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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-12993
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 95-4502084
(State or other jurisdiction (IRS Employer I.D. Number)
of incorporation or organization)
135 N. LOS ROBLES AVENUE, SUITE 250
PASADENA, CALIFORNIA 91101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (626) 578-0777
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.01 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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. / /
The aggregate market value of the shares of Common Stock held by
non-affiliates was approximately $338.4 million based on the closing price for
such shares on the New York Stock Exchange on March 10, 1999.
As of March 10, 1999 the Registrant had 13,736,263 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference from the
definitive Proxy Statement to be mailed in connection with the registrant's
annual meeting of stockholders to be held on April 15, 1999.
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INDEX TO FORM 10-K
ALEXANDRIA REAL ESTATE EQUITIES, INC.
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PAGE
REFERENCE
PART I
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Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 21
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . 34
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . 34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 35
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . 35
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . 36
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PART I
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as "believes,"
"expects," "anticipates," "intends" and similar expressions are intended to
identify some of the forward-looking statements regarding events, conditions
and financial trends that may affect our future plan of operation, business
strategy, results of operations and financial position. Forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties. Actual results may differ materially from those included
within the forward-looking statements as a result of various factors,
including, but not limited to, those described below under the headings
"Business Risks" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We disclaim any obligation to update
any of these factors or to announce publicly the result of any revisions to
any of the forward-looking statements.
ITEM 1. BUSINESS.
BACKGROUND
Alexandria Real Estate Equities, Inc., a Maryland corporation formed in
October 1994, is a real estate investment trust ("REIT") engaged primarily in
the acquisition, management, expansion and selective development of high
quality, strategically located properties containing office and laboratory space
designed and improved for lease principally to pharmaceutical, biotechnology,
diagnostic and personal care products companies, major scientific research
institutions and related government agencies (collectively, the "Life Science
Industry"). Properties leased to tenants in the Life Science Industry typically
consist of suburban office buildings containing scientific research and
development laboratories and other improvements that are generic to tenants
operating in the Life Science Industry (such properties, "Life Science
Facilities"). As of December 31, 1998, we owned 51 Life Science Facilities (the
"Properties"), containing approximately 3.6 million rentable square feet of
office and laboratory space.
BUSINESS AND GROWTH STRATEGY.
We focus our operations and acquisition activities principally in:
- California (in the San Diego and San Francisco Bay areas);
- Seattle;
- suburban Washington, D.C. (including Maryland and Virginia);
- Eastern Massachusetts;
- New Jersey and suburban Philadelphia; and
- the Southeast (including Georgia and North Carolina).
Our tenant base is broad and diverse within the Life Science Industry and
reflects our focus on regional, national and international tenants with
substantial financial and operational resources. For a detailed description of
our Properties and tenants, see "Item 2. Properties." Alexandria is led by a
senior management team with extensive experience in both the real estate and
Life Science industries and is supported by a highly experienced Board of
Directors.
We seek to maximize growth in funds from operations ("FFO") and cash
available for distribution to stockholders through effective management,
operation, acquisition, expansion and selective development of Life Science
Facilities. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Funds from Operations" for a complete
discussion of how we compute and view FFO as well as a discussion of other
measures of cash flow. In particular, we seek to increase FFO and cash
available for distribution per share by:
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- acquiring high quality Life Science Facilities at attractive returns
in our target markets;
- realizing contractual rental rate escalations;
- retenanting and releasing space within our portfolio at higher rental
rates and with minimal non-revenue enhancing tenant improvement costs;
- expanding existing Properties or converting existing office space to
generic laboratory space that can be leased at higher rental rates;
- selectively developing properties on a retrofit or build-to-suit
basis; and
- continuing to implement effective cost control measures, including
negotiating pass-through provisions in tenant leases for operating
expenses and certain capital expenditures.
ACQUISITIONS. We seek to identify and acquire high quality Life Science
Facilities in our target markets. Critical evaluation of prospective property
acquisitions is an essential component of our acquisition strategy. When
evaluating acquisition opportunities, we assess a full range of matters relating
to the properties, including the:
- location of the property and our strategy in the market;
- quality of existing and prospective tenants;
- condition and capacity of the building infrastructure;
- quality and generic characteristics of laboratory facilities;
- physical condition of the shell structure and common area
improvements; and
- opportunities available for leasing vacant space and for retenanting
occupied space.
INTERNAL GROWTH. We seek to achieve internal growth from several sources.
For example, we seek to:
- include rental rate escalation provisions in our leases;
- acquire undervalued or underperforming properties where we can improve
investment returns through releasing of vacant space and replacement
of existing tenants with new tenants at higher rental rates;
- achieve higher rental rates as existing leases expire; and
- expand existing facilities that are fully leased and/or convert
existing office space to higher rent generic laboratory space.
Our ability to negotiate contractual rent escalations in future leases and to
achieve increases in rental rates will depend upon market conditions and demand
for Life Science Facilities at the time the leases are negotiated and the
increases are proposed.
DEVELOPMENT. We have emphasized acquisitions over development in pursuing
our growth objectives and intend to continue to do so in the future. However,
we have pursued and will continue to pursue selective build-to-suit and retrofit
development projects where we expect to achieve investment returns that will
equal or exceed our returns on acquisitions. We generally have undertaken
build-to-suit and retrofit projects only if our investment in infrastructure
will be substantially generic in nature and not tenant specific.
FINANCING/WORKING CAPITAL. We believe that cash provided by operations and
our unsecured line of credit will be sufficient to fund our working capital
requirements. We generally expect to finance future acquisitions through our
unsecured line of credit and then to periodically refinance some or all of that
indebtedness with additional equity or debt capital. We also may issue shares
of our common stock or interests in our subsidiaries as consideration for
acquisitions. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" for a
complete discussion of our unsecured line of credit and other outstanding
indebtedness.
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BUSINESS RISKS
WE ARE DEPENDENT ON A SINGLE INDUSTRY FOR REVENUES FROM LEASE PAYMENTS
Our strategy is to invest primarily in properties used by tenants in the
Life Science Industry. Consequently, our revenues from lease payments are
largely dependent on a single industry. If the Life Science Industry
experiences an economic downturn, our business could be adversely affected.
Events within the Life Science Industry will have a more pronounced effect on
our ability to make distributions to our stockholders than if we had diversified
investments. Also, our Properties may be better suited for a particular Life
Science Industry tenant and could require modification before we could release
vacant space to another Life Science Industry tenant. Our Properties also may
not be suitable for lease to traditional office tenants without significant
expenditures on renovations.
SOME OF OUR TENANTS MUST OBTAIN REGULATORY APPROVAL OF THEIR PRODUCTS AND
MANUFACTURING PROCESSES, WHICH COULD ADVERSELY AFFECT THEIR ABILITY TO PAY US
The products and manufacturing processes of some of our Life Science
Industry tenants require governmental regulatory approval before they can be
marketed and sold or used. Any failure to obtain or any delay in obtaining
these approvals could adversely affect the ability of the tenant to market
and sell its products successfully and, therefore, its ability to make rental
payments to us. The process of obtaining these approvals is costly,
time-consuming and often unpredictable. We cannot assure you that our
tenants will be able to obtain any required approvals.
In addition, some of our tenants receive significant funding from federal,
state and local governments. If any of this funding were decreased or
discontinued, the affected tenant could have difficulty making rental payments
to us.
WE COULD BE HELD LIABLE FOR DAMAGES RESULTING FROM OUR TENANTS' USE OF HAZARDOUS
MATERIALS
Some of our Life Science Industry tenants engage in research and
development activities that involve the controlled use of hazardous
materials, chemicals and biological and radioactive compounds. In the event
of contamination or injury from the use of these hazardous materials, we
could be held liable for any damages that result. This liability could
exceed our resources and our environmental remediation coverage and could
adversely affect our ability to make distributions to our stockholders.
We and our tenants must comply with federal, state and local laws and
regulations that govern the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. Changes in these laws and regulations
could adversely affect our business or our tenants' business and their ability
to make rental payments to us.
THE INABILITY OF ANY TENANT TO MAKE RENTAL PAYMENTS TO US COULD ADVERSELY AFFECT
OUR BUSINESS
Our revenues are derived primarily from rental payments under our leases.
Therefore, if our tenants, especially significant tenants, failed to make rental
payments under their leases, our financial condition and our ability to make
distributions to our stockholders could be adversely affected.
As of December 31, 1998, we had 158 leases with a total of 148 tenants.
Twenty-four of our Properties were single-tenant properties. Three of our
tenants accounted for approximately 18.4% of our aggregate Annualized Base Rent,
or approximately 7.1%, 6.4% and 4.9%, respectively. "Annualized Base Rent"
means the annualized fixed base rental amount in effect as of December 31, 1998,
using rental revenue calculated on a straight-line basis in accordance with
generally accepted accounting principles. Annualized Base Rent does not include
real estate taxes and insurance, common area and other operating expenses,
substantially all of which are borne by the tenants in the case of triple net
leases.
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The bankruptcy or insolvency of a major tenant also may adversely affect
the income produced by a Property. If any of our tenants becomes a debtor in a
case under the U.S. Bankruptcy Code, we cannot evict that tenant solely because
of its bankruptcy. The bankruptcy court might authorize the tenant to reject
and terminate its lease with us. Our claim against such a tenant for unpaid,
future rent would be subject to a statutory cap that might be substantially less
than the remaining rent actually owed to us under the tenant's lease. Any
shortfall in rent payments could adversely affect our cash flow and our ability
to make distributions to our stockholders.
OUR U.S. GOVERNMENT TENANTS MAY NOT RECEIVE ANNUAL APPROPRIATIONS, WHICH COULD
ADVERSELY AFFECT THEIR ABILITY TO PAY US
U.S. government tenants are subject to annual appropriations. If one of
our U.S. government tenants failed to receive its annual appropriation, it
might not be able to make its lease payments to us. In addition, defaults
under leases with government tenants are governed by federal statute and not
state eviction or rent deficiency laws. All of our leases with U.S.
government tenants provide that the government tenant may terminate the lease
under certain circumstances. As of December 31, 1998, leases with U.S.
government tenants at our Properties accounted for approximately 8.0% of our
aggregate Annualized Base Rent.
LOSS OF A TENANT COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS
A lessee may not renew its lease upon the expiration of the initial term.
In addition, we may not be able to locate a qualified replacement tenant upon
expiration or termination of a lease. Consequently, we could lose the cash flow
from the affected Property, which could negatively impact our business. We may
have to divert cash flow generated by other Properties to meet our mortgage
payments, if any, or to pay other expenses related to owning the affected
Property. As of December 31, 1998, leases at our Properties representing
approximately 10.0% and 11.5% of the square footage of our Properties were
scheduled to expire in 1999 and 2000, respectively.
POOR ECONOMIC CONDITIONS IN OUR TARGET MARKETS COULD ADVERSELY AFFECT OUR
BUSINESS
Our Properties are located only in the following markets:
- California (in the San Diego and San Francisco Bay areas);
- Seattle;
- suburban Washington, D.C. (including Maryland and Virginia);
- Eastern, Massachusetts;
- New Jersey and suburban Philadelphia; and
- the Southeast (including North Carolina and Georgia).
As a result of this geographic concentration, we are dependent upon the
local economic conditions in each of these markets, including local real estate
conditions and competition. If there is a downturn in the economy in any of
these markets, our operations and our ability to make distributions to
stockholders could be adversely affected. We cannot assure you that these
markets will continue to grow or will remain favorable to the Life Science
Industry.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH
We have grown rapidly and expect to continue to grow by acquiring and
selectively developing additional properties. To manage our growth effectively,
we must successfully integrate new acquisitions into our existing structure. We
may not succeed with the integration. In addition, we may not effectively
manage new properties, and new properties may not perform as expected. If we
are unsuccessful in managing our growth, our business would be adversely
affected.
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WE MAY NOT HAVE SUFFICIENT FUNDS TO REFINANCE OUR DEBT
We use debt to finance our operations, including acquisitions of
properties. Our incurrence of debt may have consequences, including the
following:
- our cash flow from operations may be not be sufficient to meet
required payments of principal and interest;
- we may be forced to dispose of one or more of our Properties, possibly
on disadvantageous terms, to make payments on our debt;
- we may default on our debt obligations, and the lenders or mortgagees
may foreclose on our Properties that secure those loans;
- a foreclosure on one of our Properties could create taxable income
without any accompanying cash proceeds to pay the tax;
- we may default under a mortgage loan that has cross default
provisions, causing us automatically to default on another loan;
- we may not be able to refinance or extend our existing debt; and
- the terms of any refinancing or extension may not be as favorable as
the terms of our existing debt.
As of December 31, 1998, we had outstanding mortgage indebtedness of
approximately $115.8 million, secured by nine Properties, and outstanding debt
under our unsecured line of credit of approximately $194.0 million.
OUR LINE OF CREDIT RESTRICTS OUR ABILITY TO ENGAGE IN SOME BUSINESS ACTIVITIES
Our $250 million unsecured revolving credit facility contains customary
negative covenants and other financial and operating covenants that, among other
things:
- restrict our ability to incur additional indebtedness;
- restrict our ability to make certain investments;
- restrict our ability to merge with another company;
- restrict our ability to make distributions to stockholders;
- require us to maintain financial coverage ratios; and
- require us to maintain a pool of unencumbered assets approved by the
lenders.
These restrictions could have a negative effect on our operations and our
ability to make distributions to our stockholders.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FURTHER OUR BUSINESS
OBJECTIVES
Our ability to acquire or develop properties is dependent upon our ability
to obtain capital. An inability to obtain capital on acceptable terms could
delay or prevent us from acquiring, structuring and closing desirable
investments, which would adversely affect our business. Also, the issuance of
additional shares of capital stock or interests in subsidiaries to obtain
capital for the acquisition of additional properties could result in a dilution
of ownership for the then existing stockholders.
IF INTEREST RATES RISE, OUR DEBT SERVICE COSTS WILL INCREASE
Borrowings outstanding under our unsecured line of credit bear interest at
a variable rate, and we may incur additional variable rate debt in the future.
Increases in market interest rates would increase our interest expenses under
these debt instruments and would increase the costs of refinancing existing
indebtedness or obtaining new debt. Accordingly, these increases could
adversely affect our financial position and our ability to make distributions to
stockholders.
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WE MAY NOT BE ABLE TO ACQUIRE PROPERTIES OR OPERATE THEM SUCCESSFULLY
Our success depends in large part upon our ability to acquire additional
properties on satisfactory terms and to operate them successfully. If we are
unable to do so, our business could be adversely affected. In addition, the
acquisition of Life Science Facilities generally involves a higher per square
foot price than the acquisition of traditional suburban office properties.
The acquisition, ownership and operation of real estate is subject to many
risks, including:
- our Properties may not perform as we expect;
- we may not be able to acquire a desired property because of
competition from other real estate investors with significant capital;
- we may lease space at rates below our expectations;
- we may not be able to obtain financing on acceptable terms;
- we may overpay for new acquisitions; and
- we may underestimate the cost of improvements required to bring an
acquired property up to standards established for the market position
intended for that property.
If we encounter any of these risks, our business and our ability to make
payments to stockholders could be adversely affected.
WE MAY NOT BE ABLE TO COMPLETE DEVELOPMENT PROJECTS EFFECTIVELY
Our expansion and development activities subject us to many risks,
including:
- possible delays in construction;
- budget overruns;
- increasing costs of materials;
- financing availability;
- volatility in interest rates;
- labor availability;
- timing of the commencement of rental payments; and
- other property development uncertainties.
In addition, expansion and development activities, regardless of whether
they are ultimately successful, typically require a substantial portion of
management's time and attention. This may detract management from focusing on
other operational activities. If we are unable to successfully complete
expansion and development projects, our business may be adversely affected.
IF OUR REVENUES ARE LESS THAN OUR EXPENSES, WE MAY HAVE TO BORROW ADDITIONAL
FUNDS AND WE MAY NOT MAKE DISTRIBUTIONS TO OUR STOCKHOLDERS
If our Properties do not generate revenues sufficient to meet our operating
expenses, including debt service and other capital expenditures, we may have to
borrow additional amounts to cover fixed costs and cash flow needs. This could
adversely affect our ability to make distributions to our stockholders. Factors
that could adversely affect the revenues from and the value of our Properties
include:
- national and local economic climates;
- competition from other Life Science Facilities;
- real estate conditions in our target markets;
- our ability to collect rent payments;
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- availability of financing;
- changes in interest rate levels;
- vacancies at our Properties and our ability to release space;
- changes in tax or other regulatory laws;
- cost of compliance with government regulation;
- illiquidity of real estate investments; and
- increased operating costs.
In addition, if a lease at a Property is not a triple net lease, we will
have greater expenses associated with that Property. Significant expenditures,
such as mortgage payments, real estate taxes, insurance and maintenance costs,
generally are fixed and do not decrease when revenues at the related property
decrease.
IMPROVEMENTS TO LIFE SCIENCE FACILITIES ARE MORE COSTLY THAN TRADITIONAL OFFICE
SPACE
Our Properties contain generic infrastructure improvements that are more
costly than other property types. These improvements include:
- reinforced concrete floors;
- upgraded roof loading capacity;
- significantly upgraded electrical, gas and plumbing infrastructure;
- heavy-duty HVAC systems; and
- laboratory benches.
Although we have historically been able to reflect the additional
investment in generic infrastructure improvements in higher rental rates, we
cannot assure you that we will be able to continue to do so in the future.
WE MAY NOT BE ABLE TO SELL OUR PROPERTIES QUICKLY TO RAISE MONEY
Investments in real estate are relatively illiquid. Accordingly, we may
not be able to sell our Properties when we desire or at acceptable prices in
response to changes in economic or other conditions. In addition, the Internal
Revenue Code limits our ability to sell properties held for fewer than four
years. These limitations on our ability to sell our Properties may adversely
affect our cash flows and our ability to make distributions to stockholders.
WE FACE SUBSTANTIAL COMPETITION IN OUR TARGET MARKETS
The significant competition for business in our target markets could have
an adverse effect on our operations. We compete for investment opportunities
with:
- insurance companies;
- pension and investment funds;
- partnerships;
- developers;
- investment companies; and
- other REITs.
Many of these entities have substantially greater financial resources than
we do and may be able to accept more risk than we can manage. These entities
may be less sensitive to risks with respect to the creditworthiness of a tenant
or the geographic proximity of its investments. Competition from other entities
also may reduce the number of suitable investment opportunities offered to us or
may increase the bargaining power of property owners seeking to sell.
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OUR PROPERTIES MAY HAVE DEFECTS UNKNOWN TO US
All of our Properties have been under our management for less than five
years, and we have owned a substantial majority of them for less than two years.
Any of our Properties may have characteristics or deficiencies unknown to us
that could adversely affect the Property's valuation or revenue potential.
IF WE FAIL TO QUALIFY AS A REIT, WE WOULD BE TAXED AT CORPORATE RATES AND WOULD
NOT BE ABLE TO TAKE CERTAIN DEDUCTIONS WHEN COMPUTING OUR TAXABLE INCOME
If in any taxable year we fail to qualify as a REIT:
- we would be subject to federal income tax on our taxable income at
regular corporate rates;
- we would not be allowed a deduction for distributions to stockholders
in computing taxable income;
- unless we were entitled to relief under the Internal Revenue Code, we
would also be disqualified from treatment as a REIT for the four
taxable years following the year during which we lost qualification;
and
- we would no longer be required by the Internal Revenue Code to make
any distributions to our stockholders.
As a result of the additional tax liability, we might need to borrow funds
or liquidate certain investments in order to pay the applicable tax.
Accordingly, funds available for investment or distribution to our stockholders
would be reduced for each of the years involved.
Qualification as a REIT involves the application of highly technical and
complex provisions of the Internal Revenue Code to our operations and the
determination of various factual matters and circumstances not entirely within
our control. There are only limited judicial or administrative interpretations
of these provisions. Although we believe that we have operated since January
1996 in a manner so as to qualify as a REIT, we cannot assure you that we are or
will remain so qualified.
In addition, although we are not aware of any pending tax legislation that
would adversely affect our ability to operate as a REIT, new legislation,
regulations, administrative interpretations or court decisions could change the
tax laws or interpretations of the tax laws regarding qualification as a REIT,
or the federal income tax consequences of that qualification, in an adverse
manner.
Although certain of our officers and directors have extensive experience in
the acquisition, leasing, operation financing and development of real
properties, prior to commencement of our operations, no officer had significant
experience in operating a business in accordance with the requirements for
maintaining qualification as a REIT under the Internal Revenue Code.
THERE ARE LIMITS ON THE OWNERSHIP OF OUR CAPITAL STOCK; A STOCKHOLDER MAY LOSE
BENEFICIAL OWNERSHIP OF ITS SHARES OF OUR COMMON STOCK BECAUSE OF THE OWNERSHIP
LIMITS
The Internal Revenue Code provides that, in order for us to maintain our
qualification as a REIT, not more than 50% of the value of our outstanding
capital stock may be owned, directly or constructively, by five or fewer
individuals or entities.
In addition, our charter prohibits, with certain limited exceptions, direct
or constructive ownership of shares of our capital stock representing more than
9.8% of the combined total value of outstanding shares of our capital stock by
any person (the "Ownership Limit"). Our Board of Directors may exempt a
stockholder from the Ownership Limit if, prior to the exemption, our Board of
Directors receives any information it deems necessary to determine or ensure our
status as a REIT.
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The constructive ownership rules are complex and may cause shares of our
common stock owned directly or constructively by a group of related individuals
or entities to be constructively owned by one individual or entity. A transfer
of shares to a person who, as a result of the transfer, violates the Ownership
Limit may be void or may be transferred to a trust, for the benefit of one or
more qualified charitable organizations designated by us. In that case, the
intended transferee will have only a right to share, to the extent of the
transferee's original purchase price for such shares, in proceeds from the
trust's sale of those shares.
THE OWNERSHIP LIMIT AND OTHER PROVISIONS OF OUR CHARTER MAY DELAY OR PREVENT
TRANSACTIONS THAT WOULD OTHERWISE BE BENEFICIAL TO OUR STOCKHOLDERS
The Ownership Limit may have the effect of delaying, deferring or
preventing a transaction or a change in control that might involve a premium
price for our common stock or otherwise be in the best interest of our
stockholders.
Our charter allows our Board of Directors to cause us to issue
additional authorized but unissued shares of our common stock or preferred
stock without any stockholder approval. The issuance of preferred stock
could make it more difficult for another party to gain control of Alexandria.
In addition, our Board of Directors could establish a series of preferred
stock that could delay, defer or prevent a transaction that might involve a
premium price for our common stock or otherwise be in the best interest of
our common stockholders. Our Board of Directors could also establish a
series of preferred stock that has a dividend preference, which may adversely
affect our ability to pay dividends on our common stock.
OUR INSURANCE MAY NOT COVER ALL POTENTIAL LOSSES
If we experience a loss at any of our Properties that is not covered by
insurance or that exceeds our insurance policy limits, we could lose the capital
invested in the affected Property and, possibly, future revenues from that
Property. In addition, we would continue to be obligated on any mortgage
indebtedness or other obligations related to the affected Properties.
We carry comprehensive liability, fire, extended coverage and rental loss
insurance with respect to our Properties. We have obtained earthquake insurance
for all of our Properties because many of them are located in the vicinity of
active earthquake faults. We also carry environmental remediation insurance and
have title insurance policies on all of our Properties. We obtain our title
insurance policies when we acquire the Property. As a result, each policy
covers an amount equal to the initial purchase price of each Property. Any one
of our title insurance policies may be in an amount less than the current value
of the related Property.
We believe that our insurance policy specifications, insured limits and
deductibles are consistent with those customarily carried for similar
properties. In addition, we require our tenants to maintain comprehensive
insurance, including liability and casualty insurance, that is customarily
obtained for similar properties. There are, however, certain types of losses
that we and our tenants do not generally insure because they are either
uninsurable or because it is not economical to insure against them. In
addition, certain disaster-type insurance (covering catastrophic events) may not
be available or may only be available at rates that, in the opinion of our
management, are prohibitive.
WE COULD INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS
Federal, state and local environmental laws and regulations may require us,
as a current or previous owner or operator of real estate, to investigate and
clean up hazardous or toxic substances or petroleum products released at or from
any of our Properties. The cost of investigating and cleaning up contamination
could be substantial. In addition, the presence of contamination, or the
failure to properly clean it up, may adversely affect our ability to sell or
rent an affected Property or to borrow funds using that Property as collateral.
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Under environmental laws and regulations, we may have to pay governmental
entities or third parties for property damage and for investigation and clean-up
costs incurred by those parties relating to contaminated Properties regardless
of whether we knew of or caused the presence of the contaminants. Even if more
than one person may have been responsible for the contamination, we may be held
responsible for all of the clean-up costs. In addition, third parties may sue
us for damages and costs resulting from environmental contamination from that
site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials. These laws may impose fines and penalties on us
for the release of asbestos-containing materials and may allow third parties to
seek recovery from us for personal injury from exposure to asbestos fibers. We
have detected asbestos-containing materials at some of our Properties, but we do
not expect that it will result in material environmental costs or liabilities to
us.
Environmental laws and regulations also require the removal or upgrading of
certain underground storage tanks and regulate:
- the discharge of storm water, wastewater and any water pollutants;
- the emission of air pollutants;
- the generation, management and disposal of hazardous or toxic
chemicals, substances or wastes; and
- workplace health and safety.
Some of our tenants routinely handle hazardous substances and wastes as
part of their operations at our Properties. Environmental laws and
regulations subject our tenants, and potentially us, to liability resulting
from these activities. Environmental liabilities could also affect a
tenant's ability to make rental payments to us. We require our tenants to
comply with these environmental laws and regulations and to indemnify us for
any related liabilities. We are not aware of any material noncompliance,
liability or claim relating to hazardous or toxic substances or petroleum
products in connection with any of our Properties.
Independent environmental consultants have conducted Phase I or similar
environmental assessments at all of our Properties. We anticipate that
consultants will conduct similar environmental assessments on our future
acquisitions. This type of assessment generally includes a site inspection,
interviews and a public records review, but no subsurface sampling. These
assessments and certain follow-up investigations of our Properties have not
revealed any environmental liability that we believe would have a material
adverse effect on our business or results of operations. The follow-up
investigations included, as appropriate:
- asbestos surveys;
- radon surveys;
- lead surveys;
- additional public records review;
- subsurface sampling; and
- other testing.
Nevertheless, it is possible that the assessments on our Properties have
not revealed, or that the assessments on future acquisitions will not reveal,
all environmental liabilities. Consequently, there may be material
environmental liabilities of which we are unaware that may result in substantial
costs to us or our tenants.
WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH THE AMERICANS WITH DISABILITIES
ACT AND SIMILAR LAWS
Under the Americans with Disabilities Act, places of public accommodation
and/or commercial facilities are required to meet federal requirements related
to access and use by disabled persons. We may be required to make
10
<PAGE>
substantial capital expenditures at our Properties to comply with this law.
