (calculated without double counting Unsecured
Debt on account of Guaranties of such Unsecured Debt);
(e) Non-revolving, non-amortizing Indebtedness with a maturity or call date
not earlier than two (2) years after the date incurred;
(f) Non-revolving, amortizing Indebtedness in favor of the Prudential Life
Insurance Company of America in an original principal amount of
$73,000,000.
7.7 Change in Nature of Business. Not make any material change in its
----------------------------
financial structure or the nature of its business as existing or conducted as of
the date hereof.
7.8 Compensation of Employees. Compensate its employees for services
-------------------------
rendered at an hourly rate at least equal to the minimum hourly rate prescribed
by any applicable federal or state law or regulation.
7.9 Notices. Give prompt written notice to the Bank of:
-------
(a) any and all Event(s) of Default and each Potential Default;
(b) any and all litigation, arbitration or administrative proceedings to which
the Borrower or any of its Subsidiaries is a party and in which the claim or
liability exceeds $5,000,000;
(c) any other matter which has resulted in, or might result in, a material
adverse change in the financial condition or affairs of the Borrower; and
(d) upon, but in no event later than 10 days after, becoming aware after the
date of this Agreement of (i) any enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened against
the Borrower or any of its Subsidiaries or any of their respective Properties
pursuant to any applicable Environmental Laws, (ii) all other Environmental
Claims, and (iii) any environmental or similar condition on any real property
adjoining or in the vicinity of the Property of the Borrower or any of its
Subsidiaries that could reasonably be anticipated to cause such Property or any
part thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use of such Property under any Environmental Laws.
81
<PAGE>
7.12 Environmental Laws. Conduct its operations and keep and maintain all of
------------------
its property in compliance with all Environmental Laws.
7.13 Financial Covenants. Not, on a consolidated basis for the Borrower and
-------------------
its Subsidiaries:
(a) Permit, at any time, its Tangible Net Worth to be less than $612,000,000
plus 85% of the Gross Offering Proceeds received by the Borrower after
November 17, 1997.
(b) Permit the ratio of (i) Net Operating Income of Unencumbered Real Property
in any quarter to (ii) Unsecured Interest Expense for such quarter to be
less than 2.00 to 1.00.
(c) Permit, at any time, the ratio of (i) aggregate Indebtedness to (ii) of
Total Assets to exceed 0.50 to 1.00.
(d) As at the end of any fiscal quarter, permit the ratio of EBITDA to Debt
Service for the preceding four fiscal quarters to be less than 2.00 to
1.00.
(e) Permit the ratio of (i) Aggregate Distributions to Shareholders for any
consecutive four (4) fiscal quarter to (ii) FFO for such four (4) fiscal
quarters to exceed 0.95 to 1.00 or, if greater, the ratio equal to (y) the
minimum Aggregate Distributions to Shareholders required for the Borrower
to qualify for treatment as a real estate investment trust under Section
856 of the Internal Revenue Code.
(f) At any time, permit the number of Development Units to exceed 20% of the
aggregate number of Development Units and completed units (that is, housing
units which are no longer Development Units) of the Borrower, its
Subsidiaries and any Person in which the Borrower is a general partner,
joint venturer or otherwise fully liable for the Indebtedness of the owner.
(g) Permit, at any time, the ratio of (i) the Market Value of Unencumbered
Property to (ii)Unsecured Debt to be less than 2.00 to 1.00.
7.13 Continuing Guaranties; Further Assurances. Promptly upon a Person
-----------------------------------------
becoming a Material Subsidiary, cause such Material Subsidiary to execute and
deliver to the Bank a Continuing Guaranty together with resolutions, incumbency
certificates, by laws, articles of incorporation, and opinions relating to such
Material Subsidiary substantially as contemplated by Sections 4.1(a)(i), (ii),
-------------------------
(iii), (iv), (v), and (vi) above with respect to Continuing Guaranties delivered
- --------------------------
in connection with this Agreement; and execute and deliver or cause to be
executed and delivered all other instruments, and perform or cause to be
performed such other acts, as the Bank may reasonably deem necessary or
desirable to confirm and secure to the Bank all rights and remedies conferred
upon it by this Agreement and all other Loan Documents.
8. EVENTS OF DEFAULT. Any one or more of the following described events shall
------------------
constitute an event of default (an "Event of Default") under this Agreement:
----------------
8.1 Non-Payment. The Borrower shall fail to pay any payment of principal or
-----------
interest or any other sum referred to in this Agreement when due and any such
failure shall continue for more than five (5) Business Days after written notice
from the Bank to the Borrower..
8.2 Performance Under This and Other Agreements. The Borrower or any
-------------------------------------------
Guarantor shall fail in any material respect to perform or observe any other
term, covenant or agreement contained in this Agreement, in any other Loan
Document, or in any document, instrument or agreement evidencing or relating to
any other Indebtedness of the Borrower or any Guarantor to the Bank, and any
such failure shall continue for more than 10 days after written notice from the
Bank to the Borrower of the existence and character of such failure.
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<PAGE>
8.3 Other Indebtedness. The Borrower or any of its Subsidiaries shall (i)
------------------
fail to pay when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) any Indebtedness in an aggregate principal
amount (including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $5,000,000 and such failure shall
continue after the applicable grace or notice period, if any, specified in the
document relating thereto; or (ii) shall fail to perform or observe any other
condition or covenant, or any other event shall occur or condition exist
(irrespective of whether such non-performance or non-observance shall be waived
or otherwise excused by the holder or holders of such Indebtedness), under any
agreement or instrument relating to any such Indebtedness, if the effect of such
failure, event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness in an aggregate principal amount of
more than $5,000,000 to be declared to be due and payable prior to its stated
maturity, or cash collateral in respect thereof to be demanded.
8.4 Representations and Warranties; Financial Statements. Any representation
----------------------------------------------------
or warranty made by the Borrower or any Guarantor under or in connection with
this Agreement or any financial statement to be provided under this Agreement
shall prove to have been incorrect in any material respect when made or given or
when deemed to have been made or given.
8.5 Insolvency. (a) The Borrower or any of its Subsidiaries shall: (i)
----------
become insolvent or be unable to pay its debts as they mature; (ii) make an
assignment for the benefit of creditors or to an agent authorized to liquidate
any substantial amount of its properties or assets; (iii) file a voluntary
petition in bankruptcy or seek reorganization or to effect a plan or other
arrangement with creditors; (iv) file an answer admitting the material
allegations of an involuntary petition relating to bankruptcy or reorganization
or join in any such petition; (v) become or be adjudicated a bankrupt; or (vi)
apply for or consent to the appointment of, or consent that an order be made,
appointing any receiver, custodian or trustee for itself or any of its
properties, assets or affairs; or (b) with respect to the Borrower or, any of
its Subsidiaries, any receiver, custodian or trustee shall have been appointed
for all or a substantial part of its properties, assets or affairs and shall not
be discharged within 60 days after the date of such appointment.
8.6 Suspension. The Borrower or any of its Subsidiaries shall voluntarily
----------
suspend the transaction of business or allow to be suspended, terminated,
revoked or expired any permit, license or approval of any governmental body
necessary to conduct the Borrower's or a Subsidiary's business as now conducted.
9. REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default described
--------------------
in Section 8.5 above, automatically and, upon the occurrence of any other Event
-----------
of Default, at the sole election of the Bank, without demand or notice, all of
which are hereby waived:
9.1 Acceleration. All of the Obligations (including, without limitation, the
------------
obligation to reimburse the Bank for future Drawings under Letters of Credit)
shall be immediately due and payable, whether or not otherwise due and payable.
Any amount paid to the Bank on account of undrawn amounts under Letters of
Credit that is not thereafter applied to reimburse the Bank for Drawings shall
be repaid to the Borrower without interest upon return to the Bank and
termination of the undrawn Letter(s) of Credit.
9.2 Non-Exclusivity of Remedies. Exercise one or more of the Bank's rights
---------------------------
set forth herein or seek such other rights or pursue such other remedies as may
be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
83
<PAGE>
10. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
--------------------
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
11. MISCELLANEOUS PROVISIONS
------------------------
11.1 Default Interest Rate. The Borrower shall pay to the Bank interest
---------------------
on any Indebtedness or amount payable under this Agreement, from the date that
such Indebtedness or amount became due or was demanded to be due until paid in
full, at the Default Interest Rate. If any regularly scheduled payment of
principal and/or interest (exclusive of the final payment upon maturity), or any
portion thereof, under this Agreement is not paid within ten (10) calendar days
after it is due, a late payment charge equal to five percent (5%) of such past
due payment may be assessed and shall be immediately payable.
11.2 Notices. Any notices required or permitted to be given under
-------
this Agreement shall be in writing and shall be delivered by hand, by prepaid
telegram, by telecopy or by registered or certified U.S. mail, return receipt
requested (postage prepaid), to the respective notice addresses set forth below
or to such other addresses as the parties may provide to one another in
accordance with this Section. Such notices and other communications shall, if
sent by mail in accordance with this Section, be deemed given two Business Days
after deposit in the U.S. mail, on the date sent if by telecopy and, if sent by
any other method, shall be effective only if and when received by the addressee.
All notices and other communications shall be addressed as follows:
If to the Bank: If to the Borrower:
Sanwa Bank California BRE Properties, Inc.
Sherman Oaks CBC One Montgomery Street
15165 Ventura Blvd., Suite 445 Telesis Tower, Suite 2500
Sherman Oaks, CA 91403 San Francisco, CA 94104
Attn: Jeffrey D. Harter Attn: LeRoy E. Carlson
11.3 Reliance. Each warranty, representation, covenant and agreement
--------
contained in this Agreement shall be conclusively presumed to have been relied
upon by the Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
84
<PAGE>
11.4 Attorneys' Fees. The Borrower agrees to pay or reimburse the Bank
---------------
within five Business Days after demand for (i) all costs and expenses incurred
by the Bank in connection with the development, preparation, delivery,
administration and execution of any amendment, supplement, waiver or
modification to (in each case, whether or not consummated) this Agreement, any
other Loan Document and any other documents prepared in connection therewith,
and the consummation of the transactions contemplated hereby and thereby,
including the reasonable attorneys' fees and costs incurred by Bank with respect
thereto; and (ii) all costs and expenses incurred by the Bank in connection with
the enforcement, attempted enforcement, or preservation of any rights or
remedies (including in connection with any restructuring regarding the
obligations and including in any insolvency proceeding or appellate proceeding)
under this Agreement, any other Loan Document, and any such other documents,
including reasonable attorneys' fees incurred by the Bank; and (iii) in the
event of any action in relation to this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the Obligations, the
prevailing party, in addition to all other sums to which it may be entitled,
shall be entitled to reasonable attorneys' fees.
11.5 Waiver. Neither the failure nor delay by the Bank in exercising any
------
right hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right hereunder or under any document, instrument or agreement mentioned
herein preclude other or further exercise thereof or the exercise of any other
right; nor shall any waiver of any right or default hereunder or under any other
document, instrument or agreement mentioned herein constitute a waiver of any
other right or default or constitute a waiver of any other default of the same
or any other term or provision.
11.6 Conflicting Provisions. To the extent that any of the terms or
----------------------
provisions contained in this Agreement 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.
11.7 Binding Effect; Assignment. This Agreement 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.
11.8 Jurisdiction. THIS AGREEMENT, ANY NOTES ISSUED HEREUNDER, 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.
11.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts and each set of counterparts signed by all the parties shall
constitute one original.
11.10 Severability. If any provision of this Agreement shall be
------------
unenforceable for any reason, then the remaining provisions of this Agreement
shall be enforced without regard to such provision.
11.11 Headings. The headings set forth herein are solely for the purpose
--------
of identification and have no legal significance.
11.12 Entire Agreement. This Agreement and the other Loan Documents shall
----------------
constitute the entire and complete understanding of the parties with respect to
the transactions contemplated hereunder. All previous
85
<PAGE>
conversations, memoranda and writings between the parties or pertaining to the
transactions contemplated hereunder that are not incorporated or referenced in
this Agreement or the other Loan Documents are superseded hereby
86
<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
----------------------------
Title: President
By: /s/ LeRoy Carlson
-----------------------------
Title: Executive Vice President
and Secretary
87
<PAGE>
EXHIBIT 10.36
MORGAN STANLEY
- -------------------------------------------------------------------------------
Date: November 21, 1997
To: BRE Properties From: Morgan Stanley Capital Services Inc.
("Party B") ("Party A")
Attn: LeRoy Carlson Contact: Dawn Simmons
Fax: 415 445-6505 Fax: 212 761-0580
Tel: Tel: 212 761-2630
- -------------------------------------------------------------------------------
Re: Confirmation of Treasury Rate Guarantee Hedge Transaction MSCS Ref. No.
S0660
Morgan Stanley Capital Services Inc. is pleased to confirm the following
transaction:
Trade Date: November 21, 1997
Effective Date: November 24, 1997
Reference Treasury: 6.125% U.S. Treasury Note due 8/15/2007
Principle Amount: USD 100,000,000
Price at Execution: 102.140625%
Yield at Execution: 5.832%
Hedged New Issue Amount: USD 100,000,000
Determination Date: Any Business Day elected by Party B up to
and including the Final Determination Date.
Final Determination Date: February 19, 1998
Aggregate Final Price: To be determined at the time of unwind at
the offered side price for the Principal
Amount of the Reference Treasury to be
unwound. Unwind shall take place during U.S.
Treasury market trading hours in New York
City at Party B's election.
Aggregate Guarantee Price: 102.140625%
Hedge Settlement: If the Aggregate Final Price is less than
the Aggregate Guarantee Price, Party A will
pay the Price Difference to Party B. If the
Aggregate Final Price is greater than the
Aggregate Guarantee Price, Party B will pay
the Price Difference to Party A. Payments
shall be due on the Settlement Date.
Settlement Date: One Business Day following the Determination
Date
88
<PAGE>
MORGAN STANLEY
Negative Carry: On the Settlement Date, Party B will pay
Party A, up to a maximum of USD $338,218
(equal to 0.338218%, for the actual number
of days from the Effective Date to the
Settlement Date, based on the Principal
Amount.)
Forward Yield: 5.874%
3. Account Details:
Payments to Party A: Citibank, New York
ABA No. 021 000 989
For: Morgan Stanley Capital Services Inc.
Account No. XXXX XXXX
Payments to Party B: Please Provide
We are extremely pleased to have completed this transaction with you. MSCS Ref.
S0660 by executing this Confirmation and returning it to us.
Best Regards,
MORGAN STANLEY CAPITAL SERVICES INC.
BY: /s/ Michael Bartlett
-----------------------
Title:
Confirmed as the date first above written:
BRE PROPERTIES
BY: /s/ LeRoy E. Carlson
----------------------
Title: Executive Vice President
------------------------
89
<PAGE>
EXHIBIT 10.37
OFFICE LEASE
between
OTR, AN OHIO GENERAL PARTNERSHIP, AS NOMINEE OF
THE STATE TEACHERS RETIREMENT BOARD OF OHIO, A STATUTORY
ORGANIZATION CREATED BY THE LAWS OF OHIO
(Landlord)
and
BRE PROPERTIES, INC.
A MARYLAND CORPORATION
(Tenant)
for Premises at
44 Montgomery Street
San Francisco, California
90
<PAGE>
OFFICE LEASE
------------
THIS OFFICE LEASE ("Lease"), dated September 26, 1997, is made and entered
into by and between OTR, an Ohio general partnership, as Nominee of The State
Teachers Retirement Board of Ohio, a statutory organization created by the laws
of Ohio ("Landlord"), and BRE PROPERTIES, INC., a Maryland corporation
("Tenant") upon the following terms and conditions:
ARTICLE I - SUMMARY AND CERTAIN DEFINITIONS
-------------------------------------------
Unless the context otherwise specifies or requires, the following terms
shall have the meanings specified herein:
1.1 BUILDING. The term "Building" shall mean that certain office building
--------
located at 44 Montgomery Street in San Francisco, California, commonly known as
44 MONTGOMERY STREET together with any related land, improvements, common areas,
driveways, sidewalks and landscaping.
1.2 PREMISES. The term "Premises" shall mean Suite 3600 in the Building,
--------
as more particularly outlined on the "Floor Plan" attached hereto as Exhibit "A"
and incorporated herein by reference. As used herein, "Premises" shall not
include any storage area in the Building or rooftop area on the Building, which
areas shall (if applicable) be leased or rented pursuant to separate written
agreements.
1.3 RENTABLE AREA OF THE PREMISES. The term "Rentable Area of the
-----------------------------
Premises" shall mean fifteen thousand one hundred seventy (15,170) square feet,
which Landlord and Tenant have stipulated as the Rentable Area of the Premises
(load factor of 9.4%) Tenant acknowledges the following: (a) prior to the
Commencement Date, Tenant's representative measured the Premises and verified
that the accuracy of the foregoing square footage numbers; and (b) the Rentable
Area of the Premises includes the usable area without deduction for columns or
projections, multiplied by the referenced add-on load factor to reflect a share
of certain areas, which may include lobbies, corridors, mechanical, utility,
janitorial, boiler and service rooms and closets, restrooms and other public,
common and service areas of the Building.
1.4 LEASE YEAR. The term "Lease Year" shall mean such consecutive twelve
----------
(12) month period following the Commencement Date.
1.5 LEASE TERM. The term of this Lease ("Lease Term") shall be for a
----------
period of eight (8) consecutive Lease Years and eighteen (18) days following the
Commencement Date, unless sooner terminated as otherwise provided in this Lease.
1.6 COMMENCEMENT DATE. Subject to adjustment as provided in Section 3.1,
-----------------
the term "Commencement Date" shall mean January 12, 1998.
1.7 EXPIRATION DATE. Subject to adjustment as provided in Section 3.1,
---------------
the term "Expiration Date" shall mean January 31, 2006.
1.8 BASE RENT. Subject to adjustment as provided in Article 4, the term
---------
"Base Rent" shall mean the following amounts for the following periods:
91
<PAGE>
<TABLE>
<CAPTION>
Lease Years Yearly Monthly Rate Per
Base Rent Base Rent Rentable Square Foot
- --------------- ----------- ---------- --------------------
<S> <C> <C> <C>
1/12/98-1/31/98 $28,064.50 $37.00
2/1/98-1/31/99 $561,290.00 $46,774.17 $37.00
2/1/99-1/31/00 $576,460.00 $48,038.33 $38.00
2/1/00-1/31/01 $591,630.00 $49,302.50 $39.00
2/1/01-1/31/02 $606,800.00 $50,566.67 $40.00
2/1/02-1/31/03 $621,970.00 $51,830.83 $41.00
2/1/03-1/31/04 $637,140.00 $53,095.00 $42.00
2/1/04-1/31/05 $652,310.00 $54,359.17 $43.00
2/1/05-1/31/06 $667,480.00 $55,623.33 $44.00
</TABLE>
92
<PAGE>
1.9 TENANT'S PERCENTAGE SHARE. Subject to adjustment by Acceptance
-------------------------
letter, the term "Tenant's Percentage Share" shall mean 2.45% with respect to
increases in Property Taxes and Operating Expenses (as such terms are
hereinafter defined). Landlord may reasonably recompute Tenant's Percentage
Share from time to time to reflect reconfigurations, additions or modifications
to the Premises or Building.
1.10 SECURITY DEPOSIT. The term "Security Deposit" shall mean $0.00
----------------
delivered by Tenant to Landlord to secure Tenant's performance of its
obligations hereunder.
1.11 TENANT'S PERMITTED USE. The term "Tenant's Permitted Use" shall mean
----------------------
general and administrative office use, and no other use.
1.12 BUSINESS HOURS. The term "Business Hours" shall mean the hours of
--------------
8:00 A.M. to 6:00 P.M., Monday through Friday, and 9:00 A.M. to 1:00 P.M.,
Saturdays (federal and state holidays excepted). "Holidays" are defined to be
the following days: New Years Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and to the extent of utilities or services
provided by union members engaged at the Building, such other holidays observed
by such unions.
1.13 LANDLORD'S ADDRESS FOR NOTICES. The term "Landlord's Address for
------------------------------
Notices" shall mean OTR c/o Seagate Properties, Inc., 44 Montgomery Street,
Suite 1710, San Francisco, California 94104, Attn: Property Manager, with a copy
(but which copy shall not constitute notice) to OTR, 275 Broad Street, Columbus,
Ohio, Attn: Director, Real Estate.
1.14 TENANT'S ADDRESS FOR NOTICES. The term "Tenant's Address for Notices"
----------------------------
shall mean 44 Montgomery Street, Suite 3600, San Francisco, California 94104.
1.15 BROKERS. The term "Brokers" shall mean Seagate Properties, Inc. and
-------
Colliers Damner Pike.
1.16 GUARANTORS. The term "Guarantors" shall mean None.
----------
ARTICLE II - PREMISES
---------------------
2.1 LEASE OF PREMISES. Commencing on the Commencement Date, Landlord
-----------------
agrees to and shall lease the Premises to Tenant, and Tenant agrees to and shall
lease and hire the Premises from Landlord, upon all of the terms, covenants and
conditions contained in this Lease. On the Commencement Date described herein,
Landlord shall deliver the Premises to Tenant in substantial conformance with
the Work Letter Agreement attached hereto as Exhibit "B."
2.2 ACCEPTANCE OF PREMISES. Unless otherwise specifically set forth in
----------------------
this Lease, Tenant acknowledges that Landlord has not made any representation or
warranty with respect to the condition of the Premises or the Building or with
respect to the suitability or fitness of either for the conduct of Tenant's
Permitted Use or for any other purpose. Prior to Tenant's taking possession of
the Premises, Landlord or its designee and Tenant will walk the Premises for the
purpose of reviewing the condition of the Premises. Within ten (10) business
days after such review, Landlord and Tenant shall execute and deliver to each
other duplicate original counterparts of the Acceptance Letter. Except as is
expressly set
93
<PAGE>
forth in this Lease or Work Letter Agreement, and except for latent defects and
"punch list" items, or as may be expressly set forth in the Acceptance Letter,
Tenant agrees to accept the Premises in its "as is" physical condition without
any agreements, representations, understandings or obligations on the part of
Landlord to perform any alterations, repairs or improvements (or to provide any
allowance for same).
ARTICLE III - TERM
------------------
3.1 TERM. The Lease Term shall be for the period described in Section 1.5
----
of this Lease. The Term shall commence ("Commencement Date") on the date which
is the later to occur of January 12, 1998, or the date construction and
installation of the Work defined in the Work Letter Agreement is substantially
complete pursuant to the Work Letter. The Lease Term shall end ("Expiration
Date") eight (8) Lease Years following the Commencement Date (as the same may be
adjusted as set forth above). In the event Landlord is unable to substantially
complete the Work by January 12, 1998, the Targeted Commencement Date, with
exception to Tenant Delays, Rent shall not commence until Substantial Completion
of the Work. If the Lease Term commences on a day other than the first (1st)
day of a month, then the Lease Term shall be extended by a number of days equal
to the number of days remaining in said month, and the first (1st) Lease Year
shall be deemed to commence on the first (1st) day of the next calendar month.
3.2 OPTION TO EXTEND TERM. Tenant is hereby granted an option ("Extension
---------------------
Option") to extend the Term for one (1) additional period of five (5) Lease
Years ("Extension Period"), on the same terms and conditions in effect under the
Lease immediately prior to the Extension Period, except that monthly Base Rent
shall be increased to that amount which is the greater of (i) the Base Rent,
fully escalated, or (ii) to the Prevailing Rental Rate (defined below). The
Extension Option may be exercised only by giving Landlord irrevocable and
unconditional written notice thereof no earlier than three hundred sixty five
(365) calendar days and no later than two hundred ten (210) calendar days prior
to the commencement of the Extension Period. Notwithstanding the foregoing,
said exercise shall, at Landlord's election, be null and void if: (i) Tenant is
in default under the Lease at the date of said notice and said default remained
uncured following expiration of all applicable cure periods; or (ii) prior to
commencement of the Extension Period, Tenant commits an Event of Default which
remained uncured after expiration of all applicable cure periods. If Tenant
shall fail to timely exercise the Extension Option herein provided, or if Tenant
shall assign this Lease or sublet any part in excess of thirty (30%) percent of
the Premises or all of the Premises (whether or not Landlord consents to said
assignment or sublease), or if Tenant shall commit an Event of Default under
this Lease which remains uncured following expiration of all applicable cure
periods, said Extension Option shall , at Landlord's election to be made by
written notice to Tenant, terminate, and shall be null and void and of no
further force and effect. Tenant's exercise of the Extension Option shall not
operate to cure any default by Tenant of any of the terms or provisions in the
Lease, nor to extinguish or impair any rights or remedies of Landlord arising by
virtue of such default. If the Lease or Tenant's right to possession of the
Premises shall terminate in any manner whatsoever before Tenant shall exercise
the Extension Option herein provided, or if Tenant shall have subleased or
assigned all or any portion of the Premises to any person or entity other than
an Affiliate (as that term is defined in Section 14.1 below), then immediately
upon such termination, sublease or assignment, the Extension Option herein
granted shall simultaneously terminate and become null and void. The Extension
Option is personal to Tenant and its Affiliates. Except for an assignment or
sublet to an Affiliate of Tenant, under no circumstances whatsoever shall the
assignee under a complete or partial assignment of the Lease, or a subtenant
under a sublease of the Premises, have any right to exercise the Extension
Option. Time is of the essence of this provision. Landlord shall not be
obligated
94
<PAGE>
to pay for or install any improvements in the Premises or grant Tenant any
economic incentives as a consequence of or in consideration for Tenant's
exercise of the Extension Option. Upon determination of the Prevailing Rental
Rate for the Premises, Tenant shall at Landlord's request execute and deliver to
Landlord an amendment to this Lease confirming the exercise of the Extension
Option, the new Term Expiration Date, and the Prevailing Rental Rate for the
Premises.
3.2.1 Prevailing Rental Rate During Extension Period. "Prevailing
----------------------------------------------
Rental Rate" means the average per square foot rental rate per month for all
leases for periods approximately as long as the Extension Period, executed by
tenants for similar uses and lengths of time for comparable space in comparable
Class A office buildings in the "San Francisco Financial District" (that area
whose outer boundaries are Market Street, Grant Street, Washington Street and
the Embarcadero) during the six (6) months immediately prior to the date upon
which such Prevailing Rental Rate is to become effective, subject to reasonable
adjustments for comparable space on more or less desirable floors or areas of
the property located in the San Francisco Financial District. For purposes of
the preceding sentence, "Prevailing Rental Rate" shall mean the total rental
then being quoted by landlords for "Comparable Deals" in the San Francisco
Financial District. "Comparable Deals" shall mean leases which are
approximately as long, and commencing approximately at the same time, as the
Extension Period, and are for comparable space in comparable institutionally-
owned buildings (with occupancy rates not varying more than fifteen percent 15%
from that of the Building), subject to reasonable adjustments for (i) the
desirability of the applicable floor or location in the applicable building, and
(ii) the desirability of the geographic location of the applicable building with
the San Francisco Financial District. Notwithstanding the foregoing, Comparable
Deals shall not include lease transactions where (i) the Landlord of the subject
building is in default of its mortgage or other indebtedness on the building, or
(ii) the Landlord of the subject building is currently, or has within the prior
six months, been involved in foreclosure proceedings on the applicable building,
or (iii) where the Tenant has some form of equity ownership or equity
participation in the applicable building or lease.