In addition, our noncompliance could result in the imposition of fines or an
award of damages to private litigants.
A number of additional federal, state and local laws and regulations exist
regarding access by disabled persons. These regulations may require
modifications to our Properties or may affect future renovations. This may
limit the overall returns on our investments.
We believe that our Properties are substantially in compliance with the
present requirements of the Americans with Disabilities Act and similar laws.
We have not, however, conducted an audit or an investigation of all or our
Properties to determine our compliance.
WE MAY INCUR SIGNIFICANT COSTS IF WE FAIL TO COMPLY WITH LAWS OR IF LAWS CHANGE
Our Properties are subject to many federal, state and local regulatory
requirements and to state and local fire and life-safety requirements. If we do
not comply with all of these requirements, we may have to pay fines to
governmental authorities or damage awards to private litigants.
We believe that our Properties are currently in compliance with all of
these regulatory requirements. We do not know whether these requirements will
change or whether new requirements will be imposed. Changes in these regulatory
requirements could require us to make significant unanticipated expenditures.
These expenditures could have an adverse effect on us and our ability to make
distributions to stockholders.
THE LOSS OF SERVICES OF ANY OF OUR EXECUTIVE OFFICERS COULD ADVERSELY AFFECT US
We depend upon the services of our executive officers. The loss of
services of any one of our executive officers could have an adverse effect on
our business, financial condition and prospects. We use the extensive personal
and business relationships that members of our management have developed over
time with owners of Life Science Facilities and with major Life Science Industry
tenants. We have employment agreements with most of our executive officers, but
we cannot assure you that our executive officers will remain employed with us.
WE MAY CHANGE OUR BUSINESS POLICIES WITHOUT STOCKHOLDER APPROVAL
Our Board of Directors determines all of our business policies, with
management's input, including our:
- status as a REIT;
- investment initiatives;
- growth management;
- debt incurrence;
- general financing;
- acquisition and selective development activities;
- shareholder distributions; and
- operations.
Our Board of Directors may amend or revise these policies at any time
without a vote of our stockholders. A change in these policies could adversely
affect us and our ability to make distributions to our stockholders.
11
<PAGE>
WE COULD BECOME HIGHLY LEVERAGED AND OUR DEBT SERVICE OBLIGATIONS COULD INCREASE
Our organizational documents do not limit the amount of debt that we may
incur. Therefore, we could become highly leveraged. This would result in an
increase in our debt service obligations that could adversely affect our cash
flow and our ability to make distributions to our stockholders.
We have adopted a policy of incurring debt only if upon such incurrence our
debt to total market capitalization ratio would not exceed 57.5%. Our total
market capitalization is the market value of our capital stock, including
interests exchangeable for shares of capital stock, plus total debt. Our Board
of Directors could, however, change or eliminate this policy at any time.
Higher leverage also increases the risk of default on our debt obligations.
OUR DISTRIBUTIONS TO STOCKHOLDERS MAY DECLINE AT ANY TIME
We may not continue our current level of distributions to stockholders.
Our Board of Directors will determine future distributions based on a number of
factors, including:
- our amount of cash available for distribution;
- our financial condition;
- any decision by our Board of Directors to reinvest funds rather than
to distribute such funds;
- our capital expenditures;
- the annual distribution requirements under the REIT provisions of the
Internal Revenue Code; and
- other factors our Board of Directors deems relevant.
THE YEAR 2000 PROBLEM COULD DISRUPT OUR BUSINESS OPERATIONS
The year 2000 problem results from an inability of computer systems to
accurately recognize dates on and after January 1, 2000. The year 2000 problem
could lead to significant disruptions in our operations and in our tenants'
operations, which could adversely affect their ability to make rental payments
to us.
We have formed a Year 2000 Task Force to address the effects of the year
2000 problem on us. Our internal accounting systems have been tested and are
currently working without year 2000 or systems-related problems. Some of our
operations, however, are not currently year 2000 compliant, but we expect to be
compliant by mid-1999. We are also evaluating our significant third-party
vendors, our financial institutions and our major tenants for their year 2000
readiness.
We have identified the following as the principal risks to us associated
with the year 2000 problem:
- disruption of our operations due to the failure of third parties,
including tenants, vendors and financial institutions, to achieve year
2000 readiness; and
- business interruption due to building system failures at our
Properties.
We are using internal staff and outside consultants to address our year
2000 problems. Our year 2000 costs to date have been minimal, and we do not
expect future costs to be material. However, unexpected future costs could be
significant. We cannot guarantee that all of our systems will be year 2000
compliant on time or that other companies on which we rely will be compliant in
a timely manner. A failure in either case could result in material adverse
effects on our financial condition and our results of operations.
POSSIBLE FUTURE SALES OF SHARES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK
We cannot predict the effect, if any, of future sales of shares of our
common stock on the market price of our common stock prevailing from time to
time. Sales of substantial amounts of capital stock (including common stock
12
<PAGE>
issued upon the exercise of stock options), or the perception that such sales
could occur, may adversely affect prevailing market prices for our common
stock.
As of December 31, 1998, some of our stockholders held registration rights
with respect to 1,765,923 shares of our common stock. In addition, we have
reserved for issuance to our officers, directors and employees pursuant to our
Amended and Restated 1997 Stock Award and Incentive Plan that number of shares
of our common stock equal to 10% of the total number of shares outstanding at
any time, provided that in no event may the number of shares of our common stock
available for issuance under our stock option plan exceed 3,000,000 shares at
any time.
As of December 31, 1998, we had outstanding options to purchase 821,500
shares of our common stock, of which options to purchase 252,834 shares of our
common stock were exercisable. We have filed a registration statement with
respect to the issuance of shares of our common stock pursuant to grants under
the stock option plan. In addition, any shares issued under our stock option
plan will be available for sale in the public market from time to time without
restriction by persons who are not our Affiliates (as defined in Rule 144
promulgated under the Securities Act). Affiliates will be able to sell shares
of our common stock pursuant to exemptions from the registration requirements or
upon registration.
FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS AND OPERATIONS.
We are involved only in the real estate industry segment within the United
States, and we have no foreign operations. Accordingly, all financial
statements contained in this report relate to the real estate industry segment.
See "Item 2. Properties" and "Item 8. Financial Statements and Supplementary
Data" for detailed financial information regarding our business.
EMPLOYEES
As of December 31, 1998, we had 29 full-time employees and one part-time
employee.
ITEM 2. PROPERTIES.
GENERAL.
Our Properties range in size from approximately 15,000 to 250,000 square
feet, are built to accommodate single or multiple tenants and are generally one
or two story concrete tilt-up or block and steel frame structures. The
exteriors typically resemble traditional suburban office properties, but
interior infrastructures are designed to accommodate the needs of Life Science
Industry tenants. These improvements typically are generic to Life Science
Industry tenants rather than specific to a particular tenant. As a result, we
believe that the improvements have long-term value and utility and are readily
usable by a wide range of Life Science Industry tenants. Generic infrastructure
improvements include:
- reinforced concrete floors;
- upgraded roof loading capacity;
- increased floor to ceiling heights;
- heavy-duty HVAC systems;
- advanced environmental control technology;
- significantly upgraded electrical, gas and plumbing infrastructure;
and
- laboratory benches.
We own fee simple title in each of our Properties, except with respect to:
13
<PAGE>
- 1311, 1401 and 1431 Harbor Bay Parkway, in which we own a commercial
condominium interest, together with an undivided interest in the
common areas of the project in which the Property is a part; and
- Buildings 79 & 96, Charlestown Navy Yard, and 8000/9000/10000 Virginia
Manor Road, in which we own ground leasehold interests.
As of December 31, 1998, we had 158 leases with a total of 148 tenants, and
24 of our Properties were single-tenant properties. Leases in our multi-tenant
buildings typically have terms of three to seven years, while the single-tenant
building leases typically have terms of 10 to 20 years. As of December 31,
1998:
- approximately 78% of our leases (on a square footage basis) were
triple net leases, requiring tenants to pay substantially all real
estate taxes and insurance, common area and other operating expenses
(including increases thereto) in addition to base rent;
- approximately 17% of our leases (on a square footage basis) required
the tenants to pay a majority of operating expenses;
- approximately 83% of our leases (on a square footage basis) contained
effective annual rent escalations that are either fixed (ranging from
2.5% to 4.0%) or indexed based on a consumer price index or other
index; and
- approximately 78% of our leases (on a square footage basis) provided
for the recapture of certain capital expenditures (such as HVAC
systems maintenance and/or replacement, roof replacement and parking
lot resurfacing), which we believe would typically be borne by the
landlord in traditional office leases.
Our leases also typically give us the right to review and approve tenant
alterations to the Property. Generally, tenant-installed improvements remain
our property after termination of the lease. However, we are permitted under
the terms of most of our leases to require that the tenant remove the
improvements and restore the premises to their original condition.
As of December 31, 1998, we managed 41 of our Properties. The remaining
Properties were managed by third-party professional management companies. We
make all material decisions with respect to all of our Properties.
The following table sets forth pertinent information with respect to our
Properties as of December 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
ANNUALIZED PORTFOLIO
YEAR BUILT/ RENTABLE PERCENTAGE BASE ANNUALIZED
PROPERTIES RENOVATED (1) SQUARE FEET LEASED (2) RENT (2)(3) BASE RENT
- ---------- ------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO
10933 North Torrey Pines 1971/1994 107,753 100% $2,311,111 3.8%
Road
San Diego, CA
11099 North Torrey Pines 1986/1996 86,962 95 2,048,151 3.4
Road
San Diego, CA
3535 General Atomics Court 1986/1991 76,084 100 2,509,707 4.1
San Diego, CA
3565 General Atomics Court 1991 43,600 100 1,526,949 2.5
San Diego, CA
11025 Roselle Street 1983 18,173 100 387,379 0.6
San Diego, CA
<PAGE>
4757 Nexus Centre Drive 1989 67,050 100 2,107,557 3.4
San Diego, CA
6166 Nancy Ridge Drive 1997 29,333 100 638,633 1.0
San Diego, CA
10505 Roselle Street late 1970's 16,000 38 51,120 0.1
San Diego, CA
3770 Tansy Street 1978 13,000 -- -- --
San Diego, CA
SAN FRANCISCO BAY AREA
1201 Harbor Bay Parkway 1983 61,015 74 692,660 1.1
Alameda, CA
1311 Harbor Bay Parkway 1984 27,745 66 273,057 0.4
Alameda, CA
1401 Harbor Pay Parkway 1986/1994 47,777 100 518,593 0.8
Alameda, CA
1431 Harbor Bay Parkway 1985/1994 68,711 100 1,413,968 2.3
Alameda, CA
819-863 Mitten Rd & 866 1962/1997 150,150 96 2,465,268 4.0
Malcolm Road
Burlingame, CA
SEATTLE
1102/1124 Columbia Street 1975/1997 210,163 95 5,380,147 8.8
Seattle, WA ++
3000/3018 Western Avenue 1929/1990 47,746 100 1,458,253 2.4
Seattle, Washington
3005 First Avenue 1980/1990 70,647 100 1,888,515 3.1
Seattle, Washington
SUBURBAN WASHINGTON, D.C.
300 Professional Drive 1989 47,588 51 474,523 0.8
Gaithersburg, MD
401 Professional Drive 1987 62,739 100 1,038,585 1.7
Gaithersburg, MD
25/35/45 West Watkins Mill 1989/1997 138,938 100 2,007,399 3.3
Road
Gaithersburg, MD
708 Quince Orchard Road 1982/1997 49,225 100 1,191,608 2.0
Gaithersburg, MD
940 Clopper Road 1989 44,464 84 513,769 0.8
Gaithersburg, MD
1401 Research Boulevard 1966 48,800 100 722,904 1.2
Rockville, MD
1500 East Gude Drive 1981/1986 45,989 100 624,334 1.0
Rockville, MD
3/3 1/2 Taft Court 1981/1986 24,460 15 36,602 0.1
Rockville, MD
1413 Research Boulevard 1967/1996 105,000 100 1,563,450 2.6
Rockville, MD
1550 East Gude Drive 1981/1995 44,500 100 596,006 1.0
Rockville, MD
<PAGE>
1330 Piccard Drive 1978/1994 131,511 100 1,903,653 3.1
Rockville, MD
14225 Newbrook Drive 1992 248,186 100 4,341,125 7.1
Chantilly, VA
8000/9000/10000
Virginia Manor Road 1990 188,379 87 1,718,394 2.8
Beltsville, MD
10150 Old Columbia Road 1983/1997 75,500 100 1,087,002 1.8
Columbia, MD
19 Firstfield Road 1974 25,175 100 417,446 0.7
Gaithersburg, MD
15020 Shady Grove Road 1987 41,062 100 706,188 1.2
Gaithersburg, MD
2001 Aliceanna Street early 1950's 179,397 84 863,564 1.4
Baltimore, MD
50 West Watkins Mill Road 1988 57,410 100 677,438 1.1
Gaithersburg, MD
EASTERN MASSACHUSETTS
Buildings 79 & 96
Charlestown Navy Yard 1880/1991 24,940 100 710,000 1.2
Boston, MA
280 Pond Street 1960's 24,867 100 401,295 0.7
Randolph, MA
60 Westview Street 1975 39,909 100 480,000 0.8
Lexington, MA
377 Plantation Street 1993 92,711 100 2,185,284 3.6
Worcester, MA
620 Memorial Drive 1920's/1997 96,500 100 3,947,688 6.5
Cambridge, MA
NEW JERSEY/SUBURBAN
PHILADELPHIA
215 College Road 1968/1974/ 1984 110,666 100 1,253,463 2.1
Paramus, NJ
170 Williams Drive 1982/1994 37,000 100 536,500 0.9
Ramsey, NJ
100 Phillips Parkway late 1960's 80,000 -- -- --
Montvale, NJ
5100/5110 Campus Drive 1989 42,782 100 509,090 0.8
Plymouth Meeting, PA
702 Electronic Drive 1983/1998 40,000 100 937,527 1.5
Horsham, PA
279 Princeton Parkway 1984 42,600 100 260,320 0.4
Princeton, NJ
<PAGE>
SOUTHEAST
100 Capitola Drive 1986 66,861 97 1,019,490 1.7
Durham, NC
800 & 801 Capitola Drive 1985 119,916 100 1,479,246 2.4
Durham, NC
150/154 Technology Parkway 1976/1993/ 37,080 100 675,560 1.1
Norcross, GA 1985
5 Triangle Drive 1981 32,120 100 486,825 0.8
Research Triangle Park, NC
Total/Weighted Average (14): 3,588,154 92.9% $61,037,346
<CAPTION>
ANNUALIZED
ANNUALIZED NET
BASE RENT EFFECTIVE
PER LEASED RENT PER
SQUARE FOOT LEASED SQUARE
PROPERTIES (3) FOOT (4) MAJOR TENANTS
- ---------- ----------- ------------- -------------
<S> <C> <C> <C>
SAN DIEGO
10933 North Torrey Pines $21.45 15.93 The Scripps Research
Road Institute
San Diego, CA Advanced Tissue Sciences,
Inc.
11099 North Torrey Pines 24.84 23.04 Agouron Pharmaceuticals,
Road Inc. (5)
San Diego, CA Axys Pharmaceuticals, Inc.
3535 General Atomics Court 32.99 32.02 The Scripps Research
San Diego, CA Institute
R.W. Johnson Pharmaceutical
Research
Institute(6)
Syntro Corporation(7)
3565 General Atomics Court 35.02 35.02 Agouron Pharmaceuticals,
San Diego, CA Inc. (5)
11025 Roselle Street 21.32 18.68 Collateral Therapeutics, Inc.
San Diego, CA Ciblex Corporation
14
<PAGE>
4757 Nexus Centre Drive 31.43 24.52 Matrix Pharmaceutical, Inc.
San Diego, CA
6166 Nancy Ridge Drive 21.77 19.78 Arena Pharmaceuticals, Inc.
San Diego, CA
10505 Roselle Street 8.52 8.52 Robert Prater Associates(8)
San Diego, CA
3770 Tansy Street -- -- Vacant(9)
San Diego, CA
SAN FRANCISCO BAY AREA
1201 Harbor Bay Parkway 15.27 8.45 Avigen, Inc.
Alameda, CA Ascend Communications, Inc.
1311 Harbor Bay Parkway 14.95 14.31 Chiron Corporation
Alameda, CA Therasense, Inc.
1401 Harbor Pay Parkway 10.85 10.54 Chiron Diagnostics
Alameda, CA
1431 Harbor Bay Parkway 20.58 16.57 U.S. Food & Drug
Alameda, CA Administration
819-863 Mitten Rd & 866 17.03 14.96 Megabios Corp.
Malcolm Road Mills Peninsula Medical Group,
Burlingame, CA Inc.
SEATTLE
1102/1124 Columbia Street 26.97 26.30 Corixa Corporation
Seattle, WA ++ Fred Hutchinson Cancer
Research Center
Swedish Medical Center
3000/3018 Western Avenue 30.54 25.35 University of Washington
Seattle, Washington
3005 First Avenue 26.73 26.01 Dendreon Corporation
Seattle, Washington
SUBURBAN WASHINGTON, D.C.
300 Professional Drive 19.64 19.57 Antex Biologics Inc.
Gaithersburg, MD
401 Professional Drive 16.55 16.55 Gillette Capital
Gaithersburg, MD Corporation(10)
25/35/45 West Watkins Mill 14.45 14.26 Genetic Therapy, Inc.(11)
Road MedImmune, Inc.
Gaithersburg, MD
708 Quince Orchard Road 24.21 15.08 Gene Logic, Inc.
Gaithersburg, MD
940 Clopper Road 13.69 12.86 Immunomatrix, Inc.
Gaithersburg, MD Lockheed Martin
Federal Systems, Inc.
1401 Research Boulevard 14.81 14.05 U.S. Bureau of Alcohol
Rockville, MD Tobacco and Firearms
1500 East Gude Drive 16.29 16.02 bioMerieux Vitek, Inc.
Rockville, MD
3/3 1/2 Taft Court 9.68 9.68 bioMerieux Vitek, Inc.(12)
Rockville, MD
1413 Research Boulevard 14.89 13.32 U.S. Army Corps of
Rockville, MD Engineers
1550 East Gude Drive $13.39 $13.39 Shire Pharmaceuticals Group
Rockville, MD plc(13)
15
<PAGE>
1330 Piccard Drive 14.48 14.47 Intracel Corporation
Rockville, MD
14225 Newbrook Drive 17.49 17.49 American Medical
Chantilly, VA Laboratories, Inc.
8000/9000/10000
Virginia Manor Road 10.54 10.53 Digene Corporation
Beltsville, MD North American Vaccine, Inc.
10150 Old Columbia Road 14.40 13.48 North American Vaccine, Inc.
Columbia, MD
19 Firstfield Road 16.58 16.58 Genetic Therapy, Inc. (11)
Gaithersburg, MD
15020 Shady Grove Road 17.20 7.87 Human Genome Sciences
Gaithersburg, MD
2001 Aliceanna Street 5.74 5.74 Maryland Economic
Baltimore, MD Development Corporation
The National Aquarium of
Baltimore, Inc.
50 West Watkins Mill Road 11.80 11.80 Federal Express Corporation
Gaithersburg, MD
EASTERN MASSACHUSETTS
Buildings 79 & 96
Charlestown Navy Yard 28.47 26.35 Diacrin, Inc.
Boston, MA
280 Pond Street 16.14 16.14 Ares Advanced Technology,
Randolph, MA Inc.
60 Westview Street 12.03 11.03 U.S. Environmental Protection
Lexington, MA Agency
377 Plantation Street 23.57 23.57 University of Massachusetts Phytera, Inc.
Worcester, MA
620 Memorial Drive 40.91 40.91 Pfizer, Inc.
Cambridge, MA
NEW JERSEY/SUBURBAN
PHILADELPHIA
215 College Road 11.33 11.10 Playtex Products, Inc.
Paramus, NJ Synaptic Pharmaceutical
Corporation
170 Williams Drive 14.50 14.50 Alteon Inc.
Ramsey, NJ
100 Phillips Parkway -- -- Vacant(9)
Montvale, NJ
5100/5110 Campus Drive 11.90 11.87 Gen Trak, Inc.
Plymouth Meeting, PA Biomol Research Laboratories, Inc.
Magainin Pharmaceuticals Inc.
702 Electronic Drive 23.44 23.44 Cell Pathways, Inc.
Horsham, PA
279 Princeton Parkway 6.11 6.11 Coelacanth Corporation
Princeton, NJ
16
<PAGE>
SOUTHEAST
100 Capitola Drive 15.77 10.38 American Social Health Association, Inc.
Durham, NC Batelle Survey Research, Inc.
800 & 801 Capitola Drive 12.34 11.05 Triangle Laboratories, Inc.
Durham, NC Ventana Communications Group, Inc.
150/154 Technology Parkway 18.22 18.10 CytRx Corporation
Norcross, GA Oread, Inc.
5 Triangle Drive 15.16 14.85 Mantech Environmental
Research Triangle Park, NC Technology, Inc.
City Search, Inc.
Total/Weighted Average (14): $18.32 $16.96
</TABLE>
++ Gross revenues from this Property for the year ended December 31, 1998
represent in excess of 10% of the aggregate gross revenues of the Company
for such period.
(1) Includes year in which construction was completed and, where applicable,
year of most recent major renovation.
(2) Based on all leases at the respective Property in effect as of December 31,
1998.
(3) Annualized Base Rent means the annualized fixed base rental amount in
effect as of December 31, 1998 (using rental revenue computed on a
straight-line basis in accordance with GAAP) paid by tenants under the
terms of their leases. This amount, divided by the rentable square feet
leased at the Property as of December 31, 1998, is the Annualized Base Rent
per Leased Square Foot.
(4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
December 31, 1998, less (for gross leases) real estate taxes and insurance,
common area and other operating expenses and (for all leases) amortized
tenant improvements and leasing commissions. This amount, divided by the
rentable square feet leased at the Property as of December 31, 1998, is the
Annualized Net Effective Rent per Leased Square Foot.
(5) Agouron Pharmaceuticals, Inc. and Warner-Lambert Company have entered into
a merger agreement. The closing of the merger is subject to certain
conditions, including the approval of the common stockholders of Agouron
Pharmaceuticals, Inc. and the receipt of customary antitrust clearance. If
approved, Agouron Pharmaceuticals, Inc. will become a wholly owned
subsidiary of Warner-Lambert Company.
(6) The R.W. Johnson Pharmaceutical Research Institute is a wholly owned
subsidiary of Johnson & Johnson.
(7) Syntro Corporation is a wholly owned subsidiary of Schering-Plough
Corporation.
(8) Robert Prater Associates will vacate the Property on or before April 1999,
and the entire Property will be renovated.
(9) This Property is currently under renovation.
(10) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company, the guarantor of the lessee's obligations under the lease.
(11) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG.
(12) The unleased portion of this Property is currently under renovation.
(13) Shire Pharmaceuticals, plc subleases its space from Quest Diagnostics, Inc.
(14) Weighted Average based on a percentage of aggregate leased square feet.
17
<PAGE>
LOCATION AND TYPE OF SPACE
The following table sets forth, as of December 31, 1998, the gross revenues
and type of space within our Properties by rentable square footage in each of
our existing markets.
GROSS REVENUES AND TYPE OF SPACE
<TABLE>
<CAPTION>
TOTAL RENTABLE % OF TOTAL RENTABLE ANNUALIZED % OF ANNUALIZED
GEOGRAPHIC AREA SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT(1) BASE RENT
--------------- --------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
San Diego 457,955 12.8% $11,580,607 19.0%
San Francisco Bay Area 355,398 9.9 5,363,546 8.8
Seattle 328,556 9.2 8,726,915 14.3
Suburban Washington, D.C. 1,558,293 43.4 20,483,989 33.6
Eastern Massachusetts 278,927 7.8 7,724,267 12.6
New Jersey/Suburban Philadelphia 353,048 9.8 3,496,900 5.7
Southeast 255,977 7.1 3,661,122 6.0
--------- ----- ----------- -----
Total 3,588,154 100.0% $61,037,346 100.0%
--------- ----- ----------- -----
--------- ----- ----------- -----
</TABLE>
- -------------
(1) Annualized Base Rent means the annualized fixed base rental amount in
effect as of December 31, 1998 (using rental revenue computed on a
straight-line basis in accordance with GAAP) paid by tenants under the
terms of their leases.
TENANTS
Our Properties are leased principally to tenants engaged in a variety of
activities in the Life Science Industry. The following table sets forth
information regarding leases with our 20 largest tenants based upon Annualized
Base Rent as of December 31, 1998.
18
<PAGE>
20 LARGEST TENANTS
<TABLE>
<CAPTION>
REMAIN- PERCENTAGE OF
ING PERCENTAGE AGGREGATE
INITIAL APPROXIMATE PERCENTAGE OF AGGREGATE ANNUALIZED PORTFOLIO
NUMBER LEASE AGGREGATE OF AGGREGATE ANNUALIZED PORTFOLIO NET EFFECTIVE ANNUALIZED
OF TERM IN RENTABLE LEASED BASE RENT (IN ANNUALIZED RENT (IN NET EFFECTIVE
TENANT LEASES YEARS SQUARE FEET SQUARE FEET THOUSANDS)(1) BASE RENT THOUSANDS)(2) RENT
------ ------ ------- ----------- ------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
American Medical
Laboratories, Inc. 1 18.0 248,186 7.4% $4,341 7.1% $4,341 7.7%
Pfizer, Inc. 1 13.3 96,500 2.9% 3,948 6.4% 3,948 7.0%
Corixa Corporation(3) 2 1.0 83,534 2.5% 3,049 4.9% 2,917 5.2%
1.4
7.7
Agouron Pharmaceuticals, 2 1.8 70,506 2.1% 2,309 3.8% 2,232 4.0%
Inc.(4) 2.8
Matrix Pharmaceutical, 1 12.3 67,050 2.0% 2,108 3.5% 1,644 2.9%
Inc.