3.2.2 Determination. If the parties are unable to agree on the
-------------
Prevailing Rental Rate within sixty (60) days after Landlord's receipt of the
notice of exercise of the Extension Option, either party may request that the
Prevailing Rental Rate be determined pursuant to the ADR Process described in
Section 18.31 below. Such determination shall be final and binding on the
parties. In recognition that the Prevailing Rental Rate may not be determined
until after commencement of the Extension Period, Tenant shall pay, during the
Extension Period until the Prevailing Rental Rate is determined, 100% of the
amount of Rent then in effect (including Base Rent and all other charges).
Under no circumstances shall the Rent during the Extension Period ever be less
than 100% of such amount of Rent then in effect, regardless of the Prevailing
Rental Rate, as determined in accordance with the foregoing provisions. If the
Prevailing Rental Rate is determined to be greater than such amount, Tenant
shall pay Landlord, within thirty (30) days after written request therefore, the
difference between the amount required by such determination of the Prevailing
Rental Rate, and the amount of Rent theretofore paid by Tenant during the
Extension Period.
ARTICLE IV - RENTAL
-------------------
4.1 DEFINITIONS. Unless the context otherwise specifies or requires, the
-----------
following terms shall have the meanings specified herein:
4.1.1 Base Year. The term "Base Year" shall mean calendar year 1998.
---------
95
<PAGE>
4.1.2 Property Taxes. The term "Property Taxes" shall mean the
--------------
aggregate amount of all real estate taxes, assessments (whether they be general
or special), sewer rents and charges, transit taxes, taxes based upon the
receipt of rent and any other federal, state or local governmental charge,
general, special, ordinary or extraordinary (but not including income or
franchise taxes, capital stock, inheritance, estate, gift, or any other taxes
imposed upon or measured by Landlord's gross income or profits, unless the same
shall be imposed in lieu of real estate taxes or other ad valorem taxes), which
Landlord shall pay or become obligated to pay in connection with the Building,
or any part thereof. Property Taxes shall also include all reasonable fees and
costs, including attorneys' fees, appraisals and consultants' fees, incurred by
Landlord in seeking to obtain a reassessment, reduction of, or a limit on the
increase in, any Property Taxes, but the total of said fees and costs shall not
exceed the amount of any reduction in Property Taxes actually granted. If due
to Landlord's gross negligence it fails to timely pay any installment of
Property Taxes, and as a direct consequence thereof the taxing authority
assesses a late fee or penalty, said late fee or penalty shall not be included
in Property Taxes. Property Taxes for any calendar year shall be Property
Taxes which are due for payment or paid in such year, rather than Property Taxes
which are assessed or become a lien during such year. Property Taxes shall
include any tax, assessment, levy, imposition or charge imposed upon Landlord
and measured by or based in whole or in part upon the Building or the rents or
other income from the Building, to the extent that such items would be payable
if the Building was the only property of Landlord subject to same and the income
received by Landlord from the Building was the only income of Landlord.
Property Taxes shall also include any personal property taxes imposed upon the
furniture, fixtures, machinery, equipment, apparatus, systems and appurtenances
of Landlord used in connection with the Building.
4.1.3 Operating Expenses. The term "Operating Expenses" shall mean
------------------
all reasonable costs, fees, disbursements and expenses paid or incurred by or on
behalf of Landlord in the operation, ownership, maintenance, insurance,
management, replacement and repair of the Building (excluding Property Taxes)
including without limitation:
(i) Premiums for property, casualty, liability, earthquake, Rent
interruption or other types of insurance carried by Landlord to the extent
carried by other institutional owners and operators of first class office
buildings in San Francisco.
(ii) Reasonable salaries, wages, and other amounts paid or
payable for personnel including the Building manager, superintendent, operation
and maintenance staff, and other employees of Landlord involved in the
maintenance and operation of the Building, including contributions and premiums
towards fringe benefits, unemployment, disability and worker's compensation
insurance, pension plan contributions and similar premiums and contributions and
the total charges of any independent contractors or property managers engaged in
the operation, repair, care, maintenance and cleaning of any portion of the
Building.
(iii) Cleaning expenses, including without limitation janitorial
services, window cleaning, and garbage and refuse plants.
(iv) Landscape expenses, including without limitation irrigation,
trimming, mowing, fertilizing, seeding, and replacing plants.
(v) Heating, ventilating, air conditioning and steam/utilities
expenses, including fuel, gas, electricity, water, sewer, telephone, and other
services.
(vi) Maintaining operating, repairing and replacing components of
equipment
96
<PAGE>
or machinery, including without limitation heating, refrigeration, ventilation,
electrical, plumbing, mechanical, elevator, escalator, sprinklers, fire/life
safety, security and energy management system, including service contractors,
maintenance contracts, supplies and parts.
(vii) Other items of repair of maintenance of elements of the
Building.
(viii) The costs of policing, security and supervision of the
Building.
(ix) Fair market rental and other costs with respect to the
management office for the Building not to exceed 2,500 rentable square feet.
(x) The cost of the rental of any machinery or equipment and the
cost of supplies used in the maintenance and operation of the Building.
(xi) Audit fees and the cost of accounting services incurred in
the preparation of statements referred to in this Lease and financial
statements, and in the computation of the rents and charges payable by tenants
of the Building not to exceed 2,500 rentable square feet.
(xii) Capital expenditures (a) made primarily to reduce Operating
Expenses to the extent that the expenditure actually reduces Operating Expenses
on an annual basis, or to comply with any laws or other governmental
requirements applicable to the Building not in effect as of the date of this
Lease, or (b) for replacements (as opposed to additions or new improvements) of
items located in the common areas of the Building, required to keep such areas
in good condition; provided all such permitted capital expenditures (together
with reasonable financing charges) shall be amortized for purposes of this Lease
over the shorter of (x) their useful lives, (y) the period during which the
reasonably estimated savings in Operating Expenses equals the expenditures, or
(z) three (3) years.
(xiii) Legal fees and expenses.
(xiv) Payments under any easement, operating agreement,
declaration, restrictive covenant, which Landlord is to provide Tenant with
copies of any payments or obligations, if any, for Tenant's review prior to
Commencement of Term.
(xv) A fee for the administration and management of the Building
as reasonably determined by Landlord and comparable to market fees associated
with similar Class A, institutionally owned high rise office buildings in San
Francisco from time to time.
4.1.4 Exclusions from Operating Expenses. Operating Expenses shall
----------------------------------
not include costs of alteration of the premises of tenants of the Building,
depreciation charges, interest and principal payments on mortgages, ground
rental payments, real estate brokerage and leasing commissions, expenses
incurred in enforcing obligations of tenants of the Building, salaries and other
compensation of executive officers of the managing agent of the Building senior
to the Building manager, costs of any special service provided to any one tenant
of the Building but not to tenants of the Building generally, and costs of
marketing or advertising the Building.
4.1.5 Adjustment. If the Building does not have one hundred percent
----------
(100%) occupancy during an entire calendar year, including the Base Year, then
the variable cost component of "Property Tax" and "Operating Expenses" shall be
equitably adjusted so that the total amount of Property Tax and Operating
Expenses equals the total amount which would have been paid or incurred by
97
<PAGE>
Landlord had the Building been one hundred percent (100%) occupied for the
entire calendar year. In no event shall Landlord be entitled to receive from
Tenant and any other tenants in the Building an aggregate amount in excess of
actual Operating Expenses as a result of the foregoing provision.
4.2 BASE RENT.
----------
4.2.1 Rent Adjustment. During the Lease Term, Tenant shall pay to
---------------
Landlord as rental for the Premises the Base Rent described in Section 1.8
above, subject to adjustment (herein called the "Rent Adjustment") as provided
in Article 1.8.
4.2.2 Tax and Operating Expense Adjustment. The Base Rent provided
------------------------------------
in Article 1.8 shall be increased each calendar year subsequent to the Base
Year, by (collectively, the "Tax and Operating Expense Adjustment"): (i)
Tenant's Percentage Share of the total dollar increase, if any, in Property
Taxes for such year over Property Taxes for the Base Year; and (ii) Tenant's
Percentage Share of the total dollar increase, if any, in Operating Expenses
paid or incurred by Landlord during such year over Operating Expenses paid or
incurred by Landlord during the Base Year. A decrease in Property Taxes or
Operating Expenses below the Base Year amounts shall not decrease the amount of
the Base Rent due hereunder or give rise to a credit in favor of Tenant.
4.3 ADJUSTMENT PROCEDURE; ESTIMATES. The Tax and Operating Expense
-------------------------------
Adjustment shall be determined and paid as follows:
4.3.1 Estimates. During each calendar year subsequent to the Base
---------
Year, Landlord shall give Tenant written notice of its estimate of any increased
amounts payable under Section 4.2.2 for that calendar year. On or before the
first day of each calendar month during the calendar year, Tenant shall pay to
Landlord one-twelfth (1/12th) of such estimated amounts; provided, however,
that, not more often than once a year, Landlord may, by written notice to
Tenant, revise its estimate for such year provided such notice sets forth the
reason for any revision, and subsequent payments by Tenant for such year shall
be based upon such revised estimate.
4.3.2 Landlord's Statement. Within one hundred twenty (120) days
--------------------
after the close of each calendar year or as soon thereafter as is practicable,
Landlord shall deliver to Tenant a statement of that year's Property Taxes and
Operating Expenses, and the actual Tax and Operating Expense Adjustment to be
made pursuant to Section 4.2.2 for such calendar year, as determined by Landlord
(the "Landlord's Statement"). Such Landlord's Statement shall be binding upon
Tenant, except as specifically provided in Section 4.04 below. If the amount of
the actual Tax and Operating Expense Adjustment is more than the estimated
payments for such calendar year made by Tenant, Tenant shall pay the deficiency
to Landlord within fifteen (15) business days of receipt of Landlord's
Statement. If the amount of the actual Tax and Operating Expense Adjustment is
less than the estimated payments for such calendar year made by Tenant, any
excess shall be credited against Rent (as hereinafter defined) next payable by
Tenant under this Lease or, if the Lease Term has expired, any excess shall be
paid to Tenant by Landlord within fifteen (15) business days.
4.3.3 Termination. If this Lease shall terminate on a day other than
-----------
the end of a calendar year, the amount of the Tax and Operating Expense
Adjustment to be paid that is applicable to the calendar year in which such
termination occurs shall be prorated on the basis of the number of days from
January 1 of the calendar year to the termination date bears to 365. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Section 4.3.2 to be performed after such termination.
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4.4 REVIEW OF LANDLORD'S STATEMENT. Provided that Tenant is not then in
------------------------------
default beyond any applicable cure period of its obligations to pay Base Rent,
additional rent described in Section 4.2.2 or any other payments required to be
made by it under this Lease, and provided further that Tenant strictly complies
with the provisions of this Section 4.4, Tenant shall have the right, once each
calendar year, to reasonably review supporting data for any portion of a
Landlord's Statement (provided, however, Tenant may not have an audit or review
right to all documentation relating to Building operations as this would far
exceed the relevant information necessary to properly document a pass-through
billing statement, but real estate tax statements, and information on utilities,
repairs, maintenance and insurance will be available), in accordance with the
following procedure:
4.4.1 Notice. Tenant shall, within sixty (60) calendar days after
------
any such Landlord's Statement is delivered, deliver a written notice to Landlord
specifying the portions of the Landlord's Statement that are claimed to be
incorrect, and Tenant shall simultaneously pay to Landlord all amounts due from
Tenant to Landlord as specified in the Landlord's Statement. Except as
expressly set forth below, in no event shall Tenant be entitled to withhold,
deduct, or offset any monetary obligation of Tenant to Landlord under the Lease
(including, without limitation, Tenant's obligation to make all payments of Base
Rent and all payments of Tenant's Tax and Operating Expense Adjustment) pending
the completion of and regardless of the results of any review of records under
this Section 4.4. The right of Tenant under this Section 4.4 may only be
exercised once for any Landlord's Statement, and if Tenant fails to meet any of
the above conditions as a prerequisite to the exercise of such right, the right
of Tenant under this Section 4.4 for a particular Landlord's Statement shall be
deemed waived. Notwithstanding the foregoing, if Tenant identifies an error in
a specific portion in excess of three percent (3%) of Landlord's Statement in a
particular year, Tenant shall have the right to audit that specific portion of
Landlord's Statement for the previous Lease Years in the Term.
4.4.2 Records. Tenant acknowledges that Landlord maintains its
-------
records for the Building at Landlord's manager's corporate offices presently
located at the address set forth in Section 1. 12 and Tenant agrees that any
review of records under this Section 4.4 shall be at the sole expense of Tenant
and shall be conducted by an independent firm of certified public accountants of
national standing. Tenant acknowledges and agrees that any records reviewed
under this Section 4.4 constitute confidential information of Landlord, which
shall not be disclosed to anyone other than the accountants performing the
review and the principals of Tenant who receive the results of the review. The
disclosure of such information to any other person, whether or not caused by the
conduct of Tenant, shall constitute a material breach of this Lease.
4.4.3 Landlord's Review; Reconciliation. Any errors disclosed by the
---------------------------------
review shall be promptly corrected by Landlord, provided, however, that if
Landlord disagrees with any such claimed errors, Landlord shall have the right
to cause another review to be made by an independent firm of certified public
accountants of national standing. In the event of a disagreement between the
two accounting firms as defined, in Section 18.31, the ADR process shall apply
to resolve the disputes. In the event that the results of the review of
records (taking into account, if applicable, the results of any additional
review caused by Landlord) reveal that Tenant has overpaid obligations for a
preceding period, the amount of such overpayment shall be credited against
Tenant's subsequent installment obligations to pay the estimated Tax and
Operating Expense Adjustment. In the event that such results show that Tenant
has underpaid its obligations for a preceding period, Tenant shall be liable for
Landlord's actual accounting fees, and the amount of such underpayment shall be
paid by Tenant to Landlord with the next succeeding installment obligation of
estimated Tax and Operating Expense Adjustment.
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4.5 PAYMENT. Concurrently with the execution hereof, Tenant shall pay
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Landlord Base Rent for the first calendar month of the Lease Term. Thereafter
the Base Rent described in Section 1.7, as adjusted in accordance with Section
4.2, shall be payable in advance on the first day of each calendar month. If
the Commencement Date is other than the first day of a calendar month, the
prepaid Base Rent for such partial month shall be prorated in the proportion
that the number of days this Lease is in effect during such partial month bears
to the total number of days in the calendar month. All Rent, and all other
amounts payable to Landlord by Tenant pursuant to the provisions of this Lease,
shall be paid to Landlord, without notice, demand, abatement, deduction or
offset, in lawful money of the United States at Landlord's office in the
Building or to such other person or at such other place as Landlord may
designate from time to time by written notice given to Tenant. No payment by
Tenant or receipt by Landlord of a lesser amount than the correct Rent due
hereunder shall be deemed to be other than a payment on account; nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed to effect or evidence an accord and satisfaction; and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance or pursue any other remedy in this Lease or at law or in
equity provided.
4.6 LATE CHARGE; INTEREST. Tenant acknowledges that the late payment of
---------------------
Base Rent or any other amounts payable by Tenant to Landlord hereunder (all of
which shall constitute additional rental to the same extent as Base Rent) will
cause Landlord to incur administrative costs and other damages, the exact amount
of which would be impracticable or extremely difficult to ascertain. Landlord
and Tenant agree that if Landlord does not receive any such payment on or before
five (5) days after the date the payment is due more than once in any
consecutive eighteen (18) month period, Tenant shall pay to Landlord, as
additional rent, (a) a late charge equal to five percent (5%) of the overdue
amount to cover such additional administrative costs; and (b) interest on the
delinquent amounts at the lesser of the maximum rate permitted by law (if any)
or twelve percent (12%) per annum from the date due to the date paid.
4.7 ADDITIONAL RENT. For purposes of this Lease, all amounts payable by
---------------
Tenant to Landlord pursuant to this Lease, whether or not denominated as such,
shall constitute additional rental hereunder. Such additional rental, together
with the Base Rent, Rent Adjustment, and Tax and Operating Expense Adjustment,
shall sometimes be referred to in this Lease as "Rent".
4.8 ADDITIONAL TAXES. Notwithstanding anything in Section 4.1.2 to the
----------------
contrary, Tenant shall reimburse Landlord upon demand for any and all taxes
payable by or imposed upon Landlord upon or with respect to: any fixtures or
personal property located in the Premises; any leasehold improvements made in or
to the Premises by or for Tenant; the Rent payable hereunder, including, without
limitation, any gross receipts tax, license fee or excise tax levied by any
governmental authority; the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of any portion of the Premises
(including without limitation any applicable possessory interest taxes); or this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises.
ARTICLE V - SECURITY DEPOSIT
----------------------------
Waived in lieu of Tenant's favorable credit rating.
ARTICLE VI - USE OF PREMISES
----------------------------
6.1 TENANT'S PERMITTED USE. Tenant shall use the Premises only for
----------------------
Tenant's Permitted Use
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as set forth in Section 1.10 above and shall not use or permit the Premises to
be used for any other purpose. Tenant shall, at its sole cost and expense,
obtain all governmental licenses and permits required to allow Tenant to conduct
Tenant's Permitted Use. Landlord disclaims any warranty that the Premises are
suitable for Tenant's use and Tenant acknowledges that it has had a full
opportunity to make its own determination in this regard.
6.2 COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS.
-------------------------------------------
6.2.1 Applicable Law. Tenant shall cause the Premises to comply in
--------------
all material respects with all laws, ordinances, regulations and directives of
any governmental authority having jurisdiction including, without limitation,
any certificate of occupancy and any law, ordinance, regulation, covenant,
condition or restriction affecting the Building or the Premises which in the
future may become applicable to the Premises to the extent they pertain to
Tenant's use of the Premises (collectively "Applicable Law").
6.2.2 No Violation. Tenant shall not use the Premises, or permit the
------------
Premises to be used, in any manner which: (a) violates any Applicable Law; (b)
causes or is reasonably likely to cause damage to the Building or the Premises;
(c) violates a requirement or condition of any fire and extended insurance
policy covering the Building and/or the Premises, or increases the cost of such
policy; (d) constitutes or is reasonably likely to constitute a nuisance,
annoyance or inconvenience to other tenants or occupants of the Building or its
equipment, facilities or systems; (e) interferes with, or is reasonably likely
to interfere with, the transmission or reception of microwave, television,
radio, telephone or other communication signals by antennae or other facilities
located in the Building; or (f) violates the Rules and Regulations described in
Article XVIII.
6.3 HAZARDOUS MATERIALS.
-------------------
6.3.1 Probation. No Hazardous Materials (as defined herein), shall
---------
be Handled (as also defined herein), upon, about, above or beneath the Premises
or any portion of the Building by or on behalf of Tenant, its subtenants or its
assignees, or their respective contractors, clients, officers, directors,
employees, agents, or invitees. Any such Hazardous Materials so Handled shall
be known as Tenant's Hazardous Materials. Notwithstanding the foregoing, normal
quantities of Tenant's Hazardous Materials customarily used in the conduct of
general administrative and executive office activities (e.g., copier fluids and
cleaning supplies) may be Handled at the Premises without Landlord's prior
written consent. Tenant's Hazardous Materials shall be Handled at all times in
compliance with the manufacturer's instructions therefor and all applicable
Environmental Law (as defined herein).
6.3.2 Remediation. Notwithstanding the obligation of Tenant to
-----------
indemnify Landlord pursuant to this Lease, Tenant shall, at its sole cost and
expense, promptly take all actions required by any Regulatory Authority (as
defined herein), or necessary for Landlord to make reasonable economic use of
the Premises or any portion of the Building, which requirements or necessity
arises from the Handling of Tenant's Hazardous Materials upon, about, above or
beneath the Premises or any portion of the Building. Such actions shall
include, but not be limited to, the investigation of the environmental condition
of the Premises or any portion of the Building, the preparation of any
feasibility studies or reports and the performance of any cleanup, remedial,
removal or restoration work. Tenant shall take reasonable actions necessary to
restore the Premises or any portion of the Building to the condition existing
prior to the introduction of Tenant's Hazardous Materials, notwithstanding any
less stringent standards or remediation allowable under applicable Environmental
Laws. Tenant shall nevertheless obtain Landlord's written approval prior to
undertaking any actions required by this Section, which approval shall not be
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unreasonably withheld so long as such actions would not potentially have a
material adverse long-term or short-term effect on the Premises or any portion
of the Building.
6.3.3 Additional Documents. Tenant agrees to execute affidavits,
--------------------
representations, and the like from time to time at Landlord's reasonable request
stating in a form mutually acceptable to Tenant and Landlord, Tenant's best
knowledge and belief regarding the presence of Hazardous Materials on the
Premises.
6.3.4 Environmental Laws. As used herein, "Environmental Laws" means
------------------
and includes all now and hereafter existing statutes, laws, ordinances, codes,
regulations, rules, rulings, orders, decrees, directives, policies and
requirements by any Regulatory Authority regulating, relating to, or imposing
liability or standards of conduct concerning public health and safety or the
environment.
6.3.5 Hazardous Materials. As used herein, "Hazardous Materials"
-------------------
means: (a) any material or substance: (i) which is defined or becomes defined
as a "hazardous substance", "hazardous waste," "infectious waste," "chemical
mixture or substance," or "air pollutant" under Environmental Laws; (ii)
containing petroleum, crude oil or any fraction thereof; (iii) containing
polychlorinated biphenyls (PCB's); (iv) containing asbestos; (v) which is
radioactive; or (vi) which is infectious; or (b) any other material or substance
displaying toxic, reactive, ignitable or corrosive characteristics, as all such
terms are used in their broadest sense, and are defined, or become defined by
environmental laws; or (c) materials which cause a nuisance upon or waste to the
Premises or any portion of the Building.
6.3.6 Handle. As used herein, "Handle," "handle," "Handled,"
------
"handled," "Handling," or "handling" shall mean any installation, handling,
generation, storage, treatment, use, disposal, discharge, release, manufacture,
refinement, presence, migration, emission, abatement, removal, transportation,
or any other activity of any type in connection with or involving Hazardous
Materials.
6.3.7 Regulatory Authority. As used herein, "Regulatory Authority"
--------------------
shall mean any federal, state or local governmental agency, commission, board or
political subdivision.
ARTICLE VII - UTILITIES AND SERVICES
------------------------------------
7.1 BUILDING SERVICES. Landlord agrees to furnish or cause to be
-----------------
furnished to the Premises the following utilities and services, subject to the
conditions and standards set forth herein:
7.1.1 Elevator Service. Non-attended automatic elevator service (if
----------------
the Building has such equipment serving the Premises), in common with Landlord
and other tenants and occupants and their agents and invitees.
7.1.2 HVAC. During Business Hours, such air conditioning, heating
----
and ventilation as, in Landlord's reasonable judgment, are required for the
comfortable use and occupancy of the Premises; provided, however, that if Tenant
shall require heating, ventilation or air conditioning in excess of that which
Landlord shall be required to provide hereunder, Landlord may provide such
additional heating, ventilation or air conditioning at such rates and upon such
additional conditions as shall be determined by Landlord from time to time.
7.1.3 Water. Water for drinking and if rest rooms are within the
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Premises, rest room purposes.
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7.1.4 Janitorial and Cleaning. Reasonable janitorial and cleaning
-----------------------
services, provided that the Premises are used exclusively for office purposes
and are kept reasonably in order by Tenant. If the Premises are not used
exclusively as offices, Landlord, at Landlord's sole discretion, may require
that the Premises be kept clean and in order by Tenant, at Tenant's expense, to
the satisfaction of Landlord and by persons approved by Landlord; and, in all
events, Tenant shall pay to Landlord the cost of removal of Tenant's refuse and
rubbish, to the extent that the same exceeds the refuse and rubbish attendant to
normal office usage.
7.1.5 Electricity. At all reasonable times, electric current as
-----------
required for building standard lighting and fractional horsepower office
machines; provided, however, that: (i) without Landlord's consent, Tenant shall
not install, or permit the installation, in the Premises of any computers, word
processors, electronic data processing equipment or other type of equipment or
machines which will increase Tenant's use of electric current in excess of that
which Landlord is obligated to provide hereunder (provided, however, that the
foregoing shall not preclude the use of personal computers or similar office
equipment); (ii) if Tenant shall require electric current which may disrupt the
provision of electrical service to other tenants, Landlord may condition its
consent upon Tenant's payment of the cost of installing and providing any
additional facilities required to furnish such excess power to the Premises and
upon the installation in the Premises of electric current meters to measure the
amount of electric current consumed, in which latter event Tenant shall pay for
the cost of such meter(s) and the cost of installation, and repair thereof, as
well as for all excess electric current consumed at the rates charged by the
applicable local public utility, plus a reasonable amount to cover the
additional expenses incurred by Landlord in keeping account of the electric
current so consumed; and (iii) if Tenant's increased electrical requirements
will materially affect the temperature level in the Premises or the Building,
Landlord's consent may be conditioned upon Landlord's requirement that Tenant
pay such amounts as will be incurred by Landlord to install and operate any
machinery or equipment necessary to restore the temperature level to that
otherwise required to be provided by Landlord, including but not limited to the
cost of modifications to the air conditioning system. Landlord shall not, in
any way, be liable or responsible to Tenant for any loss or damage or expense
which Tenant may incur or sustain if, for any reasons beyond Landlord's
reasonable control, either the quantity or character of electric service is
changed or is no longer available or suitable for Tenant's requirements. Tenant
covenants that at all times its use of electric current shall never exceed the
capacity of the feeders, risers or electrical installations of the Building. If
submetering of electricity in the Building will not be permitted under future
laws or regulations, the Rent will then be equitably and periodically adjusted
to include an additional payment to Landlord reflecting the cost to Landlord for
furnishing electricity to Tenant in the Premises.
7.1.6 Payments. Any amounts which Tenant is required to pay to
--------
Landlord pursuant to this Section 7.1 shall be payable upon demand by Landlord
and shall constitute additional rent.
7.2 INTERRUPTION OF SERVICE. Landlord shall not be liable for any failure
-----------------------
to furnish, stoppage of, or interruption in furnishing any of the services or
utilities described in Section 7.1, when such failure is caused by accident,
breakage, repairs, strikes, lockouts, labor disputes, labor disturbances,
governmental regulation, civil disturbances, acts of war, moratorium or other
governmental action, or any other cause beyond Landlord's reasonable control,
and, in such event, Tenant shall not be entitled to any damages nor shall any
failure or interruption abate or suspend Tenant's obligation to pay Rent, Base
Rent and additional rent required under this Lease or constitute or be construed
as a constructive or other eviction of Tenant. Further, in the event any
governmental authority or public utility promulgates or revises any law,
ordinance, rule or regulation, or issues mandatory controls or voluntary
controls relating to the use or conservation of energy, water, gas, light or
electricity, the reduction of automobile or other
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emissions, or the provision of any other utility or service, Landlord may take
any reasonably appropriate action to comply with such law, ordinance, rule,
regulation, mandatory control or voluntary guideline and Tenant's obligations
hereunder shall not be affected by any such action of Landlord. The parties
acknowledge that safety and security devices, services and programs provided by
Landlord, if any, while intended to deter crime and ensure safety, may not in
given instances prevent theft or other criminal acts, or ensure safety of
persons or property. The risk that any safety or security device, service or
program may not be effective, or may malfunction, or be circumvented by a
criminal, is assumed by Tenant with respect to Tenant's property and interests,
and Tenant shall obtain insurance coverage to the extent Tenant desires
protection against such criminal acts and other losses, as further described in
this Lease. Tenant agrees to cooperate in any reasonable safety or security
program developed by Landlord or required by Law.
ARTICLE VIII - MAINTENANCE AND REPAIRS
--------------------------------------
8.1 LANDLORD'S OBLIGATIONS. Except as expressly provided in Sections 8.2
----------------------
and 8.3 below, Landlord shall maintain the Building in first class, based on
its age, order and repair throughout the Lease Term; provided, however, that
Landlord shall not be liable for any failure to make any repairs or to perform
any maintenance unless such failure shall persist for an unreasonable time after
written notice of the need for such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Article XI, there shall be no abatement of
Rent, nor shall there be any liability of Landlord, by reason of any injury or
inconvenience to, or interference with, Tenant's business or operations arising
from the making of, or failure to make, any maintenance or repairs in or to any
portion of the Building.
8.2 TENANT'S OBLIGATIONS. During the Lease Term, Tenant shall, at its
--------------------
sole cost and expense, maintain the Premises in good order and repair
(including, without limitation, the carpet, wall-covering, doors, plumbing and
other fixtures, equipment, alterations and improvements, whether installed by
Landlord or Tenant).
8.3 LANDLORD'S RIGHTS. Landlord and its contractors shall have the right,
-----------------
at all reasonable times and upon at least 24 hours prior written, oral or
telephonic notice to Tenant at the Premises, other than in the case of any
emergency in which case no notice shall be required, to enter upon the Premises
to make any repairs to the Premises or the Building reasonably or deemed
reasonably necessary by Landlord and to erect such equipment, including
scaffolding, as is reasonably necessary to effect such repairs.
ARTICLE IX - ALTERATIONS, ADDITIONS AND IMPROVEMENTS
----------------------------------------------------
9.1 LANDLORD'S CONSENT; CONDITIONS. Tenant shall not make or permit to be
------------------------------
made any alterations, additions, or improvements in or to the Premises
("Alterations") without the prior written consent of Landlord, which consent,
with respect to non-structural alterations, shall not be unreasonably withheld,
and which consent with respect to any alterations which may adversely affect the
structural or safety components of the Building, may be given or withheld in
Landlord's sole and absolute discretion provided, however, that Tenant shall not
be required to obtain Landlord's prior approval for minor non-structural
Alterations that cost less than $10,000.00 and such Alterations are code
compliant. Landlord may impose as a condition to making any Alterations, the
following requirements (which shall be subject to Landlord's reasonable
requirement): Tenant's submission to Landlord, for Landlord's prior written
approval, of all plans and specifications relating to the Alterations;
Landlord's prior written approval of
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the time or times when the Alterations are to be performed; Landlord's prior
written approval of the contractors and subcontractors performing work in
connection with the Alterations; employment of union contractors and
subcontractors who shall not cause labor disharmony; Tenant's receipt of all
necessary permits and approvals from all governmental authorities having
jurisdiction over the Premises prior to the construction of the Alterations;
Tenant's delivery to Landlord of such bonds and insurance as Landlord shall
reasonably require; and Tenant's payment to Landlord of all reasonable costs and
expenses incurred by Landlord because of Tenant's Alterations, including but not
limited to costs incurred in reviewing the plans and specifications for, and the
progress of, the Alterations. Tenant is required to provide Landlord written
notice of whether the Alterations include the Handling of any Hazardous
Materials and whether these materials are of a customary and typical nature for
industry practices. Upon completion of the Alterations, Tenant shall provide
Landlord with copies of as-built plans. Neither the approval by Landlord of
plans and specifications relating to any Alterations nor Landlord's supervision
or monitoring of any Alterations shall constitute any warranty by Landlord to
Tenant of the adequacy of the design for Tenant's intended use or the proper
performance of the Alterations.
9.2 PERFORMANCE OF ALTERATIONS WORK. All work relating to the Alterations
-------------------------------
shall be performed in compliance with the plans and specifications approved by
Landlord, all applicable laws, ordinances, rules, regulations and directives of
all governmental authorities having jurisdiction (including without limitation
Title 24 of the California Administrative Code) and the requirements of all
carriers of insurance on the Premises and the Building, the Board of
Underwriters, Fire Rating Bureau, or similar organization. All work shall be
performed in a diligent, first class manner and so as not to unreasonably
interfere with any other tenants or occupants of the Building. All costs
incurred by Landlord relating to the Alterations shall be payable to Landlord by
Tenant as additional rent upon demand. No asbestos-containing materials shall
be used or incorporated in the Alterations. No lead-containing surfacing
material, solder, or other construction materials or fixtures where the presence
of lead might create a condition of exposure not in compliance with
Environmental Laws shall be incorporated in the Alterations.
9.3 LIENS. Tenant shall pay when due all costs for work performed and
-----
materials supplied to the Premises. Tenant shall keep Landlord, the Premises
and the Building free from all liens, stop notices and violation notices
relating to the Alterations or any other work performed for, materials furnished
to or obligations incurred by or for Tenant and Tenant shall protect, indemnify,
hold harmless and defend Landlord, the Premises and the Building of and from any
and all loss, cost, damage, liability and expense, including reasonable
attorneys' fees, arising out of or related to any such liens or notices.
Further, Tenant shall give Landlord not less than seven (7) business days prior
written notice before commencing any Alterations in or about the Premises to
permit Landlord to post appropriate notices of non-responsibility. Tenant shall
also secure, upon Landlord's request prior to commencing any Alterations, at
Tenant's sole expense, a completion and lien indemnity bond satisfactory to
Landlord for such work. During the progress of such work, Tenant shall, upon
Landlord's request, furnish Landlord with sworn contractor's statements and lien
waivers covering all work theretofore performed. Tenant shall satisfy or
otherwise discharge all liens, stop notices or other claims or encumbrances
within ten (10) days after Landlord notifies Tenant in writing that any such
lien, stop notice, claim or encumbrance has been filed. If Tenant fails to pay
and remove such lien, claim or encumbrance within such ten (10) days, Landlord,
at its election, may pay and satisfy the same and in such event the sums so paid
by Landlord, with interest from the date of payment at the rate set forth in
this Lease for amounts owed Landlord by Tenant shall be deemed to be additional
rent due and payable by Tenant at once without notice or demand.
9.4 LEASE TERMINATION. Except as provided herein, upon expiration or
-----------------
earlier termination of this Lease Tenant shall surrender the Premises to
Landlord in the same condition as existed on the date
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Tenant first occupied the Premises (whether pursuant to this Lease or an earlier
lease), subject to reasonable wear and tear. All Alterations shall become a part
of the Premises and shall become the property of Landlord upon the expiration or
earlier termination of this Lease, unless Landlord notified Tenant at the time
Landlord consented to Tenant's Alteration (as further provided below) that it
would require Tenant to remove such Alteration at the end of the Lease Term and
Landlord provides Tenant with written notice requiring Tenant to remove some or
all of Tenant's Alterations in which event Tenant shall promptly remove the
designated Alterations and shall promptly repair any resulting damage, all at
Tenant's sole expense. All business and trade fixtures, machinery and equipment,
furniture, movable partitions and items of personal property owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant; upon the expiration or earlier termination of this Lease,
Tenant shall, at its sole expense, remove all such items and repair any damage
to the Premises or the Building caused by such removal. If Tenant fails to
remove any such items or repair such damage promptly after the expiration or
earlier termination of the Lease, Landlord may, but need not, do so with no
liability to Tenant, and Tenant shall pay Landlord the cost thereof upon demand.
Notwithstanding the foregoing to the contrary, in the event that Landlord gives
its consent, pursuant to the provisions of this Article IX, to allow Tenant to
make an Alteration in the Premises, Landlord will notify Tenant in writing at
the time of the giving of such consent whether Landlord will require Tenant, at
the Tenant's cost, to remove such Alteration at the end of the Lease Term. The
parties agree that Tenant shall not be obligated to remove any Alteration in the
Premises that existed prior to the Commencement Date, or that was constructed as
part of the Work provided in Exhibit "B."
ARTICLE X - INDEMNIFICATION AND INSURANCE
-----------------------------------------
10.1 INDEMNIFICATION.
---------------
10.1.1 Tenant. Tenant agrees to protect, indemnify, hold harmless
------
and defend Landlord and any Mortgagee, as defined herein, and each of their
respective partners, directors, officers, agents and employees, successors and
assigns (except to the extent of the losses described below are caused by the
gross negligence or intentional misconduct of Landlord, its agents and
employees), from and against:
(i) any and all loss, cost, damage, liability or expense as incurred
(including but not limited to reasonable attorneys' fees and legal costs)
arising out of or related to any claim, suit or judgment brought by or in favor
of any person or persons for damage, loss or expense due to, but not limited to,
bodily injury, including death or property damage sustained by such person or
persons which arises out of, is occupied by or is in any way attributable to the
use or occupancy of the Premises or any portion of the Building by Tenant or the
acts or omissions of Tenant or its agents, employees, contractors, clients,
invitees or subtenants except that caused by the sole active negligence or
willful misconduct of Landlord or its agents or employees. Such loss or damage
shall include, but not be limited to, any injury or damage to, or death of,
Landlord's employees or agents or damage to the Premises or any portion of the
Building.
(ii) any and all environmental damages which arise from: (a) the
Handling of any Tenants Hazardous Materials, as defined in Section 6.3 or (b)
the breach of any of the provisions of this Lease. For the purpose of this
Lease, "environmental damages" shall mean (x) all claims, judgments, damages,
penalties, fines, costs, liabilities, and losses (including without limitation,
diminution in the value of the Premises or any portion of the Building, damages
for the loss of or restriction on use of rentable or usable space or of any
amenity of the Premises or any portion of the Building, and from any adverse
impact of Landlord's marketing of space); (y) all reasonable sums paid for
settlement of claims, attorneys' fees, consultants' fees and experts' fees; and
(z) all costs incurred by Landlord in connection
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with investigation or remediation relating to the Handling of Tenant's Hazardous
Materials, whether or not required by Environmental Laws, necessary for Landlord
to make reasonable economic use of the Premises or any portion of the Building,
or otherwise required under this Lease. To the extent that Landlord is held
strictly liable by a court or other governmental agency of competent
jurisdiction under any Environmental Laws, Tenant's obligation to Landlord and
the other indemnities under the foregoing indemnification shall likewise be
without regard to fault on Tenant's part with respect to the violation of any
Environmental Law which results in liability to the indemnitee. Tenant's
obligations and liabilities pursuant to this Section 10.1 shall survive the
expiration or earlier termination of this Lease.
10.1.2 Landlord. Landlord agrees to protect, indemnify, hold
--------
harmless and defend Tenant from and against any and all loss, cost, damage,
liability or expense, including reasonable attorneys' fees, with respect to any
claim of damage or injury to persons or property at the Premises, caused by the
negligence or intentional misconduct of Landlord or its authorized agents or
employees.
10.1.3 No Limitation. Notwithstanding anything to the contrary
-------------
contained herein, nothing shall be interpreted or used to (a) in any way affect,
limit, reduce or abrogate any insurance coverage provided by any insurers to
either Tenant or Landlord, or (b) infer or imply that Tenant is a partner, joint
venturer, agent, employee, or otherwise acting by or at the direction of
Landlord.
10.2 PROPERTY INSURANCE.
------------------
10.2.1 Tenant All-Risk. At all times during the Lease Term, Tenant
---------------
shall procure and maintain, at its sole expense, "all-risk" property insurance,
for damage or other loss caused by fire or other casualty or cause including,
but not limited to, vandalism and malicious mischief, theft, water damage of any
type, including sprinkler leakage, bursting of pipes, and explosion, in an
amount not less than one hundred percent (100%) of the replacement cost covering
(a) all Alterations made by or for Tenant in the Premises; and (b) Tenant's
trade fixtures, equipment and other personal property from time to time situated
in the Premises. The proceeds of such insurance shall be used for the repair or
replacement of the property so insured, except that if not so applied or if this
Lease is terminated following a casualty, the proceeds applicable to the
leasehold improvements shall be paid to Landlord and the proceeds applicable to
Tenant's personal property shall be paid to Tenant.
10.2.2 Tenant Business Interruption. At all times during the Lease
----------------------------
Term, Tenant shall procure and maintain business interruption insurance in such
amount as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils insured against in Section 10.2.1.
10.2.3 Landlord All-Risk. Landlord shall, at all times during the
-----------------
Lease Term, procure and maintain "all-risk" property insurance in the amount not
less than ninety percent (90%) of the insurable replacement cost covering the
Building in which the Premises are located and such other insurance as may be
required by a Mortgagee or otherwise desired by Landlord.
10.3 LIABILITY INSURANCE.
-------------------
10.3.1 Tenant. At all times during the Lease Term, Tenant shall
------
procure and maintain, at its sole expense, commercial general liability
insurance applying to the use and occupancy of the Premises and the business
operated by Tenant. Such insurance shall have a minimum combined single limit
of liability of at least Two Million Dollars ($2,000,000) per occurrence and a
general aggregate limit of at least Two Million Dollars ($2,000,000). All such
policies shall be written to apply to all bodily injury, property damage, and
personal injury losses, and shall be endorsed to include Landlord and its
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agents, beneficiaries, partners, employees, and any deed of trust holder or
mortgagee of Landlord or any ground lessor as additional insureds. Such
liability insurance shall be written as primary policies, not excess or
contributing with or secondary to any other insurance as may be available to the
additional insureds.
10.3.2 Alcohol. If not already covered by Tenant's existing
-------
insurance, prior to the sale, storage, use or giving away of alcoholic beverages
on or from the Premises by Tenant or another person, Tenant, at its own expense,
shall obtain a policy or policies of insurance issued by a responsible insurance
company and in a form acceptable to Landlord saving harmless and protecting
Landlord and the Premises against any and all damages, claims, liens, judgments,
expenses and costs, including actual attorneys' fees, arising under any present
or future law, statute, or ordinance of the State of California or other
governmental authority having jurisdiction of the Premises, by reason of any
storage, sale, use or giving away of alcoholic beverages on or from the
Premises. Such policy or policies of insurance shall have a minimum combined
single limit of One Million Dollars ($1,000,000) per occurrence and shall apply
to bodily injury, fatal or nonfatal; injury to means of support; and injury to
property of any person. Such policy or policies of insurance shall name
Landlord and its agents, beneficiaries, partners, employees and any mortgagee of
Landlord or any ground lessor of Landlord as additional insureds.
10.3.3 Estimates. Landlord shall, at all during the Lease Term,
---------
procure and maintain commercial general liability insurance for the Building in
which the Premises are located. Such insurance shall have minimum combined
single limit of liability of at least Two Million Dollars ($2,000,000) per
occurrence, and a general aggregate limit of at least Two Million Dollars
($2,000,000).
10.4 WORKERS' COMPENSATION INSURANCE. At all times during the Lease Term,
-------------------------------
Tenant shall procure and maintain Workers' Compensation Insurance in accordance
with the laws of the State of California, and Employer's Liability insurance
with a limit not less than One Million Dollars ($1,000,000) Bodily Injury Each
Accident; One Million Dollars ($1,000,000) Bodily Injury By Disease - Each
Person; and One Million Dollars ($1,000,000) Bodily Injury to Disease - Policy
Limit.
10.5 POLICY REQUIREMENTS. All insurance required to be maintained by
-------------------
Tenant shall be issued by insurance companies authorized to do insurance
business in the State of California and rated not less than A-VIII in Best's
Insurance Guide. A certificate of insurance (or, at Landlord's option, copies
of the applicable policies) evidencing the insurance required under this Article
X shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date. No such policy shall be subject to cancellation or
modification without thirty (30) days prior written notice to Landlord and to
any deed of trust holder, mortgagee or ground lessor designated by Landlord to
Tenant. Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy. Tenant shall have the right to provide the insurance
required by this Article X pursuant to blanket policies, but only if such
blanket policies expressly provide coverage to the Premises and Landlord as
required by this Lease pursuant to a per-location endorsement.
10.6 WAIVER OF SUBROGATION. Each party hereby waives any right of recovery
---------------------
against the other for injury or loss due to hazards covered by insurance or
required to be covered, to the extent of the injury or loss covered thereby.
Any policy of insurance to be provided by Tenant or Landlord pursuant to this
Article X shall contain a clause denying the applicable insurer any right of
subrogation against the other party.
10.7 FAILURE TO INSURE. If Tenant fails to maintain any insurance which
-----------------
Tenant is required to maintain pursuant to this Article X, Tenant shall be
liable to Landlord for any loss or cost resulting from
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such failure to maintain. Tenant may not self-insure against any risks required
to be covered by insurance without Landlord's prior written consent, which
consent may be given or withheld in Landlord's sole and absolute discretion.
ARTICLE XI - DAMAGE OR DESTRUCTION
----------------------------------
11.1 TOTAL DESTRUCTION. Except as provided in Section 11.3 below, this
-----------------
Lease shall, at Landlord's election, terminate if the Building is totally
destroyed.
11.2 PARTIAL DESTRUCTION OF PREMISES. If the Premises are damaged by any
-------------------------------
casualty and, in Landlord's reasonable opinion, the Premises (exclusive of any
Alterations made to the Premises by Tenant) can be restored to its pre-existing
condition within two hundred (200) days after the date of the damage or
destruction, Landlord shall, upon written notice from Tenant to Landlord of such
damage, except as provided in Section 11.3, promptly and with due diligence
repair any damage to the Premises (exclusive of any Alterations to the Premises
made by Tenant, which shall be promptly repaired by Tenant at its sole expense)
and, until such repairs are completed, the Rent shall be abated from the date of
damage or destruction in the same proportion that the rentable area of the
portion of the Premises which is unusable by Tenant in the conduct of its
business bears to the total rentable area of the Premises. If such repairs
cannot, in Landlord's opinion, be made within said two hundred (200) day period,
then Landlord may, at its option, exercisable by written notice given to Tenant
within thirty (30) days after the date of the damage or destruction, elect to
make the repairs within a reasonable time after the damage or destruction, in
which event this Lease shall remain in full force and effect but the Rent shall
be abated as provided in the preceding sentence; if Landlord does not so elect
to make the repairs, then either Landlord or Tenant shall have the right, by
written notice given to the other within sixty (60) days after the date of the
damage or destruction, to terminate this Lease as of the date of the damage or
destruction.
11.3 EXCEPTIONS TO LANDLORD'S OBLIGATIONS. Notwithstanding anything to the
------------------------------------
contrary contained in this Article XI, Landlord shall have no obligation to
repair the Premises if either: (a) the Building in which the Premises are
located is so damaged as to require repairs to the Building exceeding twenty
percent (20%) of the full insurable value of the Building; or (b) Landlord
elects to demolish the Building in which the Premises are located; or (c) the
damage or destruction occurs less than eighteen (18) months prior to the
Expiration Date, exclusive of option periods. Further, Tenant's Rent shall not
be abated if either (i) the damage or destruction is repaired within five (5)
business days after Landlord receives written notice from Tenant of the
casualty, or (ii) Tenant, or any officers, partners, employees, agents or
invitees of Tenant, or any assignee or subtenant of Tenant, is, solely
responsible for the damage or destruction.
11.4 WAIVER. The provisions contained in this Lease shall supersede any
------
laws (whether statutory, common law or otherwise) now or hereafter in effect
relating to damage, destruction, self-help or termination, including California
Civil Code Sections 1932 and 1933.
ARTICLE XII - CONDEMNATION
--------------------------
12.1 TAKING. If the entire Premises or so much of the Premises as to
------
render the balance unusable by Tenant shall be taken by condemnation, sale in
lieu of condemnation or in any other manner for any public or quasi-public
purpose (collectively "Condemnation"), and if Landlord, at its option, is unable
or unwilling to provide substitute premises containing at least as much rentable
area as described
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in Section 1.2 above, then this Lease shall terminate on the date that title or
possession to the Premises is taken by the condemning authority, whichever is
earlier.
12.2 AWARD. In the event of any Condemnation, the entire award for such
-----
taking shall belong to Landlord. Tenant shall have no claim against Landlord or
the award for the value of any unexpired term of this Lease or otherwise.
Tenant shall be entitled to independently pursue a separate award in a separate
proceeding for Tenant's relocation costs directly associated with the taking,
provided such separate award does not diminish Landlord's award.
12.3 TEMPORARY TAKING. No temporary taking of the Premises shall terminate
----------------
this Lease or entitle Tenant to any abatement of the Rent payable to Landlord
under this Lease; provided, further, that any award for such temporary taking
shall belong to Tenant to the extent that the award applies to any time period
during the Lease Term and to Landlord to the extent that the award applies to
any time period outside the Lease Term.
ARTICLE XIII - RELOCATION
-------------------------
Landlord shall have the one time right, at its option upon not less than
sixty (60) days prior written notice to Tenant ("Landlord Relocation Notice"),
to relocate Tenant and to substitute for the Premises described above other
space in the Building containing at least as much rentable area as the Premises
described in Section 1.2 above and with reasonably similar improvements. If
Tenant is already in occupancy of the Premises, then Landlord shall approve in
advance the relocation expenses for purposes of reimbursement for Tenant's
reasonable moving and telephone relocation expenses, data cabling and for
reasonable quantities of new stationery upon submission to Landlord of receipts
for such expenditures incurred by Tenant. Tenant is limited to being relocated
to the 32/nd/ Floor and higher in the Building. Should Landlord desire to
relocate Tenant at any time during the Term, Tenant shall have the option to
Terminate its Lease. Tenant shall provide Landlord with written notice of its
intent to Terminate within thirty (30) days from receipt of Landlord's
Relocation Notice.
ARTICLE XIV - ASSIGNMENT AND SUBLETTING
---------------------------------------
14.1 RESTRICTION. Without the prior written consent of Landlord, Tenant
-----------
shall not, either voluntarily or by operation of law, assign, encumber, or
otherwise transfer this Lease or any interest herein, or sublet the Premises or
any part thereof, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees (any such assignment, encumbrance, subletting,
occupation or transfer is hereinafter referred to as a "Transfer"). For
purposes of this Lease the term "Transfer" shall also include (a) if Tenant is a
partnership the withdrawal or change, voluntary, involuntary or by operation of
law, of a majority of the partners, or a transfer of a majority of partnership
interests, within a twelve month period, or the dissolution of the partnership,
and (b) if Tenant is a closely held corporation (i.e. whose stock is not
publicly held and not traded through an exchange or over the counter) or a
limited liability company, the dissolution, merger, consolidation, division,
liquidation or other reorganization of Tenant, or within a twelve month period:
(i) the sale or other transfer of more than an aggregate of 50% of the voting
securities of Tenant (other than to immediate family members by reason of gift
or death) or (ii) the sale, mortgage, hypothecation or pledge of more than an
aggregate of 50% of Tenant's net assets. A Transfer in violation of the
foregoing shall be void and, at Landlord's option, shall constitute a material
breach of this Lease. Notwithstanding anything contained in this Article XIV to
the contrary, Tenant shall have the right to assign the Lease or sublease the
Premises, or any part thereof, to an "Affiliate"
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without the prior written consent of Landlord, but upon at least twenty (20)
days' prior written notice to Landlord, provided that said Affiliate is not in
default under any other lease for space in a property that is owned by Landlord
or managed by Seagate or any of its affiliates. For purposes of this provision,
the term "Affiliate" shall mean any corporation or other entity controlling,
controlled by, or under common control with (directly or indirectly) Tenant,
including, without limitation, any patent corporation controlling Tenant or any
subsidiary that Tenant controls. The term "control," as used herein, shall mean
the power to direct or cause the direction of the management and policies of the
controlled entity through the ownership of more than fifty percent (50%) of the
voting securities in such controlled entity. Notwithstanding anything contained
in this Article XIV to the contrary, Tenant expressly covenants and agrees not
to enter into any lease, sublease, license, concession or other agreement for
use, occupancy or utilization of the Premises which provides for rental or other
payment for such use, occupancy or utilization based in whole or in part on the
net income or profits derived by any person from the property leased, used,
occupied or utilized (other than an amount based on a fixed percentage or
percentages of receipts or sales), and that any such purported lease, sublease,
license, concession or other agreement shall be absolutely void and ineffective
as a conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
14.2 NOTICE TO LANDLORD. If Tenant desires to assign this Lease or any
------------------
interest herein, or to sublet all or any part of the Premises, then at least
thirty (30) days but not more than one hundred eighty (180) days prior to the
effective date of the proposed assignment or subletting, Tenant shall submit to
Landlord in connection with Tenant's request for Landlord's consent:
14.2.1 Statement. A statement containing the type of use proposed
---------
for the Premises and the principal terms of the proposed assignment or
subletting;
14.3 LANDLORD'S RECAPTURE RIGHTS. With exception to the initial sublease by
---------------------------
Tenant to an interested third party of not more than 3,500 square feet, and
prior to the commencement of the second year of the Term, and at any time within
twenty (20) business days after Landlord's receipt of all (but not less than
all) of the information and documents described in Section 14.2 above, Landlord
may, at its option by written notice to Tenant, elect to: (a) sublease the
Premises or the portion thereof proposed to be sublet by Tenant upon the same
terms as those offered to the proposed subtenant; (b) take an assignment of the
Lease upon the same terms as those offered to the proposed assignee; or (c)
terminate the Lease to the portion of the Premises proposed to be assigned or
sublet, with a proportionate adjustment in the Rent payable hereunder if the
Lease is terminated as to less than all of the Premises provided that Tenant,
within five (5) days after receipt of the Landlord's notice to terminate, may
withdraw its request for consent to the transfer, in which event Landlord's
election to terminate the Lease shall be null and void and of no further effect.
If Landlord does not exercise any of the options described in the preceding
sentence, then, Tenant shall provide Landlord with a copy of the proposed
assignment or sublease and within a twenty (20) business day period, Landlord
shall either consent or deny its consent to the proposed assignment or
subletting.
14.4 LANDLORD'S CONSENT; STANDARDS. Landlord's consent to a proposed
-----------------------------
assignment or subletting shall not be unreasonably withheld, conditioned or
delayed; but, in addition to any other grounds for denial, Landlord's consent
shall be deemed reasonably withheld if, in Landlord's good faith judgment: (a)
the proposed assignee or subtenant does not have the financial strength to
perform its obligations under this Lease or any proposed sublease; (b) the
business and operations of the proposed assignee or subtenant are not of
comparable quality to the business and operations being conducted by other
tenants in the Building; (c) the proposed assignee or subtenant intends to use
any part of the
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Premises for a purpose not permitted under this Lease; (d) either the proposed
assignee or subtenant, or any person which directly or indirectly controls, is
controlled by, or is under common control with the proposed assignee or
subtenant, occupies space in the Building, and is negotiating with Landlord to
lease space on a direct basis which is comparable to the proposed
Sublease/Assignment space in the Building; (e) the proposed assignee or
subtenant is disreputable; or (f) the use of the Premises or the Building by the
proposed assignee or subtenant would, in Landlord's reasonable judgment, impact
the Building in a negative manner, including but not limited to significantly
increasing the pedestrian traffic in and out of the Building or requiring any
alterations to the Building to comply with applicable laws; (g) the subject
space does not have appropriate means of ingress and egress suitable for normal
renting purposes; (h) the transferee is a government (or agency or
instrumentality thereof), or (i) Tenant has failed to cure a default at the time
Tenant requests consent to the proposed Transfer.