Intracel Corporation 1 8.1 131,511 3.9% 1,904 3.1% 1,903 3.4%
Dendreon Corporation 1 10.0 70,647 2.1% 1,889 3.1% 1,837 3.3%
Advanced Tissue
Sciences, Inc. 2 1.7 84,524 2.5% 1,723 2.8% 1,390 2.5%
U.S. Army Corps of 1 0.4 105,000 3.2% 1,563 2.6% 1,399 2.5%
Engineers(5) 2.8
North American Vaccine, Inc. 2 3.8 110,531 3.3% 1,496 2.5% 1,427 2.5%
9.3
University of Washington 1 9.1 47,746 1.4% 1,458 2.4% 1,210 2.1%
U.S. Food & Drug
Administration 1 15.1 68,711 2.1% 1,414 2.3% 1,138 2.0%
Fred Hutchinson Cancer
Research Center 2 5.9 66,754 2.0% 1,395 2.3% 1,394 2.5%
MedImmune, Inc. 2 7.9 84,668 2.5% 1,348 2.2% 1,338 2.4%
R.W. Johnson Pharmaceutical
Research Institute(6) 1 0.1 44,997 1.4% 1,334 2.2% 1,261 2.2%
The Scripps Research 2 1.4 41,538 1.2% 1,334 2.2% 1,072 1.9%
Institute 2.7
Axys Pharmaceuticals, Inc. 1 3.0 55,548 1.7% 1,266 2.1% 1,194 2.1%
Gene Logic Inc. 1 8.9 49,225 1.5% 1,192 2.0% 742 1.3%
Gillette Capital
Corporation(7) 1 7.3 62,739 1.9% 1,039 1.7% 1,039 1.8%
University of Massachusetts 1 4.3 33,244 1.0% 997 1.6% 997 1.8%
--- ---- --------- ----- ------- ----- ------ -----
Total/Weighted Average(8) 27 8.2 1,623,159 48.6% $37,107 60.8% 34,423 61.1%
--- ---- --------- ----- ------- ----- ------ -----
--- ---- --------- ----- ------- ----- ------ -----
</TABLE>
19
<PAGE>
(1) Annualized Base Rent means the annualized fixed base rental amount in
effect as of December 31, 1998 (using rental revenue computed on a
straight-line basis in accordance with GAAP) paid by tenants under the
terms of their leases.
(2) Annualized Net Effective Rent is the Annualized Base Rent in effect as of
December 31, 1998 (using rental revenue computed on a straight-line basis
in accordance with GAAP), less (for gross leases) real estate taxes and
insurance, common area and other operating expenses and (for all leases)
amortized tenant improvements and leasing commissions.
(3) Of the 83,534 rentable square feet leased to Corixa Corporation, portions
of their leases with respect to 1,232 square feet, 12,305 square feet and
69,997 square feet are subject to expiration in May 1999, December 1999 and
January 2005, respectively.
(4) Agouron Pharmaceuticals, Inc. and Warner-Lambert Company have entered into
a merger agreement. The closing of the merger is subject to certain
conditions, including the approval of the common stockholders of Agouron
Pharmaceuticals, Inc. and the receipt of customary antitrust clearance. If
approved, Agouron Pharmaceuticals, Inc. will become a wholly owned
subsidiary of Warner-Lambert Company.
(5) Of the 105,000 rentable square feet leased to the U.S. Army Corps of
Engineers, portions of their lease with respect to 30,000 square feet and
with respect to 75,000 square feet are subject to expiration in 1999 and
2001, respectively.
(6) The R.W. Johnson Pharmaceutical Research Institute is a wholly owned
subsidiary of Johnson & Johnson.
(7) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette
Company, the guarantor of the lessee's obligations under the lease.
(8) Weighted Average based on percentage of aggregate leased square feet.
ITEM 3. LEGAL PROCEEDINGS.
On August 10, 1998, we filed a demand for arbitration against Mr. Alan
Gold, our former President, alleging various claims arising from his
employment relationship and seeking declaratory relief. On October 8, 1998,
Mr. Gold filed a response and alleged claims against us, arising from his
employment relationship, which we also expect to be resolved in the
arbitration. The arbitration is scheduled to take place April 19, 1999
through April 23, 1999.
To our knowledge, no other litigation is pending against us, other than
routine actions and administrative proceedings, substantially all of which
are expected to be covered by liability insurance or which, in the aggregate,
are not expected to have a material adverse effect on our financial
condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We did not submit any matters to a vote of security holders in the
fourth quarter of the fiscal year ended December 31, 1998.
20
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "ARE". On March 10, 1999, the last reported sales price per share
of our common stock was $28-5/8, and there were approximately 127 holders of
record of our common stock (excluding beneficial owners whose shares are held
in the name of Cede & Co.). The following table sets forth the quarterly
high and low sales prices per share of our common stock as reported on the
NYSE and the distributions paid by us with respect to each such period.
<TABLE>
<CAPTION>
Per Share
Period(1) High Low Distribution
--------- --------- -------- --------------
<S> <C> <C> <C>
1997
----
May 28, 1997 to June 30, 1997 22-1/4 20-5/8 $0.1275(2)
Third Quarter 28-9/16 21-5/8 $0.40
Fourth Quarter 31-7/8 26-5/8 $0.40
1998
----
First Quarter 34-9/16 30-7/8 $0.40
Second Quarter 34-1/2 28-1/2 $0.40
Third Quarter 31-11/16 25-3/16 $0.40
Fourth Quarter 31-15/16 25-15/16 $0.40
</TABLE>
- --------------
(1) Period commencing on the date our common stock began trading on the NYSE
and ending on December 31, 1998. Prior to our initial public offering in
June 1997 and the 1,765.923 to 1 stock split in connection therewith, we
paid the following dividends on our common stock during 1997: (1) February
3, 1997, $1,549.82 per share; (2) March 31, 1997, $750.01 per share; and
(3) June 5, 1997, $475.00 per share.
(2) We paid a distribution of $0.1275 per share of our common stock on July 18,
1997 for the period May 28, 1997 through June 30, 1997, which is
approximately equivalent to a quarterly distribution of $0.40 per share for
the full calendar quarter.
Future distributions on our common stock will be determined by our Board
of Directors and will be dependent upon a number of factors, including actual
cash available for distribution, our financial condition and capital
requirements, the annual distribution requirements under the REIT provisions
of the Internal Revenue Code and such other factors as our Board of Directors
deems relevant. To maintain our qualification as a REIT, we must make annual
distributions to stockholders of at least 95% of our taxable income,
determined without regard to deductions for dividends paid and by excluding
any net capital gains. Under certain circumstances, we may be required to
make distributions in excess of cash flow available for distributions to meet
the distribution requirements. In that case, we may borrow funds or may
raise funds through the issuance of additional debt or equity capital. We
cannot assure you that we will make any future distributions.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
For the Period
October 27,
1994
(inception)
Year ended December 31 through
------------------------------------------------- December 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue................................................ $ 61,016 $ 34,846 $ 17,673 $ 9,923 $ 1,011
Total expenses............................................... 41,613 37,643 15,498 9,057 1,659
----------- ---------- ---------- ---------- ----------
Income (loss) from operations................................ 19,403 (2,797) 2,175 866 (648)
Charge in lieu of taxes...................................... -- -- -- (105) --
----------- ---------- ---------- ---------- ----------
Net income (loss)............................................ $ 19,403 $ (2,797) $ 2,175 $ 761 $ (648)
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Net income (loss) per share of common stock (pro forma
for 1997, pro forma and restated for 1996, 1995 and
1994)
- Basic.................................................. $ 1.60 $ (0.35) $ 0.60 $ 0.43 $ (0.37)
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
- Diluted................................................ $ 1.58 $ (0.35) $ 0.60 $ 0.43 $ (0.37)
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Weighted average shares of common stock outstanding
(pro forma for 1997, pro forma and restated for 1996,
1995 and 1994)(1)
- Basic.................................................. 12,098,959 8,075,864 3,642,131 1,765,923 1,765,923
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
- Diluted................................................ 12,306,470 8,075,864 3,642,131 1,765,923 1,765,923
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Cash dividends declared per share of common stock (pro
forma for 1997, pro forma and restated for 1996 and
1995....................................................... $ 1.60 $ 1.60 $ 0.87 $ 0.51 $ --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AT PERIOD END):
Rental properties - net of accumulated depreciation.......... $ 471,907 $ 227,076 $ 146,960 $ 54,353 $ 54,366
Total assets................................................. $ 530,296 $ 248,454 $ 160,480 $ 58,702 $ 58,600
Mortgage loans payable and unsecured line of credit.......... $ 309,829 $ 70,817 $ 113,182 $ 40,894 $ 39,164
Total liabilities............................................ $ 330,527 $ 81,537 $ 120,907 $ 42,369 $ 40,119
Mandatorily redeemable Series V Preferred Stock.............. $ -- $ -- $ 25,042 $ -- $ --
Stockholders' equity......................................... $ 199,769 $ 166,917 $ 14,531 $ 16,333 $ 16,481
OTHER DATA:
Net income (loss)............................................ $ 19,403 $ (2,797) $ 2,175 $ 761 $ (648)
Add:
Special bonus(2)............................................. -- 353 -- -- --
Stock compensation(3)........................................ -- 4,239 -- -- --
Post-retirement benefit(4)................................... -- 632 438 -- --
Acquisition LLC financing costs(5)........................... -- 6,973 -- -- --
Write-off of unamortized loan costs(6)....................... -- 2,295 -- -- --
Depreciation and amortization................................ 10,296 4,866 2,405 1,668 63
----------- ---------- ---------- ---------- ----------
Funds from operations(7)..................................... $ 29,699 $ 16,561 $ 5,018 $ 2,429 $ (585)
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
Cash flows from operating activities......................... $ 26,143 $ 3,883 $ (1,646) $ 355 $ (1,024)
Cash flows from investing activities......................... $ (246,753) $ (87,620) $ (94,900) $ (1,554) $ (29,924)
Cash flows from financing activities......................... $ 220,104 $ 84,101 $ 97,323 $ 927 $ 32,139
Number of properties owned at period end..................... 51 22 12 4 4
Rentable square feet of properties owned
at period end.............................................. 3,588,154 1,747,837 1,031,070 313,042 313,042
Occupancy of properties owned at period end.................. 93% 97% 97% 96% 88%
</TABLE>
22
<PAGE>
(1) Pro forma shares of common stock outstanding for the years ended December
31, 1997 and 1996 include all shares outstanding after giving effect to the
Offering, weighted for the period beginning from the date of the Offering,
conversion of all series of preferred stock, the 1,765,923 to 1 stock
split, the issuance of the stock grants and exercise of substitute stock
options. Pro forma restated shares of common stock outstanding for the
periods ended December 31, 1995 and 1994 also include shares outstanding
after giving effect to the 1,765,923 to 1 stock split.
(2) Represents a $353,000 special bonus we paid to an officer of Alexandria in
1997 in connection with the Offering.
(3) Represents an accrual for $4,239,000 of non-recurring, non-cash
compensation expense in 1997 relating to the issuance of stock options and
stock grants. In connection with the Offering, the holders of options
previously granted by Holdings under its 1994 stock option plans received
options to purchase shares of our common stock in substitution for the
Holdings options. These substitute options were exercised in connection
with the Offering.
(4) This adjustment relates solely to the non-cash accrual of a one-time post-
retirement benefit for an officer of Alexandria in 1997.
(5) In connection with the Offering, we acquired the membership interests in
the Acquisition LLC for $58,844,000. The purchase price we paid for the
Acquisition LLC exceeded the cost incurred by the Acquisition LLC to
purchase the properties it owned by $6,973,000. This difference was
accounted for as a financing cost.
(6) Of this amount, $2,147,000 represents the write-off of costs associated
with debt we paid off in connection with the Offering, and $148,000
represents the write-off of costs associated with debt paid off in November
1997.
(7) We compute funds from operations ("FFO") in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White
Paper ("White Paper"). The White Paper defines FFO as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, and excluding amounts for
extraordinary and non-recurring items, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. For a more detailed discussion of FFO,
see "Item 7--Management's Discussion and Analysis of Financial Condition
and Results of Operations--Funds from Operations."
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere in
this Form 10-K.
OVERVIEW
In June 1997, we completed an initial public offering of our common
stock (the "Offering"). We issued 7,762,500 shares of our common stock in
connection with the Offering (including shares issued in the related exercise
of the underwriters' overallotment option) and raised $138.9 million, net of
underwriting discounts and commissions, advisory fees and offering costs.
Since the Offering, we have continued to devote substantially all of our
resources to the acquisition, selective development and management of high
quality, strategically located properties leased principally to tenants in the
life science industry (we refer to these properties as "Life Science
Facilities").
In 1998, we:
- Sold 1,150,000 shares of our common stock in May to PaineWebber
Incorporated for inclusion in the PaineWebber Equity Trust REIT Series
I, a unit investment trust. We received aggregate proceeds from this
transaction, net of underwriting discounts and commissions, advisory
fees and offering costs, of approximately $32.7 million.
- Increased our borrowing capacity under our line of credit from $150
million to $250 million in August, thereby providing additional
flexibility in pursuing acquisitions and funding tenant improvements
and capital expenditures.
- Acquired a total of 29 properties with approximately 1.8 million in
rentable square feet, including two properties aggregating
approximately 105,000 rentable square feet that will undergo major
renovation.
Our primary source of revenue is rental income and tenant recoveries from
leases at the properties we own. Of the 51 properties we owned as of
December 31, 1998, four were acquired in calendar year 1994, eight in 1996 (the
"1996 Acquired Properties"), 10 in 1997 (the "1997 Acquired Properties") and 29
in 1998 (the "1998 Acquired Properties"). As a result of our acquisition
activities, there were significant increases in total revenues and expenses for
1998 as compared to 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
Rental revenue increased by $22.9 million, or 89%, to $48.5 million for
1998 compared to $25.6 million for 1997. The increase resulted primarily
from the 1997 Acquired Properties being owned for a full period and the
addition of the 1998 Acquired Properties. A portion of the increase was due
to $277,000 in rental termination payments received in 1998 associated with
leases at two of the properties. Rental revenue from the properties we
acquired before January 1, 1997 (the "Same Properties") increased by
$234,000, or 1.6%, due to increases in rental rates and occupancy.
Tenant recoveries increased by $2.9 million, or 35%, to $11.3 million
for 1998 compared to $8.4 million for 1997. The increase resulted primarily
from the 1997 Acquired Properties being owned for a full period and the
addition of the 1998 Acquired Properties. Tenant recoveries for the Same
Properties increased by $149,000, or 2.8%, generally due to the improved
identification and recovery of costs at certain properties.
24
<PAGE>
Interest and other income increased by $398,000, or 48%, to $1.2 million
for 1998 compared to $836,000 for 1997, resulting primarily from $511,000 of
interest income from a $6.0 million secured loan made in connection with the
acquisition of one of the 1998 Acquired Properties. This increase was
partially offset by a decrease in interest income resulting from a lower
level of cash equivalents in 1998 compared to 1997, because cash equivalents
had been used to acquire properties.
Rental operating expenses increased by $4.6 million, or 52%, to $13.4
million for 1998 compared to $8.8 million for 1997. The increase resulted
almost entirely from the 1997 Acquired Properties being owned for a full
period and the addition of the 1998 Acquired Properties. Operating expenses
for the Same Properties decreased by $145,000, or 2.5%, primarily due to
lower premiums on our blanket property and liability insurance policies.
The following is a comparison of property operating data computed under
generally accepted accounting principles ("GAAP Basis") and under generally
accepted accounting principles, adjusted to exclude the effect of straight
line rent adjustments required by GAAP ("Cash Basis") for the Same Properties
(in thousands, except percentage data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
----------------------
1998 1997 CHANGE
-------------------------------
<S> <C> <C> <C>
GAAP BASIS:
Revenue $ 20,878 $ 20,432 2.2%
Rental operating expenses 5,616 5,761 -2.5%
-------- -------- -----
Net operating income $ 15,262 $ 14,671 4.0%
-------- -------- -----
-------- -------- -----
CASH BASIS (1):
Revenue $ 22,401 $ 21,520 4.1%
Rental operating expenses 5,616 5,761 -2.5%
-------- -------- -----
Net operating income $ 16,785 $ 15,759 6.5%
-------- -------- -----
-------- -------- -----
</TABLE>
- --------------
(1) Revenue and operating expenses are computed in accordance with GAAP,
except that revenue excludes the effect of straight line rent
adjustments.
General and administrative expenses increased by $1.4 million, or 56%,
to $3.9 million for 1998 compared to $2.5 million for 1997 due to owning a
larger portfolio of properties in 1998 compared to 1997 and increased costs
incurred as a result of being a public company for a full year.
Interest expense increased by $7.0 million, or 100%, to $14.0 million
for 1998 compared to $7.0 million for 1997. The increase resulted from
indebtedness incurred to acquire the 1997 Acquired Properties and the 1998
Acquired Properties, offset by a reduction in ongoing interest expense due to
the payoff of $72.7 million in secured notes payable in June 1997 with
proceeds from the Offering.
Special bonus of $353,000 in 1997 reflects a bonus we paid to an officer
of Alexandria in connection with the Offering. Post retirement benefit
expense of $632,000 in 1997 reflects an adjustment for the non-cash accrual
associated with a one-time post retirement benefit for an officer of
Alexandria. Stock compensation expense of $4.2 million was recorded in 1997
for the non-recurring, non-cash expense related to the stock grants and
options we issued to our officers, directors and certain employees,
principally in connection with the Offering.
25
<PAGE>
Acquisition LLC financing costs of $7.0 million in 1997 represent the
portion of the purchase price of the membership interests in ARE
Acquisitions, LLC (the "Acquisition LLC") in excess of the cost incurred by
the Acquisition LLC to acquire its three Life Science Facilities.
Write-off of unamortized loan costs in 1997 represents the write-off of
$2.1 million in loan costs associated with $72.7 million of secured notes we
repaid with proceeds of the Offering and $148,000 in loan costs associated
with the payoff of debt in November 1997.
Depreciation and amortization increased by $5.4 million, or 110%, to
$10.3 million for 1998 compared to $4.9 million for 1997. The increase
resulted primarily from depreciation associated with the 1997 Acquired
Properties being owned for a full period and the addition of the 1998
Acquired Properties.
As a result of the foregoing, net income was $19.4 million for 1998
compared to a net loss of $2.8 million for 1997.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Rental revenue increased by $12.7 million, or 98%, to $25.6 million for
1997 compared to $12.9 million for 1996. The increase resulted primarily
from the 1996 Acquired Properties being owned for a full period and the
addition of the 1997 Acquired Properties. Rental revenue from the properties
we acquired before January 1, 1996 (the "1997 Same Properties") increased by
$180,000, or 2%. This increase resulted primarily from the conversion of
19,310 square feet of storage space to higher rent laboratory space at 10933
North Torrey Pines Road in October 1996.
Tenant recoveries increased by $4.2 million, or 100%, to $8.4 million
for 1997 compared to $4.2 million for 1996. The increase resulted primarily
from the 1996 Acquired Properties being owned for a full period and the
addition of the 1997 Acquired Properties. Tenant recoveries for the 1997
Same Properties increased by $416,000, or 19%, due to an increase in
operating expenses (particularly utilities) being passed through to the
tenants.
Interest and other income increased by $273,000, or 48%, to $836,000 for
1997 compared to $563,000 for 1996, resulting from an increase in interest
income due to the investment of excess funds from the Offering and increased
amounts in capital improvement reserve accounts.
Rental operating expenses increased by $4.4 million, or 100%, to $8.8
million for 1997 compared to $4.4 million for 1996. The increase resulted
almost entirely from the 1996 Acquired Properties being owned for a full
period and the addition of the 1997 Acquired Properties. Operating expenses
for the 1997 Same Properties increased by $401,000, or 17%, primarily due to
increased utility expenses (due to greater usage) which were passed through
to the tenants.
General and administrative expenses increased by $504,000, or 26%, to
$2.5 million for 1997 compared to $2.0 million for 1996 due to our larger
scope of operations and increased costs incurred as a result of being a
public company.
Interest expense increased by $716,000, or 11%, to $7.0 million for 1997
compared to $6.3 million for 1996. The increase resulted from indebtedness
incurred to acquire the 1996 Acquired Properties and the 1997 Acquired
Properties, offset by a reduction in ongoing interest expense due to the
payoff of $72.7 million in secured notes payable in June 1997 with proceeds
from the Offering.
The amounts shown for special bonus, post-retirement benefit expense,
stock compensation expense, Acquisition LLC financing costs and write-off
unamortized loan costs in 1997 relate primarily to transactions associated
with the Offering. We have described them in the prior section under " -
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997."
26
<PAGE>
Depreciation and amortization increased by $2.5 million, or 104%, to
$4.9 million for 1997 compared to $2.4 million for 1996. The increase
resulted primarily from depreciation associated with the 1996 Acquired
Properties being owned for a full period and the addition of the 1997
Acquired Properties.
As a result of the foregoing, the net loss was $2.8 million for 1997
compared to net income of $2.2 million for 1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities for 1998 increased by $22.2
million to $26.1 million compared to $3.9 million for 1997. The increase
resulted primarily from operating cash flows from the addition of the 1997
Acquired Properties and the 1998 Acquired Properties.
Net cash used in investing activities increased by $159.2 million to
$(246.8) million for 1998 compared to $(87.6) million for 1997. The increase
resulted from $200.6 million used for the acquisition of the 1998 Acquired
Properties, $21.2 million used for additions to rental properties, $18.9
million used for additions to land under development and $6.0 million used
for the addition of a note receivable made in connection with the acquisition
of one of the 1998 Acquired Properties.
Net cash provided by financing activities increased by $136.0 million to
$220.1 million for 1998 compared to $84.1 million for 1997. This increase
resulted from $35.2 million in net proceeds from secured debt, $171.0 million
in borrowings under our unsecured line of credit, $32.7 million in net
proceeds from the issuance of our common stock and $386,000 in net proceeds
from the exercise of stock options, partially offset by payments of $19.2
million in dividends payable on our common stock.
COMMITMENTS
We are committed to complete the construction of a building and certain
related improvements in San Diego, California at a remaining cost of
approximately $4.9 million under the terms of two leases. In addition, we
are committed to complete the construction of a building and certain related
improvements in Gaithersburg, Maryland at a remaining cost of between $7.8
million and $16.8 million (depending on the level of improvements to the
facility elected by the tenant) under the terms of a lease. Under the terms
of the lease, the tenant's rental rate will be adjusted depending on the
ultimate cost of the improvements.
We are also committed to fund approximately $11.1 million for
investments in limited partnerships and rental properties, including the
construction of tenant improvements under the terms of various leases. Of
this amount, approximately $3.2 million has been set aside in restricted cash
accounts to complete the conversion of existing space into higher rent
generic laboratory space (as well as certain related improvements) at
1102/1124 Columbia Street and 3000/3018 Western Avenue.
27
<PAGE>
RESTRICTED CASH
As of December 31, 1998, we had $9.9 million in cash and cash
equivalents, including $7.5 million in restricted cash. Restricted cash
consists of the following (in thousands):
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Reserve for tenant improvements established
pursuant to leases at two of our properties (1) $ 3,220
Funds held in trust as additional security
required under the terms of two of our
secured notes payable 3,360
Security deposit funds based on the terms
of certain lease agreements 911
---------
$ 7,491
---------
---------
</TABLE>
- --------------
(1) Of this amount, $2.1 million was returned to us in January 1999 upon
the completion of tenant improvements at 3000/3018 Western Avenue.
SECURED DEBT
Secured debt as of December 31, 1998 consists of the following (dollars
in thousands):
<TABLE>
<CAPTION>
BALANCE AT STATED INTEREST MATURITY
COLLATERAL DECEMBER 31, 1998 RATE DATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3535/3565 General Atomics Court, $ 17,578 9.00% December 2014
San Diego, CA
1431 Harbor Bay Parkway, 8,500 7.165% January 2014
Alameda, CA
1102/1124 Columbia Street, 20,729 7.75% May 2016
Seattle, WA
100/800/801 Capitola Drive, 12,547 8.68% December 2006
Durham, NC
14225 Newbrook Drive, Chantilly, 36,326 7.22% May 2008
VA and 3000/3018 Western Avenue,
Seattle, WA
620 Memorial Drive, 20,149 9.125% May 2007
Cambridge, MA (1)
-----------
$ 115,829
-----------
-----------
</TABLE>
- --------------
(1) The balance shown includes an unamortized premium of $2,262 so
that the effective rate of the loan is 7.25%.
28
<PAGE>
The following is a summary of the scheduled principal payments for our
secured debt as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------------
<S> <C>
1998 $ 3,000
1999 2,907
2000 3,145
2001 3,395
2002 3,666
Thereafter 97,454
----------------
Subtotal 113,567
Unamortized premium 2,262
----------------
$ 115,829
----------------
----------------
</TABLE>
UNSECURED LINE OF CREDIT
Alexandria has an unsecured line of credit which provides for borrowings
of up to $250 million. Prior to August 1998, our line of credit provided for
borrowings of up to $150 million. Borrowings under the line of credit bear
interest at a floating rate based on our election of either a LIBOR based
rate or the higher of the bank's reference rate and the Federal Funds rate
plus 0.5%. For each LIBOR based advance, we must elect to fix the rate for a
period of one, two, three or six months.
The line of credit contains financial covenants, including, among other
things, maintenance of minimum market net worth, a total liabilities to gross
asset value ratio, and a fixed charge coverage ratio. In addition, the terms
of the line of credit restrict, among other things, certain investments,
indebtedness, distributions and mergers. Borrowings under the line of credit
are limited to an amount based on a pool of unencumbered assets.
Accordingly, as we acquire additional unencumbered properties, borrowings
available under the line of credit will increase, but may not exceed $250
million. As of December 31, 1998, borrowings under the line of credit were
limited to approximately $214,000,000, and carried a weighted average
interest rate of 6.48%.
The line of credit expires May 31, 2000 and provides for annual
extensions (provided there is no default) for two additional one-year periods
upon notice by the company and consent of the participating banks.
In September 1998, we entered into an interest rate swap agreement with
BankBoston, N.A. (the "Bank") to hedge our exposure to variable interest
rates associated with our line of credit. Interest paid is calculated at a
fixed interest rate of 5.43% through May 31, 2000 on a notional amount of $50
million and interest received is calculated at one month LIBOR. The net
difference between the interest paid and the interest received is reflected
as an adjustment to interest expense. The fair value of the swap agreement
and changes in the fair value as a result of changes in market interest rates
are not recognized in the financial statements.
OTHER RESOURCES AND LIQUIDITY REQUIREMENTS
On May 29, 1998, we sold 1,150,000 shares of our common stock to
PaineWebber Incorporated for inclusion in the PaineWebber Equity Trust REIT
Series I, a unit investment trust. The shares were issued at a price of
$30.5625 per share (before discounts and commissions) resulting in aggregate
proceeds to us, net of offering costs of $2.4 million, of approximately $32.7
million.
We expect to continue meeting our short-term liquidity and capital
requirements generally through our working capital and net cash provided by
operating activities. We believe that the net cash provided by operating
activities will continue to be sufficient to make distributions necessary to
enable us to continue qualifying as a real estate investment trust. We also
believe that net cash provided by operations will be sufficient to fund our
recurring non-revenue enhancing capital expenditures, tenant improvements and
leasing commissions.
29
<PAGE>
We expect to meet certain long-term liquidity requirements, such as
property acquisitions, property development activities, scheduled debt
maturities, renovations, expansions and other non-recurring capital
improvements, through long-term secured and unsecured indebtedness, including
borrowings under the line of credit, and the issuance of additional debt and/or
equity securities.
EXPOSURE TO ENVIRONMENTAL LIABILITIES
In connection with the acquisition of all of our properties, we have
obtained Phase I environmental assessments to ascertain the existence of any
environmental liabilities or other issues. The Phase I environmental
assessments of our properties have not revealed any environmental liabilities
that we believe would have a material adverse effect on our financial condition
or results of operations taken as a whole, nor are we aware of any material
environmental liabilities.