14.5 ADDITIONAL RENT. If Landlord consents to any such assignment or
---------------
subletting, one half (1/2) of the amount by which all sums or other economic
consideration received by Tenant in connection with such assignment or
subletting, after deducting only reasonable legal fees, subtenant's tenants
improvements (if paid by sublessor) and subletting brokerage commissions whether
denominated as rental or otherwise, exceeds, in the aggregate, the total sum
which Tenant is obligated to pay Landlord under this Lease (prorated to reflect
obligations allocable to less than all of the Premises under a sublease) shall
be paid to Landlord promptly after receipt as additional Rent under the Lease
without affecting or reducing any other obligation of Tenant hereunder.
14.6 LANDLORD'S COSTS. If Tenant shall Transfer this Lease or all or any
----------------
part of the Premises or shall request the consent of Landlord to any Transfer,
Tenant shall pay to Landlord as additional rent Landlord's costs related
thereto, including Landlord's reasonable attorneys' fees up to $1,000.00 per
request or transfer as the case may be.
14.7 CONTINUING LIABILITY OF TENANT. Notwithstanding any Transfer, Tenant
------------------------------
shall remain as fully and primarily liable for the payment of Rent and for the
performance of all other obligations of Tenant contained in this Lease to the
same extent as if the Transfer had not occurred; provided, however, that any act
or omission of any transferee, other than Landlord, that violates the terms of
this Lease shall be deemed a violation of this Lease by Tenant.
14.8 NON-WAIVER. The consent by Landlord to any Transfer shall not relieve
----------
Tenant, or any person claiming through or by Tenant, terms, of the obligation to
obtain the consent of Landlord, pursuant to this Article XIV, to any further
Transfer. In the event of an assignment or subletting, Landlord may collect
rent from the assignee or the subtenant without waiving any rights hereunder and
collection of the rent from a person other than Tenant shall not be a waiver of
any of Landlord's rights under this Article XIV, an acceptance of assignee or
subtenant as Tenant, or a release of Tenant from the performance of Tenant's
obligations under this Lease. If Tenant shall default under this Lease and fail
to cure within the time permitted, Landlord is irrevocably authorized, as
Tenant's agent and attorney-in-fact, to direct any transferee to make all
payments under or in connection with the Transfer directly to Landlord (which
Landlord shall apply towards Tenant's obligations under this Lease) until such
default is cured.
ARTICLE XV - DEFAULT AND REMEDIES
---------------------------------
15.1 EVENTS OF DEFAULT BY TENANT. The occurrence of any of the following
---------------------------
shall constitute a material default and breach of this Lease by Tenant:
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15.1.1 Failure to Pay Rent. The failure by Tenant to pay Base Rent
-------------------
or make any other payment required to be made by Tenant hereunder as and when
due more than once in any consecutive eighteen (18) month period during the
Term.
15.1.2 Failure to Perform. The failure by Tenant to observe or
------------------
perform any other provision of this Lease to be observed or performed by Tenant,
other than those described in Sections 15.1.1 and 15.1.2 above, if such failure
continues for ten (10) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that it cannot be
cured within the ten (10) day period, no default shall exist if Tenant commences
the curing of the default within the ten (10) day period and thereafter
diligently prosecutes the same to completion. The ten (10) day notice described
herein shall be in lieu of, and not in addition to, any notice required under
Section 1161 of the California Code of Civil Procedure or any other law now or
hereafter in effect requiring that notice of default be given prior to the
commencement of an unlawful detainer or other legal proceeding.
15.1.3 Bankruptcy. The making by Tenant or its Guarantor of any
----------
general assignment for the benefit of creditors, the filing by or against Tenant
or its Guarantor of a petition under any federal or state bankruptcy or
insolvency laws (unless, in the case of a petition filed against Tenant or its
Guarantor the same is dismissed within thirty (30) days after filing); the
appointment of a trustee or receiver to take possession of substantially all of
Tenant's assets at the Premises or Tenant's interest in this Lease or the
Premises, when possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other seizure of substantially all of Tenant's
assets located at the Premises or Tenant's interest in this Lease or the
Premises, if such seizure is not discharged within thirty (30) days.
15.1.4 Misstatement. Any material misrepresentation herein, or
------------
material misrepresentation or omission in any financial statements or other
materials provided by Tenant or any Guarantor in connection with negotiating or
entering into this Lease or in connection with any Transfer under Section 14.1.
15.2 LANDLORD'S RIGHT TO TERMINATE UPON TENANT DEFAULT. In the event of
-------------------------------------------------
any default by Tenant as provided in Section 15.1 above, Landlord shall have the
right to terminate this Lease and recover possession of the Premises by giving
written notice to Tenant of Landlord's election to terminate this Lease, in
which event Landlord shall be entitled to receive from Tenant: (a) the worth at
the time of award of any unpaid Rent which had been earned at the time of such
on award; plus (b) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus (c) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; plus (d) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom; and (e) at Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law. As used in subsections (a) and (b) above, "worth at the time of
award" shall be computed by allowing interest on such amounts at the then
highest lawful rate of interest, but in no event to exceed one percent (1%) per
annum plus the rate established by the Federal Reserve Bank of San Francisco on
advances made to banks under Sections 13 and 13a of the Reserve Act ("discount
rate") prevailing at the time of award. As used in subsection (c) above, "worth
at the time of award" shall be computed by discounting such amount by (x) the
discount rate of the Federal Reserve Bank of San Francisco prevailing at the
time of award plus (y) one percent (1%).
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15.3 MITIGATION OF DAMAGES. If Landlord terminates this Lease or Tenant's
---------------------
right to possession of the Premises, Landlord shall have no obligation to
mitigate Landlord's damages except to the extent required by applicable law. If
Landlord has not terminated this Lease or Tenant's right to possession of the
Premises, Landlord shall have no obligation to mitigate under any circumstances
and may permit the Premises to remain vacant or abandoned. If Landlord is
required to mitigate damages as provided herein: (a) Landlord shall be required
only to use reasonable efforts to mitigate, which shall not exceed such efforts
as Landlord generally uses to lease other space in the Building, (b) Landlord
will not be deemed to have failed to mitigate if Landlord or its affiliates
lease any other portions of the Building or other projects owned by Landlord or
its affiliates in the same geographic area, before reletting any or any portion
of the Premises, and (c) any failure to mitigate as described herein with
respect to any period of time shall only reduce the Rent and other amounts to
which Landlord is entitled hereunder by the reasonable rental value of the
Premises during such period. In recognition that the value of the Building on
the rental rates and terms of leases therein, Landlord's rejection of a
prospective replacement tenant based on an offer of rentals below Landlord's
published rates for new leases of comparable space at the Building at the time
in question, or at Landlord's option, below the rates provided in this Lease, or
containing terms less favorable than those contained herein, shall not give rise
to a claim by Tenant that Landlord failed to mitigate Landlord's damages.
15.4 LANDLORD'S RIGHT TO CONTINUE LEASE UPON TENANT DEFAULT. In the event
------------------------------------------------------
of a default of this Lease by Tenant, and if Landlord does not elect to
terminate this Lease as provided in Section 15.2 above, Landlord may, from time
to time, without terminating this Lease, enforce all of its rights and remedies
under this Lease or at law or in equity. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's default and recover
Rent as it becomes due, if Tenant has the right to Transfer, subject only to
reasonable limitations). In the event Landlord re-lets the Premises, to the
fullest extent permitted by law, the proceeds of any reletting shall be applied
first to pay to Landlord all costs and expenses of such reletting (including
without limitation, costs and expenses of retaking or repossessing the Premises,
removing persons and property therefrom, securing new tenants, including
expenses for redecoration, alterations and other costs in connection with
preparing the Premises for the new tenant, and if Landlord shall maintain and
operate the Premises, the costs thereof) and receivers' fees incurred in
connection with the appointment of and performance by a receiver to protect the
Premises and Landlord's interest under this Lease and any necessary or
reasonable alterations; second, to the payment of any indebtedness of Tenant to
Landlord other than Rent due and unpaid hereunder; third, to the payment of Rent
due and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of other or future obligations of Tenant to Landlord as the
same may become due and payable, and Tenant shall not be entitled to receive any
portion of such revenue.
15.5 RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
----------------------------
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense. If Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to perform any other act
on its part to be performed hereunder, Landlord may, but shall not be obligated
to, make any payment or perform any such other act on Tenant's part to be made
or performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs,
together with interest thereon at the lesser of the maximum rate permitted by
law if any or twelve percent (12%) per annum from the date of such payment,
shall be payable to Landlord as additional rent on demand and Landlord shall
have the same rights and remedies in the event of nonpayment as in the case of
default by Tenant in the payment of Rent.
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15.6 DEFAULT UNDER OTHER LEASES. If the term of any lease, other than this
--------------------------
Lease, heretofore or hereafter made by Tenant for any office space in the
Building shall be terminated or terminable after the making of this Lease
because of any default by Tenant under such other lease, such fact shall empower
Landlord, at Landlord's sole option, to terminate this Lease by notice to Tenant
or to exercise any of the rights or remedies set forth in Section 15.2.
15.7 NON-WAIVER. Nothing in this Article shall be deemed to affect
----------
Landlord's rights to indemnification for liability or liabilities arising prior
to termination of this Lease or Tenant's right to possession of the for personal
injury or property damages under the indemnification clause or clauses contained
in this Lease. No acceptance by Landlord of a lesser sum than the Rent then due
shall be deemed to be other than on account of the earliest installment of such
rent due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or pursue any other remedy in
the Lease provided. The delivery of keys to any employee of Landlord or to
Landlord's agent or any employee thereof shall not operate as a termination of
this Lease or a surrender of the Premises.
15.8 CUMULATIVE REMEDIES. The specific remedies to which Landlord may
-------------------
resort under the terms of the Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of the Lease. In addition to the other remedies provided in the Lease, Landlord
shall be entitled to a restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
15.9 DEFAULT BY LANDLORD. Landlord's failure to perform or observe any of
-------------------
its obligations under this Lease shall constitute a default by Landlord under
this Lease only if such failure shall continue for a period of thirty (30) days
(or the additional time, if any, which is reasonably necessary to promptly and
diligently cure the failure) after Landlord receives written notice from Tenant
specifying the default. The notice shall give in reasonable detail the nature
and extent of the failure and shall identify the Lease provision(s) containing
the obligation(s). If Landlord shall default in the performance of any of its
obligations under this Lease (after notice and opportunity to cure as provided
herein), Tenant may pursue any remedies available to it under the law and this
Lease, except that in no event shall Landlord be liable for punitive damages,
lost profits, business interruption, speculative, consequential or other such
damages. In recognition that Landlord must receive timely payments of Rent and
operate the Building, Tenant shall have no right of self-help to perform repairs
or any other obligation of Landlord, and shall have no right to withhold, set-
off, or abate Rent, except as specifically set forth in this Lease.
ARTICLE XVI - ATTORNEYS' FEES; INDEMNIFICATION
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16.1 ATTORNEYS' FEES. If either Landlord or Tenant shall commence any
---------------
action or other proceeding against the other arising out of, or relating to,
this Lease or the Premises, the prevailing party shall be entitled to recover
from the losing party, in addition to any other relief, its actual attorneys'
fees In addition, Tenant shall reimburse Landlord, upon demand, for all
reasonable attorneys' fees incurred in collecting Rent or otherwise seeking
interpretation of this Lease or enforcement against Tenant, its sublessees and
assigns, of Tenant's obligations under this Lease.
16.2 INDEMNIFICATION. Should Landlord be made a party to any litigation
---------------
instituted by Tenant
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against a party other than Landlord, or by a third party against Tenant, Tenant
shall indemnify, hold harmless and defend Landlord from any and all loss, cost,
liability, damage or expense incurred by Landlord, including attorneys' fees, in
connection with the litigation.
ARTICLE XVII - SUBORDINATION AND ATTORNMENT
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17.1 SUBORDINATION. This Lease, and the rights of Tenant hereunder, are
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and shall be subject and subordinate to the interests of (i) all present and
future ground leases and master leases of all or any part of the Building; (ii)
present and future mortgages and deeds of trust encumbering all or any part of
the Building; (iii) all past and future advances made under any such mortgages
or deeds of trust; and (iv) all renewals, modifications, replacements and
extensions of any such ground leases, master leases, mortgages and deeds of
trust; provided, however, that any lessor under any such ground lease or master
lease or any mortgagee or beneficiary under any such mortgage or deed of trust
(any such lessor, mortgagee or beneficiary is hereinafter referred to as a
"Mortgagee":) shall have the right to elect, by written notice given to Tenant,
to have this Lease made superior in whole or in part to any such ground lease,
master lease, mortgage or deed of trust (or subject and subordinate to such
ground lease, master lease, mortgage or deed of trust but superior to any junior
mortgage or junior deed of trust). Within ten (10) business days after the
Landlord's written request, Tenant shall execute, acknowledge and deliver any
instruments reasonably requested by Landlord or any such Mortgagee to effect the
purposes of this Section 17.1. Such instruments may contain, among other
things, provisions to the effect that such Mortgagee (hereafter, for the
purposes of this Section 17.1, a "Successor Landlord") shall (a) not be liable
for any act or omission of Landlord or its predecessors, if any, prior to the
date of such Successor Landlord's succession to Landlord's interest under this
Lease; (b) not be subject to any offsets or defenses which Tenant might have
been able to assert against Landlord or its predecessors, if any, prior to the
date of such Successor Landlord's succession to Landlord's interest under this
Lease; (c) not be liable for the return of any security deposit under the Lease
unless the same shall have actually been deposited with such Successor Landlord;
(d) be entitled to receive notice of any Landlord default under this Lease plus
a reasonable opportunity to cure such default prior to Tenant having any right
or ability to terminate this Lease as a result of such Landlord default; (e) not
be bound by any rent or additional rent which Tenant might have paid for more
than the current month to Landlord; (f) not be bound by any amendment or
modification of the Lease or any cancellation of the same made without Successor
Landlord's prior written consent; (g) not be bound by any obligation to make any
payment to Tenant which was required to be made prior to the time such Successor
Landlord succeeded to Landlord's interest, and (h) not be bound by any
obligation under the Lease to perform any work or to make any improvements to
the demised Premises. Any obligations of any Successor Landlord under its
respective lease shall be non-recourse as to any assets of such Successor
Landlord other than its interest in the Building and its related improvements.
Notwithstanding the foregoing, Tenant's subordination shall only be effective as
to the extent that the future Mortgagee agrees that this Lease shall survive the
termination of the Mortgagee's interest by lapse of time, foreclosure or
otherwise so long as Tenant is not in default under this Lease.
17.2 ATTORNMENT. If the interests of Landlord under the Lease shall be
----------
transferred to any superior Mortgagee or Successor Landlord or other purchaser
or person taking title to the Building by reason of the termination of any
superior lease or the foreclosure of any superior mortgage or deed of trust,
Tenant shall be bound to such Successor Landlord under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining and any extensions or renewals thereof which may be effected in
accordance with any option therefor in the Lease, with the same force and effect
as if Successor Landlord were the landlord under the Lease, and Tenant shall
attorn to and recognize as Tenant's landlord under this Lease such Successor
Landlord, as its landlord, said attornment to be
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effective and self-operative without the execution of any further instruments
upon Successor Landlord's succeeding to the interest of Landlord under the
Lease. Tenant acknowledges that Landlord is (a) the assignee of the lessor's
interest in that certain Ground Lease dated June 11, 1963 ("Existing Ground
Lease") for the land underlying the Building, and (b) the assignee of the
lessee's interest in the Ground Lease. Upon expiration or termination of the
Existing Ground Lease, Tenant will attorn to and continue to recognize Landlord
as the landlord under this Lease. Tenant shall, within ten (10) business days
after Landlord's written request, execute any documents reasonably requested by
any such person to evidence the attornment described in this Section 17.2.
Concurrently, upon written request from Tenant, and provided Tenant is not in
default under this Lease, Landlord agrees to use diligent, commercially
reasonable efforts to obtain a Non-Disturbance Agreement from the Successor
Landlord. Such Non-Disturbance Agreement may be embodied in the Mortgagee's
customary form of Subordination and Non-Disturbance Agreement. If, after
exerting diligent, commercially reasonable efforts, Landlord is unable to obtain
a Non-Disturbance Agreement from any such Mortgagee, Landlord shall have no
further obligation to Tenant with respect thereto.
17.3 MORTGAGEE PROTECTION. Tenant agrees to give any Mortgagee, by
--------------------
registered or certified mail, a copy of any notice of default served upon
Landlord by Tenant, provided that prior to such notice Tenant has been notified
in writing (by way of service on Tenant of a copy of Assignment of Rents and
Leases, or otherwise) of the address of such Mortgagee (hereafter the "Notified
Party"). Tenant further agrees that if Landlord shall have failed to cure such
default within twenty (20) days after such notice to Landlord (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if Landlord has commenced within such twenty (20) days and
is diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Notified Party shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
the Notified Party has commenced within such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or correct such default).
Until the time allowed, as aforesaid, for the Notified Party to cure such
default has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of Landlord's default.
17.4 NON-DISTURBANCE. At Tenant's written request, Landlord agrees to use
----------------
diligent, commercially reasonable efforts to obtain a Non-Disturbance Agreement
from the holder of any future Mortgage. Such Non-Disturbance Agreement may be
embodied in the Mortgagee's customary form of Subordination and Non-Disturbance
Agreement. If, after exerting diligent, commercially reasonable efforts,
Landlord is unable to obtain a Non-Disturbance Agreement from any such holder.
Landlord shall have no further obligation to Tenant with respect thereto.
ARTICLE XVIII - MISCELLANEOUS
-----------------------------
18.1 QUITE ENJOYMENT. Provided that Tenant performs all of its obligations
----------------
hereunder, Tenant shall have and peaceably enjoy the Premises during the Lease
Term free of claims by or through Landlord, subject to all of the terms and
conditions contained in this Lease.
18.2 RULES AND REGULATIONS. The Rules and Regulations attached hereto as
----------------------
Exhibit D are hereby incorporated by reference herein and made a part hereof.
Tenant shall abide by, and faithfully observe and comply with the Rules and
Regulations and any reasonable and non-discriminatory amendments, modifications
and/or additions thereto as may hereafter be adopted and published by written
notice to tenants by Landlord for the safety, care, security, good order and/or
cleanliness of the Premises and/or the Building. Landlord shall not be liable
to Tenant for any violation of such rules and regulations
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by any other tenant or occupant of the Building.
18.3 ESTOPPEL CERTIFICATES. Tenant agrees at any time and from time to
---------------------
time, upon not less than ten (10) business days' prior written notice from
Landlord, to execute, acknowledge and deliver to Landlord a statement in writing
addressed and certifying to Landlord, to any current or prospective Mortgagee or
any assignee thereof, to any prospective purchaser of the land, improvements or
both comprising the Building, and to any other party designated by Landlord,
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications); that Tenant has accepted possession of the Premises,
which are acceptable in all respects, and that any improvements required by the
terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant; that Tenant is in full occupancy of the Premises; that
no rent has been paid more than thirty (30) days in advance; that the first
month's Base Rent has been paid; that Tenant is entitled to no free rent or
other concessions except as stated in this Lease; that Tenant has not been
notified of any previous assignment of Landlord's or any predecessor landlord's
interest under this Lease; the dates to which Base Rent, additional rental and
other charges have been paid; that Tenant, as of the date of such certificate,
has no charge, lien or claim of setoff under this Lease or otherwise against
Base Rent, additional rental or other charges due or to become due under this
Lease; that Landlord is not in default in performance of any covenant, agreement
or condition contained in this Lease; or any other matter relating to this Lease
or the Premises or, if so, specifying each such default. If there a Guaranty
under this Lease, said Guarantor shall confirm the validity of the Guaranty by
joining in the execution of the Estoppel Certificate or other documents so
requested by Landlord or Mortgagee. In addition, in the event that such
certificate is being given to any Mortgagee, such statement may contain any
other provisions customarily required by such Mortgagee including, without
limitations an agreement on the part of Tenant to furnish to such Mortgagee,
written notice of any Landlord default and a reasonable opportunity for such
Mortgagee to cure such default prior to Tenant being able to terminate this
Lease. Any such statement delivered pursuant to this Section may be relied upon
by Landlord or any Mortgagee, or prospective purchaser to whom it is addressed
and such statement, if required by its addressee, may so specifically state. If
Tenant does not execute, acknowledge and deliver to Landlord the statement
within three (3) days after Landlord's second request thereof, Landlord is
hereby granted an irrevocable power-of-attorney, coupled with an interest, to
execute such statement on Tenant's behalf, which statement shall be binding on
Tenant to the same extent as if executed by Tenant.
18.4 ENTRY BY LANDLORD. Upon twenty-four (24) hours prior notice, Landlord
-----------------
may enter the Premises at all reasonable times to: inspect the same; exhibit
the same to prospective purchasers, Mortgagees or tenants; determine whether
Tenant is complying with all of its obligations under this Lease; supply
janitorial and other services to be provided by Landlord to Tenant under this
Lease; post notices of non-responsibility; and make repairs or improvements in
or to the Building or the Premises; provided, however, that all such work shall
be done as promptly as reasonably possible and so as to cause as little
interference to Tenant as reasonably possible. Tenant hereby waives any claim
for damages for any injury or inconvenience to, or interference with, Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises or any other
loss occasioned by such entry. Landlord at all times shall have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, sees and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all means
by which Landlord may deem proper to open such doors to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any such means,
or otherwise, shall not under any circumstances be or construed to be a forcible
or unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from any part of the Premises. Such entry by Landlord
shall not act as a termination of Tenant's duties under this Lease. If
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Landlord shall be required to obtain entry by means other than a key provided by
Tenant, the cost of such entry shall be payable by Tenant to Landlord as
additional rent.
18.5 LANDLORD'S LEASE UNDERTAKINGS. Notwithstanding anything to the
-----------------------------
contrary contained in this Lease or in any exhibits, Riders or addenda hereto
attached (collectively the "Lease Documents"), it is expressly understood and
agreed by and between the parties hereto that: (a) the recourse of Tenant or its
successors or assigns against Landlord with respect to the alleged breach by or
on the part of Landlord of any representation, warranty, covenant, undertaking
or agreement contained in any of the Lease Documents or otherwise arising out of
Tenant's use of the Premises or the Building (collectively, "Landlord's Lease
Undertaking") shall extend only to Landlord's interest in the real estate of
which the Premises demised under the Lease Documents are a part ("Landlord's
Real Estate") and not to any other assets of Landlord or its beneficiaries; and
(b) no personal liability or personal responsibility of any sort with respect to
any of Landlord's Lease Undertakings or any alleged breach thereof is assumed
by, or shall at any time be asserted or enforceable against, Landlord, OTR, an
Ohio general partnership, Seagate Properties, Inc., Seagate Realty Advisors, or
against any of their respective directors, officers, employees, agents,
constituent partners, beneficiaries, trustees or representatives. Tenant
acknowledges that this Lease is executed by certain general partners of OTR
and/or Seagate Realty Advisors, not individually but solely on behalf of, and as
the authorized nominee and agent for, the State Teachers Retirement Board of
Ohio, and Tenant and all persons dealing with Landlord waive any right to bring
a cause of action against the individuals executing this Lease on behalf of
Landlord and must look solely to the assets of State Teachers Retirement Board
of Ohio for the enforcement of any claim against Landlord.
18.6 TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
-------------------------------
Landlord's interest in the Building, Landlord shall be automatically freed and
relieved from all applicable liability with respect to performance of any
covenant or obligation on the part of Landlord under this Lease occurring after
the date of such transfer, provided any deposits or advance rents held by
Landlord are turned over to the grantee and said grantee expressly assumes,
subject to the limitations of this Lease, all the terms, covenants and
conditions of this Lease to be performed on the part of Landlord, it being
intended hereby that the covenants and obligations contained in this Lease on
the part of Landlord shall, subject to all the provisions of this Lease, be
binding on Landlord, its successors and assigns, only during their respective
periods of ownership.
18.7 HOLDOVER. If Tenant holds possession of the Premises after the
--------
expiration or termination of the Lease Term, by lapse of time or otherwise,
Tenant shall become a tenant at sufferance upon all of the terms contained
herein, except as to Lease Term and Rent. During such holdover period, Tenant
shall pay to Landlord a monthly rental equivalent to one hundred fifty percent
(150%),for the first sixty (60) days, escalating to two hundred percent (200%)
thereafter of the Rent payable by Tenant to Landlord with respect to the last
month of the Lease Term. The monthly rent payable for such holdover period
shall in no event be construed as a penalty or as liquidated damages for such
retention of possession. Without limiting the foregoing, Tenant hereby agrees
to indemnify, defend and hold harmless Landlord, its beneficiary, and their
respective agents, contractors and employees, from and against any and all
claims, liabilities, actions, losses, damages (including without limitation,
direct, indirect, incidental and consequential) and expenses (including, without
limitation, court costs and reasonable attorneys' fees) asserted against or
sustained by any such party and arising from or by reason of such retention of
possession, which obligations shall survive the expiration or termination of the
Lease Term.
18.8 NOTICES. All notices which Landlord or Tenant may be required, or may
-------
desire, to serve on the other may be served, as an alternative to personal
service, by mailing the same by registered or certified mail, postage prepaid,
addressed to Landlord at the address for Landlord get forth in Section
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1.12 above and to Tenant at the address for Tenant set forth in Section 1.13
above, or, from and after the Commencement Date, to Tenant at the Premises
whether or not Tenant has departed from, abandoned or vacated the Premises, or
addressed to such other address or addresses as either Landlord or Tenant may
from time to time designate to the other in writing. Any notice shall be deemed
to have been served at the time the same was posted.
18.9 BROKERS. The parties recognize as the broker(s) who procured this
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Lease the firm(s) specified in Section 1.15 and agree that Landlord shall be
solely responsible for the payment of any brokerage commissions to said
broker(s), and that Tenant shall have no responsibility therefor unless a
written provision to the contrary has been made a part of this Lease. If Tenant
has dealt with any other person or real estate broker in respect to leasing,
subleasing or renting space in the Building, Tenant shall be solely responsible
for the payment of any fee due said person or firm and Tenant shall protect,
indemnify, hold harmless and defend Landlord from any liability in respect
thereto.
18.10 COMMUNICATIONS AND COMPUTER LINES. Tenant may, in a manner
---------------------------------
consistent with the provisions and requirements of this Lease, install,
maintain, replace, remove or use any communications or computer wires, cables
and related devices (collectively the "Lines") at the Building in or serving the
Premises, provided: (a) Tenant shall obtain Landlord's prior written consent,
which consent may be reasonably conditioned as required by Landlord, (b) if
Tenant at any time uses any equipment that may create an electromagnetic field
exceeding the normal insulation ratings of ordinary twisted pair riser cable or
cause radiation higher than normal background radiation, the Lines therefor
(including riser cables) shall be appropriately insulated to prevent such
excessive electromagnetic fields or radiation, and (c) Tenant shall pay all
costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines which are installed in violation of these provisions.
18.10.1 New Lines. Landlord may (but shall not have the obligation
---------
to): (a) install new Lines at the Property, and (b) create additional space for
Lines at the Property, and adopt reasonable and uniform rules and regulations
with respect to the Lines.