CAPITAL EXPENDITURES, TENANT IMPROVEMENTS AND LEASING COSTS
The following table shows total and weighted average per square foot
capital expenditures, tenant improvements and leasing costs (excluding capital
expenditures and tenant improvements that are recoverable from tenants or are
revenue-enhancing) for the years ended December 31, 1998, 1997, 1996 and 1995,
attributable to leases that commenced at our properties after our acquisition.
<TABLE>
<CAPTION>
TOTAL/
WEIGHTED
AVERAGE 1998 1997 1996 1995
--------------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Weighted average square feet in portfolio 5,112,759 2,891,863 1,342,216 563,901 314,779
Property related capital expenditures $1,086,000 $ 341,000 $ 547,000 $ 181,000 $ 17,000
Per weighted average square foot in portfolio $ 0.21 $ 0.12 $ 0.41 $ 0.32 $ 0.05
TENANT IMPROVEMENTS AND LEASING COSTS:
RETENANTED SPACE:
Retenanted square feet 359,470 88,181 40,953 180,398 49,938
Tenant improvements and leasing costs $2,438,000 $ 478,000 $ 164,000 $1,220,000 $576,000
Per square foot leased $ 6.78 $ 5.42 $ 4.00 $ 6.76 $ 11.53
RENEWAL SPACE:
Renewal square feet 119,417 77,038 1,232 25,063 16,084
Tenant improvements and leasing costs $ 117,000 $ 69,000 $ - $ - $ 48,000
Per square foot leased $ 0.98 $ 0.90 $ $ $ 2.98
</TABLE>
Capital expenditures fluctuate in any given period due to the nature,
extent, and timing of improvements required and the extent to which they are
recoverable from our tenants. We maintain an active preventive maintenance
program at each of our properties to minimize required capital improvements.
Tenant improvements and leasing costs also fluctuate in any given year
depending upon factors such as the timing and extent of vacancies, the type of
lease (renewal tenant or retenanted space), the involvement of external leasing
agents and overall competitive market conditions.
INFLATION
As of December 31, 1998, approximately 78% of our leases (on a square
footage basis) were triple net leases, requiring tenants to pay substantially
all real estate taxes and insurance, common area and other operating expenses
(including increases thereto). In addition, approximately 17% of our leases (on
a square footage basis) required the tenants to pay a majority of operating
expenses. Approximately 83% of our leases (on a square footage basis) contain
30
<PAGE>
effective annual rent escalations that are either fixed (ranging from 2.5% to
4.0%) or indexed based on the consumer price index or other index. Accordingly,
we do not believe that our earnings or cash flow are subject to any significant
risk of inflation. An increase in inflation, however, could result in an
increase in our variable rate borrowing cost, including borrowings under the
unsecured line of credit.
IMPACT OF THE YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of our
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send tenant
invoices, provide building services or engage in similar normal business
activities.
We rely on computer technologies to operate our business. In October 1998,
we formed an internal task force to identify, assess and evaluate our critical
systems to determine which year 2000 related problems may cause system errors or
failures. We have identified three major areas as critical systems: (i)
internal accounting systems, (ii) systems of significant tenants, vendors and
financial institutions; and (iii) internal building systems at our properties.
We have engaged consulting professionals from a nationally recognized accounting
firm to review our plans and assist us with our solutions.
The following discussion of our year 2000 project contains numerous
forward-looking statements based on inherently uncertain information. The
cost of our evaluation and the date on which we plan to complete our internal
evaluation and related remediation projects are based on our best estimates.
We derived these estimates using a number of assumptions of future events,
including the continued availability of internal and external resources,
third-party modifications and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results may be
materially different from those anticipated. Moreover, although we believe
that we will be operating in a year 2000 compliant manner prior to December
31, 1999, there can be no assurance that any failure to modify a critical
system would not have a material adverse effect on our operations.
READINESS
Our year 2000 project is designed to ensure that all critical systems have
been evaluated and will be suitable for continued use into and beyond the year
2000. We expect to have completed our identification and initial evaluation of
critical systems in the first quarter of 1999, and we expect we will have
implemented substantially all of the necessary remedial actions by mid-1999.
We have completed our review of our internal accounting systems. Our most
significant accounting systems, our general ledger system and our accounts
payable system, are currently year 2000 compliant. The systems will be tested,
but we do not anticipate year 2000 problems. Our billing system is currently
not year 2000 compliant. We have been notified by the vendor that they will be
distributing the year 2000 compliant upgrade to the software at no additional
cost by June 1999. Once we receive this upgrade, the software will be tested
for compatibility and year 2000 compliance.
We place a high degree of reliance on computer systems of third parties,
such as tenants, vendors and financial institutions. Although we are assessing
the readiness of these third parties, there can be no guarantee that the failure
of these third parties to modify their systems in advance of December 31, 1999
would not have a material adverse effect on our operations. We have surveyed
our most significant third-party vendors and financial institutions, and all
surveyed indicated that they have implemented year 2000 programs. We are
currently in the process of surveying all major vendors and suppliers for their
year 2000 readiness. In addition, we are in the process of surveying our
significant tenants for their year 2000 readiness and expect to complete such
tenant assessments in the first quarter of 1999. We are continually
participating in such surveys with new tenants, vendors and other third-party
suppliers. If future risk
31
<PAGE>
assessments of third-party suppliers or tenants indicate significant exposure
from a supplier's year 2000 problem, such supplier or tenant will be asked to
demonstrate how such problems will be addressed. We believe that we have
viable alternatives for each of our major vendors.
The final critical system the task force is evaluating consists of internal
systems in our properties that may have embedded microprocessors with potential
year 2000 problems, mainly building systems, including heating, ventilation and
air conditioning systems, elevators and security systems. We are in the process
of identifying the areas and systems that use embedded microprocessors and will
determine whether any modification or replacement is necessary. We anticipate
using the services of outside experts to assist us with this phase of our year
2000 project. The evaluation of these areas is in process and is expected to be
completed in the first quarter of 1999, and any required modifications are
expected to be made by mid-1999.
COST
We do not expect our year 2000 project costs, including the costs of any
remedial activities and outside experts, to be material. The aggregate cost of
purchasing conversion packages for the accounting systems and the cost to survey
tenants, vendors and financial institutions are not expected to be material. In
addition, any costs incurred to replace or upgrade building systems will
constitute property maintenance costs, and are therefore generally recoverable
from the tenants pursuant to the terms of their existing leases.
RISKS
We believe that the principal risks associated with the year 2000 issue
include the risk of disruption of our operations due to operational failures of
third parties, including tenants, vendors and financial institutions, and the
risk of business interruption due to building system failures. We do not
believe that the risk of disruptions due to operational failures of vendors or
financial institutions is significant, because our major vendors and financial
institutions are currently year 2000 compliant, and we believe we have viable
alternatives for such suppliers. If any of our major tenants do not become year
2000 compliant on schedule, such tenant's operations and financial condition
could be adversely affected, which may impact the tenant's ability to meet its
rent obligations. Similarly, if our building systems failed due to year 2000
problems, services to our properties and tenants, such as mechanical and
security services, could be interrupted, resulting in potential rent disputes
with the tenants. We believe, however, that our early involvement in
identifying, assessing and evaluating our critical systems should minimize the
risk of year 2000 problems to our operations.
CONTINGENCY PLANS
We believe that development of contingency plans for significant exposures
to potential year 2000 problems are integral to our planning process. Once we
have completed our identification and evaluation of critical systems and have
completed the subsequent remedial action phase, we will again assess our
exposure to year 2000 problems. Based on this assessment, we intend to develop
appropriate contingency plans for the systems. Because we anticipate being
substantially year 2000 compliant by mid-1999, we believe that adequate time
exists to ensure that alternatives can be developed, assessed and implemented
prior to the end of 1999. Based on our assessment of the success or adequacy of
these alternatives, we intend to develop contingency plans. We cannot give
assurance, however, that failure to develop an alternative or an appropriate
contingency plan would not have a material adverse effect on our operations.
FUNDS FROM OPERATIONS
We believe that funds from operations ("FFO") is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of our ability to incur and service debt, to
make capital expenditures and to make distributions. We compute FFO in
accordance with standards established by the Board of Governors of the
32
<PAGE>
National Association of Real Estate Investment Trusts ("NAREIT") in its March
1995 White Paper (the "White Paper"), which may differ from the methodology
for calculating FFO utilized by other equity REITs, and, accordingly, may not
be comparable to such other REITs. Further, FFO does not represent amounts
available for our discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
The White Paper defines FFO as net income (loss) (computed in accordance with
generally accepted accounting principles ("GAAP")), excluding gains (or
losses) from debt restructuring and sales of property, and excluding amounts
for extraordinary and non-recurring items, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of our financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make distributions. (See "-Cash Flows" for
information regarding these measures of cash flow).
The following table presents our FFO for the years ended December 31, 1998,
1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $19,403 $(2,797) $2,175
Add:
Special bonus - 353 -
Stock compensation - 4,239 -
Post-retirement benefit - 632 438
Acquisition LLC financing costs - 6,973 -
Write-off of unamortized loan costs - 2,295 -
Depreciation and amortization 10,296 4,866 2,405
------- ------- ------
Funds from Operations $29,699 $16,561 $5,018
------- ------- ------
------- ------- ------
</TABLE>
PROPERTY AND LEASE INFORMATION
The following table is a summary of our property portfolio as of
December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
NUMBER OF ANNUALIZED BASE OCCUPANCY
PROPERTIES RENTABLE SQUARE FEET RENT PERCENTAGE
---------- -------------------- --------------- ----------
<S> <C> <C> <C> <C>
REGION:
Suburban Washington D.C. 17 1,533,833 $20,917 94.5%(1)
California - San Diego 7 428,955 11,529 98.9%
California - San Francisco Bay 6 355,398 5,364 91.4%(1)
Southeast 4 255,977 3,661 99.1%(1)
New Jersey/Suburban Philadelphia 5 273,048 3,497 100.0%
Eastern Massachusetts 5 278,927 7,724 100.0%
Washington - Seattle 3 328,556 8,727 96.7%
-- --------- ------- -----
Subtotal 47 3,454,694 61,419 96.2%
Renovation/Repositioning Properties 4 133,460 88 7.3%
-- --------- ------- -----
Total 51 3,588,154 $61,507 92.9%
-- --------- ------- -----
-- --------- ------- -----
</TABLE>
- -----------------
1) All, or substantially all, of the vacant space is office or warehouse
space.
33
<PAGE>
The following table shows certain information with respect to the lease
expirations of our properties as of December 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF ANNUALIZED BASE
YEAR OF NUMBER OF SQUARE FOOTAGE AGGREGATE RENT OF EXPIRING
LEASE EXPIRING OF EXPIRING PORTFOLIO LEASE LEASES
EXPIRATION LEASES LEASES SQUARE FOOT (PER SQUARE FOOT)
---------- --------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
1999 47 332,161 10.0% $ 18.08
2000 26 383,600 11.5% $ 16.89
2001 22 424,382 12.7% $ 18.93
2002 11 118,086 3.5% $ 14.25
2003 17 366,782 11.0% $ 15.46
Thereafter 35 1,706,942 51.5% $ 19.43
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which we are exposed is interest rate risk, which is
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations and other
factors that are beyond our control.
In order to modify and manage the interest characteristics of our
outstanding debt and limit the effects of interest rates on our operations, we
may utilize a variety of financial instruments, including interest rate swaps,
caps, floors and other interest rate exchange contracts. The use of these types
of instruments to hedge our exposure to changes in interest rates carries
additional risks such as counter-party credit risk and legal enforceability of
hedging contracts.
Our future earnings, cash flows and fair values relating to financial
instruments are primarily dependent upon prevalent market rates of interest,
such as LIBOR. However, due to the purchase of our interest rate swap
agreement, the effects of interest rate changes are reduced. Based on interest
rates at December 31, 1998, a 1% increase in interest rates on our line of
credit would decrease annual future earnings and cash flows, after considering
the effect of our interest rate swap agreement, by approximately $1.4 million.
A 1% decrease in interest rates on our line of credit would increase annual
future earnings and cash flows, after considering the effect of our interest
rate swap agreement, by approximately $1.4 million. A 1% increase interest
rates on our secured debt and interest rate swap agreement would decrease their
fair value by approximately $7.7 million. A 1% decrease in interest rates on
our secured debt and interest rate swap agreement would increase their fair
value by approximately $8.8 million. A 1% increase or decrease in interest
rates on our secured note receivable would not have a material impact on its
fair value.
These amounts are determined by considering the impact of the hypothetical
interest rates on our borrowing cost and interest rate swap agreement. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, we would consider taking actions to further mitigate
our exposure to the change. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in our capital structure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by Regulation S-X
are included in this Report on Form 10-K beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference from our
definitive proxy statement to be mailed in connection with our annual meeting of
stockholders to be held on April 15, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from our
definitive proxy statement to be mailed in connection with our annual meeting of
stockholders to be held on April 15, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from our
definitive proxy statement to be mailed in connection with our annual meeting of
stockholders to be held on April 15, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from our
definitive proxy statement to be mailed in connection with our annual meeting of
stockholders to be held on April 15, 1999.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial information is included as a
separate section of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-6
Schedule III - Consolidated Financial Statement of Rental Properties
and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . F-23
</TABLE>
(B) REPORTS ON FORM 8-K.
On November 20, 1998, Alexandria filed a Current Report on Form 8-K,
dated November 20, 1998, to report the acquisition of certain properties.
(C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
3.1++ Articles of Amendment and Restatement of Alexandria
3.2++ Certificate of Correction of Alexandria
3.3++ Amended and Restated Bylaws of Alexandria
3.4 Amendment to Amended and Restated Bylaws of Alexandria
4.1+ Specimen Certificate representing shares of Common Stock
10.1* Second Amendment to the Executive Employment Agreement and General and
Special Release by and between Alexandria and Jerry M. Sudarsky, dated
May 30, 1997
10.2* Amended and Restated Executive Employment Agreement by and between
Alexandria and Joel S. Marcus, dated January 5, 1994, and amended as of
March 28, 1997
10.3+++ Executive Employment Agreement between Alexandria and James H.
Richardson, dated July 31, 1997
10.4*** Amended and Restated Executive Employment Agreement between Alexandria
and Peter J. Nelson, dated May 20, 1998
10.5 Severance Agreement between Alexandria and Lynn Anne Shapiro, dated
January 1, 1999
10.6 Executive Employment Agreement between Alexandria and Vincent R.
Ciruzzi, dated April 20, 1998
36
<PAGE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
10.7* Registration Rights Agreement by and between Alexandria and Health
Science Properties Holding Corporation, dated June 2, 1997
10.8** Amended and Restated 1997 Stock Award and Incentive Plan of Alexandria
10.9+ Form of Non-Employee Director Stock Option Agreement for use in
connection with options issued pursuant to the 1997 Stock Option Plan
10.10+ Form of Incentive Stock Option Agreement for use in connection with
Options issued pursuant to the 1997 Stock Option Plan
10.11+ Form of Nonqualified Stock Option Agreement for use in connection with
Options issued pursuant to the 1997 Stock Option Plan
10.12*+ First Amended and Restated Revolving Loan Agreement among Alexandria,
the Operating Partnership, ARE-QRS Corp., ARE Acquisitions, LLC, the
Other Borrowers Then or Thereafter a Party Thereto, the Banks therein
named, the Other Banks Which May Become Parties Thereto, and
BankBoston, N.A., dated August 4, 1998
10.13 First Amendment to First Amended and Restated Revolving Loan Agreement
among Alexandria, the Operating Partnership, ARE-QRS Corp., ARE
Acquisitions, LLC, the Other Borrowers Then or Thereafter a Party
Thereto, the Banks therein named and BankBoston, N.A., dated October
21, 1998
10.14 Form of International Swap Dealers Association, Inc. Master Agreement
and related Schedule and Confirmation between BankBoston, N.A. and
Alexandria, dated as of August 31, 1998
12.1 Computation of Consolidated Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
21.1 List of Subsidiaries of Alexandria
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
</TABLE>
- --------------
+ Incorporated by reference to Alexandria's Registration Statement on Form
S-11 (No. 333-23545), declared effective by the Commission on May 27, 1997
++ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended June 30, 1997, filed with the Commission on August 14,
1997
+++ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, filed with the Commission on November
14, 1997
* Incorporated by reference to Alexandria's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on March 31,
1998
** Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended June 30, 1998, filed with the Commission on August 14,
1998
*** Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q/A
for the period ended June 30, 1998, filed with the Commission on August 18,
1998
*+ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, filed with the Commission on November
13, 1998
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
Dated: March 12, 1999 By: /s/ JOEL S. MARCUS
-----------------------------------
Joel S. Marcus
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry M. Sudarsky, Joel S. Marcus and Peter J.
Nelson, and each of them, as his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this report, and to file the same, with exhibits thereto and other documents
in connection therewith, if any, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
and agents of their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Jerry M. Sudarsky Chairman of the Board of Directors March 12, 1999
-----------------------------
Jerry M. Sudarsky
/s/ Joel S. Marcus Chief Executive Officer (Principal Executive March 12, 1999
----------------------------- Officer) and Director
Joel S. Marcus
/s/ James H. Richardson President and Director March 12, 1999
-----------------------------
James H. Richardson
/s/ Peter J. Nelson Chief Financial Officer, Senior Vice March 12, 1999
----------------------------- President, Treasurer and Secretary (Principal
Peter J. Nelson Financial and Accounting Officer)
/s/ Joseph Elmaleh Director March 12, 1999
-----------------------------
Joseph Elmaleh
/s/ Richard B. Jennings Director March 12, 1999
-----------------------------
Richard B. Jennings
/s/ Viren Mehta Director March 12, 1999
-----------------------------
Viren Mehta
S-1
<PAGE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ David M. Petrone Director March 12, 1999
-----------------------------
David M. Petrone
/s/ Anthony M. Solomon Director March 12, 1999
-----------------------------
Anthony M. Solomon
/s/ Alan G. Walton Director March 12, 1999
-----------------------------
Alan G. Walton
</TABLE>
S-2
\
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Alexandria Real Estate Equities, Inc.
We have audited the accompanying consolidated balance sheets of Alexandria
Real Estate Equities, Inc. and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1998,
1997 and 1996. Our audits also included the consolidated financial statement
Schedule III, rental properties and accumulated depreciation. These
consolidated financial statements and consolidated financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 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 the Company as of December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for the years ended December 31, 1998,
1997 and 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related consolidated financial statement schedule,
referred to above, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
financial information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
January 23, 1999,
except for Note 15, as to which
the date is February 23, 1999
F-1
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------
<S> <C> <C>
ASSETS
Rental properties, net $ 471,907 $ 227,076
Land under development 21,839 2,894
Cash and cash equivalents 1,554 2,060
Tenant security deposits and other restricted cash 7,491 6,799
Secured note receivable 6,000 -
Tenant receivables and deferred rent 8,479 3,630
Other assets 13,026 5,995
----------- ------------
Total assets $ 530,296 $ 248,454
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable (includes unamortized premium of $2,262 in 1998) $ 115,829 $ 47,817
Unsecured line of credit 194,000 23,000
Accounts payable, accrued expenses and tenant security deposits 15,663 6,158
Dividends payable 5,035 4,562
----------- ------------
330,527 81,537
Commitments and contingencies - -
Stockholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized;
12,586,263 and 11,404,631 shares issued and
outstanding at December 31, 1998 and 1997, respectively 126 114
Additional paid-in capital 199,643 173,735
Retained earnings (accumulated deficit) - (6,932)
----------- ------------
Total stockholders' equity 199,769 166,917
----------- ------------
Total liabilities and stockholders' equity $ 530,296 $ 248,454
----------- ------------
----------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental $ 48,469 $ 25,622 $ 12,941
Tenant recoveries 11,313 8,388 4,169
Interest and other income 1,234 836 563
------------ ------------ ------------
61,016 34,846 17,673
Expenses:
Rental operations 13,390 8,766 4,356
General and administrative 3,894 2,476 1,972
Interest 14,033 7,043 6,327
Stock compensation - 4,239 -
Post retirement benefit - 632 438
Special bonus - 353 -
Acquisition LLC financing costs - 6,973 -
Write-off of unamortized loan costs - 2,295 -
Depreciation and amortization 10,296 4,866 2,405
------------ ------------ ------------
41,613 37,643 15,498
------------ ------------ ------------
Net income (loss) $ 19,403 $ (2,797) $ 2,175
------------ ------------ ------------
------------ ------------ ------------
Net income allocated to preferred stockholders $ - $ 3,038 $ 1,590
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) allocated to common stockholders $ 19,403 $ (5,835) $ 585
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share of common stock (pro
forma for 1997, pro forma and restated for 1996):
- Basic $ 1.60 $ (0.35) $ 0.60
------------ ------------ ------------
------------ ------------ ------------
- Diluted $ 1.58 $ (0.35) $ 0.60
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares of common stock outstanding
(pro forma for 1997, pro forma and restated for 1996):
- Basic 12,098,959 8,075,864 3,642,131
------------ ------------ ------------
------------ ------------ ------------
- Diluted 12,306,470 8,075,864 3,642,131
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SERIES T SERIES T SERIES U SERIES U NUMBER OF
PREFERRED PREFERRED PREFERRED PREFERRED COMMON
SHARES STOCK SHARES STOCK SHARES
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 (restated) 12 $ 1 - $ - 1,765,923
Issuance of Series U preferred stock - - 220 110 -
Accretion on Series V preferred stock - - - - -
Cash dividends on Series T, U, & V preferred - - - - -
stock
Dividends declared on common stock - - - - -
Net income - - - - -
-----------------------------------------------------------------
Balance at December 31, 1996 (restated) 12 1 220 110 1,765,923
Accretion on Series V preferred stock - - - - -
Cash dividends on Series T, U and V preferred - - - - -
stock
Exercise of compensatory stock options and
issuance of stock grants (including
compensation expense of $4,161) - - - - 209,615
Issuance of common stock in connection with
initial public offering, net of offering - - - - 7,762,500
costs
Conversion of Series V and Series U preferred - - (220) (110) 1,666,593
stock
Redemption of Series T preferred stock (12) (1) - - -
Dividends declared on common stock - - - - -
Net loss - - - - -
-----------------------------------------------------------------
Balance at December 31, 1997 - - - - 11,404,631
Issuance of common stock, net of offering costs - - - - 1,150,000
Exercise of stock options, net - - - - 31,632
Dividends declared on common stock - - - - -
Net income - - - - -
-----------------------------------------------------------------
Balance at December 31, 1998 - $ - - $ - 12,586,263
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 (restated) $ 18 $ 17,110 $ (796) $ 16,333
Issuance of Series U preferred stock - - - 110
Accretion on Series V preferred stock - (933) - (933)
Cash dividends on Series T, U, & V preferred - - (665) (665)
stock
Dividends declared on common stock - - (2,489) (2,489)
Net income - - 2,175 2,175
---------------------------------------------------
Balance at December 31, 1996 (restated) 18 16,177 (1,775) 14,531
Accretion on Series V preferred stock - (1,911) - (1,911)
Cash dividends on Series T, U and V preferred - - (1,127) (1,127)
stock
Exercise of compensatory stock options and
issuance of stock grants (including
compensation expense of $4,161) 2 4,190 - 4,192
Issuance of common stock in connection with
initial public offering, net of offering 78 138,812 - 138,890
costs
Conversion of Series V and Series U preferred 16 27,045 - 26,951
stock
Redemption of Series T preferred stock - - - (1)
Dividends declared on common stock - (10,578) (1,233) (11,811)
Net loss - - (2,797) (2,797)
---------------------------------------------------
Balance at December 31, 1997 114 173,735 (6,932) 166,917
Issuance of common stock, net of offering costs 12 32,701 - 32,713
Exercise of stock options, net - 386 - 386
Dividends declared on common stock - (7,179) (12,471) (19,650)
Net income - - 19,403 19,403
---------------------------------------------------
Balance at December 31, 1998 $ 126 $ 199,643 $ - $ 199,769
---------------------------------------------------
---------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 19,403 $ (2,797) $ 2,175
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,296 4,866 2,405
Stock option compensation - 4,161 -
Changes in operating assets and liabilities:
Tenant security deposits and other restricted cash (692) (1,214) (4,371)
Tenant receivables and deferred rent (4,849) (2,298) (502)
Other assets (7,520) (1,343) (3,633)
Accounts payable, accrued expenses and tenant security
deposits 9,505 2,508 2,280
-----------------------------------
Net cash provided by (used in) operating activities 26,143 3,883 (1,646)
INVESTING ACTIVITIES
Purchase of rental properties (200,590) (81,160) (93,322)
Additions to rental properties (21,218) (3,566) (1,578)
Additions to land under development (18,945) (2,894) -
Issuance of note receivable (6,000) - -
-----------------------------------
Net cash used in investing activities (246,753) (87,620) (94,900)
FINANCING ACTIVITIES
Proceeds from secured notes payable 36,500 15,360 77,260
Net proceeds from issuances of common stock 32,713 138,919 -
Exercise of stock options 386 - -
Proceeds from issuance of Series V preferred stock (net of
issuance costs of $3,391) - - 24,109
Proceeds from issuance of Series U preferred stock - - 110
Proceeds from unsecured line of credit 171,000 25,500 -
(Decrease) increase in due to Health Science Properties
Holding Corporation - (2,525) 2,420
Principal reductions on unsecured line of credit - (2,500) (4,000)
Principal reductions on secured notes payable (1,318) (80,725) (972)
Common dividends paid (19,177) (8,800) (939)
Preferred dividends paid - (1,127) (665)
Redemption of Series T preferred stock - (1) -
-----------------------------------
Net cash provided by financing activities 220,104 84,101 97,323
Net (decrease) increase in cash and cash equivalents (506) 364 777
Cash and cash equivalents at beginning of year 2,060 1,696 919
-----------------------------------
Cash and cash equivalents at end of year $ 1,554 $ 2,060 $ 1,696
-----------------------------------
-----------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest and financing
costs, net of interest capitalized $ 12,778 $ 13,552 $ 5,953
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
Alexandria Real Estate Equities, Inc. is a real estate investment trust
("REIT") formed in 1994. We are engaged primarily in the acquisition,
management, and selective development of properties for lease principally to
participants in the life science industry (we refer to these properties as
"Life Science Facilities"). As of December 31, 1998, our portfolio consisted
of 51 properties in nine states with approximately 3,588,000 rentable square
feet, compared to 22 properties in four states with approximately 1,748,000
rentable square feet as of December 31, 1997.
On June 2, 1997, we completed our initial public offering (the "Offering") of
6,750,000 shares of common stock. The Offering price was $20.00 per share,
resulting in gross proceeds of $135,000,000. On June 26, 1997, the
underwriters exercised their over-allotment option provided for in the
Offering, and we issued an additional 1,012,500 shares of common stock,
resulting in additional gross proceeds of $20,250,000. The aggregate net
proceeds of the Offering (including exercise of the over-allotment option),
net of underwriting discounts and commissions, advisory fees and offering
costs, were approximately $138,890,000.
The following transactions also occurred in June 1997 in connection with the
Offering:
- We repaid debt of approximately $77,723,000, including (i) mortgage
debt of $72,698,000, (ii) debt of $2,500,000 outstanding under our
prior unsecured line of credit, and (iii) debt of $2,525,000 to Health
Science Properties Holding Corporation ("Holdings"). Holdings owned all
of our common stock prior to the Offering and 14% of our common stock
as of December 31, 1998.
- We obtained two new mortgage loans totaling $15,360,000.
- We acquired an entity that owns three Life Science Facilities from
affiliates of PaineWebber Incorporated, the lead managing underwriter
for the Offering, for an aggregate purchase price of $58,844,000 (see
Note 12).
- Each previously outstanding share of our common stock was split into
1,765.923 shares of common stock. The share data as of and for the year
ended December 31, 1996 has been restated to reflect the effects of the
stock split.
- All of the previously outstanding shares of Series T preferred stock
were redeemed at their stated value ($1,200 in the aggregate) (see Note
9).
F-6
<PAGE>
1. BACKGROUND (CONTINUED)
- All of the previously outstanding shares of Series U preferred stock
and Series V preferred stock were converted into shares of common stock
(7,354 shares in the aggregate for Series U and 1,659,239 shares in the
aggregate for Series V) (see Notes 8 and 9).
- Officers, directors and certain employees of Alexandria were granted an
aggregate of 152,615 shares of our common stock. In addition, our
officers, directors and certain employees were granted options to
purchase 57,000 shares of our common stock in substitution for stock
options previously issued by Holdings (see Notes 8 and 11). These
options were exercised at a nominal exercise price in connection with
the Offering.
- Officers, directors and employees of Alexandria were granted options
under the 1997 stock option plan to purchase an aggregate of 600,000
shares of our common stock at the Offering price (see Note 11).
- A special bonus of $353,000 was paid to an officer of Alexandria.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Alexandria and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of three
months or less when purchased to be cash equivalents.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-7
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RENTAL PROPERTIES AND LAND UNDER DEVELOPMENT
Properties and land under development are stated at the lower of cost or
estimated fair value. Write-downs to estimated fair value would be recognized
when impairment indicators are present and a property's estimated
undiscounted future cash flows, before interest charges, are less than its
book value. In that situation, we would recognize an impairment loss to the
extent the carrying amount exceeds the fair value of the property. Based on
our assessment, no write-downs to estimated fair value were necessary for the
periods presented.
The cost of maintenance and repairs is expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their
estimated useful lives.
Depreciation is provided using the straight-line method using estimated lives
of 30 to 40 years for buildings and building improvements, 20 years for land
improvements, and the term of the respective lease for tenant improvements.
RESTRICTED CASH
Restricted cash consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------
<S> <C> <C>
Reserve for tenant improvements established
pursuant to leases at two of our properties $3,220 $3,364
Funds held in trust as additional security
required under the terms of two of our
secured notes payable 3,360 1,966
Security deposit funds based on the terms
of certain lease agreements 911 1,469
-------------------
$7,491 $6,799
-------------------
-------------------
</TABLE>
LOAN FEES AND COSTS
Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loans and included in interest expense. Loan fees
and costs, net of related amortization, totaled $3,424,000 and $1,350,000 as
of December 31, 1998 and 1997, respectively.
F-8
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RENTAL INCOME
Rental income from leases with scheduled rent increases, free rent and other
rent adjustments are recognized on a straight-line basis over the respective
lease term. We include amounts currently recognized as income, and expected
to be received in later years, in tenant receivables and deferred rent on our
consolidated balance sheet. Amounts received currently, but recognized as
income in future years, are included in unearned rent on our consolidated
balance sheet.
OTHER INCOME
Other income consists of interest income and other income associated with the
operations of the properties. Interest income was $978,000, $588,000 and
$118,000 in 1998, 1997 and 1996, respectively.
LEASING COMMISSIONS
Leasing commissions are amortized on a straight-line basis over the term of
the related lease. Leasing commissions, net of related amortization, totaled
$4,856,000 and $847,000 as of December 31, 1998 and 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value
because their maturity is less than three months. The carrying amount of our
secured note receivable approximates fair value because the applicable
interest rate approximates the market rate for this loan.
The fair value of our secured notes payable was estimated using discounted
cash flows analyses based on borrowing rates we believe we could obtain with
similar terms and maturities. As of December 31, 1998 and 1997, the fair
value of our secured notes payable was approximately $118,310,000 and
$46,822,000, respectively.
NET INCOME (LOSS) PER SHARE
Historical per share data has not been presented for 1997 and 1996 because it
is not meaningful due to the material changes in our capital structure as a
result of the Offering. Instead, we have presented net income (loss) per
share for these years on a pro forma basis, giving effect to the Offering and
related transactions.
F-9
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET INCOME (LOSS) PER SHARE (CONTINUED)
Pro forma shares of common stock outstanding for the years ended December 31,
1997 and 1996 include all shares outstanding after giving effect to the
1,765.923 to 1 stock split, the issuance of stock grants, the issuance and
exercise of substitute stock options and the conversion of the Series U and
Series V preferred stock. In addition, shares issued to the public in
connection with the Offering have been weighted for the period of time they
were outstanding.
We have adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," and have restated pro forma net income per share for
the year ended December 31, 1996. Basic and diluted net income per share are
the same for 1997 because the stock options outstanding as of December 31,
1997 were antidilutive. There were no dilutive stock options on a pro forma
basis for 1996.
The following table shows the computation of net income (loss) per share of
common stock outstanding:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) $ 19,403 $ (2,797) $ 2,175
------------------------------------------------
------------------------------------------------
Weighted average shares - basic (pro forma for
1997, pro forma and restated for 1996) 12,098,959 8,075,864 3,642,131
Add: dilutive effect of stock options 207,511 - -
------------------------------------------------
Weighted average shares - diluted (pro forma for
1997, pro forma and restated for 1996) 12,306,470 8,075,864 3,642,131
------------------------------------------------
------------------------------------------------
Net income (loss) per share - basic (pro forma for
1997, pro forma and restated for 1996) $ 1.60 $ (0.35) $ 0.60
------------------------------------------------
------------------------------------------------
Net income (loss) per share - diluted (pro forma for
1997, pro forma and restated for 1996) $ 1.58 $ (0.35) $ 0.60
------------------------------------------------
------------------------------------------------
Dividends declared per share (pro forma for
1997, pro forma and restated for 1996) $ 1.60 $ 1.60 $ 0.87
------------------------------------------------
------------------------------------------------
</TABLE>
F-10
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OPERATING SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which is effective for years beginning
after December 15, 1997. Statement 131 establishes standards for the way that
public business enterprises report information about operating segments.
Statement 131 also establishes standards for related disclosure about
products and services, geographic areas, and major customers. Since we
operate as a single segment, the implementation of Statement 131 did not have
an impact on how we report our results of operations.
INCOME TAXES
As a REIT, we are not subject to federal income taxation as long as we meet a
number of organizational and operational requirements and distribute all of
our taxable income to our stockholders. Since we believe we have met these
requirements and our distributions exceeded taxable income, no federal income
tax provision has been reflected in the accompanying consolidated financial
statements for the years ended December 31, 1998, 1997 and 1996. If we fail
to qualify as a REIT in any taxable year, we will be subject to federal
income tax on our taxable income at regular corporate tax rates. For the
years ended December 31, 1998 and 1996, we reported that none of our
distributions with respect to common stock represented a return of capital
for federal income tax purposes. For the year ended December 31, 1997, we
reported that 37.6% of our distributions with respect to common stock
represented a return of capital.
3. RENTAL PROPERTIES
Rental properties are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------
<S> <C> <C>
Land $ 76,254 $ 43,485
Building and improvements 393,728 189,528
Tenant and other improvements 20,536 2,867
---------------------------
490,518 235,880
Less accumulated depreciation (18,611) (8,804)
---------------------------
$ 471,907 $ 227,076
---------------------------
---------------------------
</TABLE>
Nine of the rental properties are encumbered by deeds of trust and
assignments of rents and leases associated with the properties (see Note 6).
The net book value of these properties as of December 31, 1998 is
$174,185,000.
F-11
<PAGE>
3. RENTAL PROPERTIES (CONTINUED)
We lease space under noncancelable leases with remaining terms of one to 18
years.
A majority of our leases require that the lessee pay all taxes, maintenance,
insurance and certain other operating expenses applicable to the leased
properties.
We capitalize interest to properties under construction and renovation during
the period the asset is undergoing activities to prepare it for its intended
use. Total interest capitalized for the years ended December 31, 1998 and
1997 was $2,199,000 and $96,000, respectively. Total interest incurred for
the years ended December 31, 1998, 1997 and 1996 was $16,232,000, $7,139,000
and $6,327,000, respectively.
Minimum lease payments to be received under the terms of the operating lease
agreements, excluding expense reimbursements, as of December 31, 1998, are as
follows (in thousands):
<TABLE>
<S> <C>
1999 $ 55,800
2000 50,759
2001 43,870
2002 38,459
2003 35,879
Thereafter 190,190
-----------------
$ 414,957
-----------------
-----------------
</TABLE>
4. SECURED NOTE RECEIVABLE
In connection with the acquisition of a Life Science Facility in San Diego,
California in March 1998, we made a $6,000,000 loan to the sole tenant of the
property, fully secured by a first deed of trust on certain improvements at
the property. The loan bears interest at a rate of 11% per year, payable
monthly, and matures in March 2002. The loan is cross-defaulted to the lease
with the sole tenant. Under certain circumstances, we may obtain title to the
improvements that secure the loan, and, in such event, we may also require
the sole tenant at the property to lease such improvements back from us for
an additional rental amount.
5. UNSECURED LINE OF CREDIT
Alexandria has an unsecured line of credit which provides for borrowings of
up to $250 million. Prior to August 1998, our line of credit provided for
borrowings of up to $150 million. Borrowings under the line of credit bear
interest at a floating rate based on our election of either a LIBOR based
rate or the higher of the bank's reference rate and the Federal Funds rate
plus 0.5%. For each LIBOR based advance, we must elect to fix the rate for a
period of one, two, three or six months.
F-12
<PAGE>
5. UNSECURED LINE OF CREDIT (CONTINUED)
The line of credit contains financial covenants, including, among other
things, maintenance of minimum market net worth, a total liabilities to gross
asset value ratio, and a fixed charge coverage ratio. In addition, the terms
of the line of credit restrict, among other things, certain investments,
indebtedness, distributions and mergers. Borrowings under the line of credit
are limited to an amount based on a pool of unencumbered assets. Accordingly,
as we acquire additional unencumbered properties, borrowings available under
the line of credit will increase, but may not exceed $250 million. As of
December 31, 1998, borrowings under the line of credit were limited to
approximately $214,000,000, and carried a weighted average interest rate of
6.48%.
The line of credit expires May 31, 2000 and provides for annual extensions
(provided there is no default) for two additional one-year periods upon
notice by the company and consent of the participating banks.
We enter into interest rate swap agreements to modify the interest
characteristics of our outstanding debt. These agreements involve an exchange
of fixed and floating interest payments without the exchange of the
underlying principal amount (the "notional amount").
In September 1998, we entered into an interest rate swap agreement with
BankBoston, N.A. (the "Bank") to hedge our exposure to variable interest
rates associated with our line of credit. Interest paid is calculated at a
fixed interest rate of 5.43% through May 31, 2000 on a notional amount of $50
million and interest received is calculated at one month LIBOR. The net
difference between the interest paid and the interest received is reflected
as an adjustment to interest expense. The fair value of the swap agreement
and changes in the fair value as a result of changes in market interest rates
are not recognized in the financial statements. We are exposed to loss in the
event the Bank is unable to perform under the swap agreement or in the event
one month LIBOR is less than 5.43%.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in fiscal years beginning after June 15, 1999. When
adopted, Statement 133 will require us to recognize all derivatives on the
balance sheet at fair value. Based on the definitions provided in Statement
133, our interest rate swap agreement will be classified as a cash flow
hedge, with changes in the fair value recorded as an adjustment to
comprehensive income, which will be a separate component of shareholders'
equity.
F-13
<PAGE>
6. SECURED NOTES PAYABLE
Secured notes payable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
9% note, due December 2014, secured by 3535/3565 General
Atomics Court, San Diego, CA $ 17,578 $ 18,050
7.75% note, due May 2016, secured by 1102/1124 Columbia
Street, Seattle, WA 20,729 21,267
7.165% note, due January 2014, secured by 1431 Harbor Bay
Parkway, Alameda, CA 8,500 8,500
8.68% note, due December 2006, secured by 100/800/801
Capitola Drive, Durham, NC 12,547 -
7.22% note, due May 2008, secured by 14225 Newbrook Avenue,
Chantilly, VA and 3000/3018 Western Avenue, Seattle, WA 36,326 -
9.125% note due May 2007, with an effective interest rate
of 7.25% (includes unamortized premium of $2,262), secured
by 620 Memorial Drive, Cambridge, MA 20,149 -
------------- -------------
$ 115,829 $ 47,817
------------- -------------
------------- -------------
</TABLE>
All of our secured notes payable, except for the note secured by 1431 Harbor
Bay Parkway, require monthly payments of principal and interest. The note
secured by 1431 Harbor Bay Parkway required monthly payments of interest
through December 31, 1998 and requires both monthly payments of interest and
semi-annual principal payments beginning January 1999.
Future principal payments due on secured notes payable as of December 31,
1998, are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 3,000
2000 2,907
2001 3,145
2002 3,395
2003 3,666
Thereafter 97,454
--------
Subtotal 113,567
Unamortized premium 2,262
--------
$115,829
--------
--------
</TABLE>
F-14
<PAGE>
7. ISSUANCE OF COMMON STOCK
On May 29, 1998, we sold 1,150,000 shares of our common stock to PaineWebber
Incorporated for inclusion in the PaineWebber Equity Trust REIT Series I, a
unit investment trust. The shares were issued at a price of $30.5625 per
share (before discounts and commissions) resulting in aggregate proceeds to
us, net of offering costs of $2.4 million, of approximately $32.7 million.
8. NON-CASH TRANSACTIONS
During 1998, we assumed two secured notes payable in connection with the
acquisition of the following properties (in thousands):
<TABLE>
<CAPTION>
100/800/801 620 Memorial
Capitola Drive Drive
------------------ ------------------
<S> <C> <C>
Purchase price (including closing and
transaction costs) $ 18,387 $ 40,194
Cash paid for the properties 5,755 19,996
------------------ ------------------
Secured notes payable assumed $ 12,632 $ 20,198
------------------ ------------------
------------------ ------------------
</TABLE>
Stock compensation expense in 1997 represents non-cash compensation expense
associated with stock grants and stock options issued to our officers,
directors and certain employees in connection with the Offering (see Note 11).
In connection with the Offering in 1997, all previously outstanding shares of
Series U preferred stock and Series V preferred stock were converted into
shares of common stock (see Note 1). The common stock issued was recorded at
the book value of the Series U preferred stock and the Series V preferred
stock (an aggregate of $27,061,000).
9. PREFERRED STOCK AND EXCESS STOCK
SERIES V CUMULATIVE CONVERTIBLE PREFERRED STOCK
Prior to the Offering, we had 27,500 shares of manditorily redeemable Series
V cumulative convertible preferred stock outstanding. The stated value of
each share was $1,000. In connection with the Offering, the shares were
converted into 1,659,239 shares of common stock. The conversion rate was
computed to provide for an internal rate of return on the stated value of
each share equal to 20%, considering cash received from prior dividends.
F-15
<PAGE>
9. PREFERRED STOCK AND EXCESS STOCK (CONTINUED)
Prior to conversion, Series V preferred stockholders were entitled to
dividends at an annual rate of 10% of the stated value per share during the
first twelve dividend periods or such larger amount as would be payable on an
as converted basis if the Series V preferred stock were converted to common
stock. Dividends were cumulative and payable in quarterly equal installments
on March 31, June 30, September 30, and December 31 of each year. Offering
costs associated with the issuance of the Series V preferred stock in 1996
were deducted from the proceeds of the issuance. Until the conversion of the
Series V preferred stock into shares of common stock in 1997, we accreted the
amount of the offering costs and the difference between the minimum yield
requirement on the Series V preferred stock (20% per annum) and the minimum
dividend payment as a charge to additional paid-in capital.
SERIES T AND SERIES U PREFERRED STOCK
Holders of each of the Series T and Series U preferred stock were entitled to
dividends at an annual rate of 8.5% of the stated value per share. In
connection with the Offering, all of the previously outstanding shares of
Series T preferred stock (12 shares) were redeemed at their stated value
($1,200 in the aggregate). In connection with the Offering, all of the
previously outstanding shares of Series U preferred stock (220 shares) were
converted into an aggregate of 7,354 shares of common stock.
PREFERRED STOCK AND EXCESS STOCK AUTHORIZATIONS
Our charter authorizes the issuance of up to 100,000,000 shares of preferred
stock and 200,000,000 shares of "excess stock" (as defined), none of which
was issued and outstanding at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
We currently are not subject to any material legal proceedings or claims, nor
are we aware of any material legal proceedings or claims being threatened.
F-16
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
POST-RETIREMENT BENEFIT
In 1997, in connection with the Offering, an officer of Alexandria retired.
In connection with the officer's retirement, we agreed to pay a
post-retirement benefit equal to $150,000 for each of the first three years
following the Offering, and $90,000 per year (plus an annual increase of 2%
per year) thereafter for the remainder of the longer of the executive's life
and the life of the executive's spouse as of the date of the agreement. In
1997 and 1996, a post-retirement expense was recorded for past services equal
to $632,000 and $438,000, respectively (pursuant to a prior agreement). As of
December 31, 1998 and 1997, the accrued liability for post-retirement benefit
was $1,110,000 and $1,037,000, respectively. For the years ended December 31,
1998 and 1997, we paid $150,000 and $75,000, respectively, under the
retirement agreement, of which $77,000 and $42,000, respectively, represented
interest.
EMPLOYEE RETIREMENT SAVINGS PLAN
Effective January 1, 1997, we adopted a retirement savings plan pursuant to
Section 401(k) of the Internal Revenue Code ("Code") whereby our employees
may contribute a portion of their compensation to their respective retirement
accounts, in an amount not to exceed the maximum allowed under the Code. The
plan provides that we match the employees' contributions, which amounted to
$89,000 and $36,000, respectively, for the years ended December 31, 1998 and
1997. Employees who participate in the plan are immediately vested in their
contributions and in the matching contributions of the company.
CONCENTRATION OF CREDIT RISK
We maintain our cash and cash equivalents at insured financial institutions.
The combined account balances at each institution periodically exceed FDIC
insurance coverage, and, as a result, there is a concentration of credit risk
related to amounts in excess of FDIC insurance coverage. We believe that the
risk is not significant.
We are dependent on rental income from relatively few tenants in the life
science industry. The inability of any single tenant to make its lease
payments could adversely affect our operations. As of December 31, 1998, we
had 158 leases with a total of 148 tenants, and 24 of our 51 properties were
leased to a single tenant. At December 31, 1998, our three largest tenants
accounted for approximately 18.4% of our aggregate annualized base rent.
We generally do not require collateral or other security from our tenants,
other than security deposits. As of December 31, 1998, we have $6.1 million
in irrevocable letters of credit available from certain tenants as security
deposits for 15 leases.
F-17
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
COMMITMENTS
We are committed to complete the construction of a building and certain
related improvements in San Diego, California at a remaining cost of
approximately $4.9 million under the terms of two leases. In addition, we are
committed to complete the construction of a building and certain related
improvements in Gaithersburg, Maryland at a remaining cost of between $7.8
million and $16.8 million (depending on the level of improvements to the
facility elected by the tenant) under the terms of a lease. Under the terms
of the lease, the tenant's rental rate will be adjusted depending on the
ultimate cost of the improvements.
We are also committed to fund approximately $11.1 million for investments in
limited partnerships and rental properties, including the construction of
tenant improvements under the terms of various leases. Of this amount,
approximately $3.2 million has been set aside in restricted cash accounts to
complete the conversion of existing space into higher rent generic laboratory
space (as well as certain related improvements) at 1102/1124 Columbia Street
and 3000/3018 Western Avenue.
11. STOCK OPTION PLANS AND STOCK GRANTS
We have elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for our employee and director stock options,
stock grants and stock appreciation rights. Under APB 25, because the
exercise price of employee and director stock options we granted equals the
market price of the underlying stock on the date of grant, no compensation
expense has been recognized.
1997 STOCK OPTION PLAN
In connection with the Offering, we adopted a stock option and incentive plan
(the "1997 Stock Option Plan") for the purpose of attracting and retaining
the best personnel, providing for additional incentives, and promoting the
success of the company by providing employees the opportunity to acquire
common stock. Options under our plan have been granted at prices that are
equal to the market value of the stock on the date of grant and expire ten
years after the date of grant. Employee options vest ratably in three annual
installments from the date of grant. Non-employee director options are
exercisable immediately upon the date of grant.
The options outstanding under the 1997 Stock Option Plan expire at various
dates through November 2008. As of December 31, 1998, a total of 379,793
shares were reserved for the granting of future options under the 1997 Stock
Option Plan.
F-18
<PAGE>
11. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED)
1997 STOCK OPTION PLAN (CONTINUED)
Although we have elected to follow APB 25, pro forma information regarding
net income and net income (loss) per share is required by Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation." This information has been determined as if we had accounted
for our employee stock options under the fair value method under Statement
123. The fair value of the options issued under the 1997 Stock Option Plan
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------
<S> <C> <C>
Risk-free interest rate 4.66% 5.82%
Dividend yield 5.2% 5.5%
Volatility factor of the expected market price 24.5% 28.7%
Weighted average expected life of the options 5 years 5 years
</TABLE>
For purposes of the following pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting periods (in
thousands, except per share information):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
1998 1997
--------------------------------------
<S> <C> <C>
Pro forma net income (loss) $ 18,299 $ (3,096)
Pro forma net income (loss) per share:
- Basic $ 1.51 $ (0.38)
- Diluted $ 1.49 $ (0.38)
</TABLE>
F-19
<PAGE>
11. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED)
1997 STOCK OPTION PLAN (CONTINUED)
A summary of the stock option activity under our 1997 Stock Option Plan, and
related information for the years ended December 31, 1998 and December 31,
1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 701,000 $ 20.80 - $ -
Granted 290,500 31.00 701,000 20.80
Exercised (57,333) 20.00 - -
Forfeited (112,667) 20.64 - -
--------------------------- ---------------------------
Outstanding-end of year 821,500 $ 24.49 701,000 $ 20.80
--------------------------- ---------------------------
--------------------------- ---------------------------
Exercisable at end of year 252,834 $ 23.33 30,000 $ 20.00
--------------------------- ---------------------------
--------------------------- ---------------------------
Weighted-average fair value of
options granted $ 4.88 $ 2.93
-------------- --------------
-------------- --------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 range from
$20.00 to $32.94. The weighted average contractual life of options
outstanding is 8.8 years.
PRIOR STOCK OPTION PLAN
Prior to the Offering, we had a ten-year incentive and nonqualified stock
option plan for certain of our employees and non-employee directors.
Under this prior plan, holders of options to purchase common stock of
Holdings granted under stock option plans of Holdings ("Holdings Stock
Options") were eligible, under certain circumstances (including the
Offering), to receive substitute stock options of Alexandria in substitution
for previously granted Holdings Stock Options. As such, in connection with
the Offering, our officers, directors and certain employees received
substitute stock options to purchase 57,000 shares of our common stock under
the prior plan. These substitute stock options were exercised in connection
with the Offering at a nominal exercise price. No further stock options were
issued under the prior plan. In connection with the issuance of the
substitute stock options, we recognized $1,187,000 of stock compensation
expense in 1997.
F-20
<PAGE>
11. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED)
PRIOR STOCK OPTION PLAN (CONTINUED)
No compensation expense was recorded with respect to Holdings Stock Options
issued during the year ended December 31, 1996 since they were issued with an
exercise price equal to the then fair market value of the Holdings common
stock.
STOCK GRANTS
In connection with the Offering, we granted our officers, directors and
certain employees an aggregate of 152,615 shares of common stock. As a result
of the grants, we recorded stock compensation expense of $3,052,000.
12. PURCHASE OF ACQUISITION LLC
During January 1997, we assigned our right to purchase three Life Science
Facilities to an entity (the "Acquisition LLC") owned by affiliates of
PaineWebber Incorporated ("PaineWebber"), the lead managing underwriter of
the Offering. In January 1997, the Acquisition LLC acquired the three Life
Science Facilities for $51,871,000 from unaffiliated sellers. In connection
with the Offering, we acquired 100% of the membership interests in the
Acquisition LLC from the PaineWebber affiliates.
The purchase price we paid for the membership interests ($58,844,000)
exceeded the cost incurred by the Acquisition LLC to acquire the properties
($51,871,000). The excess of this purchase price over the cost of the
Acquisition LLC to acquire the properties ($6,973,000) is reflected as a
financing cost in 1997 in our consolidated statement of operations.
13. RELATED PARTY TRANSACTIONS
During 1998, 1997 and 1996, we incurred $2,762,000, $3,358,000 and
$1,708,000, respectively, for legal services provided by a firm of which a
minority shareholder of Holdings is a member.
During 1998, 1997 and 1996, we were reimbursed $270,000, $21,000 and $18,000,
respectively, for payroll, accounting and office space incurred on behalf of
Holdings.
F-21
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of consolidated financial information on a quarterly
basis for 1998 and 1997:
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH
---------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
- ----
Revenues $ 11,696 $ 15,160 $ 15,811 $ 18,349
Net income $ 4,635 $ 4,724 $ 5,117 $ 4,927
Net income per share:
- Basic $ 0.41 $ 0.40 $ 0.41 $ 0.39
- Diluted $ 0.40 $ 0.39 $ 0.40 $ 0.39
1997
- ----
Revenues $ 7,161 $ 7,743 $ 9,677 $ 10,265
Net (loss) income $ (143) $ (10,989) $ 4,126 $ 4,209
Net(loss) income per pro forma share
(restated for the first and second
quarters):
- Basic $ (0.04) $ (1.80) $ 0.36 $ 0.37
- Diluted $ (0.04) $ (1.80) $ 0.36 $ 0.36
</TABLE>
15. SUBSEQUENT EVENT
On February 23, 1999, we completed a follow-on offering of 1,150,000 shares
of common stock (including the shares issued upon exercise of the
underwriters' over-allotment option). The shares were issued at a price of
$28.125 per share resulting in aggregate proceeds, net of underwriters'
discount and commissions, advisory fees and offering costs, of approximately
$29.6 million.