18.10.2 Line Problems. Notwithstanding anything to the contrary
-------------
contained in this Lease, Landlord reserves the right to require that Tenant
remove any or all Lines installed by or for Tenant within or serving the
Premises. Tenant shall not, without the prior written consent of Landlord in
each instance, grant to any third party a security interest or lien in or on the
Lines, and any such security interest or lien granted without Landlord's
written consent shall be null and void. Except to the extent arising from the
intentional or negligent acts of Landlord or Landlord's agents or employees,
Landlord shall have no liability for damages arising from, and Landlord does not
warrant that Tenant's use of any Lines will be free from the following ,
(collectively called "Line Problems"): (a) any eavesdropping or wire-tapping by
unauthorized parties, (b) any failure of any Lines to satisfy Tenant's
requirements, or (c) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance,
replacement, use or removal of Lines by or for other tenants or occupants at the
Property. Under no circumstances shall any Line Problems be deemed an actual or
constructive eviction of Tenant, render Landlord liable to Tenant for abatement
of Rent, or relieve Tenant from performance of Tenant's obligations under this
Lease. Landlord in no event shall be liable for damages by reason of loss of
profits, business interruption or other consequential damage arising from any
Line Problems.
18.11 ENTIRE AGREEMENT. This Lease contains all of the agreements and
----------------
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein.
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This Lease supersedes any and all prior agreements and understandings between
Landlord and Tenant and alone expresses the agreement of the parties.
18.12 AMENDMENTS. This Lease shall not be amended, changed or modified in
----------
any way unless in writing executed by Landlord and Tenant. Landlord shall not
have waived or released any of its rights hereunder unless in writing and
executed by Landlord.
18.13 SUCCESSORS. Subject to the limitations expressly provided herein,
----------
this Lease and the obligations of Landlord and Tenant contained herein shall
bind and benefit the successors and assigns of the parties hereto.
18.14 (A) FORCE MAJEURE. Landlord shall incur no liability to Tenant with
-------------
respect to, and shall not be responsible for any failure to perform, any of
Landlord's obligations hereunder if such failure is caused by any reason beyond
the control of Landlord including, but not limited to, strike, labor trouble,
governmental rule, regulations, ordinance, statute or interpretation, or by
fire, earthquake, civil commotion, or failure or disruption of utility services.
The amount of time for Landlord to perform any of Landlord's obligations shall
be extended by the amount of time Landlord is delayed in performing such
obligation by reason of any force majeure occurrence whether similar to or
different from the foregoing types of occurrences.
(b) Tenant shall incur no liability to Landlord with respect to, and
shall not be responsible for any failure to perform, any of Tenant's obligations
hereunder, with the exception of Tenant's scheduled payment of Base Rent under
Section 1.8 herein above as adjusted in Section 3.1, if such failure is caused
by any reason beyond the control of Tenant including strike, labor trouble,
governmental rule, regulations, ordinance, statute or interpretation or by civil
commotion, or failure or disruption of utility expenses. The amount of time for
Tenant to perform any of its obligations, with the exception of Tenant's
scheduled payment of Base Rent under Section 1.8 herein above, as adjusted in
Section 3.1, shall be extended by the amount of time Tenant's delayed in
performing such obligation by reason of any force majeure occurrence similar to
the foregoing types of occurrences.
18.15 SURVIVAL OF OBLIGATIONS. Any obligations of Tenant accruing prior
-----------------------
to the expiration of the Lease shall survive the expiration or earlier
termination of the Lease, and Tenant shall promptly perform all such obligations
whether or not this Lease has expired or been terminated.
18.16 LIGHT AND AIR. No diminution or shutting off of any light, air or
-------------
view by any structure now or hereafter erected shall in any manner affect this
Lease or the obligations of Tenant hereunder, or increase any of the obligations
of Landlord hereunder.
18.17 GOVERNING LAW. This Lease shall be governed by, and construed in
-------------
accordance with, the laws of the State of California.
18.18 SEVERABILITY. In the event any provision of this Lease is found to
------------
be unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
18.19 CAPTIONS. All captions, headings, tides, numerical references and
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computer highlighting
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are for convenience only and shall have no effect on the interpretation of this
Lease.
18.20 INTERPRETATION. Tenant acknowledges that it has read and reviewed
--------------
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the plain meaning of its terms and the intent
of the parties.
18.21 INDEPENDENT COVENANTS. Each covenant, agreement, obligation or
---------------------
other provision of this Lease to be performed by Tenant are separate and
independent covenants of Tenant, and not dependent on any other provision of the
Lease.
18.22 NUMBER AND GENDER. All terms and words used in this Lease,
-----------------
regardless of the number or gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
18.23 TIME IS OF THE ESSENCE. Time is of the essence of this Lease and
----------------------
the performance of all obligations hereunder.
18.24 JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one
---------------------------
person or entity, or if this Lease is guaranteed by any party, all such persons
shall be jointly and severally liable for payment of rents and the performance
of Tenant's obligations hereunder.
18.25 EXHIBITS. Exhibits A (Floor Plan), B (Work Letter Agreement), C
--------
(Rules and Regulations), D (Guaranty), and E (Acceptance Letter) are
incorporated into this Lease by reference and made a part hereof.
18.26 OFFER TO LEASE. The submission of this Lease to Tenant or its
--------------
broker or other agent, does not constitute an offer to Tenant to lease the
Premises. This Lease shall have no force and effect until (a) it is executed
and delivered by Tenant to Landlord, and (b) it is fully reviewed, executed and
delivered by Landlord to Tenant; provided, however, that upon execution of this
Lease by Tenant and delivery to Landlord, such execution and delivery by Tenant
shall, in consideration of the time and expense incurred by Landlord in
reviewing the Lease and Tenant's credit, constitute an offer by Tenant to Lease
the Premises upon the terms and conditions set forth herein (which offer to
Lease shall be irrevocable for twenty (20) calendar days following the date of
delivery).
18.27 CHOICE OF LAWS. Tenant hereby submits to local jurisdiction in the
---------------
State of California and agrees that any action by Tenant against Landlord shall
be instituted in the State of California and that Landlord shall have personal
jurisdiction over Tenant for any action brought by Landlord against Tenant in
the State of California.
18.28 ELECTRICAL SERVICE TO THE PREMISES. Anything set forth in Section
----------------------------------
7.1 or elsewhere in this Lease to the contrary notwithstanding, electricity to
the Premises shall not be furnished by Landlord, but shall be by the approved
electric utility company serving the Building. Landlord shall permit Tenant to
receive such service directly from such utility company at Tenant's cost (except
as otherwise provided herein) and shall permit Landlord's wire and conduits, to
the extent available, suitable and safely capable, to be used for such purposes.
18.29 RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights
---------------------------
exercisable without notice (except as otherwise expressly provided to the
contrary in this Lease) and without being
122
<PAGE>
deemed an eviction or disturbance of Tenant's use or possession of the Premises
or giving rise to any claim for set-off or abatement of Rent: (a) to change the
name or street address of the Building provided, that Landlord shall reimburse
Tenant for the reasonable costs of changing its stationary and advertising
materials, if necessary, to reflect the change; (b) to install, affix and
maintain all signs on the exterior and/or interior of the Building; (c) to
designate and/or approve prior to installation, all types of signs, window
shades, blinds, drapes, awnings or other similar items, and all internal
lighting that may be visible from the exterior of the Premises and,
notwithstanding the provisions of Article IX, the design, arrangement, style,
color and general appearance of the portion of the Premises visible from the
exterior, and contents thereof, including, without limitation, furniture,
fixtures, sips, art work, wall coverings, carpet and decorations, and all
changes, additions and removals thereto, shall, at all times have the appearance
of premises having the same type of exposure and used for substantially the same
purposes that are generally prevailing in comparable office buildings in the
area; (d) to change the arrangement of entrances, doors, corridors, elevators
and/or stairs in the Building, provided no such change shall materially
adversely affect access to the Premises; (e) to grant any party the exclusive
right to conduct any business or render any service in the Building, provided
such exclusive right shall not operate to prohibit Tenant from using the
Premises for the purposes permitted under this Lease; (f) to prohibit the
placement of vending or dispensing machines of any kind in or about the Premises
other than for use by Tenant's employees; (g) to prohibit the placement of video
or other electronic games in the Premises; (h) to have access for Landlord and
other tenants of the Building to any mail chutes and boxes located in or on the
Premises according to the rules of the United States Post Office and to
discontinue any mail chute business in the Building; (i) to close the Building
after normal business hours, except that Tenant and its employees and invitees
shall be entitled to admission at all times under such rules and regulations as
Landlord prescribes for security purposes; (j) to install, operate and maintain
security systems which monitor, by close circuit television or otherwise, all
persons entering or exiting the Building; (k) to install and maintain pipes,
ducts, conduits, wires and structural elements located in the Premises which
serve other parts or other tenants of the Building; and (l) to retain at all
times master keys or pass keys to the Premises. Any violation of this provision
shall be deemed a material breach of this Lease.
18.30 ASBESTOS. Tenant acknowledges that it has been expressly disclosed
--------
to Tenant by Landlord's Managing Agent that the Building and the Premises
contain asbestos containing materials ("ACM"). The acknowledgment by Tenant of
the ACM does not in any manner impose any liability or responsibility on Tenant
for removal, treatment, or abatement of such ACM or any responsibility
whatsoever regarding such ACM provided, however, that Tenant shall comply with
all applicable laws and regulations in connection with any work in the Premises
including, but not limited to, work which requires entry into the ceiling.
18.31 ADR PROCESS. If Landlord and Tenant are unable for any reason to
--------------
timely agree on (i) the Prevailing Rental Rate referenced in Section 3.2.1 or
(ii) the correction of alleged errors in Landlord's Statement as provided in
Section 4.4.3 or (iii) the amount of Base Rent to be abated if an interruption
of services or utilities occurs as described in Section 7.2 or an impairment to
the Premises occurs due to Landlord's failure to maintain or repair as described
in Section 8.2 (collectively, "SPECIFIED DISPUTES"), then Landlord and Tenant
agree that all Specified Disputes shall be resolved pursuant to the neutral
binding alternative dispute resolution process ("ADR PROCESS") described below.
Landlord and Tenant (acting together or individually) shall submit a notice of a
Specified Dispute ("NOTICE OF DISPUTE") to JAMS (defined below) which Notice
sets forth the details of the dispute and requests JAMS to implement the ADR
Process set forth below.
(A) ADR Process. The Notice of Dispute shall be delivered to the San
------------
Francisco office of Judicial Arbitration and Mediation Service ("JAMS") for
binding resolution pursuant to the ADR
123
<PAGE>
Process. The ADR Process shall be conducted according to the following
procedure:
(i) The ADR Process shall be conducted in San Francisco,
California.
(ii) JAMS shall promptly select a single retired California Superior
Court Judge to be the hearing officer ("HEARING OFFICER"). The Hearing Officer
shall not have any actual or perceived conflict of interest with Landlord or
Tenant, any affiliate or subsidiary or their respective counsel and absent any
conflict, neither Landlord or Tenant shall have the right to object to the
Hearing Officer. The Hearing Officer shall have extensive and recent civil
trial experience and shall not have been primarily a criminal courts judge
during his/her career. The first hearing day shall be scheduled not later than
thirty (30) calendar days following appointment of the Hearing Officer and the
hearing process shall be concluded within thirty (30) calendar days from
commencement.
(iii) The Hearing Officer shall preside over the ADR Process,
shall accept relevant evidence, and may (in her/her discretion) hear live
testimony of the parties and their expert and other witnesses, examine and
cross-examine the parties and their witnesses, allow counsel to examine and
cross-examine witnesses, hear arguments of counsel, and otherwise conduct and
control a hearing as if he/she were sitting as a California Superior Court Judge
without a jury. At the conclusion of the hearing, the Hearing Officer shall
orally announce a tentative decision as to the disagreement(s) which form the
basis of the Specified Dispute(s). In announcing the tentative decision and in
rendering the Final Award (defined below), the Hearing Officer shall be required
to follow California law in the interpretation of any document or agreement
(including this Lease), in admitting evidence and in fashioning a remedy. The
Hearing Officer shall not have the power or authority to award any amount in the
nature or character of punitive or exemplary damages, but shall have the power
to issue an award for compensatory damages based on breach or default of the
Lease, shall have the power to issue injunctive or other equitable relief where
appropriate, shall have the power to issue a judgment for unlawful detainer of
the Premises, and shall have the power to issue an award for attorneys' fees and
costs as allowed by this Lease.
(iv) Within ten (10) calendar days following conclusion of the oral
hearing, the Hearing Officer shall prepare and deliver to each of the parties a
written decision, accompanied by a statement of facts, law, underlying reasons
and conclusions necessary to fully explain his/her decision ("FINAL AWARD"). If
the Final Award requires payment by one party of any amount of money to the
other party, the Hearing Officer shall require that payment be made within
thirty (30) calendar days following issuance of the Final Award, and, if payment
is not timely made, the Final Award shall provide the party to whom payment is
due with the right but not the obligation to seek immediate enforcement of the
Final Award by a court of competent jurisdiction.
(v) The Final Award shall be binding on each party to the dispute,
shall be admissible in any court of law for any purpose reasonably related
thereto (including, but not limited to, for the purpose of determining whether
or not a breach or default under the Lease has occurred), and either party may
petition the California Superior Court to enter the Final Award as the final
judgement and award of the court and/or to enforce enforcement of a Final Award.
(vi) Each party shall pay one-half of the fees and costs for JAMS and
the Hearing Officer. If advance payment or deposit is required prior to
commencement of the ADR Process, each party to the dispute hereby represents and
warrants that it will timely pay and deposit said amount. The failure to timely
pay any amounts requested by the Hearing Officer or JAMS shall constitute an
immediate and material event of default and if said amounts are not timely paid
following receipt of a five (5) business day notice and demand to pay, the
Hearing Officer shall be required (without the taking of
124
<PAGE>
any evidence or testimony) to issue a Final Award in favor of the party to the
dispute timely paying its fees, on the terms and conditions requested by said
party, which shall be final and binding.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of the
date first above written.
LANDLORD:
OTR, an Ohio general partnership, as Nominee of The State Teachers Retirement
Board of Ohio, a statutory organization created by the laws of Ohio
By: SEAGATE REALTY ADVISORS, its duly authorized agent
By: /s/ J.R. Carady
------------------
Its: Principal
------------
TENANT:
BRE PROPERTIES, INC.
a Maryland corporation
By: /s/ Jay W. Pauly
-----------------
Its: Senior Executive Vice President &
-----------------------------------
Chief Operations Officer
------------------------
125
<PAGE>
EXHIBIT 10.38
MODIFICATION AGREEMENT
TO SYNDICATE LOAN
TO
BRE PROPERTIES, INC.
MADE BY VARIOUS
FINANCIAL INSTITUTIONS
WITH
BANK OF AMERICA NT & SA
AS AGENT
126
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------
<C> <S> <C>
PAGE
----
Agreement.................................................................................................... 1
1. Recitals...................................................................................... 1
--------
2. Definitions................................................................................... 1
-----------
3. Modification of Loan Documents................................................................ 6
------------------------------
4. The Credit Facilities......................................................................... 8
---------------------
5. Appointment and Authorization of Agent........................................................ 11
--------------------------------------
6. Loan Accounts................................................................................. 12
-------------
7. Procedure for Borrowing....................................................................... 13
-----------------------
8. Contract Rate Elections With Respect to Committed Loans....................................... 19
-------------------------------------------------------
9. Fees.......................................................................................... 19
----
10. Payments by the Borrower...................................................................... 19
------------------------
11. Prepayments................................................................................... 21
-----------
12. Usury......................................................................................... 22
-----
13. Increased Costs and Reduction of Return....................................................... 22
---------------------------------------
14. Costs and Expenses............................................................................ 22
------------------
15. Indemnification by the Borrower............................................................... 23
-------------------------------
16. Assignments, Participations, etc.............................................................. 23
--------------------------------
17. Publicity..................................................................................... 28
---------
18. Conditions Precedent.......................................................................... 28
--------------------
19. Conditions to All Borrowings.................................................................. 29
----------------------------
20. Authorization and Enforceability Representations.............................................. 29
------------------------------------------------
21. CONSENT TO JURISDICTION....................................................................... 29
-----------------------
22. Incorporation................................................................................. 29
-------------
23. No Impairment................................................................................. 29
-------------
24. Integration................................................................................... 30
-----------
25. Electronic Notices............................................................................ 30
------------------
26. Notices....................................................................................... 30
-------
27. No Bankruptcy Proceedings Against Designated Bid Lenders...................................... 33
--------------------------------------------------------
28. Certain Acknowledgments by Borrower........................................................... 33
-----------------------------------
29. Miscellaneous................................................................................. 34
-------------
</TABLE>
127
<PAGE>
MODIFICATION AGREEMENT
TO SYNDICATE LOAN
This Modification Agreement ("Agreement") is made as of January 20, 1998,
by BRE PROPERTIES, INC., a Maryland corporation (the "Borrower"); BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association
("BofA"); the several financial institutions from time to time party to this
Agreement (collectively, the "Banks", and individually a "Bank"); and such
entities as may from time to time hereafter become Designated Bid Lenders (as
defined below) in accordance with the provisions hereof.
Factual Background
------------------
A. BofA has agreed to make a loan (the "Loan") to the Borrower in
accordance with an Unsecured Line of Credit Loan Agreement dated November 17,
1997 (the "Loan Agreement"). Capitalized terms used herein without definition
have the meanings given to them in the Loan Agreement or in the Note, as
applicable. The Loan is currently evidenced by a Promissory Note dated as of
November 17, 1997 in the stated principal amount of $265,000,000.
B. In connection with the acquisition, by the Banks other than BofA, of
their respective interests in the Loan, the Borrower, BofA and the Banks now
desire to amend the Loan Documents. Each Bank, including BofA, will have a
direct lender relationship with Borrower in accordance with the Loan Documents,
as hereby amended. Banks wish to designate BofA as their Agent in this
syndicated Loan. Because BofA is both an individual Bank in the syndicate as
well as Agent for all Banks in the syndicate, the parties wish to modify certain
defined terms in the Loan Documents.
Agreement
---------
Therefore, the Borrower and Banks agree as follows:
1. Recitals. The recitals set forth above in the Factual Background are
--------
correct.
2. Definitions. As used herein, the following words have the meanings
-----------
indicated.
"Absolute Rate" means, in connection with any Absolute Rate Auction,
-------------
the rate of interest per annum (expressed in multiples of 1/1000th of one
basis point) offered for any Bid Loan to be made pursuant thereto.
"Absolute Rate Auction" means a solicitation of Competitive Bids
---------------------
setting forth Absolute Rates pursuant to Section 7(b).
"Absolute Rate Bid Loan" means a Bid Loan that bears interest at an
----------------------
Absolute Rate.
"Advance" means any advance of proceeds, whether of a Committed Loan
-------
or a Bid Loan, made pursuant to the terms of the Loan Documents.
128
<PAGE>
"Affiliate" means, as to any Person, any other Person, which, directly
---------
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities,
membership interests, by contract or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder,
-----
and any successor agent.
"Agent-Related Persons" means BofA and any successor agent hereunder,
---------------------
together with their respective Affiliates and the officers, directors,
employees and agents of such Persons.
"Agent's Payment Office" means the address for payments set forth
----------------------
herein for the Agent, or such other address as the Agent may specify.
"Bank" has the meaning specified in the introductory sentence of this
----
Agreement; BofA in its capacity as a lender hereunder is one of the Banks.
"Bid Loan" means an Advance by a Bank or its Designated Bid Lender
--------
pursuant to the Bid Loan Facility, and may be either an Absolute Rate Bid
Loan or a LIBOR Bid Loan.
"Bid Loan Facility" means the credit facility for the requesting and
-----------------
making of Bid Loans described in Section 7(b).
"Bid Loan Rate Period" means (i) with respect to a LIBOR Bid Loan, the
--------------------
period, commencing on the date of such LIBOR Bid Loan and ending on a date
(determined by the Agent in accordance with the practices of the London
U.S. dollar inter-bank market) that is one, two, three or six months later,
but not extending beyond the Maturity Date; and (ii) with respect to an
Absolute Rate Bid Loan, commencing on the date of such Absolute Rate Bid
Loan and ending on a Banking Day that is at least 14, but no more than 180
days, later (but not extending beyond the Maturity Date), as specified by
the Borrower in the relevant Competitive Bid Request.
"Bid Loan Facility Limit" means, at any time, an amount equal to fifty
-----------------------
percent (50%) of the Maximum Loan Amount.
"BofA" means Bank of America National Trust and Savings Association, a
----
national banking association.
"Borrowing" means a borrowing hereunder consisting of Advances of the
---------
same type (i.e., Committed Loans, Absolute Rate Bid Loans, or LIBOR Bid
----
Loans) made to the Borrower on the same day and (except in the case of
Committed Loans accruing interest at the Reference-based Rate) having the
same Rate Period or Bid Loan Rate Period, as the case may be.
"Commerzbank" means Commerzbank Aktiengesellschaft, Los Angeles
-----------
Branch.
"Capital Adequacy Regulation" means any guideline or directive of any
---------------------------
central bank or other Governmental Authority, or any other law, rule or
regulation regarding capital adequacy of
129
<PAGE>
a Bank or of any corporation controlling a Bank.
"Committed Loan" means an Advance made by the Banks pursuant to the
--------------
Line of Credit described in Section 1.1 of the Loan Agreement.
"Committed Loan Availability" means, at any time, the Maximum Loan
---------------------------
Amount less the aggregate principal amount of all Bid Loans then
outstanding.
"Commitment" means the amount of the Line of Credit for which each
----------
Bank is obligated.
"Competitive Bid" means an offer by a Bank to make a Bid Loan in
---------------
response to a Competitive Bid Request.
"Competitive Bid Request" means a notice, in substantially the form of
-----------------------
Exhibit C, requesting that the Banks submit bids for a Bid Loan.
"Designated Bid Lender" means a special purpose corporation, organized
---------------------
under the laws of the United States or any subdivision thereof, that is
engaged in making, purchasing or otherwise investing in commercial loans in
the ordinary course of its business and that (i) shall have become a party
to this Agreement and the Co-Lender Agreement pursuant to Section 16(e),
and (ii) is not otherwise a Bank. References herein to a Bank's Designated
Bid Lender or a Designating Bank's Designated Bid Lender mean the
Designated Bid Lender party to a Designation Agreement with such Bank or
Designating Bank.
"Designating Bank" means a Bank that has entered into a Designation
----------------
Agreement with a Designated Bid Lender pursuant to Section 16(e).
"Designation Agreement" means a designation agreement, in
---------------------
substantially the form of Exhibit E, entered into by a Bank and a
Designated Bid Lender and accepted by the Borrower and the Agent.
"Dresdner" means Dresdner Bank AG.
--------
"Effective Date" means the date on which this Agreement has been
--------------
executed and delivered by each of the parties hereto and the conditions
precedent to effectiveness set forth in Section 18 have been satisfied.
"Eligible Assignee" means (i) a commercial bank or investment bank
-----------------
organized under the laws of the United States, or any state thereof, and
having a combined capital and surplus of at least $100,000,000; (ii) a
Person that is primarily engaged in the business of commercial banking and
is an Affiliate of a Bank; and (iii) any other Person approved by Majority
Banks and the Agent.
"Federal Funds Rate" means, for any day, the rate published by the
------------------
Federal Reserve Bank of New York for the preceding Banking Day as "Federal
Funds (Effective)"; (or, if not published, the arithmetic mean of the rates
for overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day quoted by three brokers of Federal Funds in New York City
as determined by the Agent).
130
<PAGE>
"IBJ" means The Industrial Bank of Japan, Limited.
---
"Indemnified Liabilities" has the meaning given in Section 15 entitled
-----------------------
"Indemnification by the Borrower".
"Indemnified Person" has the meaning given in Section 15 entitled
------------------
"Indemnification by the Borrower".
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are applicable to
the circumstances as of the date of determination.
"Governmental Authority" means any government, state or other
----------------------
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any entity owned or controlled through
capital ownership or otherwise by any of the foregoing.
"Keybank" means Keybank National Association.
-------
"Lending Office" means, as to any Bank or Designated Bid Lender, the
--------------
office specified as its Lending Office on Schedule I or as such Person may
designate to the Borrower and the Agent.
"LIBOR Auction" means a solicitation of Competitive Bids setting forth
-------------
LIBOR Bid Margins pursuant to Section 7(b).
"LIBOR Bid Loan" means a Bid Loan that bears interest at the relevant
--------------
LIBOR Bid Margin above (or below, as the case may be) the LIBOR Rate
(determined as described in the definition of "LIBOR Bid Margin").
"LIBOR Bid Margin" means, in connection with any LIBOR Auction, a
----------------
margin (expressed in multiples of 1/1000th of one basis point) above or
below the LIBOR Rate (determined, with respect to any LIBOR Bid Loan, in
the same manner as the LIBOR Rate is determined under the Note, except
based on the principal amount and Bid Loan Rate Period of the relevant
LIBOR Bid Loan) offered for any Bid Loan to be made pursuant thereto.
"Liquidity Provider" means, for any Designated Bid Lender and at any
------------------
time, on a collective basis, the financial institutions that at such date
are providing liquidity or credit support facilities to or for the account
of such Designated Bid Lender to fund such Designated Bid Lender's
obligations hereunder or to support the securities, if any, issued by such
Designated Bid Lender to fund such obligations.
"Loan Documents" means the Loan Agreement, the Note and any other
--------------
documents designated as "Loan Documents" in the Loan Agreement. This
Agreement is a Loan Document.
131
<PAGE>
"Majority Banks" means, at any time, a Bank or Banks then having in
--------------
excess of 66 2/3% of the Commitments (or, if the Commitments have been
terminated pursuant to the Loan Documents, holding in excess of 66 2/3% of
the then aggregate unpaid principal amount of the Advances, determined as
if each Designating Bank held (in addition to outstanding Committed Loans
and Bid Loans made for its own account) all outstanding Bid Loans made by
its Designated Bid Lender).
"Manufacturers" means Manufacturers Bank.
-------------
"NationsBank" means NationsBank of Texas, N.A.
-----------
"Note" means the Promissory Note executed by the Borrower in favor of
----
the Agent pursuant to the Loan Agreement referred to above.
"Obligations" means all advances, debts, liabilities, obligations and
-----------
covenants arising under any Loan Document owing by the Borrower to any Bank
or Designated Bid Lender, the Agent or any Indemnified Person, whether
absolute or contingent, due or to become due, now existing or hereafter
arising.
"Person" means any natural person, employee, corporation, limited
------
partnership, general partnership, joint stock company, limited liability
company, joint venture, association, company, trust, bank, trust company,
land trust, business trust or other organization, whether or not a legal
entity, or any other non-governmental entity, or any Governmental
Authority.
"Pro Rata Share" means, as to any Bank at any time, the percentage
--------------
equivalent (expressed as a decimal rounded to the twelfth decimal place) at
such time of such Bank's share of the Maximum Loan Amount.
"Sumitomo" means The Sumitomo Bank of California.
--------
"Subsidiary" of a Person means any other Person of which 50% or more
----------
of the voting stock, membership interests or other equity interests is
owned or controlled directly or indirectly by the Person, or one or more of
the Subsidiaries of the Person, or a combination thereof.