F-22
<PAGE>
<TABLE>
<CAPTION>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
SCHEDULE III
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE OF RENTAL PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
INITIAL COSTS COSTS
------------------------------- CAPITALIZED
SQUARE BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME FOOTAGE LAND IMPROVEMENTS ACQUISITION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10933 N. Torrey Pines Road 107,753 $ 3,903 $ 5,960 $ 1,051
11099 N. Torrey Pines Road 86,962 2,663 10,649 1,629
3535 General Atomics Court 76,084 2,651 18,046 152
3565 General Atomics Court 43,600 1,227 9,554 -
11025 Roselle Street 18,173 463 1,840 691
4757 Nexus Centre Drive 67,050 2,548 13,648 -
6166 Nancy Ridge Drive 29,333 733 2,273 1,708
10505 Roselle Street 16,000 443 1,699 42
3770 Tansy Street 13,000 650 1,375 65
1311 Harbor Bay Parkway 27,745 775 1,917 139
1401 Harbor Bay Parkway 47,777 1,200 3,880 35
1431 Harbor Bay Parkway 68,711 1,800 9,731 86
1201 Harbor Bay Parkway 61,015 1,507 5,357 880
819/863 Mitten Road 150,150 4,751 12,612 79
1102/1124 Columbia Street 210,163 6,566 23,528 5,615
3005 First Avenue 70,647 2,119 11,275 752
3000/3018 Western Avenue 47,746 1,432 7,497 2,499
150/154 Technology Parkway 37,080 370 4,191 28
100 Capitola Drive 66,861 334 5,795 100
800/801 Capitola Drive 119,916 570 11,688 398
5 Triangle Drive 32,120 161 3,410 90
1413 Research Boulevard 105,000 2,317 9,611 373
300 Professional Drive 47,558 871 5,362 57
401 Professional Drive 62,739 1,129 6,940 20
25/35/45 West Watkins Mill Road 138,938 3,281 14,416 50
1550 East Guide Drive 44,500 775 4,122 167
1330 Piccard Drive 131,511 2,800 11,533 196
708 Quince Orchard Road 49,225 1,267 3,031 4,526
940 Clopper Road 44,464 900 2,732 306
1401 Research Boulevard 48,800 1,533 4,391 219
1500 East Gude Drive 45,989 690 3,609 120
3 & 3 1/2 Taft Court 24,460 367 1,949 246
8000/9000/10000 Virginia Manor Road 188,379 - 13,679 28
10150 Old Columbia Road 75,500 1,510 5,210 1,499
<CAPTION>
TOTAL COSTS
---------------------------------------------
BUILDINGS AND ACCUMULATED YEAR
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES BUILT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10933 N. Torrey Pines Road $ 3,903 $ 7,011 $ 10,914 $ 1,228 $ - 1971/1994
11099 N. Torrey Pines Road 2,663 12,278 14,941 1,959 - 1986/1996
3535 General Atomics Court 2,651 18,198 20,849 2,575 11,557 1986/1991
3565 General Atomics Court 1,227 9,554 10,781 1,287 6,021 1986/1991
11025 Roselle Street 463 2,531 2,994 96 - 1983
4757 Nexus Centre Drive 2,548 13,648 16,196 616 - 1989
6166 Nancy Ridge Drive 733 3,981 4,714 67 - 1997
10505 Roselle Street 443 1,741 2,184 20 - late 1970's
3770 Tansy Street 650 1,440 2,090 13 - 1978
1311 Harbor Bay Parkway 775 2,056 2,831 110 - 1984
1401 Harbor Bay Parkway 1,200 3,915 5,115 215 - 1986/1994
1431 Harbor Bay Parkway 1,800 9,817 11,617 529 8,500 1985/1994
1201 Harbor Bay Parkway 1,507 6,237 7,744 191 - 1983
819/863 Mitten Road 4,751 12,691 17,442 292 - 1962/1997
1102/1124 Columbia Street 6,566 29,143 35,709 1,749 20,729 1975/1997
3005 First Avenue 2,119 12,027 14,146 81 - 1980/1990
3000/3018 Western Avenue 1,432 9,996 11,428 215 36,326 1929/1990
150/154 Technology Parkway 370 4,219 4,589 75 - 1976/1985/1993
100 Capitola Drive 334 5,895 6,229 161 - 1986
800/801 Capitola Drive 570 12,086 12,656 279 12,547 1985
5 Triangle Drive 161 3,500 3,661 48 - 1981
1413 Research Boulevard 2,317 9,984 12,301 626 - 1967/1996
300 Professional Drive 871 5,419 6,290 321 - 1989
401 Professional Drive 1,129 6,960 8,089 424 - 1987
25/35/45 West Watkins Mill Road 3,281 14,466 17,747 842 - 1989/1997
1550 East Guide Drive 775 4,289 5,064 186 - 1981/1995
1330 Piccard Drive 2,800 11,729 14,529 487 - 1978/1994
708 Quince Orchard Road 1,267 7,557 8,824 449 - 1982/1997
940 Clopper Road 900 3,038 3,938 118 - 1989
1401 Research Boulevard 1,533 4,610 6,143 168 - 1966
1500 East Gude Drive 690 3,729 4,419 121 - 1981/1986
3 & 3 1/2 Taft Court 367 2,195 2,562 61 - 1981/1986
8000/9000/10000 Virginia Manor Road - 13,707 13,707 362 - 1990
10150 Old Columbia Road 1,510 6,709 8,219 127 - 1983/1997
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
ALEXANDRIA REAL ESTATE EQUITIES, INC. AND SUBSIDIARIES
SCHEDULE III (CONTINUED)
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE OF RENTAL PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
COSTS
INITIAL COSTS CAPITALIZED
-------------------------------
SQUARE BUILDINGS AND SUBSEQUENT TO
PROPERTY NAME FOOTAGE LAND IMPROVEMENTS ACQUISITION
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
19 Firstfield Road 25,175 376 3,192 42
15020 Shady Grove Road 41,062 840 3,115 34
2001 Aliceanna Street 179,397 1,848 6,120 108
50 West Watkins Mill Road 57,410 859 4,149 39
14225 Newbrook Drive 248,186 4,800 27,639 356
5100/5110 Campus Drive 42,782 654 4,234 38
702 Electronic Drive 40,000 600 3,110 3,062
215 College Road 110,666 1,943 9,764 63
170 Williams Drive 37,000 740 4,506 54
100 Phillips Parkway 80,000 1,840 2,298 139
279 Princeton Road 42,600 1,075 1,438 7
79/96 Charlestown Navy Yard 24,940 - 6,247 13
280 Pond Street 24,867 622 3,053 38
60 Westview Street 39,909 960 3,032 32
377 Plantation Street 92,711 2,351 14,173 6
620 Memorial Drive 96,500 2,440 37,754 53
------------------------------------------------------------
3,588,154 $ 76,254 $ 386,334 $ 27,930
------------------------------------------------------------
------------------------------------------------------------
<CAPTION>
TOTAL COSTS COSTS
--------------------------------------------- CAPITALIZED
BUILDINGS AND ACCUMULATED YEAR
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION(1) ENCUMBRANCES BUILT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
19 Firstfield Road 376 3,234 3,610 58 - 1974
15020 Shady Grove Road 840 3,149 3,989 56 - 1987
2001 Aliceanna Street 1,848 6,228 8,076 63 - early 1950's
50 West Watkins Mill Road 859 4,188 5,047 34 - 1988
14225 Newbrook Drive 4,800 27,995 32,795 1,171 - 1992
5100/5110 Campus Drive 654 4,272 4,926 90 - 1989
702 Electronic Drive 600 6,172 6,772 197 - 1983/1998
215 College Road 1,943 9,827 11,770 253 - 1968/1974/1984
170 Williams Drive 740 4,560 5,300 72 - 1982/1994
100 Phillips Parkway 1,840 2,437 4,277 - - late 1960's
279 Princeton Road 1,075 1,445 2,520 - - 1984
79/96 Charlestown Navy Yard - 6,260 6,260 157 - 1880/1991
280 Pond Street 622 3,091 3,713 59 - 1960's
60 Westview Street 960 3,064 4,024 33 - 1975
377 Plantation Street 2,351 14,179 16,530 109 - 1993
620 Memorial Drive 2,440 37,807 40,247 161 20,149 1920's/1997
----------------------------------------------------------------------------
$ 76,254 $ 414,264 $ 490,518 $ 18,611 $ 115,829
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
(1) The depreciable life for buildings and improvements ranges from 30 to 40
years, 20 years for land improvements, and the term of the respective lease
for tenant improvement.
F-24
<PAGE>
A summary of activity of consolidated rental properties and accumulated
depreciation is as follows (in thousands):
<TABLE>
<CAPTION>
RENTAL PROPERTIES
DECEMBER 31
-------------------------------------------------------
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 235,880 $ 151,154 $ 56,254
Improvements 21,218 3,566 1,578
Acquisition of land, building and improvements 233,420 81,160 93,322
-------------------------------------------------------
Balance at end of period $ 490,518 $ 235,880 $ 151,154
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
DECEMBER 31
-------------------------------------------------------
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 8,804 $ 4,194 $ 1,901
Depreciation expense 9,807 4,610 2,293
-------------------------------------------------------
Balance at end of period $ 18,611 $ 8,804 $ 4,194
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<S> <C>
3.1++ Articles of Amendment and Restatement of Alexandria
3.2++ Certificate of Correction of Alexandria
3.3++ Amended and Restated Bylaws of Alexandria
3.4 Amendment to Amended and Restated Bylaws of Alexandria
4.1+ Specimen Certificate representing shares of Common Stock
10.1* Second Amendment to the Executive Employment Agreement and General and
Special Release by and between Alexandria and Jerry M. Sudarsky, dated
May 30, 1997
10.2* Amended and Restated Executive Employment Agreement by and between
Alexandria and Joel S. Marcus, dated January 5, 1994, and amended as of
March 28, 1997
10.3+++ Executive Employment Agreement between Alexandria and James H.
Richardson, dated July 31, 1997
10.4*** Amended and Restated Executive Employment Agreement between Alexandria
and Peter J. Nelson, dated May 20, 1998
10.5 Severance Agreement between Alexandria and Lynn Anne Shapiro, dated
January 1, 1999
10.6 Executive Employment Agreement between Alexandria and Vincent R.
Ciruzzi, dated April 20, 1998
10.7* Registration Rights Agreement by and between Alexandria and Health
Science Properties Holding Corporation, dated June 2, 1997
10.8** Amended and Restated 1997 Stock Award and Incentive Plan of Alexandria
10.9+ Form of Non-Employee Director Stock Option Agreement for use in
connection with options issued pursuant to the 1997 Stock Option Plan
10.10+ Form of Incentive Stock Option Agreement for use in connection with
Options issued pursuant to the 1997 Stock Option Plan
10.11+ Form of Nonqualified Stock Option Agreement for use in connection with
Options issued pursuant to the 1997 Stock Option Plan
10.12*+ First Amended and Restated Revolving Loan Agreement among Alexandria,
the Operating Partnership, ARE-QRS Corp., ARE Acquisitions, LLC, the
Other Borrowers Then or Thereafter a Party Thereto, the Banks therein
named, the Other Banks Which May Become Parties Thereto, and
BankBoston, N.A., dated August 4, 1998
10.13 First Amendment to First Amended and Restated Revolving Loan Agreement
among Alexandria, the Operating Partnership, ARE-QRS Corp., ARE
Acquisitions, LLC, the Other Borrowers Then or Thereafter a Party
Thereto, the Banks therein named and BankBoston, N.A., dated October
21, 1998
10.14 Form of International Swap Dealers Association, Inc. Master Agreement
and related Schedule and Confirmation between BankBoston, N.A. and
Alexandria, dated as of August 31, 1998
12.1 Computation of Consolidated Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
21.1 List of Subsidiaries of Alexandria
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
</TABLE>
- --------------
+ Incorporated by reference to Alexandria's Registration Statement on Form
S-11 (No. 333-23545), declared effective by the Commission on May 27, 1997
++ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended June 30, 1997, filed with the Commission on August 14,
1997
+++ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, filed with the Commission on November
14, 1997
Ex-1
<PAGE>
* Incorporated by reference to Alexandria's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on March 31,
1998
** Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended June 30, 1998, filed with the Commission on August 14,
1998
*** Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q/A
for the period ended June 30, 1998, filed with the Commission on August 18,
1998
*+ Incorporated by reference to Alexandria's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, filed with the Commission on November
13, 1998
Ex-2
<PAGE>
EXHIBIT 3.4
RESOLUTION OF THE BOARD OF DIRECTORS OF
ALEXANDRIA REAL ESTATE EQUITIES, INC.
ADOPTED 11/24/98
AMENDMENT OF BYLAWS
RESOLVED, that Article II, Section 2, of the Corporation's
Amended and Restated Bylaws be, and it hereby is, amended in its
entirety by deleting such section and replacing it with the
following:
"Section 2. ANNUAL MEETING. An annual meeting of
the stockholders for the election of directors and the
transaction of any business within the powers of the
Corporation shall be held on a date and at the time set by the
Board of Directors during the 30-day period beginning on the
fifteenth (15th) day of April and ending on the fourteenth
(14th) day of May in each year."
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EXHIBIT 10.5
SEVERANCE AGREEMENT
THIS AGREEMENT, dated January 1, 1999, (the "Effective Date")
is made by and between Alexandria Real Estate Equities, Inc., a Maryland
corporation (the "Company"), and Lynn A. Shapiro ("Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board of Directors has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive, who
shall serve as General Counsel and Assistant Secretary of the Company.
NOW, THEREFORE, the Company and Executive hereby agree as
follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall commence on the Effective Date
and shall continue in effect through the first anniversary of the Effective
Date (the "Term"); PROVIDED, HOWEVER, that on each anniversary of the
Effective Date during the Term, the Term shall automatically be extended for
one additional year unless, not later than 90 days prior to any such
anniversary, the Company or Executive shall have given written notice not to
extend the Term.
2. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
If Executive's employment shall be terminated for any reason
during the Term, the Company shall pay Executive's full salary to Executive
accrued through the date of Executive's termination of employment (the "Date
of Termination") at the rate in effect immediately prior to the Date of
Termination.
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3. SEVERANCE PAYMENTS.
If Executive's employment is terminated by the Company other
than for Cause (as defined below), then the Company shall pay Executive a
severance payment equal to nine (9) months ("Severance Period") of
Executive's annualized base salary ("Severance Payments"), in addition to any
payments to which Executive is entitled under Section 2 hereof. Such
Severance Payments shall be payable in substantially equal semimonthly
installments during the Severance Period in accordance with the standard
policies of the Company in existence from time-to-time; provided, that if
such termination is within six months following a Change in Control (as
defined below), the Company shall pay Executive such Severance Payment in a
lump sum within sixty (60) days following a Change in Control. In addition,
if Executive's employment is terminated by the Company other than for Cause
within six months following a Change in Control, the vesting of any options
held by Executive to purchase shares of stock of the Company shall
immediately accelerate upon such termination following a Change in Control.
Executive shall not be entitled to receive a Severance Payment
hereunder if she voluntarily terminates her employment or is terminated by
reason of death or disability or for Cause.
3.1 CAUSE. For purposes of this Agreement, "Cause" shall mean
the following:
(i) Executive's Material breach, repudiation or failure to
comply with or perform any of the terms of this Agreement,
any of Executive's duties, or any of the Company's policies
or procedures (including without limitation any such
policies or procedures relating to conflicts of interests
or standards of business conduct) or deliberate
interference with the compliance by any other employee of
the Company with any of the foregoing;
(ii) the conviction of Executive for, or pleading by Executive
of no contest (or similar plea) to, fraud, embezzlement,
misappropriation of assets, malicious mischief, or any
felony, other than a crime for which vicarious liability is
imposed upon Executive solely by reason of Executive's
position with the Company and not by reason of Executive's
conduct; or
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(iii) any other act, omission, event or condition constituting
cause for the discharge of any employee under applicable
law.
Before terminating the Agreement for Cause, the Company first
shall have given Executive written notice specifying the nature of the
breach, repudiation or failure to comply and thirty (30) days thereafter in
which to cure such breach, repudiation or failure to comply, and Executive
shall have failed to cure. For purposes of this Section 3, "Material" shall
mean a breach, repudiation or failure that the Board determines has resulted
or could result in material injury to the Company.
3.2 CHANGE IN CONTROL for purposes of this agreement, a
"Change in Control" shall be deemed to have occurred if:
(i) Any Person, as such term is used in section 3(a)(9)
of the Securities Exchange Act of 1934, as amended from time-to-time (the
"Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof,
(other than (A) the Company or any of its subsidiaries, (B) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its affiliates, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, (D) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange
Act) is or becomes the Beneficial Owner, as such term is defined in Rule
13d-3 under the Exchange Act, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its affiliates other
than in connection with the acquisition by the Company or its affiliates of a
business) representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; or
(ii) The following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the
Company's stockholders was approved or recommended
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by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment, election
or nomination for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of
the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any subsidiary of the Company, at
least seventy-five percent (75%) of the combined voting power of the
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (B) a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its affiliates other than in connection with the
acquisition by the Company or its affiliates of a business) representing
twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities; or
(iv) The stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets, other than a sale or disposition by the Company
of all or substantially all of the Company's assets to an entity, at least
seventy-five (75%) of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially the same
proportions as their ownership of the Company immediately prior to such sale.
4. OFFSET.
Although Executive shall not be required to mitigate damages
under this Agreement by seeking other comparable employment or otherwise, the
amount of any payment or benefit provided for in this Agreement shall be
reduced by any compensation earned by or provided to Executive as the result
of employment by an employer other than the Company prior to the expiration
of the Term.
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5. NONCOMPETITION.
During the Term, including the period, if any, with respect to
which Executive shall be entitled to Severance Payments, Executive shall not
engage in any activity that is or may be competitive with the business of the
Company, directly or indirectly, whether or not for compensation, including,
but not limited to, providing services similar to those provided by the
Company; offering or soliciting or accepting an offer, to provide such
services or taking any action to form, or become employed by, a firm or
business to provide such services.
6. MISCELLANEOUS.
6.1. CONFIDENTIALITY. Without limiting the scope of the
Agreement Regarding Proprietary Information between the Parties, dated as of
May 13, 1998 (the "Proprietary Information Agreement"), Executive agrees that
all confidential and proprietary information relating to the business of the
Company shall be kept and treated as confidential both during and after the
Term of this Agreement, except as may be permitted in writing by the Board or
as such information is within the public domain or comes within the public
domain without any breach of this Agreement.
6.2. WAIVER. The waiver of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach of the same or other provision hereof.
6.3. ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
provided herein, this Agreement (together with the Proprietary Information
Agreement and any other agreements and plans referred to herein) represents
the entire understanding between Executive and the Company with respect to
the subject matter hereof, and this Agreement supersedes any and all prior
understandings, agreements, plans and negotiations, whether written or oral,
with respect to the subject matter hereof, including without limitation any
understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Executive from the
Company. All modifications to this Agreement must be in writing and signed
by the party against whom enforcement of such modification is sought.
6.4. NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be given by facsimile or
first-class mail,
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certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a facsimile to the respective persons named below:
If to The Company: Alexandria Real Estate Equities, Inc.
135 North Los Robles Avenue, Suite 250
Pasadena, CA 91101
Phone: (626) 578-0777
Facsimile: (626) 578-0770
Attn: Joel S. Marcus, CEO
If to Executive: Lynn A. Shapiro
22 Bermuda Court
Manhattan Beach, CA 90266
Phone: (310) 546-7920
6.5. HEADINGS. The Paragraph headings herein are intended
for reference only and shall not determine the construction or interpretation
of this Agreement.
6.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to its principles of conflicts of laws.
6.7. ARBITRATION. Any dispute arising out of or relating to
this Agreement that cannot be settled by good faith negotiation between the
Parties shall be submitted to ENDISPUTE for final and binding arbitration
pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference,
which arbitration shall take place in Los Angeles, California and shall be
the exclusive remedy of the Parties hereto. The resulting arbitration shall
be deemed a final order of a court having jurisdiction over the subject
matter, shall not be appealable, and shall be enforceable in any court of
competent jurisdiction. Submission to arbitration shall not preclude the
right of any party hereto involved in a dispute regarding this Agreement
(each a "Disputing Party" and collectively, the "Disputing Parties") to
institute proceedings at law or in equity for injunctive or other relief
pending the arbitration of a matter subject to arbitration pursuant to this
Agreement. Any documentation and information submitted by any party in the
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arbitration proceeding shall be kept strictly confidential by the Parties and
the arbitrator.
In addition to any other relief or award granted by the
arbitrator to either Disputing Party, the arbitrator shall determine the
extent to which each Disputing Party has prevailed as to the material issues
raised in the arbitration, and, based upon such determination, shall
apportion to each Disputing Party its ratable share of (i) the Disputing
Parties' reasonable attorneys' fees and other costs reasonably incurred in
the arbitration, (ii) the expense of the arbitrator, and (iii) all other
expenses of the arbitration. The arbitrator shall make such determination and
apportionment whether or not the dispute proceeds to a final award.
6.8. SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
6.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one and the
same Agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement.
The Company:
ALEXANDRIA REAL ESTATE
EQUITIES, INC.
a Maryland corporation
By: /s/ JOEL S. MARCUS
-------------------------------------
Joel S. Marcus
Chief Executive Officer
Date: May [ ], 1998
EXECUTIVE:
/s/ LYNN ANNE SHAPIRO
-------------------------------------
Lynn A. Shapiro
Date: January 1, 1999
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EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into as of this 20th day of April, 1998, effective as of the 1st
day of January, 1998 (the latter date shall be referred to as the "Effective
Date"), by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland
corporation ("Corporation"), and VINCENT R. CIRUZZI, an individual
("Officer") (hereinafter, Corporation and Officer will be referred to
collectively as the "Parties").
RECITAL
WHEREAS, Corporation desires to employ Officer as its Vice
President and Director of Construction and Capital Improvements, and Officer
is willing to accept such employment by Corporation, on the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereto agree as
follows:
1. POSITION AND DUTIES; LOCATION.
During the Term (as defined below) of this Agreement, Officer
agrees to be employed by and to serve Corporation as its Vice President and
Director of Construction and Capital Improvements. Corporation agrees to
employ and retain Officer in such capacities. Officer shall devote such of
his full business time, energy, and skill to the affairs of Corporation as
shall be necessary to perform the duties of such positions. Officer shall
report to the Chief Executive Officer of the Corporation or such other
officer as the Chief Executive Officer shall direct with the approval of the
Board of Directors of the Corporation (the "Board").
2. TERM OF EMPLOYMENT.
The Term of this Agreement shall commence on the Effective Date
and shall continue until December 31, 1998 (the "Term");
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PROVIDED, HOWEVER, that on December 31, 1998, and on each anniversary
thereof, the Term of this Agreement shall automatically be extended for one
(1) additional year unless, not later than ninety (90) days prior to December
31, 1998 or such anniversary thereof, either party shall have given written
notice to the other that it does not wish to extend the Term of the
Agreement. If Officer's employment hereunder shall terminate by reason of
the expiration of the Term (including any extensions thereof), the date of
such termination shall be referred to as the "Termination Date."
3. COMPENSATION, BENEFITS AND REIMBURSEMENT.
3.1. BASE SALARY. During the Term of this Agreement and
subject to the terms and conditions set forth herein, Corporation agrees to
pay to Officer an initial annual "Base Salary" of One Hundred Five Thousand
Dollars ($105,000), or such other amount as may from time-to-time be
determined by Corporation. Unless otherwise agreed in writing by Officer
and Corporation, the Base Salary shall be payable in substantially equal
semimonthly installments in accordance with the standard policies of
Corporation in existence from time-to-time.
3.2. ADJUSTMENTS IN BASE SALARY. Officer's Base Salary shall
be reviewed for the possibility of adjustments no less frequently than on
each anniversary of the Effective Date during the Term of this Agreement.
3.3. DISCRETIONARY BONUS. If Officer is in good standing, as
finally determined by the Chief Executive Officer with the concurrence of the
Board, Officer shall be eligible to receive a discretionary bonus for each
fiscal year of Corporation during the Term of this Agreement, with the actual
amount of any such bonus to be determined by the Chief Executive Officer with
the concurrence of the Board (or a committee of the Board) based upon an
evaluation of Officer's and Corporation's performance during such year and
such other factors and conditions as the Board (or a committee of the Board)
deems relevant.
3.4. STOCK OPTIONS. Subject to the determination of the
Board (or a committee of the Board) and pursuant to the terms of a stock
option agreement issued under a stock option plan of the Corporation,
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Corporation may grant to Officer the right and option to purchase shares of
the authorized but unissued Common Stock of Corporation on the terms and
conditions set forth therein. Nothing contained herein shall be construed to
increase or decrease Officer's compensation and/or benefits in existence at
the time the options are granted.
3.5. ADDITIONAL BENEFITS. Officer shall be entitled to the
following additional benefits under this Agreement:
(a) OFFICER BENEFITS. During the Term of this Agreement,
Officer shall be eligible to participate in Corporation's existing medical
plan and 401(k) plan and such existing stock incentive plans available to
senior management of the Corporation in accordance with the terms and
conditions of such plans. For purposes of establishing the length of service
under any benefit plans or programs of Corporation, Officer's employment with
the Corporation will be deemed to have commenced on September 9, 1996.
During the Term of this Agreement, Corporation shall pay one hundred percent
(100%) of Officer's medical premiums under Corporation's medical plan and any
other welfare benefit plans for which Officer qualifies that are in existence
from time-to-time.
(b) VACATION. During the Term of this Agreement, Officer
shall be entitled to up to three (3) weeks paid vacation annualized during
each calendar year during the Term of this Agreement. Limits on accrual of
vacation not taken during any calendar year shall be subject to and in
accordance with Corporation's existing policy.
(c) REIMBURSEMENT FOR EXPENSES. During the Term of this
Agreement, Corporation shall reimburse Officer for all reasonable
out-of-pocket business and/or entertainment expenses incurred by Officer for
the purpose of and in connection with the performance of his services
pursuant to this Agreement and in accordance with any existing travel and
expense reimbursement policies of Corporation. Officer shall be entitled to
such reimbursement upon the presentation by Officer to Corporation of
vouchers or other statements itemizing such expenses in reasonable detail
consistent with Corporation's policies. In addition, Officer shall be
entitled to reimbursement for (i) dues and membership fees in professional
organizations and/or industry associations in which
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Officer is currently a member or becomes a member, and (ii) appropriate
industry seminars and mandatory continuing education.
(d) WITHHOLDING. Compensation and benefits paid to Officer
under this Agreement shall be subject to applicable federal, state and local
wage deductions and other deductions required by law.
4. TERMINATION OF THE AGREEMENT.
4.1. TERMINATION WITHOUT CAUSE. In the event that
Corporation terminates this Agreement without Cause (as defined below),
Officer shall be entitled to a severance payment equal to seven and one half
(71/2) months ("Severance Period") of Officer's annualized Base Salary
("Severance Payment"). Such Severance Payment shall be payable in monthly
installments during the Severance Period, in accordance with the provisions
set forth in Paragraph 3.1 above. Officer shall not be entitled to receive a
Severance Payment hereunder if he voluntarily terminates his employment or is
terminated by reason of death or disability or for Cause.