3. Modification of Loan Documents. The Loan Documents are hereby amended
------------------------------
as follows, subject to the terms and conditions hereof:
(a) The Note is modified so that:
(i) "Bank" means the Agent acting as agent for the Banks, except
that each reference to "Bank" in Sections 6, 7 and 18 of the Note and in
Paragraph 5 of Exhibit B to the Note is modified to mean "Banks and
Designated Bid Lenders", or "each Bank or Designated Bid Lender", as the
context requires;
(ii) "Banking Day" means, with respect to any LIBOR Bid Loan, the
same as "Banking Day" with respect to the LIBOR Alternative;
(iii) "Rate Period" means, in any context relating to a Bid Loan,
the applicable Bid Loan Rate Period; and
132
<PAGE>
The Note shall evidence all Advances, and, except to the extent
inconsistent with the express provisions of this Agreement, the terms of
the Note (including, without limitation, the provisions relating to the
Default Rate) shall apply to Bid Loans in addition to Committed Loans.
(b) The Loan Agreement is modified so that "Bank" means the Agent
acting as agent for the Banks, except that (i) in Sections 1.4(d) and 6.4(h),
the reference to "Bank" is modified to mean "BofA", (ii) each reference to
"Bank" in Section 5 (all subsections) and Section 9.8 of the Loan Agreement is
modified to mean "Banks" or "each Bank", as the context requires, (iii) the
reference to "Bank" in Section 9.9 of the Loan Agreement is modified to mean
"Banks and Designated Bid Lenders", and (iv) in the definition of "Applicable
Capitalization Rate", the reference to "Bank" is modified to mean "Majority
Banks".
(c) The definition of "Guaranty" set forth in the Loan Agreement is
amended and restated to read in its entirety as follows:
"Guaranty" means a guaranty of the Borrower's obligations under the
--------
Loan Documents, executed by one or more Material Borrower Entities or other
Borrower Entities, in substantially the form of Exhibit B.
(d) "Bank", as used in any Guaranty, whenever executed and delivered,
means (or shall mean, as the case may be) the Agent acting as agent for the
Banks, except that (i) in Section 3 of each Guaranty, each reference to "Bank"
means (or shall mean) "Agent or the Banks", (ii) in Sections 4, 5, 8, 9 and
14(c) of each Guaranty, each reference to "Bank" means (or shall mean) "Agent or
any Bank", and (iii) in Section 19, each reference to "Bank", except for the
second incidence of "Bank" in the first sentence, means (or shall mean) "Agent
and each Bank". Each Guarantor reconfirming its Guaranty as required herein,
and each Guarantor executing and delivering a Guaranty after the date hereof, by
its execution and delivery of such reconfirmation or Guaranty, as the case may
be, agrees to the foregoing modifications to such Guaranty, and a statement to
that effect shall be added to the form of Guaranty for use after the date
hereof.
4. The Credit Facilities.
---------------------
(a) Line of Credit.
--------------
(i) Subject to the terms and conditions hereof, each Bank
severally agrees to fund its Pro Rata Share of each Committed Loan under
the Line of Credit from time to time during the Availability Period;
provided, however, that at no time shall the aggregate principal amount of
-------- -------
all Committed Loans then outstanding exceed the Committed Loan
Availability. The proceeds of each such Advance shall be delivered to the
Borrower in accordance with the provisions of the Loan Documents.
(ii) Each Bank becoming party hereto as of the Effective Date shall
acquire its Pro Rata Share of the Loan on the Effective Date pursuant to an
assignment and assumption agreement similar in form to the Assignment and
Assumption, and shall pay to the Agent, for the account of BofA, its Pro
Rata Share of the outstanding principal of the Loan as of the Effective
Date. The Borrower and each Bank acknowledge that, as of the Effective
Date, the Loan, the principal amount outstanding thereunder, and each
Bank's Pro Rata Share and Commitment (by dollar amount) are:
133
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(A) The Loan: $265,000,000
(B) Total Current Outstanding Principal
(as of the date of this
Agreement): $157,000,000
(C) Each Bank's Pro Rata Share of the Loan:
BofA: 18.867924528302%
Commerzbank: 18.867924528302%
IBJ: 13.207547169811%
NationsBank: 13.207547169811%
Keybank: 13.207547169811%
Dresdner: 13.207547169811%
Manufacturers: 3.773584905661%
Sumitomo: 5.660377358491%
-----------------
100.000000000000%
(D) Each Bank's Commitment:
BofA: $50,000,000
Commerzbank: $50,000,000
IBJ: $35,000,000
NationsBank: $35,000,000
Keybank: $35,000,000
Dresdner: $35,000,000
Manufacturers: $10,000,000
Sumitomo: $15,000,000
------------
$265,000,000
</TABLE>
(b) Bid Loan Facility.
-----------------
(i) In addition to its agreement to make Committed Loans under
the Line of Credit, each Bank severally agrees that, subject to the
conditions that at the time of the Borrower's submission of the relevant
Competitive Bid Request (X) the Borrower's Rating (as determined for
purposes of the definition of "Applicable Margin") is at least BBB/Baa2 or
the equivalent, and (Y) no Event of Default or event that, with the giving
of notice or the lapse of time, or both, has occurred and is continuing,
the Borrower may, in accordance with this Section 4(b) and the other
relevant provisions of the Loan Documents, from time to time request that
the Banks, during the Availability Period, submit offers to make Bid Loans
to the Borrower; provided, however, that the Banks may, but shall not be
-------- -------
obligated to, submit such offers, and the Borrower may, but shall not be
obligated to, accept any such offers; and provided further that (A) at no
-------- -------
time shall the aggregate principal amount of all Advances (whether
Committed Loans or Bid Loans) at any time outstanding exceed the Maximum
Loan Amount; (B) at no time shall the aggregate principal amount of all Bid
Loans exceed the Bid Loan Facility Limit; and (C) at no time may the number
of Bid Loan Rate Periods then outstanding plus the number of Rate Periods
for Committed Loans then outstanding exceed eight. The obligation of a
Bank to fund its Pro Rata Share of Committed Loans shall be unaffected by
its (or its Designated Bid Lender's)
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making of any Bid Loans, notwithstanding that the sum of such Bank's Pro
Rata Share of the aggregate principal amount of the outstanding Committed
Loans, plus the aggregate amount of such Bank's (and its Designated Bid
Lender's) outstanding Bid Loans, may exceed such Bank's Commitment.
(ii) On the last day of each Bid Loan Rate Period, the Borrower
shall pay to the Agent, for the respective accounts of the Banks and
Designated Bid Lenders making Bid Loans ending thereon, the full amount of
the principal of, and accrued and unpaid interest on, each Bid Loan ending
thereon. The Borrower's failure to pay such amount in full on such date
shall constitute an Event of Default without notice or right to cure.
(c) Certain General Provisions.
--------------------------
(i) Each Bank acquiring an interest in the Committed Loans shall
become vested with its Pro Rata Share of Committed Loans upon execution and
delivery of the required documents and upon payment of its Pro Rata Share
of the principal balance of the outstanding Committed Loans and any other
fees, costs or expenses due hereunder or pursuant to another agreement.
Upon such payment, the respective interests of each Bank in the Loan
Documents and the other rights and claims with respect to the Line of
Credit shall be of equal priority with one another, except as otherwise
expressly provided.
(ii) A complete set of Loan Documents shall be held by the Agent.
(iii) No Bank other than a Bank that is also the Agent, and no
Designated Bid Lender, shall have any interest in any (A) property taken as
security for any other loan or financial accommodation made or furnished to
the Borrower by the Agent (in which such Bank or Designated Bid Lender has
not acquired an interest); (B) property now or hereafter in the Agent's
possession or under the Agent's control other than by reason of the Loan
Documents; or (C) deposits which may be or might become security for the
Borrower's Obligations by reason of the general description contained in
any instrument not a Loan Document held by the Agent or by reason of any
right of setoff, counterclaim, banker's lien or otherwise. If, however,
such property shall actually be applied to the payment of amounts owing by
the Borrower in connection with the Advances, then each Bank and Designated
Bid Lender shall be entitled to a pro rata share, if any, of such
application to amounts due in connection with the Advances, based on the
ratio of the outstanding principal amount of all Advances made by such Bank
(whether under the Line of Credit or the Bid Loan Facility) or Designated
Bid Lender to the outstanding principal amount of all Advances.
(iv) All the parties agree that, except as may be otherwise
expressly provided, all of the interest rates for the Advances are those of
and are calculated in accordance with the requirements and any applicable
assessments of the Agent, regardless of which Bank or Designated Bid Lender
is making an Advance or receiving a payment thereon.
(v) If, at any time or for any reason whatsoever, (A) the aggregate
principal amount of all outstanding Committed Loans shall exceed the
Committed Loan Availability, or (B) the aggregate amount of all outstanding
Bid Loans shall exceed the Bid Loan Facility Limit, or (C) the aggregate
amount of all outstanding Advances (whether Committed Loans or Bid Loans)
shall exceed the Maximum Loan Amount, then the Borrower shall immediately
pay to the Banks (for their own account and for the accounts of their
respective Designated Bid Lenders, as
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<PAGE>
applicable), the amount of such excess, to be applied to repayment of the
affected Advances in such order as the Agent may determine, in its sole
discretion.
5. Appointment and Authorization of Agent.
--------------------------------------
(a) Each Bank hereby irrevocably appoints, designates and authorizes
the Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to it by the terms of this Agreement or
any other Loan Document, together with such powers as are reasonably incidental
thereto and as further provided in the Co-Lender Agreement described below.
(b) Subject to the limitations set forth in the Loan Documents and Co-
Lender Agreement, Agent's powers include but are not limited to the power: (i)
to administer, manage and service the Line of Credit and the Bid Loan Facility;
(ii) to enforce the Loan Documents; (iii) to make all decisions under the Loan
Documents in connection with the day-to-day administration of the Line of Credit
and Bid Loan Facility, any inspections authorized by the Loan Documents, and
other routine administration and servicing matters; (iv) to collect and receive
from the Borrower or any third persons all payments of amounts due under the
terms of the Loan Documents and to distribute the amounts thereof to the Banks,
for their own account and for the respective accounts of their Designated Bid
Lenders; (v) to collect and distribute or disburse all other amounts due under
the Loan Documents; (vi) to grant or withhold consents, approvals or waivers,
and make any other determinations in connection with the Loan Documents; and
(vii) to exercise all such powers as are incidental to any of the foregoing
matters. The Agent shall furnish to Banks, for their own use and for
transmittal to their Designated Bid Lenders, copies of material documents,
including confidential ones, received from the Borrower regarding the Line of
Credit or the Bid Loan Facility, the Loan Documents and the transactions
contemplated thereby. The Agent shall have no responsibility with respect to
the authenticity, validity, accuracy or completeness of the information
provided.
(c) Notwithstanding any provision to the contrary contained in any
Loan Document, the Agent shall not have any duties or responsibilities, except
those expressly set forth in the Loan Documents or the Co-Lender Agreement, nor
shall the Agent have any fiduciary relationship with any Bank or Designated Bid
Lender, and no implied covenants, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document against
the Agent.
(d) The Borrower acknowledges that the Banks (and each Designated Bid
Lender at any time party to a Designation Agreement) have executed a Co-Lender
Agreement (as amended from time to time, the "Co-Lender Agreement") to
supplement the Loan Documents with respect to the relationship of the Banks, the
Designated Bid Lenders and the Agent among themselves in connection with the
credit facilities provided under the Loan Documents. The Co-Lender Agreement is
not a Loan Document.
(e) The Agent may, and at the request of the Majority Banks shall,
resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under
this Agreement, the Majority Banks shall appoint from among the Banks a
successor agent. If no successor agent is appointed prior to the effective date
of the resignation of the Agent, the Agent may appoint, after consulting with
the Banks, a successor agent from among the Banks. Upon the acceptance of
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent, and the retiring Agent's appointment, powers
and duties as Agent shall terminate. After any retiring the Agent's resignation
hereunder as Agent, the provisions
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<PAGE>
regarding payment of costs and expenses and indemnification of the Agent shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent under this Agreement. If no successor agent has accepted
appointment as the Agent by the date which is 30 days following a retiring
Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective, and the Banks shall perform all of the
duties of the Agent hereunder until such time, if any, as the Majority Banks
appoint a successor agent.
6. Loan Accounts. The Advances made by each Bank or Designated Bid
-------------
Lender shall be evidenced by one or more loan accounts or records maintained by
such Bank, Designated Bid Lender (and its Designating Bank) or the Agent, as the
case may be, in the ordinary course of business. The loan accounts or records
maintained by the Agent and each Bank or Designated Bid Lender (and its
Designating Bank) shall be conclusive absent manifest error of the amount of the
Advances made by the Banks or Designated Bid Lenders to the Borrower and the
interest and payments thereon. Any failure so to record or any error in doing
so shall not, however, limit or otherwise affect the obligation of the Borrower
hereunder to pay any amount owing with respect to Advances made under the Loan
Documents.
7. Procedure for Borrowing.
-----------------------
(a) Committed Loans.
---------------
(i) Each Borrowing under the Line of Credit shall be made upon
the Borrower's irrevocable written notice delivered to the Agent in
accordance with the Loan Agreement.
(ii) The Agent will promptly notify each Bank of (A) any election
of a LIBOR Alternative Rate by the Borrower pursuant to the provisions of
Exhibit A to the Note and of the amount of such Bank's Pro Rata Share of
the principal of the Loan with respect to which such election has been
made, and (B) any Notice of Borrowing and of the amount of such Bank's Pro
Rata Share of that Borrowing. With respect to a Notice of Borrowing, the
Banks, acting through the Agent, shall disburse the requested Advance as
provided in the Loan Agreement.
(b) Bid Loans.
---------
(i) When the Borrower desires to effect a Borrowing (or
Borrowings) consisting of one or more Bid Loans, but not more often than
twice in any calendar month, the Borrower shall notify the Agent by
telephone, followed promptly by facsimile of a Competitive Bid Request in
the form of Exhibit C (to be received no later than 10:00 a.m., San
Francisco time, (x) in the case of a LIBOR Auction, four Banking Days prior
to the date of the proposed Borrowing(s), or (y) in the case of an Absolute
Rate Auction, two Banking Days prior to the date of the proposed
Borrowing(s)), specifying (among the other information required by Exhibit
C):
(A) the date of such Borrowing(s), which shall be a Banking Day;
(B) the aggregate amount of such Borrowing(s), which shall be in
an amount (subject to the limitations set forth in other provisions of the
Loan Documents) equal to $10,000,000 or an integral multiple of $1,000,000
in excess thereof;
(C) whether the requested Borrowing(s) is/are to be made as
either
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<PAGE>
(1) one or more LIBOR Bid Loans or (2) one or more Absolute Rate Bid
Loans; and
(D) the duration of the requested Bid Loan Rate Period (subject
to the limitations that the Borrower may request no more than three Bid
Loan Rate Periods in any single Competitive Bid Request and that each Bid
Loan Rate Period must relate to at least $5,000,000 in principal) and, if
more than one Bid Loan Rate Period is requested, the requested principal
amount of the related Borrowing.
The Borrower's right to request Competitive Bids for LIBOR Bid Loans, and
each Bank's or Designated Bid Lender's obligation to fund any LIBOR Bid
Loan pursuant to any Competitive Bid accepted by the Borrower, shall be
subject in all respects to the provisions of Section 2.2(d) of Exhibit A to
the Note, applied as if each reference therein to the "LIBOR Alternative"
referred as well to LIBOR Bid Loans.
(ii) Upon receipt of a Competitive Bid Request, the Agent shall
promptly send a copy thereof to each of the Banks by facsimile, attaching
thereto notice of the date and time by which responses must be received in
order to be considered by the Borrower. The Competitive Bid Request shall
not constitute an offer by the Borrower, but merely an invitation to the
Banks to submit Competitive Bids with respect to the requested
Borrowing(s).
(iii) (A) Each Bank may, in its discretion, submit a Competitive
Bid containing an offer or offers to make Bid Loans in response to any
Competitive Bid Request. Each Competitive Bid must comply with the
provisions of this Section 7(b)(iii) and must be submitted to the Agent
(or, in the case of a Competitive Bid being submitted by the Agent in its
capacity as a Bank, to the Borrower), by facsimile, no later than 6:30 a.m.
(or, in the case of a Competitive Bid by the Agent, 6:15 a.m.), San
Francisco time, (1) in the case of a LIBOR Auction, three Banking Days
prior to the date of the proposed Borrowing(s), or (2) in the case of an
Absolute Rate Auction, on the date of the proposed Borrowing(s). Each
Competitive Bid so submitted (subject only to the provisions of Section
2.2(d) of Exhibit A to the Note, as described above, and to the
satisfaction of all conditions precedent to the requested Advance) shall be
irrevocable, unless the Borrower otherwise agrees in writing.
(B) Each Competitive Bid shall be in substantially the form of
Exhibit D hereto, shall identify the submitting Bank and the date of the
proposed Borrowing(s) specified in the Competitive Bid Request to which the
submitting Bank is responding and shall specify:
(1) the principal amount of each Bid Loan for which the
Competitive Bid is being made (which shall not be limited by the submitting
Bank's Commitment, but which shall be in an amount, no greater than the
amount of the requested Borrowing, equal to $5,000,000 or an integral
multiple of $1,000,000 in excess thereof); and
(2) (a) in the case of a LIBOR Auction, the LIBOR Bid Margin
offered by the submitting Bank, or (b) in the case of an Absolute Rate
Auction, the Absolute Rate offered by the submitting Bank.
A Competitive Bid may include up to three separate offers by the submitting
Bank with respect to each Bid Loan Rate Period specified in the Competitive
Bid Request to which it responds. Any Competitive Bid that (X) does not
include all the information required by this Section
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<PAGE>
7(b)(iii)(B), (Y) contains language that qualifies or conditions the
submitting Bank's offer to make the Bid Loan(s) described therein or
proposes terms other than (or in addition to) the terms proposed in the
relevant Competitive Bid Request other than to set an aggregate limit on
the principal amount of Bid Loans for which offers being made by the
submitting Bank may be accepted, or (Z) is received by the Agent (or the
Borrower, as applicable) after the time set forth in Section 7(b)(ii)(A)
(unless amended to bring it into compliance prior to the time set forth in
Section 7(b)(ii)(A)), shall be disregarded.
(iv) Promptly upon receipt, but not later than 7:00 a.m. on the
date by which Competitive Bids are required to have been submitted with
respect to a Competitive Bid Request, the Agent shall notify the Borrower
of (A) the terms of each Competitive Bid (other than one that is to be
disregarded as described above) received in response to the Competitive Bid
Request, and (B) (1) the aggregate principal amount of Bid Loans for which
Competitive Bids have been received for each Rate Period requested in the
Competitive Bid Request, and (2) the respective principal amounts and LIBOR
Bid Margins or Absolute Rates, as the case may be, so offered.
(v) No later than 7:30 a.m. on the date by which Competitive Bids
are required to have been submitted with respect to a Competitive Bid
Request, the Borrower shall notify the Agent of its acceptance or rejection
of the offers notified to it as provided in Section 7(b)(iv). The Borrower
shall have no obligation to accept any such offer, and may choose to reject
all of them. If the Borrower has failed to timely notify the Agent of its
acceptance or rejection of any one or more offers by the time specified in
the preceding sentence, the Borrower shall be deemed to have rejected such
offer(s). The Borrower may accept any Competitive Bid (other than one that
is to be disregarded as provided above) in whole or in part, provided that:
-------- ----
(A) the aggregate principal amount of the Competitive Bids so
accepted may not exceed the aggregate amount of the Borrowing(s) requested
in the relevant Competitive Bid Request;
(B) (1) subject to the provisions set forth below with
respect to multiple offers at the same LIBOR Bid Margin or Absolute Rate,
the principal amount of each accepted Competitive Bid must be in an amount
equal to $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, and (2) Competitive Bids must be accepted with respect to an
aggregate principal amount of at least $10,000,000; and
(C) with respect to each Bid Loan Rate Period for which
Competitive Bids were requested, the Borrower may accept offers solely on
the basis of ascending LIBOR Bid Margins or Absolute Rates, as the case may
be (provided that the Borrower may, to the extent necessary to comply with
the preceding paragraph (B) or to accept offers in an aggregate principal
amount equal to the aggregate amount of the Borrowing(s) requested in the
relevant Competitive Bid Request, accept only part of an offer at a
particular LIBOR Bid Margin or Absolute Rate and accept all or part of one
or more offers at a higher LIBOR Bid Margin or Absolute Rate).
If the Borrower chooses to accept one or more offers, the Borrower's notice
to the Agent shall specify the aggregate principal amount of offers with
respect to each requested Bid Loan Rate Period that it chooses to accept.
If two or more Banks offer the same LIBOR Bid Margin or Absolute Rate for
an aggregate principal amount greater than the amount for which such offers
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<PAGE>
were requested with respect to any requested Bid Loan Rate Period, then,
notwithstanding that in all other cases no Bid Loan may be made in an
amount less than $5,000,000, the Agent shall allocate the principal amount
of the affected Bid Loan among such Banks as nearly as possible (in such
multiples, not less than $1,000,000, as the Agent may deem appropriate) in
proportion to the aggregate principal amounts to which their respective
offers related. The Agent's allocation, in the absence of manifest error,
shall be conclusive.
(vi) The Agent shall promptly notify each Bank having submitted a
Competitive Bid whether its offer has been accepted and, if its offer has
been accepted, of the amount of the Bid Loan(s) to be made by it (or its
Designated Bid Lender) on the date of the relevant Borrowing(s). Each Bid
Loan shall bear interest, from and including the date it is made to but
excluding the last day of the Bid Loan Rate Period applicable thereto, at a
rate per annum equal to (A) in the case of an Absolute Rate Bid Loan, the
Absolute Rate specified by the Bank making (or whose Designated Bid Lender
makes) such Absolute Rate Bid Loan in its accepted Competitive Bid, and (B)
in the case of a LIBOR Bid Loan, the sum of (1) the LIBOR Bid Margin
specified by the Bank making (or whose Designated Bid Lender makes) such
LIBOR Bid Loan in its accepted Competitive Bid, plus (2) the LIBOR Rate
(determined in the same manner as the LIBOR Rate is determined under the
Note, except based on the principal amount and Bid Loan Rate Period of such
LIBOR Bid Loan).
(vii) Upon the request of any Bank, the Agent shall notify such
Bank, following a Borrowing of one or more Bid Loans, of the ranges of bids
submitted and the highest and lowest bids accepted for each Bid Loan Rate
Period requested by the Borrower and of the aggregate amount of the Bid
Loans made pursuant to such Borrowing. From time to time, the Borrower and
the Banks (for themselves and for their respective Designated Bid Lenders)
shall furnish such information to the Agent as the Agent may reasonably
request relating to the Bid Loans, including the amounts, interest rates,
dates of Borrowing and last days of the applicable Bid Loan Rate Periods,
for the purpose of enabling the Agent to allocate amounts received from the
Borrower to payment of amounts due and owing under the Loan Documents.
(viii) All notices or other communications required or desired
to be delivered by the Borrower pursuant to this Section 7(b) shall be
given by an individual authorized to do so pursuant to Section 3.9 of
Exhibit A to the Note in a writing delivered to the Agent by the Borrower
pursuant thereto.
(ix) Any Bid Loan that would otherwise be made by a Bank that is
a Designating Bank may from time to time be made by its Designated Bid
Lender, in such Designated Bid Lender's sole discretion. Nothing herein
shall constitute a commitment to make Bid Loans by such Designated Bid
Lender; provided, however, if such Designating Bank's Designated Bid Lender
-------- -------
elects not to, or fails to, make any such Bid Loan, for any reason
whatsoever, such Designating Bank shall make such Bid Loan pursuant to the
terms hereof, it being the obligation of each Designating Bank to make each
Bid Loan with respect to a Competitive Bid submitted by such Designating
Bank and accepted by Borrower, in whole or in part, pursuant hereto, except
to the extent that such Bid Loan is in fact funded by its Designated Bid
Lender.
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<PAGE>
(c) Certain General Provisions.
--------------------------
(i) (A) Each Bank shall make the aggregate amount of its Pro
Rata Share of each Committed Loan,
(B) each Bank having a Competitive Bid accepted will
make the aggregate amount of the Bid Loan(s) with respect to which its
Competitive Bid was accepted, and
(C) each Designated Bid Lender electing to fund one or
more Bid Loans that would otherwise have been made by its Designating Bank
with respect to an accepted Competitive Bid (or, if such Designated Bid
Lender fails to do so, its Designating Bank) will make the aggregate amount
of such Bid Loan(s),
available to the Agent for the account of the Borrower at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the date of the
relevant Borrowing and in funds immediately available to the Agent. The
proceeds of all such Advances will then be made available to the Borrower
by the Agent by wire transfer in accordance with written instructions
provided to the Agent by the Borrower. If any Bid Loan is funded by a
Designated Bid Lender, its Designating Bank shall provide the Agent with
notice to that effect on the date of such Borrowing.
(ii) Unless the Agent receives notice from any Bank at least one
Banking Day prior to the date of a Borrowing that such Bank (or such Bank's
Designated Bid Lender, in the case of a Bid Loan) will not make available
to the Agent when required (A) its Pro Rata Share of the Committed Loan to
be made thereon, or (B) the amount of the Bid Loans to be made by such Bank
(or its Designated Bid Lender) thereon, as the case may be, the Agent may
assume that such Bank (or, if applicable, its Designated Bid Lender) has
made such amount available to the Agent in immediately available funds on
the date of such Borrowing.
(iii) The failure of any Bank or Designated Bid Lender to make
available to the Agent any amount it is required to make so available in
respect of any Borrowing shall not relieve any other Bank or Designated Bid
Lender of any obligation hereunder to make an Advance on the date of such
Borrowing, but, except to the extent expressly provided (A) in Section
7(b)(ix) with respect to the obligation of any Designating Bank to fund Bid
Loans that are not funded by its Designated Bid Lender or (B) in Section
16(e)(ii), no Bank or Designated Bid Lender shall be responsible for the
failure of any other Bank or Designated Bid Lender to make any amount so
available.
8. Contract Rate Elections With Respect to Committed Loans.
-------------------------------------------------------
(a) The Borrower may elect interest rates applicable to the Committed
Loans in accordance with the requirements, terms and conditions set forth in the
Note upon irrevocable written notice to the Agent to be received by the Agent on
the appropriate day not later than 9:30 a.m. (San Francisco time).
(b) The Agent will promptly notify each Bank of receipt of an election
of the Contract Rate. If no timely notice is provided by the Borrower, the
Agent will promptly notify each Bank of any automatic conversion to the
Reference-based Rate. All rate elections and conversions with respect to
Committed Loans shall be made ratably according to the respective outstanding
principal amounts of the Committed Loan held by each Bank with respect to which
the notice was given.
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9. Fees.
----
(a) Agency Fee. The Borrower shall pay an agency fee to the Agent for
----------
the Agent's own account, as set forth in a separate letter understanding between
the Agent and the Borrower.
(b) Auction Fee. Together with the Borrower's submission of each
-----------
Competitive Bid Request, the Borrower shall pay to the Agent an auction fee in
the amount of $2,500, which fee shall be fully earned and nonrefundable upon the
Agent's transmittal of the Competitive Bid Request to the Banks, regardless of
whether the request is subsequently cancelled by the Borrower, any Bid Loans are
made by any Bank or Designated Bid Lender in response thereto or any Competitive
Bids are accepted by the Borrower.
(c) Other Fees. The Borrower shall pay to the Agent for the account
----------
of each Bank, as provided in separate letter agreements between the Agent and
each Bank, the Commitment Fee and the facility fee as set forth in Section 2.1
of the Loan Agreement and any extension fee payable under Section 22 of the
Note.
10. Payments by the Borrower.
------------------------
(a) All payments to be made by the Borrower shall be made without set-
off, recoupment or counterclaim. Except as otherwise provided, all payments by
the Borrower shall be made to the Agent for the account of the Banks and the
Designated Bid Lenders, as applicable, at the Agent's Payment Office, and shall
be made in U.S. dollars and in immediately available funds, in accordance with
the Loan Documents. The Agent will promptly distribute to each Bank (including,
to the extent applicable, for the account of its Designated Bid Lender, in
accordance with Section 16(e)), in like funds as received: (i) its Pro Rata
Share (or other applicable share as may be agreed by a Bank) of each payment in
respect of the Line of Credit and (ii) its (or, if applicable, its Designated
Bid Lender's) pro rata share of each payment in respect of any one or more Bid
Loans (based on the proportion of the outstanding principal amount of such
Bank's (or Designated Bid Lender's) Bid Loans in respect of which such payment
is made to all the outstanding principal amount of all Bid Loans in respect of
which such payment is made); provided that if any payment is received or
-------- ----
otherwise realized by the Agent at a time when the Availability Period has ended
and all outstanding Advances have become, or have been declared, due and
payable, then the Agent shall distribute to each Bank (including, to the extent
applicable, for the account of its Designated Bid Lender, in accordance with
Section 16(e)) its (or its Designated Bid Lender's) pro rata share thereof,
based on the proportion of the aggregate principal amount of such Bank's (or its
Designated Bid Lender's) outstanding Advances to the aggregate principal amount
of all outstanding Advances. Any payment received by the Agent later than 11:00
a.m. (San Francisco time) shall be deemed to have been received on the following
Banking Day and any applicable interest or fee shall continue to accrue.
(b) To the extent that the Borrower makes a payment to the Agent or
the Banks or Designated Bid Lenders, or the Agent or (notwithstanding any
provision of the Co-Lender Agreement to the contrary) the Banks exercise the
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including by any settlement) to be repaid to a trustee,
receiver, the Borrower or any other party, in connection with any Insolvency
Proceeding or otherwise, then (i) to the extent of such recovery the obligation
or part thereof originally intended to be satisfied shall be revived and
continued in full force and effect as if such payment had not been made or such
set-off had not occurred; and (ii) each Bank
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severally agrees to pay to the Agent upon demand (A) in the case of an amount
received in respect of a Bid Loan, its allocable share of any amount so
recovered from or repaid by the Agent, and (B) in the case of any other amount
received under the Loan Documents, its Pro Rata Share of any amount so recovered
from or repaid by the Agent; and (iii) each Designated Bid Lender agrees to pay
such Designated Bid Lender's allocable share of any amount so recovered from or
repaid by the Agent in respect of any Bid Loan made by such Designated Bid
Lender; provided however, that the foregoing clause shall not prohibit
any Designating Bank from agreeing with its Designated Bid Lender that, as
between such Designating Bank and Designated Bid Lender, such Designating Bank
shall pay to the Agent any amount that would otherwise be due to the Agent under
this Section 10(b), and such Designated Bid Lender shall not be liable for any
payment of any such amount to the extent that its Designating Bank makes such
payment.
(c) Agent shall have the exclusive right to collect on the Loan from
the Borrower or any guarantors, third parties, or otherwise including principal,
interest, fees or any prepayment premiums, whether such amounts are received
directly from the Borrower, any guarantors, or other persons, or are collected
by offset by Agent against the money or other property of the Borrower or any
guarantors deposited at or held by Agent, or other enforcement of the Loan
Documents. No Bank or Designated Bid Lender shall independently initiate any
judicial action or equivalent action or other proceeding against the Borrower
with respect to the Loan.
11. Prepayments.
-----------
(a) In the event the Borrower elects to prepay the Committed Loans in
whole or in part in accordance with the Loan Documents, the Agent will promptly
notify each Bank of such notice and of each Bank's Pro Rata Share of such
prepayment.
(b) Notwithstanding any other provision of this Agreement or of any
other Loan Document, the Borrower shall have no right to prepay any Bid Loan
prior to the last day of the applicable Bid Loan Rate Period.
(c) In the event of any prepayment by the Borrower of a Bid Loan prior
to the last day of the Bid Loan Rate Period applicable thereto (by reason of
acceleration or for any other reason), the Borrower shall pay to each Bank
holding an interest therein, or whose Designated Bid Lender holds an interest
therein, a prepayment premium equal to the sum of
(i) $250; and
(ii) the sum of such losses and expenses as such Bank or its
Designated Bid Lender, as applicable, may incur by reason of such
prepayment, including without limitation any losses or expenses
incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after such
prepayment.
The prepayment premium provided for herein shall be due and payable not later
than fifteen (15) days after delivery to the Borrower, by or on behalf of the
affected Bank or Designated Bid Lender, of a demand for payment accompanied by a
calculation, in reasonable detail, of such losses and expenses, which shall be
conclusive in the absence of manifest error.
(d) Each of the waivers and acknowledgments of the Borrower set forth
in Paragraphs 4 and 5 of Exhibit B to the Note shall apply to the Borrower's
covenants set forth in this
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Section 11 as if set forth herein.
12. Usury. If a court ultimately determines that the Loan (or any
-----
Advance) violates applicable usury law, then (a) the Borrower shall not be
required to pay to or for the account of any Bank or Designated Bid Lender
interest on the Loan (or such Advance) at a rate in excess of the maximum rate
that may be lawfully charged under applicable law; and (b) in the event that any
Bank or Designated Bid Lender shall collect interest or other monies which are
deemed to constitute interest which would increase the effective interest rate
on the Loan (or any Advance) to a rate in excess of that permitted by applicable
law, such excess interest shall, at the option of said Bank or Designated Bid
Lender, be returned to the Borrower or credited against the principal balance of
the Loan (or such Advance) then outstanding; (c) provided, however, that if a
usury law applies to one or more but not all Banks and Designated Bid Lenders,
then the Banks and Designated Bid Lenders not affected by the usury law shall be
entitled to the full amount of interest from the Borrower under the Loan
Documents even though other Banks or Designated Bid Lenders may receive or
retain less due to the usury law.
13. Increased Costs and Reduction of Return. If any Bank shall have
----------------------------------------
determined that a change in or compliance with any Capital Adequacy Regulation
affects the amount of capital required to be maintained by the Bank, or by any
Person controlling the Bank, and such Bank determines that the amount of such
required capital is increased as a consequence of the Line of Credit or other
obligations under the Loan Documents taking into consideration such Bank's or
controlling Person's policies with respect to capital adequacy and desired
return on capital, then, upon demand of such Bank to the Borrower through the
Agent, the Borrower shall pay to the Bank an additional amount sufficient to
compensate the Bank for such increase.
14. Costs and Expenses. The Borrower shall:
------------------
(a) pay or reimburse the Agent within five Banking Days after demand
for all costs and expenses (including legal fees) incurred by it in connection
with the preparation, administration and execution of any Loan Document and any
amendment, supplement, waiver or modification and any other documents prepared
in connection herewith or therewith, (whether or not the particular Loan,
transaction or document is consummated), including reasonable legal fees
incurred by BofA (including as Agent) with respect thereto; and
(b) pay or reimburse the Agent and each Bank within five Banking Days
after demand for all costs and expenses (including legal fees) incurred by them
in connection with the enforcement or preservation of any rights or remedies
under any Loan Document with respect to an Event of Default (including any
"workout" or restructuring of the Line of Credit or other obligations under the
Loan Documents, and any Insolvency Proceeding, judicial proceeding or
arbitration).
15. Indemnification by the Borrower. The Borrower shall indemnify, defend
-------------------------------
and hold the Agent-Related Persons and each Bank, and each of their respective
officers, directors, employees and agents (each, an "Indemnified Person")
harmless from and against any and all liabilities, obligations, losses, damages,
actions, judgments, costs and expenses (including legal fees) which may be
incurred by or asserted against any such Person arising out of or relating to
the Line of Credit, the Bid Loan Facility, Advances under the Loan Documents or
the Loan Documents or any document or transaction or action taken or not by any
such Person in connection with any of the foregoing, including any
investigation, arbitration, litigation, Insolvency Proceeding or other
proceeding whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that the
Borrower shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified
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Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person; nor shall the Borrower have any obligation to indemnify
any Designating Bank in respect of any matter with respect to which the Borrower
is entitled to be indemnified pursuant to Section 16(e) or in respect of any act
or omission by such Designating Bank or its Designated Bid Lender under their
Designation Agreement or any other agreement entered into between them in
connection therewith. The agreements in this Section 15 shall survive payment of
all other Obligations.
16. Assignments, Participations, etc.
---------------------------------
(a) A Bank may at any time assign to one or more Eligible Assignees
(each an "Assignee") with the written consent of the Borrower (other than during
the existence of an Event of Default) and of the Agent (at all times), which
consent shall not be unreasonably withheld (provided that no written consent
shall be required for an Eligible Assignee that is an Affiliate of such assignor
Bank) all or part of its Pro Rata Share of the Line of Credit and the other
rights and obligations of such assignor Bank hereunder with respect to the
Committed Loans and the Line of Credit (excluding, however, its interest in any
outstanding Bid Loans), in a minimum amount (with respect to such Bank's
Commitment) of $5,000,000; provided, however, that no such assignment shall be
permitted if the effect thereof is to cause the remaining Commitment of the
assignor Bank to be less than $15,000,000, and no assignment may be made of any
outstanding Committed Loan except in connection with an assignment of a
corresponding proportional share of the assignor Bank's Commitment. However,
such assignment shall be conditioned on, and the Borrower and the Agent may
continue to deal solely and directly with such assignor Bank until, (i) written
notice of such assignment, substantially in the form of the attached Exhibit A
shall have been given to the Borrower and the Agent by such Bank and the
Assignee; (ii) such Bank and its Assignee shall have delivered to the Agent and
the Borrower an Assignment and Assumption Agreement substantially in the form of
the attached Exhibit B ("Assignment and Assumption Agreement") (together with
any Note(s) subject to such assignment); and (iii) the Assignor has paid (or
caused to be paid) to the Agent a processing fee in the amount of $5,000.
(b) From the date that the Agent notifies the assignor Bank that all
conditions and requirements of the assignment have been met, then to the extent
that rights and obligations hereunder have been assigned (i) the Assignee
thereunder shall be a party hereto and shall have the rights and obligations of
a Bank under the Loan Documents and the Co-Lender Agreement, (ii) the assignor
Bank shall relinquish such assigned rights and be released from such assigned
obligations under the Loan Documents, (iii) this Agreement shall be deemed to be
amended to the extent necessary to reflect the addition of the Assignee and the
resulting adjustment of the Pro Rata Shares of the Loan arising therefrom, and
(iv) the Pro Rata Share allocated to an Assignee shall reduce the Pro Rata Share
of the assigning Bank.
(c) A Bank or Designated Bid Lender (the "originating Lender") may
sell to one or more Persons not Affiliates of the Borrower (a "Participant")
participating interests in the Line of Credit or in any Bid Loans made by the
originating Lender; provided that (i) the originating Lender's obligations under
the Loan Documents and the Co-Lender Agreement shall remain unchanged, (ii) the
originating Lender shall remain solely responsible for the performance of such
obligations, (iii) the Borrower and the Agent shall continue to deal solely and
directly with the originating Lender (or, in the case of a Designated Bid
Lender, its Designating Bank) in connection with the Advances and Loan
Documents, (iv) (A) no Bank shall transfer or grant any participating interest
under which the Participant has rights to approve any amendment, consent or
waiver with respect to any Loan Document, except (1) in the case of a
participation that includes an interest in the originating Lender's Commitment,
to the extent such amendment, consent or waiver would require unanimous consent
of the Banks under Section 7(a) of the
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Co-Lender Agreement, or (2) in the case of a participation that is limited to an
interest in one or more Bid Loans, to the extent such amendment, consent or
waiver would take effect while such Bid Loan(s) remained outstanding and would
require the unanimous consent of the Banks under any of the following clauses of
Section 7(a) of the Co-Lender Agreement: clause (ii), to the extent that the
proposed action would affect Bid Loans or any amount payable with respect to Bid
Loans; clause (iii), to the extent that the proposed action would affect any
amount payable in connection with Bid Loans; clause (iv); clause (v); and clause
(vi); and (B) no Designated Bid Lender shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment,
consent or waiver with respect to any Loan Document greater that the lesser of
(1) such rights of approval as may have been granted to such Designated Bid
Lender in connection with its entry into the relevant Designation Agreement, or
(2) as described in Section 7(e)(i) as being permitted to Designated Bid
Lenders, (v) with respect to the sale of participating interests in the Line of
Credit (it being understood that the limitations of this clause (v) shall not
apply with respect to the sale of a participating interest in all or any portion
of a Bid Loan), each participating interest in a Bank's Commitment shall be in a
minimum amount of $5,000,000, and no such participation shall be permitted if
the non-participated interest of the originating Lender in its Commitment would
thereafter be less than $15,000,000. A Participant shall not have any rights
under the Loan Documents or the Co-Lender Agreement, and all amounts payable by
the Borrower hereunder shall be determined as if the originating Lender had not
sold such participation.
(d) Notwithstanding any other provision of this Agreement, any other
Loan Document or the Co-Lender Agreement: (i) a Bank or Designated Bid Lender
may pledge its interest in the Borrower's obligations under the Loan Documents
in favor of any Federal Reserve Bank in accordance with Federal law; and (ii) a
Designated Bid Lender may pledge its interest in the Borrower's obligations
under the Loan Documents in respect of any Bid Loan in favor of any Liquidity
Provider qualifying as such with respect to the Bid Loan so pledged.
(e) (i) Any Bank may at any time, with the prior written consent of
the Borrower and the Agent, which consent shall not be unreasonably
withheld, designate one Designated Bid Lender to fund Bid Loans on behalf
of such Designating Bank subject to the terms of this Section 16(e), and
the provisions of Sections 16(a), (b) and (c) shall not apply to such
designation, except that no Designating Bank shall enter into any agreement
------ ----
under which its Designated Bid Lender has rights to approve any amendment,
consent or waiver with respect to any Loan Document, except to the extent
such amendment, consent or waiver would amend any right of Designated Bid
Lenders or would require the unanimous consent of the Banks under any of
the following clauses of Section 7(a) of the Co-Lender Agreement: clause
(ii), to the extent that the proposed action would affect Bid Loans or any
amount payable with respect to Bid Loans; clause (iii), to the extent that
the proposed action would affect any amount payable in connection with Bid
Loans; clause (iv); clause (v), if the proposed action would take effect
while any Bid Loans made by such Designated Bid Lender were outstanding;
and clause (vi). No Bank may designate more than one Designated Bid Lender
at any one time, and, following the termination of a designation with
respect to one Designated Bid Lender, no new Designated Bid Lender may be
designated until all outstanding Bid Loans made by the prior Designated Bid
Lender have been paid in full. The parties to each such designation shall
execute and deliver to the Borrower and the Agent for their acceptance a
Designation Agreement, and, upon the Agent's receipt of (A) an
appropriately completed Designation Agreement (1) executed by a Designating
Bank and a designee representing that it is a Designated Bid Lender and (2)
accepted by the Borrower, and (B) a processing fee in the amount of $2,500,
the Agent shall accept such Designation Agreement and register such
Designated Bid Lender as a Designated Bid Lender, and give prompt notice
thereof to the Borrower, whereupon: from and after the effective date
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specified in the Designation Agreement, the Designated Bid Lender shall
become a party to this Agreement and to the Co-Lender Agreement, as a
Designated Bid Lender, with (X) a right to make Bid Loans on behalf of its
Designating Bank pursuant to Section 7(b)(ix) with respect to any
Competitive Bid of such Designating Bank that is accepted in whole or in
part by the Borrower, and (Y) the other rights, and the obligations,
provided herein and therein, subject to the limitation, however, that,
------- -- --- ----------
notwithstanding the assumption by a Designated Bid Lender of certain of the
obligations of its Designating Bank (but without limiting the Designating
Bank's obligations under the following paragraph (ii)), no Designated Bid
Lender shall be required to make payments with respect to any of its
obligations under this Agreement or any other Loan Document, or under the
Co-Lender Agreement, except to the extent of excess cash flow of such
Designated Bid Lender (i.e., cash that is not otherwise required to repay
----
obligations of such Designated Bid Lender that are then due and payable).
(ii) Notwithstanding any other provision of this Agreement, any
other Loan Document or the Co-Lender Agreement: regardless of any
designation of a Designated Bid Lender hereunder, the Designating Bank
making such designation (A) shall be and remain obligated to the Borrower,
the Agent and each of the other Banks and other Designated Bid Lenders for
each and every one of the obligations of the Designating Bank and its
Designated Bid Lender with respect to this Agreement, any other Loan
Document or the Co-Lender Agreement (including, without limitation, any
indemnification obligations under the Co-Lender Agreement and other
obligation to pay any amount otherwise payable to the Borrower by the
Designated Bid Lender); and (B) shall indemnify, defend and hold the Agent,
the Borrower, each Bank and each Designated Bid Lender harmless from and
against any and all losses, costs, expenses (including reasonable
attorneys' fees and the cost of any services of in-house counsel) and
liabilities incurred by any such Person in connection with or arising from
(1) (a) the non-performance by such Designating Bank's Designated Bid
Lender of any obligation assumed by the Designated Bid Lender under its
Designation Agreement, (b) any other act or omission of the Designated Bid
Lender committed in violation of the provisions of any Loan Document or the
Co-Lender Agreement, or (c) the failure of any representation or warranty
made by such Designating Bank's Designated Bid Lender for the benefit of
the Agent, the Borrower, any other Bank or any other Designated Bid Lender
to be true and correct in all material respects, or (2) such Designating
Bank's nonperformance of any obligation owed to its Designated Bid Lender
under the Designation Agreement or any other agreement between such
Designating Bank and its Designated Bid Lender with respect to the
transactions contemplated hereby.
(iii) Notwithstanding any designation hereunder, the Borrower and
the Agent shall continue to deal solely and directly with the Designating
Bank in connection with the Advances (including any Bid Loans made by such
Designating Bank's Designated Bid Lender), the Loan Documents and the Co-
Lender Agreement. Each Designating Bank shall serve as the administrative
agent of its Designated Bid Lender and shall on behalf of the Designated
Bid Lender: (A) receive any and all payments made for the benefit of the
Designated Bid Lender (and Borrower's and Agent's obligation to make any
payment to the Designated Bid Lender shall be satisfied upon payment of
such amount to its Designating Bank for the benefit of such Designated Bid
Lender, without any duty to see to the application thereof by such
Designating Bank), and (B) give and receive all communications and notices
and take all actions under any Loan Document or the Co-Lender Agreement,
including, without limitation, votes, approvals, waivers, consents and
amendments under or relating to this Agreement, the other Loan Documents
and the Co-Lender Agreement; and any notice or other communication so
delivered to a Designating Bank shall be deemed validly delivered to its
Designated Bid Lender, without
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<PAGE>
any duty on the part of the Borrower or the Agent to verify whether such
notice or other communication is actually delivered by such Designating
Bank to its Designated Bid Lender. The Agent shall have no responsibility
for, and shall not incur liability to any Designated Bid Lender arising out
of, the disposition by such Designated Bid Lender's Designating Bank of any
funds or notice or other communication delivered to such Designating Bank
for the account of such Designated Bid Lender in accordance herewith. Any
notice, communication, vote, approval, waiver, consent or amendment of or
with respect to any Loan Document or the Co-Lender Agreement that is
delivered or executed on behalf of any Designated Bid Lender shall be
signed by its Designating Bank as administrative agent for the Designated
Bid Lender (whether or not noted as such thereon), and shall not be signed
by the Designated Bid Lender on its own behalf. The Borrower, the Agent,
the Banks and the other Designated Bid Lenders may rely thereon without any
requirement that the Designated Bid Lender sign or acknowledge the same. No
Designated Bid Lender may assign or transfer all or any portion of its
interest hereunder or under any other Loan Documents, other than (X) an
assignment to the Designating Bank which originally designated such
Designated Bid Lender, or (Y) in accordance with the provisions of Section
16(c) or (d).
(iv) A Designated Bid Lender shall not have any right to the payment
of any amount under the Loan Documents or the Co-Lender Agreement other
-----
than with respect to (i) principal of and interest (including, to the
----
extent, interest at the Default Rate) on Bid Loans made by such Designated
Bid Lender, (ii) late charges with respect to Bid Loans made by such
Designated Bid Lender that are not paid when due, and (iii) compensatory
amounts payable by the Borrower in respect of Bid Loans made by such
Designated Bid Lender that are paid prior to the last day of the Bid Rate
Interest Period applicable thereto; and all other amounts payable by the
Borrower hereunder, under any other Loan Document or under the Co-Lender
Agreement shall be determined as if such Designated Bid Lender's
Designating Bank had not made such designation.
17. Publicity. Each Bank and Designated Bid Lender may refer to the
---------
credit facilities provided pursuant to the Loan Documents in its own promotional
and advertising materials. The Borrower shall not identify a Bank or Designated
Bid Lender as a lender, except with such Bank's or Designated Bid Lender's prior
written consent, provided through the Agent in each instance.
18. Conditions Precedent. The obligation of each Bank and Designated Bid
--------------------
Lender under the Loan Documents to make any Advances on or after the Effective
Date is subject to the further conditions that Agent has received all of the
following in form and substance satisfactory to Agent:
(a) Fully executed originals of this Agreement (including the
Reconfirmation of Guaranty attached hereto, executed on behalf of each
Guarantor) and the Co-Lender Agreement and any other documents any Bank may
reasonably require or request in accordance with the Loan Documents.
(b) Reimbursement of all costs and expenses incurred by the Agent in
connection with this Agreement, including legal fees and expenses of the Agent's
counsel, and the costs for services of the Agent's in-house staff, such as legal
services.
19. Conditions to All Borrowings. The obligation of each Bank and
----------------------------
Designated Bid Lender to make any Advance (including its initial disbursement on
or after the Effective Date) under the Loan Documents is subject to the
satisfaction on the date of the relevant Borrowing of the conditions set forth
in the Loan Documents, and, in the case of a Bid Loan, shall be subject to the
further condition that each of the statements made in the applicable Competitive
Bid Request shall be true and accurate in all material respects as if made on
and as of the date of such Bid Loan.
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20. Authorization and Enforceability Representations. Each Bank, each
------------------------------------------------
Designated Bid Lender, the Agent and the Borrower hereby represents to the other
parties hereto that all necessary action has been taken to authorize it to
execute and to perform its obligations under the Loan Documents, and that the
Loan Documents are binding and enforceable against it.
21. CONSENT TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
-----------------------
TO ANY LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA, OR
OF THE UNITED STATES FOR THE NORTHERN OR CENTRAL DISTRICTS OF CALIFORNIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT (OR ASSIGNMENT AND ASSUMPTION OR
DESIGNATION AGREEMENT, AS THE CASE MAY BE), THE BORROWER, THE AGENT, EACH BANK
AND EACH DESIGNATED BID LENDER CONSENTS, FOR ITSELF AND ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE BORROWER, THE AGENT, EACH BANK
AND EACH DESIGNATED BID LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING BASED
ON VENUE OR FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
--------------------
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN CONNECTION WITH THE
LOAN OR OTHER ADVANCES MADE UNDER THE LOAN DOCUMENTS. THE BORROWER, THE AGENT,
EACH BANK AND EACH DESIGNATED BID LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS WHICH MAY BE MADE BY OTHER MEANS UNDER APPLICABLE
LAW.
22. Incorporation. This Agreement shall form a part of each Loan
-------------
Document, and all references to a given Loan Document shall mean that document
as hereby modified.
23. No Impairment. As specifically hereby amended, the Loan Documents
-------------
shall remain in full force and effect. This Agreement shall not prejudice any
rights or remedies of Banks under the Loan Documents. Banks and Designated Bid
Lenders reserve, without limitation, all rights which they have against any
guarantor or indemnitor.
24. Integration. The Loan Documents, including this Agreement: (a)
-----------
integrate all the terms and conditions incidental to the Loan Documents; (b)
supersede all oral negotiations and prior and other writings with respect to
their subject matter; and (c) are intended by the parties as the final
expression of their agreement with respect to the terms and conditions set forth
in those documents and as the complete and exclusive statement of the terms
agreed to by the parties. If there is any conflict between the terms,
conditions and provisions of this Agreement and those of any other agreement or
instrument, including any of the other Loan Documents, the terms, conditions and
provisions of this Agreement shall prevail. The Co-Lender Agreement addresses
matters among the Banks, the Designated Bid Lenders and the Agent and is
intended by the Banks, the Designated Bid Lenders and the Agent to supplement
and be compatible with and not abrogate the Loan Documents, and the Borrower's
rights, obligations and liabilities shall not be diminished or increased by the
Co-Lender Agreement.
25. Electronic Notices. Any agreement of the Agent to receive certain
------------------
notices from the Borrower or the Banks (in their own capacities or in their
capacities as administrative agent for any Designated Bid Lender) by telephone
or facsimile is solely for their convenience and at their request. The Agent
shall be entitled to rely on the authority of any Person giving such notice and
the Agent shall not have any liability to the Borrower, any Bank, any Designated
Bid Lender or other Persons on account of any action taken or not taken by the
Agent in reliance upon such telephonic or facsimile notice.
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26. Notices.
-------
Notices and other communications that the Borrower, the Agent or any
Lender is required to deliver under any Loan Document, or that any such Person
desires to deliver to any other party to a Loan Document, shall be sent to the
following addresses:
To the Borrower:
BRE Properties, Inc.
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104
Attn: LeRoy E. Carlson
Phone: (415) 445-6561
Fax: (415) 445-6505
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<PAGE>
To BofA as Bank:
Bank of America National Trust
and Savings Association
Commercial Real Estate Services/
National Accounts 9105
50 California Street,
11th Floor
San Francisco, CA 94111
Attention: Janice Sears
Phone: (415) 445-4448
Fax: (415) 445-4154
To BofA as Agent:
Bank of America National Trust
and Savings Association
Commercial Real Estate Services/
National Accounts 9105
50 California Street
11th Floor
San Francisco, CA 94111
Attention: Janice Sears
Phone: (415) 445-4448
Fax: (415) 445-4154
To Commerzbank:
Commerzbank AG, New York Branch
2 World Financial Center
New York, NY 10281-1050
Attention: David Schwarz/Christine Finkel
Phone: (212) 266-7632/(212) 266-7375
Fax: (212) 266-7530
with a copy to:
Commerzbank AG, Los Angeles Branch
633 West Fifth Street, Suite 6600
Los Angeles, CA 90071
Attention: Steven F. Larsen
Phone: (213) 623-8223
Fax: (213) 623-0039
To IBJ:
The Industrial Bank of Japan, Limited
350 South Grand Ave., Suite 1500
Los Angeles, CA 90071
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<PAGE>
Attention: Mr. Takeshi Kubo
Phone: (213) 893-6447
Fax: (213) 488-9840
To NationsBank:
NationsBank of Texas, N.A.