4.2. TERMINATION FOR CAUSE. Prior to the Termination Date,
the Corporation shall have the right to terminate this Agreement for Cause
immediately after written notice has been delivered to Officer, which notice
shall specify the reason for and the effective date of such Termination. For
purposes of this Agreement, "Cause" shall mean the following:
(i) Officer's Material breach, repudiation or failure to comply with
or perform any of the terms of this Agreement, any of Officer's
duties, or any of Corporation's policies or procedures (including
without limitation any such policies or procedures relating to
conflicts of interests or standards of business conduct) or
deliberate interference with the compliance by any other employee
of Corporation with any of the foregoing;
(ii) The conviction of Officer for, or pleading by Officer of no
contest (or similar plea) to, fraud, embezzlement,
misappropriation of assets, malicious mischief, or any felony,
other
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than a crime for which vicarious liability is imposed upon
Officer solely by reason of Officer's position with Corporation
and not by reason of Officer's conduct;
(iii) Any other act, omission, event or condition constituting cause for
the discharge of any employee under applicable law.
Before terminating the Agreement pursuant to this Paragraph
4.2(i), Corporation first shall have given Officer written notice specifying
the nature of the breach, repudiation or failure to comply and thirty (30)
days thereafter in which to cure such breach, repudiation or failure to
comply, and Officer shall have failed to cure. For purposes of this
Paragraph 4.2, "Material" shall mean a breach, repudiation or failure that
the Board determines has resulted in material injury to Corporation.
4.3. OFFSET. Although Officer shall not be required to
mitigate damages under this Agreement by seeking other comparable employment
or otherwise, the amount of any payment or benefit provided for in this
Agreement shall be reduced by any compensation earned by or provided to
Officer as the result of employment by an employer other than Corporation
prior to the expiration of the Term of this Agreement.
5. NONCOMPETITION.
During the Term of this Agreement, including the period, if
any, with respect to which Officer shall be entitled to Severance Payments,
Officer shall not engage in any activity that is or may be competitive with
the business of Corporation, directly or indirectly, whether or not for
compensation, including, but not limited to, providing services similar to
those provided by the Company; offering or soliciting or accepting an offer,
to provide such services or taking any action to form, or become employed by,
a firm or business to provide such services.
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6. MISCELLANEOUS.
6.1. CONFIDENTIALITY. Without limiting the scope of the
Agreement Regarding Proprietary Information between the Parties, dated as of
December 30, 1997 (the "Proprietary Information Agreement"), Officer agrees
that all confidential and proprietary information relating to the business of
Corporation shall be kept and treated as confidential both during and after
the Term of this Agreement, except as may be permitted in writing by the
Board or as such information is within the public domain or comes within the
public domain without any breach of this Agreement.
6.2. WAIVER. The waiver of the breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach of the same or other provision hereof.
6.3. ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise
provided herein, this Agreement (together with the Proprietary Information
Agreement and any other agreements and plans referred to herein) represents
the entire understanding between the Parties with respect to the subject
matter hereof, and this Agreement supersedes any and all prior
understandings, agreements, plans and negotiations, whether written or oral,
with respect to the subject matter hereof, including without limitation any
understandings, agreements or obligations respecting any past or future
compensation, bonuses, reimbursements or other payments to Officer from
Corporation. All modifications to this Agreement must be in writing and
signed by the party against whom enforcement of such modification is sought.
6.4. NOTICES. All notices and other communications under
this Agreement shall be in writing and shall be given by facsimile or
first-class mail, certified or registered with return receipt requested, and
shall be deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of a facsimile to the respective
persons named below:
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If to Corporation: Alexandria Real Estate Equities, Inc.
135 North Los Robles Avenue, Suite 250
Pasadena, CA 91101
Phone: (626) 578-0777
Facsimile: (626) 578-0770
Attn: Joel S. Marcus, CEO
If to Officer: Vincent Ciruzzi
11914 Briarleaf Way
San Diego, California 92128
Phone: (619) 486-8607
6.5. HEADINGS. The Paragraph headings herein are intended
for reference only and shall not determine the construction or interpretation
of this Agreement.
6.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to its principles of conflicts of laws.
6.7. ARBITRATION. Any dispute arising out of or relating to
this Agreement that cannot be settled by good faith negotiation between the
Parties shall be submitted to ENDISPUTE for final and binding arbitration
pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference,
which arbitration shall take place in Los Angeles, California and shall be
the exclusive remedy of the Parties hereto. The resulting arbitration shall
be deemed a final order of a court having jurisdiction over the subject
matter, shall not be appealable, and shall be enforceable in any court of
competent jurisdiction. Submission to arbitration shall not preclude the
right of any party hereto involved in a dispute regarding this Agreement
(each a "Disputing Party" and collectively, the "Disputing Parties") to
institute proceedings at law or in equity for injunctive or other relief
pending the arbitration of a matter subject to arbitration pursuant to this
Agreement. Any documentation and information submitted by any party in the
arbitration proceeding shall be kept strictly confidential by the Parties and
the arbitrator.
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In addition to any other relief or award granted by the
arbitrator to either Disputing Party, the arbitrator shall determine the
extent to which each Disputing Party has prevailed as to the material issues
raised in the arbitration, and, based upon such determination, shall
apportion to each Disputing Party its ratable share of (i) the Disputing
Parties' reasonable attorneys' fees and other costs reasonably incurred in
the arbitration, (ii) the expense of the arbitrator, and (iii) all other
expenses of the arbitration. The arbitrator shall make such determination and
apportionment whether or not the dispute proceeds to a final award.
6.8. SEVERABILITY. Should a court or other body of competent
jurisdiction determine that any provision of this Agreement is excessive in
scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, and all other provisions of this Agreement
shall be deemed valid and enforceable to the extent possible.
6.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one and the
same Agreement.
6.10 INDEMNIFICATION. In addition to any rights to
indemnification to which Officer is entitled under the Corporation's Articles
of Incorporation and By-Laws, Corporation shall indemnify Officer at all
times during and after the Term of this Agreement to the maximum extent
permitted under Section 2-418 of the General Corporation Law of the State of
Maryland or any successor provision thereof and any other applicable state
law, and shall pay Officer's expenses in defending any civil or criminal
action, suit, or proceeding in advance of the final disposition of such
action, suit, or proceeding, to the maximum extent permitted under such
applicable state laws.
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement.
CORPORATION:
ALEXANDRIA REAL ESTATE
EQUITIES, INC.
a Maryland corporation
By: /s/ JOEL S. MARCUS
---------------------------------
Joel S. Marcus
Chief Executive Officer
Date: April 23, 1998
OFFICER:
/s/ VINCENT R. CIRUZZI
---------------------------------
Vincent Ciruzzi
Date: April 20, 1998
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EXHIBIT 10.13
FIRST AMENDMENT TO FIRST AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING LOAN
AGREEMENT (this "Amendment") made this 21st day of October, 1998, by and
among ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation
("Parent"), ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited
partnership ("Operating Partnership"), ARE-QRS CORP., a Maryland corporation
("QRS"), ARE ACQUISITIONS, LLC, a Delaware limited liability company ("ARE"),
the other Borrowers whose names are set forth on the signature pages of this
Amendment (collectively, with Parent, Operating Partnership, QRS and ARE, the
"Borrowers", all on a joint and several basis), each lender whose name is set
forth on the signature pages of this Amendment as "Banks" (collectively, the
"Banks" and individually, a "Bank") and BANKBOSTON, N.A., as Managing Agent
(the "Managing Agent").
W I T N E S S E T H:
WHEREAS, Borrowers, Managing Agent and certain of the Banks entered into
that certain First Amended and Restated Revolving Loan Agreement dated as of
August 4, 1998 (the "Loan Agreement"); and
WHEREAS, BankBoston has assigned a portion of its Commitment to certain
of the other Banks;
WHEREAS, Borrowers have requested that Managing Agent and the Banks
modify certain provisions of the Loan Agreement; and
WHEREAS, as a condition to such modification, Managing Agent and the
Banks have required that Borrowers execute this Amendment;
NOW, THEREFORE, for and in consideration of the sum of TEN and NO/100
DOLLARS ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant and agree as follows:
1. DEFINITIONS. All the terms used herein which are not otherwise
defined herein shall have the meanings set forth in the Loan Agreement.
2. MODIFICATION OF THE LOAN AGREEMENT. Borrowers, the Banks and
Managing Agent do hereby modify and amend the Loan Agreement as follows:
(a) By deleting in its entirety the definition of the term
"Borrowing Base" appearing in Section 1.1 of the Loan Agreement, and
inserting in lieu thereof the following:
<PAGE>
"'BORROWING BASE' means, as of any date of determination, the LESSER
OF (a) the maximum amount which, when added to the total outstanding
balance of all unsecured Indebtedness of Parent and its Subsidiaries
(including the Loans), would not exceed fifty-seven and one-half
percent (57.5%) of the aggregate Asset Value of the Unencumbered Asset
Pool, and (b) the maximum amount which would not cause the Test Debt
Service Coverage Amount for the Unencumbered Asset Pool to be less
than two (2). Notwithstanding the foregoing, commencing on the first
to occur of (i) the occurrence of (A) any Equity Offering or (B) the
encumbrance of any Real Estate which as of October 1, 1998 was
Unencumbered (excluding the Encumbrance of any such Real Estate for
the purpose of obtaining a construction loan to finance the
construction of improvements to such Real Estate) if such event (i.e.
(A) or (B)) results in net proceeds greater than $20,000,000.00 and
if, after giving effect to such occurrence the Borrowers would be in
compliance with all of their obligations and covenants relating to the
Borrowing Base if the figure 'fifty-seven and one-half percent
(57.5%)' appearing in clause (a) of this definition were reduced to
'fifty percent (50%)', and (ii) June 1, 1999, and continuing at all
times thereafter, the figure 'fifty-seven and one-half percent
(57.5%)' appearing in clause (a) of this definition shall be reduced
to 'fifty percent (50%).'"; and
(b) By deleting in its entirety Schedule 1 to EXHIBIT E, and
inserting in lieu thereof Schedule 1 attached hereto and made a part hereof.
3. MODIFICATION FEE. Upon the execution hereof, Borrowers shall pay to
the Managing Agent for the account of the Banks in accordance with their
separate agreement a fee as set forth in a separate agreement between the
Borrowers and the Managing Agent. Managing Agent shall pay to each of the Banks
a portion of such fee in accordance with their separate agreement. Such fee
shall be fully earned when paid and non-refundable under any circumstances.
4. REFERENCES TO LOAN AGREEMENT. All references in the Loan Documents to
the Loan Agreement shall be deemed a reference to the Loan Agreement, as
modified and amended herein.
5. REPRESENTATIONS. Borrowers represent and warrant to Managing Agent
and the Banks as follows:
(a) Each of the Borrowers has all requisite power and authority to
execute and deliver this Amendment and to perform its obligations hereunder.
(b) The execution, delivery and performance by each of Borrowers of
this Amendment have been duly authorized by all necessary corporate, partnership
or limited liability company action, as applicable, and do not and will not:
-2-
<PAGE>
(i) Require any consent or approval not heretofore obtained
of any partner, director, stockholder, security holder or
creditor of Borrowers;
(ii) Violate or conflict with any provision of Borrowers'
charter, articles of incorporation, bylaws or other
organizational agreements, as applicable;
(iii) Result in or require the creation or imposition of any
Lien or Right of Others upon or with respect to any
Property now owned or leased or hereafter acquired by
Borrowers;
(iv) Violate any Requirement of Law applicable to Borrowers;
or
(v) Result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement or any
other Contractual Obligation to which Borrowers are a
party or by which Borrowers or any of their Property is
bound or affected.
(c) Except as previously obtained or made, no authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, any Governmental Agency is or will be required to authorize
or permit under applicable Laws the execution, delivery and performance by any
of Borrowers of this Amendment.
(d) This Amendment will, when executed and delivered by Borrowers,
constitute the legal, valid and binding obligation of Borrowers, enforceable
against Borrowers in accordance with its terms, EXCEPT as enforcement may be
limited by Debtor Relief Laws or equitable principles relating to the granting
of specific performance and other equitable remedies as a matter of judicial
discretion.
6. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
subject to the satisfaction of each of the following conditions precedent:
(a) The Managing Agent shall have received all of the following, each
of which shall be originals unless otherwise specified, each properly executed
by a Responsible Official of each party thereto, and each in form and substance
satisfactory to the Managing Agent and its legal counsel (unless otherwise
specified or, in the case of the date of any of the following, unless the
Managing Agent otherwise agrees or directs):
(i) at least one (1) executed counterpart of this Amendment,
together with arrangements satisfactory to the Managing
Agent for
-3-
<PAGE>
additional executed counterparts, sufficient in number
for distribution to the Banks and Borrowers;
(ii) with respect to each of Borrowers, such documentation as
the Managing Agent may require to establish its authority
to execute, deliver and perform this Amendment, the
identity, authority and capacity of each Responsible
Official thereof authorized to act on its behalf,
INCLUDING certified copies of articles of incorporation
and amendments thereto, bylaws and amendments thereto (or
certifications acceptable to Managing Agent that there
have been no changes to any of such items from those
previously delivered to the Managing Agent pursuant to
the Loan Agreement), certificates of good standing and/or
qualification to engage in business, tax clearance
certificates, certificates of corporate resolutions,
incumbency certificates, Certificates of Responsible
Officials, and the like; and
(iii) opinions of counsel to the Borrowers in form and
substance satisfactory to the Managing Agent;
(b) The fee payable pursuant to Paragraph 3 shall have been paid.
(c) The Managing Agent shall have reviewed such other documents,
instruments, certificates, opinions, assurances, consents and approvals as the
Managing Agent or the Managing Agent's special counsel may reasonably have
requested.
7. NO DEFAULT. By execution hereof, each of the Borrowers certifies that
such Persons are and will be in compliance with all covenants under the Loan
Documents after the execution and delivery of this Amendment, and that no
Default or Event of Default has occurred and is continuing.
8. WAIVER OF CLAIMS. Each of the Borrowers acknowledges, represents and
agrees that none of such Persons has any defenses, setoffs, claims,
counterclaims or causes of action of any kind or nature whatsoever with respect
to the Loan Documents, the administration or funding of the Loan or with respect
to any acts or omissions of Managing Agent or any Bank, or any past or present
officers, Managing Agents or employees of Managing Agent or any Bank, and each
of such Persons does hereby expressly waive, release and relinquish any and all
such defenses, setoffs, claims, counterclaims and causes of action, if any.
9. RATIFICATION. Except as hereinabove set forth, all terms, covenants
and provisions of the Loan Agreement remain unaltered and in full force and
effect, and the parties hereto do hereby expressly ratify and confirm the Loan
Documents and the Loan Agreement as modified and amended herein. Nothing in
this Amendment shall be deemed or construed to constitute, and there has not
otherwise occurred, a novation, cancellation, satisfaction, release, waiver,
extinguishment or substitution of the indebtedness evidenced by the Notes or the
other obligations of Borrowers under the Loan Documents.
-4-
<PAGE>
10. AMENDMENT AS LOAN DOCUMENT. This Amendment shall constitute a Loan
Document.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts which shall together constitute but one and the same agreement.
12. MISCELLANEOUS. This Amendment shall be construed and enforced in
accordance with the laws of the State of California. This Amendment shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective permitted successors, successors-in-title and assigns as provided in
the Loan Agreement.
[Signatures on Following Pages.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereto set their hands and
affixed their seals as of the day and year first above written.
BORROWERS:
ALEXANDRIA REAL ESTATE EQUITIES, INC.
By: /s/ PETER J. NELSON
---------------------------------
Its: C.F.O.
ALEXANDRIA REAL ESTATE EQUITIES, L.P.
By: ARE-QRS Corp., its general partner
By: /s/ PETER J. NELSON
-----------------------------
Its: C.F.O.
ARE-QRS CORP.
By: /s/ PETER J. NELSON
---------------------------------
Its: C.F.O.
ARE ACQUISITIONS, LLC
ARE-708 QUINCE ORCHARD, LLC
ARE-940 CLOPPER ROAD, LLC
ARE-1201 HARBOR BAY, LLC
ARE-1401 RESEARCH BOULEVARD, LLC
ARE-1500 EAST GUDE, LLC
By: ARE-QRS Corp., their managing member
By: /s/ PETER J. NELSON
----------------------------
Its: C.F.O.
-6-
<PAGE>
ARE-4757 NEXUS CENTRE, LLC
ARE-215 COLLEGE ROAD, LLC
ARE-819/863 MITTEN ROAD, LLC
ARE-6166 NANCY RIDGE, LLC
ARE-150/154 TECHNOLOGY PARKWAY, LLC
ARE-8000/9000/10000 VIRGINIA MANOR, LLC
ARE-19 FIRSTFIELD ROAD, LLC
ARE-10150 OLD COLUMBIA, LLC
ARE-11025 ROSELLE STREET, LLC
ARE-100/800/801 CAPITOLA, LLC
ARE-170 WILLIAMS DRIVE, LLC
ARE-3005 FIRST AVENUE, LLC
ARE-15020 SHADY GROVE, LLC
By: Alexandria Real Estate Equities, L.P., their
sole member
By: ARE-QRS Corp., its general partner
By: /s/ PETER J. NELSON
----------------------------
Its: C.F.O.
ARE-79/96 CHARLESTOWN NAVY YARD, LLC
ARE-280 POND STREET, LLC
By: AREE-Holdings, L.P., their managing member
By: ARE-GP Holdings QRS Corp., its general
partner
By: /s/ PETER J. NELSON
----------------------------
Its: C.F.O.
-7-
<PAGE>
ARE-5100/5110 CAMPUS DRIVE, L.P.
ARE-702 ELECTRONIC DRIVE
By: AREE-Holdings, L.P., their general partner
By: ARE-GP Holdings QRS Corp., its general
partner
By: /s/ PETER J. NELSON
----------------------------
Its: C.F.O.
ARE-10933 NORTH TORREY PINES, LLC
ARE-11099 NORTH TORREY PINES, LLC
By: Alexandria Real Estate Equities, Inc., their
sole member
By: /s/ PETER J. NELSON
----------------------------
Its: C.F.O.
BANKS AND MANAGING AGENT:
BANKBOSTON, N.A., individually and as Managing
Agent
By: /s/ DANIEL P. STEGEMOELLER
---------------------------------
Its: Vice President
SOCIETE GENERALE SOUTHWEST AGENCY, individually
and as Syndication Agent
By: /s/ SCOTT GOSSLEE
---------------------------------
Its: Vice President
-8-
<PAGE>
KEYBANK NATIONAL ASSOCIATION,
individually and as Documentation Agent
By: /s/ MARY ELLEN FOWLER
---------------------------------
Its: Vice President
DRESDNER BANK AG, New York Branch and Grand Cayman
Branch, individually and as Co-Agent
By: /s/ CHRISTOPHER E. SARISKY
---------------------------------
Its: Assistant Vice President
Attest: /s/ BEVERLY G. CARSON
-----------------------------
Its:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS
ANGELES AGENCY
By: /s/ BRIAN H. KELLEY
---------------------------------
Its: Deputy General Manager
CRESTAR BANK
By: /s/ GREGORY T. HORSTMAN
---------------------------------
Its: Vice President
RIGGS BANK, N.A.
By:
---------------------------------
Its:
-9-
<PAGE>
SUMMIT BANK
By: [ILLEGIBLE]
---------------------------------
Its: Regional Vice President
FIRST AMERICAN BANK TEXAS, S.S.B.
By: /s/ JEFFREY SCHULTZ
---------------------------------
Its: Vice Presient
SOVEREIGN BANK
By: /s/ THOMAS W. NADEAU
---------------------------------
Its: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES
AGENCY
By: [ILLEGIBLE]
---------------------------------
Its: Vice President
NATIONSBANK, N.A.
By: /s/ DONALD H. MOSES
---------------------------------
Its: Senior Vice President
CEDARS BANK
By: [ILLEGIBLE]
------------------------------------
Its: Senior Vice President, C.E.O.
-10-
<PAGE>
ADDITIONAL BORROWERS:
ARE-5 TRIANGLE DRIVE, LLC
ARE-50 WEST WATKINS MILL, LLC
ARE-100 PHILLIPS PARKWAY, LLC
ARE-279 PRINCETON ROAD, LLC
ARE-2001 ALICEANNA STREET, LLC
ARE-3770 TANSY STREET, LLC
ARE-10505 ROSELLE STREET, LLC
By: Alexandria Real Estate Equities, L.P., their
sole member
By: ARE-QRS Corp., a Maryland corporation,
its general partner
By: /s/ PETER J. NELSON
----------------------------------
Name: Peter J. Nelson
Title: Senior Vice President &
Chief Finanical Officer
ARE-60 WESTVIEW, LLC
ARE-377 PLANTATION STREET, LLC
By: AREE-Holdings, L.P., a Delaware limited
partnership, their managing member
By: ARE-GP Holdings QRS Corp., a Delaware
corporation, its general partner
By: /s/ PETER J. NELSON
----------------------------------
Name: Peter J. Nelson
Title: Senior Vice President &
Chief Finanical Officer
-11-
<PAGE>
(Multicurrency -- Cross Border)
I S D A -Registered Trademark-
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of August 31, 1998
---------------
BankBoston, N.A. and Alexandria Real Estate Equities, Inc. have
- ----------------------- --------------------------------------
entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other
confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows: --
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the
Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single
agreement between the parties (collectively referred to as this "Agreement"),
and the parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the
required currency. Where settlement is by delivery (that is, other than
by payment), such delivery will be made for receipt on the due date in
the manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
Copyright -C- 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to
which such change applies unless such other party gives timely notice of a
reasonable objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable: --
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an an obligation upon the party by
whom the larger aggregate amount would have been payable to pay to the other
party the excess of the larger aggregate amount over the smaller aggregate
amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election may
be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case subparagraph
(ii) above will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices through
which the parties make and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that party
("X") will: --
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving notice
that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this Agreement,
such additional amount as is necessary to ensure that the net
amount actually received by Y (free and clear of Indemnifiable
Taxes, whether assessed against X or Y) will equal the full amount
Y would have received had no such deduction or withholding been
required. However, X will not be required to pay any additional
amount to Y to the extent that it would not be required to be paid
but for: --
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would
not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on
or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (II) a Change in
Tax Law.
2 ISDA -Registered Trademark- 1992
<PAGE>
(ii) LIABILITY, If: --
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly
pay to X the amount of such liability (including any related
liability for interest, but including any related liability for
penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or
effective designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section 6(c),
be required to pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as such overdue
amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment, at the Default Rate. Such
interest will be calculated on the basis of daily compounding and the actual
number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party
defaults in the performance of any obligation required to be settled by
delivery, it will compensate the other party on demand if and to the extent
provided for in the relevant Confirmation or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into and, in the case of the representations in Section 3(f), at all times
until the termination of this Agreement) that: --
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws
of the jurisdiction of its organisation or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorise such execution, delivery and
performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its
assets or any contractual restriction binding on or affecting it or any
of its assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
3
ISDA -Registered Trademark- 1992
<PAGE>
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as a
result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency
or official or any arbitrator that is likely to affect the legality, validity
or enforceability against it of this Agreement or any Credit Support Document
to which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of the
date of the information, true, accurate and complete in every material
respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is accurate
and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support Document
to which it is a party: --
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs: --
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to
be executed and to be delivered with any reasonably required
certification.
in each case by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or other
authority that are required to be obtained by it with respect to this
Agreement or any Credit Support Document to which it is a party and will use
all reasonable efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning
of such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated,
4
ISDA -Registered Trademark- 1992
<PAGE>
organised, managed and controlled, or considered to have its seat, or in
which a branch or office through which it is acting for the purpose of this
Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other
party against any Stamp Tax levied or imposed upon the other party or in
respect of the other party's execution or performance of this Agreement by
any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction
with respect to the other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is given
to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with
or performed by the party in accordance with this Agreement if such
failure is not remedied on or before the thirtieth day after notice of
such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to
be complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party in
this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated or
deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after giving
effect to any applicable notice requirement or grace period, there
occurs a liquidation of, an acceleration of obligations under, or any
early termination of, that Specified Transaction, (2) defaults, after
giving effect to any applicable notice requirement or grace period, in
making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local Business
Days if there is no applicable notice requirement or grace period) or
(3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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ISDA -Registered Trademark- 1992
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)
which has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or
more payments on the due date thereof in an aggregate amount of not less
than the applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice requirement
or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in
a judgment of insolvency or bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian
or other similar official for it or for all or substantially all
its assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and
such secured party maintains possession, or any such process is
not dismissed, discharged, stayed or restrained, in each case
within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events
specified in clauses (1) to (7) (inclusive); or (9) takes any
action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit Support
Provider under this Agreement or any Credit Support Document to
which it or its predecessor was a party by operation of law or
pursuant to an agreement reasonably satisfactory to the other
party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality
if the event is specified in (i) below, a Tax Event if the event is specified
in (ii) below or a Tax Event Upon Merger if the event is specified in (iii)
below, and, if specified to be applicable, a Credit Event
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ISDA -Registered Trademark- 1992
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will,
or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(1)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on
the next succeeding Scheduled Payment Date will either (1) be required
to pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax in
respect of which the other party is not required to pay an additional
amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in
either case as a result of a party consolidating or amalgamating with,
or merging with or into, or transferring all or substantially all its
assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule of such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also
constitutes an Illegality, it will be treated as an Illegality and will not
constitute an Event of Default.
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ISDA -Registered Trademark- 1992
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and
is then continuing, the other party (the "Non-defaulting Party") may, by not
more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section
5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as
of the time immediately preceding the institution of the relevant proceeding
or the presentation of the relevant petition upon the occurrence with respect
to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to
the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is
the Affected Party, the Affected Party will, as a condition to its
right to designate an early Termination Date under Section 6(b)(iv),
use all reasonable efforts (which will not require such party to incur
a loss, excluding immaterial, incidental expenses) to transfer within
20 days after it gives notice under Section 6(b)(i) all its rights and
obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties,
each party will use all reasonable efforts to reach agreement within 30
days after notice thereof is given under Section 6(b)(i) on action to
avoid that Termination Event.
(iv) RIGHT TO TERMINATE, IF:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section (6)(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in
the case of a Tax Event Upon Merger, any Affected Party in the case of
a Tax Event or an Additional Termination Event if there is more than
one Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then
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ISDA -Registered Trademark- 1992
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount,
if any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence
of written confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party obtaining such
quotation will be conclusive evidence of the existence and accuracy of
such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment
method, either the "First Method" or the "Second Method". If the parties fail
to designate a payment measure or payment method in the Schedule, it will be
deemed that "Market Quotation" or the "Second Method", as the case may be,
shall apply. The amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting Party)
in respect of the Terminated Transactions and the Termination
Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting
Party over (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party.
(2) FIRST METHOD AND LOSS. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
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ISDA -Registered Trademark- 1992
<PAGE>
Non-defaulting Party) in respect of the Terminated Transactions and
the Termination Currency Equivalent of the Unpaid Amounts owing to
the Non-defaulting Party less (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party. If that amount
is a positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the Defaulting
Party.