901 Main St., 51st Floor
Dallas, TX 75202
Attention: David Howard
Phone: (214) 508-2089
Fax: (214) 508-0085
To Keybank:
Keybank National Association
127 Public Square
Cleveland, OH 44114
Attention: Laird A. Fairchild
Phone: (216) 689-4998
Fax: (216) 689-3566
To Dresdner:
Dresdner Bank AG
333 South Grand Ave., Suite 1700
Los Angeles, CA 90071
Attention: Vitol Wiacek
Phone: (213) 473-5422
Fax: (213) 473-5450
To Manufacturers:
Manufacturers Bank
16255 Ventura Blvd.
Encino, CA 91436
Attention: Cheryl Paller
Phone: (818) 380-0909
Fax: (818) 380-0906
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To Sumitomo:
The Sumitomo Bank of California
320 California Street, Suite 600
San Francisco, CA 94104
Attention: Tom Paton
Phone: (415) 445-8750
Fax: (415) 296-9617
As provided in Section 16(e), any notice or other communication to a Designated
Bid Lender shall be sent to its Designating Bank. Except as otherwise specified:
(x) all notices or other communications sent by mail, if duly given, shall be
effective three (3) Business Days after deposit into the mails, postage prepaid,
(y) all notices or other communications sent by a nationally recognized
overnight courier service, if duly given, shall be effective one (1) Business
Day after delivery to such courier service (with the relevant fees paid or duly
provided for), and (z) all other notices or other communications, if duly given
or made, shall be effective upon receipt.
27. No Bankruptcy Proceedings Against Designated Bid Lenders. Each of the
--------------------------------------------------------
Borrower, the Banks, and the Agent hereby agrees that it will not institute
against any Designated Bid Lender, or join with any other Person in instituting
against any Designated Bid Lender, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding under any federal or state bankruptcy or
similar law, at any time prior to the date that is one year and one day after
payment in full of the latest maturing commercial paper note issued by such
Designated Bid Lender.
28. Certain Acknowledgments by Borrower. The Borrower acknowledges that
-----------------------------------
(i) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents; and (ii) the relationship between
the Borrower, on the one hand, and the Agent and the Banks and Designated Bid
Lenders, on the other hand, in connection with the Loan Documents and the
transactions contemplated thereby is solely that of debtor and creditor; no
joint venture is created hereby or by the other Loan Documents or otherwise
exists (among the Borrower, the Banks and the Designated Bid Lenders or between
the Borrower and the Agent) by virtue of the transactions contemplated hereby.
153
<PAGE>
29. Miscellaneous. This Agreement shall be governed by the laws of the
-------------
State of California, without regard to the choice of law rules of that State.
This Agreement and any attached consents or exhibits requiring signatures may be
executed in counterparts, and all counterparts shall constitute but one and the
same document. If any court of competent jurisdiction determines any provision
of this Agreement or any of the other Loan Documents to be illegal or
unenforceable, that portion shall be deemed severed from the rest which shall
remain in full force and effect. As used herein, the word "include(s)" means
"includes(s), without limitation," and the word "including" means "including,
but not limited to." Schedule I and Exhibits A (form of Notice of Assignment),
B (form of Assignment and Assumption Agreement), C (form of Competitive Bid
Request), D (form of Competitive Bid) and E (form of Designation Agreement) are
attached to this Agreement and are incorporated in this Agreement by this
reference.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT.
BRE PROPERTIES, INC., A MARYLAND CORPORATION
By: /s/ LeRoy E. Carlson
--------------------------------
Title: Executive Vice President &
Chief Financial Officer
By: /s/ Frank C. McDowell
----------------------------------
Title: President & Chief Executive Officer
-------------------------------------
154
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ Janice Sears
-----------------
Title: Vice President
----------------
COMMERZBANK AKTIENGESELLSCHAFT, LOS ANGELES
BRANCH, as a Bank and as Co-Documentation Agent
By: /s/ David Schwartz
-------------------
Title: Vice President
----------------
By: /s/ Christine H. Finkel
----------------------------
Title: Assistant Vice President
--------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Bank and as Co-Documentation Agent
By: /s/ Shuji Ueno
----------------------------
Title: Senior vice President
--------------------------
NATIONSBANK OF TEXAS, N.A., as a Bank and as Co-
Agent
By: /s/ Laurence C. Hughes
----------------------------
Title: Vice President
-------------------------
KEYBANK NATIONAL ASSOCIATION, as a Bank and as Co-
Agent
By: /s/ Laird A. Fairchild
----------------------------
Title: Assistant Vice-President
------------------------
DRESDNER BANK AG, New York Branch and Grand Cayman
Branch, as a Bank and as Co-Agent
155
<PAGE>
By: /s/ Christopher E. Sarisky
----------------------------
Title: Assistant Treasurer
--------------------------
By: /s/ John W. Sweeney
----------------------------
--------------------- -
Title: Assistant Vice President
--------------------------
MANUFACTURERS BANK
By: /s/ Cheryl Paller
----------------------------
Title: Senior Vice
President/Regional
Manager
THE SUMITOMO BANK OF CALIFORNIA
By: /s/ Thomas C. Paton, Jr.
----------------------------
Title: Vice President
-------------------------
By: /s/ Frank Aiello
----------------------------
Title: Assistant Vice President
------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ Janice Sears
----------------------------
Title: Vice President
------------------------
156
<PAGE>
RECONFIRMATION OF GUARANTY
The undersigned hereby (i) acknowledges and approves the foregoing
Modification Agreement to Syndicate Loan ("Modification Agreement") and the
other Loan Documents referred to therein; (ii) agrees to the modifications to
the undersigned's Guaranty set forth in the Modification Agreement; and (iii)
restates and reconfirms each and every representation, warranty and covenant as
set forth in its Guaranty, dated as of November 17, 1997, executed in favor of
BofA, and acknowledges and agrees that each such representation, warrranty and
covenant shall inure to the benefit of each of Agent, Banks and Designated Bid
Lenders.
GUARANTOR: BRE PROPERTY INVESTORS, LLC, a Delaware limited
liability company,
By: BRE PROPERTIES, INC., a
Maryland corporation
Its: Managing Member
By: /s/ LeRoy E. Carlson
--------------------
Its: Executive Vice President &
Chief Financial Officer
157
<PAGE>
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
November 18, 1997 by and between BRE PROPERTIES, INC., a Maryland corporation
(the "COMPANY"), and Bruce Ward (the "EXECUTIVE").
BACKGROUND
----------
WHEREAS, the Company desires to employ Executive, and Executive desires to
be employed by the Company, on the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the covenants, duties, terms, and
conditions set forth in this Agreement, the parties agree as follows:
1. Term. Executive shall commence the rendering of personal services
----
under this Agreement on the date of this Agreement set forth above (the "START
DATE"). The term of this Agreement is for three years from the Start Date
unless earlier terminated pursuant to Section 7 (the "TERM").
2. Duties. Executive shall be employed by the Company as its Executive
------
Vice-President of Development and Acquisitions and as President of BRE Builders,
Inc., a wholly-owned subsidiary of the Company. Executive shall report to the
Company's Chief Operating Officer and perform such duties, consistent with
duties customarily accorded an Executive Vice-President, that the Chief
Operating Officer or the Chief Executive Officer may from time to time direct.
Executive shall devote his full business time and best efforts to the Company.
Executive shall not, except for incidental management of his personal financial
affairs, engage in any other business, nor shall he serve in any position with
any other corporation or entity, without the prior written consent of the Board
of Directors of the Company (the "Board").
3. Compensation. During the Term, Executive shall be entitled to receive
------------
compensation in accordance with this Section 3.
3.1 Base Salary. Commencing on the Start Date, Executive shall
-----------
receive an annual base salary ("BASE SALARY") of $225,000. The Base Salary
shall be payable by the Company to the Executive in equal installments on the
dates payments of salary are regularly made by the Company to its executive
employees. As part of the review of all Company executives, such base salary
will be reviewed annually based on Executive's performance with any adjustments
to base salary subject to approval of the Board or its Compensation Committee
(the "Compensation Committee").
3.2 Annual Incentive Bonus . Executive shall be eligible to receive
-----------------------
an annual incentive bonus (the "ANNUAL BONUS") targeted at 40% of Base Salary
for each fiscal year of the Company during the Term. The amount of the Annual
Bonus shall be based on the achievement of predefined operating or performance
and other criteria established by the Chief Operating Officer or the Chief
Executive Officer (the "ANNUAL CRITERIA"), with the actual amount of the Annual
Bonus subject to approval of the Board or its Compensation Committee. The
Annual Bonus with respect to any fiscal year for which the Executive is not
employed for the entire year will be prorated. Except as otherwise specified in
this Agreement, Executive shall earn the Annual Bonus only at the end of each of
the
158
<PAGE>
Company's fiscal years during the Term. The Annual Bonus, if earned, shall
be paid within 90 days after the end of each fiscal year.
3.3 Long Term Incentive Awards. Effective on the Start Date, the
--------------------------
Executive shall receive incentive stock options to purchase 25,000 shares of the
Company's common stock (the "Options") pursuant to the Amended and Restated 1992
Employee Stock Plan (the "1992 Plan"). The Options will have an exercise price
equal to Fair Market Value (as defined in the 1992 Plan) on the date of grant,
will vest 20% per year at the end of each year of employment served and will
have such other terms and conditions as may be specified pursuant to the 1992
Plan. During the second and third years of the Term, the Executive shall be
entitled to receive such additional stock option awards, or other form of long
term incentive compensation, as may be approved by the Board or its Compensation
Committee consistent with the Company's policies applicable to senior
executives.
4. Benefits. During the Term, Executive shall be entitled to receive
--------
such other benefits and to participate in such benefit plans as are generally
provided by the Company to its executive employees, including 401(k) and health
and life insurance plans. The Company will also pay Executive's annual dues for
membership in the Young Presidents' Association and the Urban Land Institute
during the Term. Executive shall be entitled to four weeks vacation for each
full twelve months of employment hereunder.
5. Expenses. The Company shall pay or reimburse Executive for all
--------
reasonable travel and other expenses incurred by Executive in performing his
duties under this Agreement in accordance with Company policy. In addition,
Executive shall be entitled to receive a $500 per month automobile allowance,
and reimbursement for the cost of monthly parking at the Company's offices in
San Francisco, for each month during the Term.
6. Housing Allowance/Relocation Expense. Executive shall be reimbursed
------------------------------------
by the Company (upon presentation of appropriate documentation) for the
following reasonable out-of-pocket expenses related to relocating to the San
Francisco Bay Area: moving expenses for household goods, travel for Executive
and his family to and from the San Francisco Bay Area, trips for locating
housing, and temporary housing for a period of up to one year. The total amount
payable to Executive on account of the foregoing expenses shall not exceed
$50,000. In addition, Executive shall be reimbursed, upon presentation of
appropriate documentation and up to the maximum amount of $30,000, for customary
commissions on the sale of his existing residence and Executive's share of any
reasonable title, closing and other transactional costs customarily paid by a
seller in the jurisdiction in which the residence is located as set forth in
Executive's closing escrow statement.
7. Termination of Employment.
-------------------------
7.1 Termination Due to Death or Disability; Voluntary Termination.
-------------------------------------------------------------
If at any time during the Term, Executive shall die, suffer any Disability which
is deemed to be permanent (as defined below), or voluntarily terminate his
employment by the Company, then, in any such event, his employment under this
Agreement shall automatically terminate on the date of death, upon any
Disability, or the date of voluntary termination, as the case may be. As used
herein, the term "DISABILITY" shall mean the inability of Executive to perform
his normal duties for Company for a period of ninety (90) calendar days, or for
one hundred twenty (120) days during any period of one hundred eighty (180)
calendar days, whether or not consecutive. An additional determination of
permanent disability may be made at any time by a physician chosen by a majority
of the Board, which physician shall opine as to the physical condition of
Executive.
159
<PAGE>
7.2 Termination by the Company for Good Cause. The Company may
-----------------------------------------
terminate this Agreement and Executive's employment at any time for Good Cause.
In such event, this Agreement shall terminate on such date as shall be specified
in writing by the Company. As used herein, the term "GOOD CAUSE" shall mean (i)
any act or omission of gross negligence, willful misconduct, dishonesty, or
fraud by Executive in the performance of his duties hereunder, (ii) the failure
or refusal of Executive after the receipt of written notice by the Executive to
perform the duties or to render the services assigned to him from time to time
in accordance with this Agreement, (iii) the charging or indictment of Executive
in connection with a felony or any misdemeanor involving dishonesty or moral
turpitude, (iv) the material breach by Executive of this Agreement or the breach
of Executive's fiduciary duty or duty of trust to the Company provided that, if
such breach is curable, Executive first receives notice of the breach and seven
(7) days to cure such breach; or (v) any other act or omission by Executive
either in disregard of the Company's policies or conduct which may cause
material loss, damage or injury to the Company, its property, reputation or
employees.
7.3 Termination by the Company Other Than for Good Cause. During the
----------------------------------------------------
Term, the Company may terminate this Agreement and Executive's employment for
any reason other than for Good Cause. In such event, this Agreement shall
terminate on the 30th day following written notice of such termination by the
Company.
8. Compensation upon Termination.
-----------------------------
8.1 Termination Other Than in Connection With a Change in Control.
--------------------------------------------------------------
(a) In the event of termination of Executive's employment pursuant to
Section 7.1 due to death or Disability, Executive or his estate shall receive,
within 30 days after such death or Disability, a lump-sum payment equal to the
Annual Bonus that the Executive would have earned for the fiscal year in
question (based on 40% of the Executive's then current Base Salary).
(b) In the event of termination of Executive's employment pursuant to
Section 7.1 based on voluntary termination by the Executive or pursuant to
Section 7.2 (Termination by the Company for Good Cause), the Company shall not
be obligated, from and after the date of termination, to provide to Executive,
and Executive shall not be entitled to receive from the Company, any
compensation (including any payments of Base Salary, Annual Bonus, or other
awards) or other benefits.
(c) In the event of termination of Executive's employment other than
for Good Cause pursuant to Section 7.3, Executive shall be entitled to receive a
lump-sum payment from the Company within 30 days of termination equal to his
then Base Salary plus an amount equal to the Annual Bonus that the Executive
would have earned for the fiscal year in question (based on 40% of the
Executive's then current Base Salary).
8.2 Termination Following a Change in Control. The following
-----------------------------------------
provisions shall apply in lieu of Section 8.1 if, and only if, the termination
of Executive's employment occurs within 12 months following a Change in Control
(as defined in Section 8.2(d)):
(a) In the event of termination of Executive's employment pursuant to
Section 7.1 due to death or Disability, the provisions of Section 8.1(a) apply.
In the event of termination of Executive's employment pursuant to Section 7.2
(Termination by the Company with Good Cause), the provisions of Section 8.1(b)
apply.
160
<PAGE>
(b) In the event of termination of Executive's employment due to
voluntary termination by Executive without Good Reason (as defined below),
Executive shall be entitled to receive a lump-sum payment from the Company
within 30 days of termination equal to the amount computed under Section 8.1(c).
As used herein, the term "GOOD REASON" means (i) a material change in
Executive's duties, responsibilities, or authority, or (ii) the Company's
relocation of the Executive, without the Executive's consent, to a location
outside of the San Francisco metropolitan area.
(c) In the event of termination of Executive's employment due to
voluntary termination by Executive with Good Reason, or pursuant to Section 7.3
(Termination by the Company other than for Good Cause), the Company shall
provide Executive with the following compensation within 30 days after such
termination: (i) Executive shall be entitled to receive a lump-sum payment from
the Company equal to two times his then Base Salary plus an amount equal two
times the Annual Bonus the Executive would have earned for the fiscal year in
question (based on 40% of the Executive's then current Base Salary), and (ii)
all unvested stock options held by Executive at the date of termination, if any,
would vest and become fully exercisable for a period of three months from the
date of termination.
(d) As used herein, a "CHANGE IN CONTROL" shall be deemed to have
occurred when any of the following events occur:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), as in effect on the
date hereof, (a "PERSON")) acquiring "beneficial ownership" (as defined in Rule
13D-3 under the Exchange Act), of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
or
(ii) a change in the Board that is the result of a proxy
solicitation(s) or other action(s) to influence voting at a shareholders'
meeting of the Company (other than by voting one's own stock) by a Person or
group of Persons who has Beneficial Ownership of 5% or more of the combined
voting power of the securities of the Company and which causes the Continuing
Directors (as defined below) to cease to constitute a majority of the Board;
provided, however, that neither of the events described in (i) or (ii) of this
Section 8.2(d) shall be deemed to be a Change in Control if the event(s) or
election(s) causing such change shall have been approved specifically for
purposes of this Agreement by the affirmative vote of at least a majority of the
members of the Continuing Directors. For these purposes, a "CONTINUING
DIRECTOR" shall mean a member of the Board (i) who is a member of the Board on
the date of this Agreement, or (ii) who subsequently becomes a member of the
Board and who either (x) is appointed or recommended for election with the
affirmative vote of a majority of the Directors then in office who are Directors
on the date hereof, or (y) is appointed or recommended for election with the
affirmative vote of a majority of the Directors then in office who are described
in clauses (i) and (ii) (including clause (ii)(y)), as applicable.
(e) Notwithstanding anything to the contrary in this Section 8.2, if
any of the payments or other compensation to be made to Executive pursuant to
this Section 8.2 are determined to be "parachute payments" as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "CODE"), then the
amount of such payments or other compensation shall be reduced to the largest
amount which would not constitute "parachute payments" as so defined.
9. Confidentiality and Restrictive Covenants.
-----------------------------------------
161
<PAGE>
(a) It is specifically understood and agreed that some of the
Company's business activities are secret in nature and constitute trade secrets,
including but not limited to the Company's "know-how," methods of business and
operations, and property and financial analyses and reports (all such
information, "PROPRIETARY INFORMATION"). All of the Company's Proprietary
Information is and shall be the property of the Company for its own exclusive
use and benefit, and Executive agrees that he will hold all of the Company's
Proprietary Information in strictest confidence and will not at any time, either
during or after his employment by the Company, use or permit the use of the same
for his own benefit or for the benefit of others unless authorized to do so by
the Company's written consent or by a contract or agreement to which the Company
is a party or by which it is bound. The provisions of this Section 9 shall
perpetually survive the termination of the Agreement.
(b) For a period of two (2) years following any termination of this
Agreement, the Executive shall not recruit, attempt to hire, direct, assist
others in recruiting or hiring, or encourage any employee of the Company to
terminate his employment with the Company or to accept employment with any
subsequent employer or business with whom the Executive is affiliated or
receiving compensation in any way.
(c) For a period of one (1) year after any termination of this
Agreement pursuant to Section 7.1 based on voluntary termination by the
Executive or pursuant to Section 7.2 (Termination by the Company for Good
Cause), the Executive shall not perform services of any kind, whether as an
employee, consultant, independent contractor, officer, director or otherwise, or
directly or indirectly engage in any other activity (for his own account or for
the account of others), which involves the development, ownership or management
of multifamily apartment properties in those states in which the Company owned
or operated multifamily apartment properties on the date of such termination.
The Executive acknowledges that the foregoing covenant is intended to protect
the value of the goodwill and other consideration the Company has acquired
pursuant to the terms of the Contribution Agreement dated as of September 29,
1997 (the "Acquisition") between the Company, BRE Property Investors LLC and the
TCR' Signatories identified therein and that the Company would not have pursued
the Acquisition but for Executive's covenants set forth in this Section 9. The
Executive agrees to fully perform such covenant in exchange for, among other
things, the consideration he has received from the Company, the contributing
entities and their affiliates pursuant to the terms of the Acquisition and the
transactions contemplated thereby and the covenants of the Company set forth in
this Agreement.
(d) The Executive acknowledges and agrees that it will be impossible
to measure in money the damages that would be suffered by the Company if the
Executive fails to comply with any of the covenants and obligations set forth in
this Section 9 and that, in the event of any such failure, the Company will be
irreparably damaged and shall not have an adequate remedy at law. Therefore, in
addition to any other remedies or rights it may have, the Company will be
entitled to injunctive relief, including specific performance, to enforce such
covenants and obligations. If any action should be brought in equity to enforce
any of the provisions of this Section 9, the Executive agrees not to raise the
defense that there is an adequate remedy at law.
10. Arbitration. Except as specifically set forth in paragraph (d) of
-----------
Section 9, any controversy, dispute, or claim of whatever nature arising out of,
in connection with, or in relation to the interpretation, performance, or breach
of this Agreement, including any claim based on contract, tort, or statute,
shall be resolved at the request of any party to this Agreement through a two-
step dispute resolution process administered by Judicial Arbitration & Mediation
Services, Inc. ("JAMS"), or a comparable organization agreeable to the parties
if JAMS is not then in existence, involving first mediation before a retired
judge or justice from the JAMS panel followed, if necessary, by final and
162
<PAGE>
binding arbitration conducted at a location determined by the arbitrator in San
Francisco, California, administered by and in accordance with the then-existing
Rules of Practice and Procedure of JAMS, and judgment upon any award rendered by
the arbitrator may be entered by any state or federal court having jurisdiction
thereof.
11. Taxes; Withholdings. All compensation payable by the Company to the
-------------------
Executive under this Agreement which is or may become subject to withholding
under the Code or other pertinent provisions of laws or regulation shall be
reduced for all applicable income and/or employment taxes required to be
withheld.
12. Miscellaneous.
-------------
12.1 All notices and any other communications permitted or required
under this Agreement must be in writing and shall be effective (a) on the first
business day after delivery in person, or (b) on the first business day after
deposit with a commercial courier or delivery service for overnight delivery.
All notices must be properly addressed and delivered to the parties at the
addresses set forth below:
If to Company
-------------
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, CA 94104
Attn: Frank McDowell
With Copy to:
------------
Farella, Braun & Martel
235 Montgomery Street, Suite 3000
San Francisco, CA 94104
Attn: Morgan P. Guenther, Esq.
If to Executive
---------------
Bruce Ward
2422 Montebello
Phoenix, AZ 85016
or at such other addresses as either party may subsequently designate by written
notice given in the manner provided in this section.
12.2 This Agreement, contains the full and complete understanding of
the parties and supersedes all prior representations, promises, agreements, and
warranties, whether oral or written.
163
<PAGE>
12.3 This Agreement shall be governed by and interpreted according to
the laws of the State of California.
12.4 With respect to the Company, this Agreement shall inure to the
benefit of and be binding upon any successors or assigns of Company. With
respect to Executive, this Agreement shall not be assignable but shall inure to
the benefit of estate of Executive or his legal successor upon death or
disability.
12.5 The captions of the various sections of this Agreement are
inserted only for convenience and shall not be considered in construing this
Agreement.
12.6 This Agreement can be modified, amended, or any of its terms
waived only by a writing signed by both parties.
12.7 If any provision of this Agreement shall be held invalid,
illegal, or unenforceable, the remaining provisions of the Agreement shall
remain in full force and effect, and the invalid, illegal, or unenforceable
provision shall be limited or eliminated only to the extent necessary to remove
such invalidity, illegality, or unenforceability in accordance with the
applicable law at that time.
12.8 No remedy made available to Company by any of the provisions of
this Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute, or
otherwise.
12.9 This Agreement may be executed in one or more counterparts. Any
copy of this Agreement with the original signatures of all parties approved
shall constitute an original.
12.10 Without limiting the provisions of Section 10, if either party
institutes arbitration proceedings pursuant to Section 10 or an action to
enforce the terms of this Agreement, the prevailing party in such proceeding or
action shall be entitled to recover reasonable attorneys' fees, costs, and
expenses.
164
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
specified in the first paragraph.
COMPANY: BRE PROPERTIES, INC.
By: /s/ Frank C. McDowell
----------------------
Title: Chief Executive Officer
-----------------------
EXECUTIVE: Bruce Ward
/s/ Bruce C. Ward
--------------------
165
<PAGE>
EXHIBIT 12
BRE PROPERTIES, INC.
STATEMENT RE:
COMPUTATION OF RATIOS OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1996 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income before gain on sales of
investments in rental properties, minority
interest and provision for investment loss $49,345 $37,014 $23,789 $22,566 $19,531
Provision for investment loss - - (2,000) - -
Income before gain on sales of investments -------- ------- ------- -------- -------
in rental properties and minority
interest $49,345 $37,014 $21,789 $22,566 $19,531
======== ======= ======= ======= =======
Fixed charges:
Interest $21,606 $16,325 $ 7,973 $ 5,599 $ 5,656
Capitalized interest 1,178 269 - - -
Minority interest 972 - - - -
Other 112 108 105 101 98
-------- ------- ------- -------- -------
$23,868 $16,702 $8,078 $5,700 $5,754
======== ======= ======= ======= =======
Income before gain on sales of
investments in rental properties, minority
interest and provision for investment loss
and fixed charges, excluding capitalized
interest and minority interest $71,063 $53,447 $31,867 $28,266 $25,285
======== ======= ======= ======= =======
Divided by fixed charges $23,868 $16,702 $8,078 $5,700 $5,754
======== ======= ======= ======= =======
Ratio of earnings to fixed charges 3.0 3.2 4.0 5.0 4.4
======== ======= ======= ======= =======
</TABLE>
166
<PAGE>
EXHIBIT 21
BRE PROPERTIES, INC.
SUBSIDIARIES OF THE REGISTRANT
Name State of Jurisdiction
---- ---------------------
BRE Hacienda del Rio, Inc. Delaware
BRE Fountain Plaza, Inc. Delaware
BRE Camino Seco, Inc. Delaware
BRE Colonia del Rio, Inc. Delaware
BRE Springhill, Inc. Delaware Delaware
BRE Oracle Village Inc. Delaware
BRE Property Investors LLC Delaware
Blue Ravine Investors LLC Delaware
Alliance Property Management Company Delaware
BRE Builders, Inc. Delaware
167
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-47469) pertaining to the registration of $750,000,000 in Debt
Securities, Preferred Shares, Depositary Shares, Common Stock Warrants and
Common Stock, the Registration Statement (Form S-3 No. 333-41433) pertaining to
the registration of 3,713,331 Shares of Common Stock, the Registration Statement
(Form S-3 No. 333-44997) pertaining to the registration of 728,929 Shares of
Common Stock, the Registration Statement (Form S-3 No. 333-09945) pertaining to
the BRE Properties, Inc. Dividend Stock Purchase and Dividend Reinvestment Plan,
the Registration Statement (Form S-8 No. 333-02257) pertaining to the Amended
and Restated Non-Employee Director Stock Option Plan of BRE Properties, Inc. and
the Assumed Real Estate Investment Trust of California 1991 Officer Stock Option
Plan, the Registration Statement (Form S-8 No. 33-61209) pertaining to the BRE
Properties, Inc. 1994 Non-Employee Director Stock Plan and Chief Executive
Officer Stock Option Plan, the Registration Statement (Form S-8 No. 33-60082)
pertaining to the BRE Properties, Inc. 1992 Employee Stock Option Plan, and the
Registration Statement (Form S-8 No. 33-5389) pertaining to the BRE Properties,
Inc. 1984 Stock Option Plan of our report dated January 14, 1998, with respect
to the consolidated financial statements and related financial schedule of BRE
Properties, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
/s/ Ernst & Young LLP
March 23, 1998
San Francisco, California
168
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,216
<SECURITIES> 15,833
<RECEIVABLES> 25,736
<ALLOWANCES> (1,089)
<INVENTORY> 0
<CURRENT-ASSETS> 44,696
<PP&E> 1,346,923
<DEPRECIATION> (49,721)
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