(4) SECOND METHOD AND LOSS. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) ONE AFFECTED PARTY. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and
to the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in
respect of all Terminated Transactions.
(2) TWO AFFECTED PARTIES. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions,
and an amount will be payable equal to (I) the sum of (a)
one-half of the difference between the Settlement Amount of the
party with the higher Settlement Amount ("X") and the
Settlement Amount of the party with the lower Settlement Amount
("Y") and (b) the Termination Currency Equivalent of the Unpaid
Amounts owing to X less (II) the Termination Currency
Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with the
lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if
it is a negative number, X will pay the absolute value of that amount
to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain
and the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
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ISDA -Registered Trademark- 1992
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of
the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without prejudice
to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable
law, any obligation to make payments under this Agreement in the Contractual
Currency will not be discharged or satisfied by any tender in any currency
other than the Contractual Currency, except to the extent such tender results
in the actual receipt by the party to which payment is owed, acting in a
reasonable manner and in good faith in converting the currency so tendered
into the Contractual Currency, of the full amount in the Contractual Currency
of all amounts payable in respect of this Agreement. If for any reason the
amount in the Contractual Currency so received falls short of the amount in
the Contractual Currency payable in respect of this Agreement, the party
required to make the payment will, to the extent permitted by applicable law,
immediately pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the amount in
the Contractual Currency so received exceeds the amount in the Contractual
Currency payable in respect of this Agreement, the party receiving the
payment will refund promptly the amount of such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is
rendered (i) for the payment of any amount owing in respect of this
Agreement, (ii) for the payment of any amount relating to any early
termination in respect of this Agreement or (iii) in respect of a judgment or
order of another court for the payment of any amount described in (i) or (ii)
above, the party seeking recovery, after recovery in full of the aggregate
amount to which such party is entitled pursuant to the judgment or order,
will be entitled to receive immediately from the other party the amount of
any shortfall of the Contractual Currency received by such party as a
consequence of sums paid in such other currency and will refund promptly to
the other party any excess of the Contractual Currency received by such
party as a consequence of sums paid in such other currency if such
shortfall or such excess arises or results from any variation between the
rate of exchange at which the Contractual Currency is converted into the
currency of the judgment or order for the purposes of such judgment or order
and the rate of exchange at which such party is able, acting in a reasonable
manner and in good faith in converting the currency received into the
Contractual Currency, to purchase the Contractual Currency with the amount of
the currency of the judgment or order actually received by such party. The
term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(e) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence
granted by the party to which any payment is owed and will not be affected by
judgment being obtained or claim or proof being made for any other sums
payable in respect of this Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had
an actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced
by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or electronic messages on an electronic messaging
system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive
the termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all purposes
to evidence a binding supplement to this Agreement. The parties will
specify therein or through another effective means that any such
counterpart, telex or electronic message constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS: A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as
a waiver, and a single or partial exercise of any right, power or privilege
will not be presumed to preclude any subsequent or further exercise, of that
right, power or privilege or the exercise of any other right, power or
privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of
booking office or jurisdiction of incorporation or organisation of such
party, the obligations of such party are the same as if it had entered into
the Transaction through its head or home office. This representation will be
deemed to be repeated by such party on each date on which a Transaction is
entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including legal
fees and Stamp Tax, incurred by such other party by reason of the enforcement
and protection of its rights under this Agreement or any Credit Support
Document
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ISDA -Registered Trademark- 1992
<PAGE>
to which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to, costs of
collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received.
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered
(or attempted) or received, as applicable, after the close of business on a
Local Business Day, in which case that communication shall be deemed given
and effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the laws
of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section 1(3)
of the Civil Jurisdiction and Judgments Act 1982 or any modification,
extension or re-enactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and
on its behalf, service of process in any Proceedings. If for any
13
ISDA -Registered Trademark- 1992
<PAGE>
reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute
process agent acceptable to the other party. The parties irrevocably consent
to service of process given in the manner provided for notices in Section 12.
Nothing in this Agreement will affect the right of either party to serve
process in any other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues
and assets (irrespective of their use or intended use), all immunity on
the grounds of sovereignty or other similar grounds from (i) suit, (ii)
jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, (iv) attachment of its
assets (whether before or after judgment) and (v) execution or enforcement of
any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and irrevocably
agrees, to the extent permitted by applicable law, that it will not claim any
such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b)
with respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control"
of any entity or person means ownership of a majority of the voting power of
the entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after
the date on which the relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified
as such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
14
ISDA -Registered Trademark- 1992
<PAGE>
"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed
in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to
such recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of
such jurisdiction, or being or having been organised, present or engaged in a
trade or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding
a connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case
of tax matters, by the practice of any relevant governmental revenue
authority) and "LAWFUL" and "UNLAWFUL" to be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant Confirmation
or, if not so specified, as otherwise agreed by the parties in writing or
determined pursuant to provisions contained, or incorporated by reference,
in this Agreement, (b) in relation to any other payment, in the place where
the relevant account is located and, if different, in the principal financial
centre, if any, of the currency of such payment, (c) in relation to any
notice or other communication, including notice contemplated under Section
5(a)(i), in the city specified in the address for notice provided by the
recipient and, in the case of a notice contemplated by Section 2(b), in the
place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading
position (or any gain resulting from any of them). Loss includes losses and
costs (or gains) in respect of any payment or delivery required to have been
made (assuming satisfaction of each applicable condition precedent) on or
before the relevant Early Termination Date and not made, except, so as to
avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies.
Loss does not include a party's legal fees and out-of-pocket expenses
referred to under Section 11. A party will determine its Loss as of the
relevant Early Termination Date, or, if that is not reasonably practicable,
as of the earliest date thereafter as is reasonably practicable. A party may
(but need not) determine its Loss by reference to quotations of relevant
rates or prices from one or more leading dealers in the relevant markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an
amount, if any, that would be paid to such party (expressed as a negative
number) or by such party (expressed as a positive number) in consideration of
an agreement between such party (taking into account any existing Credit
Support Document with respect to the obligations of such party) and the
quoting Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in
respect of such Terminated Transaction or group of Terminated Transactions
that would, but for the occurrence of the relevant Early Termination Date,
have
15
ISDA -Registered Trademark- 1992
<PAGE>
been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming
satisfaction of each applicable condition precedent) after that Early
Termination Date is to be included. The Replacement Transaction would be
subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the
extent reasonably practicable as of the same day and time (without regard to
different time zones) on or as soon as reasonably practicable after the
relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations are
provided, the Market Quotation will be the arithmetic mean of the quotations,
without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head
or home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention
or withholding or similar right or requirement to which the payer of an
amount under Section 6 is entitled or subject (whether arising under this
Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not
(in the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
16
ISDA -Registered Trademark- 1992
<PAGE>
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety
or otherwise) in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this Agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto)
that is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation
or similar tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and (b)
if resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated
in the Termination Currency, such Termination Currency amount and, in respect
of any amount denominated in a currency other than the Termination Currency
(the "Other Currency"), the amount in the Termination Currency determined by
the party making the relevant determination as being required to purchase
such amount of such Other Currency as at the relevant Early Termination Date,
or, if the relevant Market Quotation or Loss (as the case may be), is
determined as of a later date, that later date, with the Termination Currency
at the rate equal to the spot exchange rate of the foreign exchange agent
(selected as provided below) for the purchase of such Other Currency with the
Termination Currency at or about 11:00 a.m. (in the city in which such
foreign exchange agent is located) on such date as would be customary for the
determination of such a rate for the purchase of such Other Currency for
value on the relevant Early Termination Date or that later date. The foreign
exchange agent will, if only one party is obliged to make a determination
under Section 6(e), be selected in good faith by that party and otherwise
will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of
the cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that become payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or
prior to such Early Termination Date and which remain unpaid as at such Early
Termination Date and (b) in respect of each Terminated Transaction, for each
obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii)) required to be settled by delivery to such party on or
prior to such Early Termination Date and which has not been so settled as at
such Early Termination Date, an amount equal to the fair market
17
ISDA -Registered Trademark- 1992
<PAGE>
value of that which was (or would have been) required to be delivered as of
the originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of interest
will be calculated on the basis of daily compounding and the actual number of
days elapsed. The fair market value of any obligation referred to in clause
(b) above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page
of this document.
BankBoston, N.A. Alexandria Real Estate Equities, Inc.
..................................... ......................................
(Name of Party) (Name of Party)
By: ................................ By: ..................................
Name: Name:
Title: Title:
Date: Date:
ISDA -Registered Trademark- 1992
18
<PAGE>
EXECUTION COPY
(Multicurrency - Cross Border)
SCHEDULE
to the
ISDA MASTER AGREEMENT
dated as of August 31, 1998
between
BANKBOSTON, N.A.
("Party A")
and
ALEXANDRIA REAL ESTATE EQUITIES, INC.
("Party B")
PART 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
and in relation to Party B for the purpose of:
Section 5(a)(v): All Affiliates.
Section 5(a)(vi): All Affiliates.
Section 5(a)(vii): All Affiliates.
Section 5(b)(iv): All Affiliates.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will not apply to Party
A and will apply to Party B, subject to the following proviso being
inserted at the end thereof:
"; provided, however, that notwithstanding the foregoing, an Event of
Default shall not occur under either (1) or (2) above, if (a) the event or
condition referred to in (1) or the failure to pay referred to in (2) is a
failure to pay caused by an error or omission of an administrative or
operational nature, (b) funds were available to such party to enable it to
make the relevant payment when due, and (c) such relevant payment is made
within three Local Business Days following receipt of written notice from
an interested party of such failure to pay".
1
<PAGE>
If such provisions apply:
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14,
except that such term shall not include obligations in respect of deposits
received in the ordinary course of business.
"THRESHOLD AMOUNT" shall mean (x) with respect to Party A, not applicable,
and (y) with respect to Party B, USD 5,000,000 or the equivalent amount in
any other currency.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will not
apply to Party A and will apply to Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not apply
to Party A and will not apply to Party B, PROVIDED, HOWEVER, that where the
Event of Default specified in Sections 5(a)(vii)(1), (3), (4), (5), (6) or,
to the extent analogous thereto, (8) is governed by a system of law which
does not permit termination to take place after the occurrence of the
relevant Event of Default, the Automatic Early Termination provisions of
Section 6(a) will apply to the relevant party. If Automatic Early
Termination of the Agreement does occur as a result of this provision, the
Defaulting Party shall fully indemnify the Non-Defaulting Party on demand
against all expense, loss, damage or liability that the Non-Defaulting
Party may incur in respect of the Agreement and each transaction as a
consequence of movements in interest, currency, exchange or other relevant
rates or prices between the Business Day on which such Automatic Early
Termination occurs and the Business Day on which the Non-Defaulting Party
first becomes aware that the Agreement has been terminated pursuant to this
provision. The Non-Defaulting Party may for this purpose convert any such
expense, loss, damage or liability to the Termination Currency.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this
Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means U.S. dollars.
(h) ADDITIONAL TERMINATION EVENT. In addition to the Termination Events
specified in Section 5(b), the occurrence of any of the following shall
constitute an Additional Termination Event:
1) Impossibility. means due to the occurrence of a natural or man-made
disaster, armed conflict, act of terrorism, riot, labor disruption or any
other circumstance beyond its control after the date on which a Transaction
is entered into, it becomes impossible (other than as a result of its own
misconduct) for such a party (which will be the Affected Party):
(x) to perform any absolute or contingent obligation, to make a
payment or delivery or to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(y) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such Credit
Support Provider) has under any Credit Support Document relating to such
Transaction.
2
<PAGE>
2) Sovereign Event. A party is not able to discharge its obligations
with respect to a Transaction through the relevant Specified Office (which
will be the Affected Party) as a result of any law (other than bankruptcy,
insolvency or similar laws), order or other act or threat of any authority
(de jure or de facto) at the location of such Specified Office.
3) Both (a) all of the principal, interest, fees and other amounts owing
by Party B (which will be the Affected Party) under or in respect of the
Credit Agreement shall have been paid in full and (b) all commitments of
Party A to make extensions of credit under or in respect of, or as
contemplated by, the Credit Agreement shall have expired or been terminated
For the purposes of such Additional Termination Event(s),
(i) The definitions listed above shall be added to Section 14 of the
Agreement in alphabetical order.
(ii) An Impossibility or Sovereign Event shall be treated as an Illegality
for purposes of Section 5(c) of the Agreement.
PART 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e), Party A and Party
B will make the following representation:
It is not required by any applicable law, as modified by the practice of
any relevant governmental revenue authority of any Relevant Jurisdiction to
make any deduction or withholding for or on account of any tax from any
payment (other than interest under Sections 2(e), 6(d)(ii) or 6(e) of this
Agreement) to be made by it to the other party under this Agreement. In
making this representation, it may rely on:-
(i) the accuracy of any representation made by the other party
pursuant to Section 3(f);
(ii) the satisfaction of the agreement of the other party contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness
of any document provided by the other party pursuant to Section
4(a)(i) or 4(a)(iii); and
(iii) the satisfaction of the agreement of the other party contained
in Section 4(d), provided that it shall not be a breach of
this representation where reliance is placed on clause (ii)
and the other party does not deliver a form or document under
Section 4(a)(iii) by reason of material prejudice to its legal
or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement,
Party A and Party B make the representations specified below, if any:
(i) Party A represents that it is a national banking association organized
under the laws of the United States of America.
3
<PAGE>
(ii) Party B represents that it is a Maryland Corporation.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purposes of Section 4(a) of the Agreement the other documents to be
delivered are:
<TABLE>
<CAPTION>
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH COVERED BY SECTION
DELIVER DOCUMENT CERTIFICATE TO BE DELIVERED 3(d) REPRESENTATION
<S> <C> <C> <C>
Party A, Party B and Evidence of the Upon execution of this Yes.
any Credit Support authority, incumbency Agreement, any Credit
Provider and specimen signature Support Document and,
of each person upon request, any
executing this Confirmation.
Agreement, any Credit
Support Document and
any Confirmation on its
behalf.
Party A A copy of BankBoston Promptly upon request Yes.
Corporation's most by Party B.
recent annual report
containing consolidated
year end financial
statements, certified
by independent public
accountants.
Party B A copy of Party B's Promptly upon request Yes.
most recent annual by Party A.
report containing year
end financial
statements, certified
by independent public
accountants.
Party B A copy of Party B's Promptly upon request Yes.
quarterly financial by Party A.
statements.
Party B A legal opinion Upon execution of this Yes.
substantially in the Agreement.
form of Exhibit A
attached hereto.
</TABLE>
PART 4. MISCELLANEOUS.
4
<PAGE>
(a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this Agreement:
I. ADDRESS FOR NOTICES TO PARTY A:
FOR CONFIRMATIONS/SETTLEMENTS/COLLATERAL TRANSFERS/RESETS:
(i) acting through its Boston Head Office
Address: BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attn: Senior Manager, Derivatives Operations, 01-13-08
Tel No: (617) 434-3964
Fax No: (617) 434-4284
(ii) acting through any other office or branch as provided in the relevant
Confirmation or as otherwise advised by Party A.
FOR ALL NOTICES OR COMMUNICATIONS GIVEN IN RESPECT OF SECTION 5, 6, 7, 11
OR 13 OF THIS AGREEMENT:
Address: BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Attn: Managing Director, Derivatives, 01-12-08
Tel No: (617) 434-7529
Fax No: (617) 434-1149 or 639-9342
with a copy to: BankBoston, N.A.
Attn: Law Office-Derivatives/FX Counsel
100 Federal Street, 01-19-02
Boston, MA 02110
Fax No: (617) 434-7980
II. ADDRESS FOR NOTICES OR COMMUNICATIONS TO PARTY B:
Address: Alexandria Real Estate Equities, Inc.
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: Peter Nelson, Chief Financial Officer
Tel No: 626-578-0777
Fax No: 626-578-0770
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:
PARTY A APPOINTS AS ITS PROCESS AGENT:
BankBoston International
590 Madison Avenue, 22nd Floor
New York, NY 10022
5
<PAGE>
with a copy to:
BankBoston, N.A.
100 Federal Street, 01-19-02
Boston, MA 02110
Attn: Law Office-Derivatives/FX Counsel
PARTY B APPOINTS AS ITS PROCESS AGENT: Not Applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:
Party A is a Multibranch Party and will act for purposes of this Agreement
through the following Offices (and any other branch, office or agency as
agreed by the parties and specified in a Confirmation):
Boston, London, Singapore, Buenos Aires
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document: Not
applicable
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means (x) in relation to
Party A, not applicable, and (y) in relation to Party B, not applicable.
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO
CHOICE OF LAW DOCTRINE.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to any Transactions under this Agreement and therefore the
netting specified in Section 2(c) of this Agreement will apply across all
Transactions with effect from the date of this Agreement.
"AFFILIATE" will have the meaning specified in Section 14.
PART 5. OTHER PROVISIONS.
(a) SET-OFF.
Any amount (the "EARLY TERMINATION AMOUNT") payable to one party (the
Payee) by the other party (the Payer) under Section 6(e), in circumstances
where there is a Defaulting Party or one Affected Party in the case where a
Termination Event under Section 5(b)(iv) has occurred, will, at the option
of the party ("X") other than the Defaulting Party or the Affected Party
(and without prior notice to the Defaulting Party or the Affected Party),
be reduced by its set-off against any amount(s) (the "Other Agreement
Amount") payable (whether at such time or in the
6
<PAGE>
future or upon the occurrence of a contingency) by the Payee to the
Payer (irrespective of the currency, place of payment or booking office
of the obligation) under any other agreement(s) between the Payee and
the Payer or instrument(s) or undertaking(s) issued or executed by one
party to, or in favor of, the other party (and the Other Agreement
Amount will be discharged promptly and in all respects to the extent it
is so set-off). X will give notice to the other party of any set-off
effected under this Section 5(a).
For this purpose, either the Early Termination Amount or the Other
Agreement Amount (or the relevant portion of such amounts) may be converted
by X into the currency in which the other is denominated at the rate of
exchange at which such party would be able, acting in a reasonable manner
and in good faith, to purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the relevant
party accounting to the other when the obligation is ascertained.
Nothing in this Section 5(a) shall be effective to create a charge or other
security interest. This Section 5(a) shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or other
right to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise).
(b) DEFINITIONS.
(i) This Agreement, each Confirmation and each Transaction are subject to
the 1991 ISDA DEFINITIONS (as published by the International Swaps and
Derivatives Association, Inc.) as amended, supplemented or restated from
time to time (the "DEFINITIONS"), and will be governed in all respects by
the provisions set forth in the Definitions. The Definitions are
incorporated by reference in, and shall be deemed to be part of, this
Agreement and each Confirmation, as if set forth in full in this Agreement
or in each such Confirmation. In the event of any inconsistency between
the provisions of this Agreement and the Definitions, this Agreement will
prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Agreement, such Confirmation will prevail for the
purpose of the relevant Transaction.
(ii) With effect from and including the date of this Agreement (A) any
reference to a "Swap Transaction" in the Definitions is deemed to be a
reference to a "Transaction" for the purpose of interpreting this Agreement
or any Confirmation and (B) any reference to a "Transaction" in this
Agreement or any Confirmation is deemed to be a reference to a "Swap
Transaction" for the purpose of interpreting the Definitions.
(c) ADDITIONAL PARTY B EVENT OF DEFAULT.
IT SHALL CONSTITUTE AN ADDITIONAL EVENT OF DEFAULT UNDER SECTION 5(A) OF
THIS AGREEMENT IN RESPECT OF WHICH PARTY B SHALL BE THE DEFAULTING PARTY
UPON THE FAILURE BY PARTY B TO observe, perform and fulfill each and every
covenant, term and provision applicable to it in that certain First Amended
and Restated Revolving Loan Agreement, dated as of August 4, 1998, as
amended and/or restated from time to time, by and among Party A and Party B
(the "Credit Agreement").
(d) ADDITIONAL REPRESENTATIONS.
7
<PAGE>
For purposes of Section 3 of this Agreement, the following shall be added
immediately following paragraph (f) thereof:
"(g) This Agreement and each Transaction constitutes a "swap agreement"
within the meaning of Commodity Futures Trading Commission ("CFTC")
Regulations Section 35.1(b)(1).
(h) It is an "eligible swap participant" within the meaning of CFTC
Regulations Section 35.1(b)(2).
(i) Neither this Agreement nor any Transaction is one of a fungible class
of agreements that are standardized as to their material economic terms,
within the meaning of CFTC Regulations Section 35.2(b).
(j) The creditworthiness of the other party was or will be a material
consideration in entering into or determining the terms of this Agreement
and each Transaction, including pricing, cost or credit enhancement terms
of the Agreement or Transaction, within the meaning of CFTC Regulations
Section 35.2(c).
(k) It has entered into this Agreement (including each Transaction
evidenced hereby) in conjunction with its line of business (including
financial intermediation services) or the financing of its business.
(l) It engages, will engage and holds itself out as engaging in "financial
contracts", as defined in Regulation EE of the Federal Reserve Board, as a
counterparty on both sides of one or more "financial markets" (as defined
in such regulation) and it fulfills at least one of the quantitative tests
contained in such regulation.
(m) RELATIONSHIP BETWEEN PARTIES. Each party will be deemed to represent
to the other party on the date on which it enters into a Transaction that
(absent a written agreement between the parties that expressly imposes
affirmative obligations to the contrary for the Transaction):
(i) NON-RELIANCE. It is acting for its own account, and it has made
its own independent decisions to enter into that Transaction and as to
whether that Transaction is appropriate or proper for it based upon its own
judgment and upon advice from such advisors as it has deemed necessary. It
is not relying on any communication (written or oral) of the other party as
investment advice or as a recommendation to enter into that Transaction;
it being understood that information and explanations related to the terms
and conditions of a Transaction shall not be considered investment advice
or a recommendation to enter into that Transaction. It has not received
from the other party any assurance or guarantee as to the expected results
of that Transaction.
(ii) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the
merits of and understanding (on its own behalf or through independent
professional advice), and understands and accepts, the terms, conditions
and risks of that Transaction. It is also capable of assuming, and
assumes, the risks of that Transaction.
8
<PAGE>
(iii) STATUS OF PARTIES. The other party is not acting as a
fiduciary for or as an advisor to it in respect of that Transaction.
(e) RECORDING.
Each party hereto consents to the monitoring or recording, at any time and
from time to time, by the other party of any and all communications between
officers or employees of the parties, waives any further notice of such
monitoring or recording, and agrees to notify its officers and employees of
such monitoring or recording.
(f) NEGATIVE INTEREST RATES.
(i) Floating Amounts. "Swap Transaction" means, for the purposes of this
provision concerning Negative Interest Rates, a rate exchange or swap
transaction, including transactions involving a single currency or two or
more currencies. Party A and Party B agree that, if with respect to a
Calculation Period for a Swap Transaction either party is obligated to pay
a Floating Amount that is a negative number (either due to a quoted
negative Floating Rate or by operation of a Spread that is subtracted from
the Floating Rate), the Floating Amount with respect to that party for that
Calculation Period will be deemed to be zero, and the other party will pay
to that party the absolute value of the negative Floating Amount as
calculated, in addition to any amounts otherwise owed by the other party
for that Calculation Period with respect to that Swap Transaction, on the
Payment Date that the Floating Amount would have been due if it had been a
positive number. Any amounts paid by the other party with respect to the
absolute value of a negative Floating Amount will be paid to such account
as the receiving party may designate (unless such other party gives timely
notice of a reasonable objection to such designation) in the currency in
which that Floating Amount would have been paid if it had been a positive
number (and without regard to the currency in which the other party is
otherwise obligated to make payments).
(ii) Compounding. Party A and Party B agree that, if with respect to one
or more Compounding Periods for a Swap Transaction where "Compounding" or
"Flat Compounding" is specified to be applicable, the Compounding Period
Amount, the Basic Compounding Period Amount or the Additional Compounding
Period Amount is a negative number (either due to a quoted negative
Floating Rate or by operation of a Spread that is subtracted from the
Floating Rate), then the Floating Amount for the Calculation Period in
which that Compounding Period or those Compounding Periods occur will be
either the sum of all the Compounding Period Amounts or the sum of all the
Basic Compounding Period Amounts and all the Additional Compounding Period
Amounts in that Calculation Period (whether positive or negative). If such
sum is positive, then the Floating Rate Payer with respect to the Floating
Amount so calculated will pay that Floating Amount to the other party. If
such sum is negative, the Floating Amount with respect to the party that
would be obligated to pay that Floating Amount will be deemed to be zero,
and the other party will pay to that party the absolute value of the
negative Floating Amount as calculated, such payment to be made in
accordance with (i) above.
PART 6. ADDITIONAL TERMS FOR FORWARD RATE AGREEMENTS.
9
<PAGE>
Any forward rate agreement into which the parties have entered and in
respect of which the confirmation or other confirming evidence refers to or
incorporates the British Bankers' Association London Interbank Forward Rate
Agreements Recommended Terms and Conditions (1985 edition) ("FRABBA Terms")
will be governed by this Agreement. Any forward rate agreement into which the
parties may enter and in respect of which the confirmation or other confirming
evidence refers to or incorporates the FRABBA Terms will be governed by this
Agreement in all circumstances except when the parties expressly agree
otherwise. Each such transaction will be deemed to be a Transaction and each
such confirmation or other confirming evidence will be deemed to constitute a
Confirmation for purposes of this Agreement. Sections B, C, and E and clauses
1, 4, 5, and 6 of Section D of the FRABBA Terms are hereby incorporated by
reference in this Agreement. Those Sections are applicable only to transactions
to which this provision relates and will prevail in the event of any
inconsistency with any other provision of this Agreement. In the event of any
other inconsistency between the FRABBA Terms and this Agreement, this Agreement
will govern. Clauses 2, 3, 7, 8, 9, and 10 of Section D of the FRABBA Terms are
not applicable to any transaction to which this provision relates.
PART 7. EMU PROTOCOL; CONTINUITY OF CONTRACT.
The parties agree that the definitions and provisions contained in Annexes
1 to 5 and Section 6 of the EMU Protocol published by the International Swaps
and Derivatives Association, Inc. on May 6, 1998 are incorporated into and apply
to this Agreement. References in those definitions and provisions to any "ISDA
Master Agreement" will be deemed to be references to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Schedule as of the date
specified on the first page hereof.
BANKBOSTON, N.A. ALEXANDRIA REAL ESTATE EQUITIES, INC.
By: By:
------------------------------ -----------------------------------
Name: Name:
Title: Title:
By:
-----------------------------------
Name:
Title:
Approval (for BankBoston, N.A. internal purposes only):
- ------------------------------------------------------
10
<PAGE>
Schedule A
List of Authorized Signatures
BankBoston, N.A. - Derivatives
<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>
Cade, Kathryn E. Group Managing Director, Global Capital Mkts. /s/ Kathryn E. Cade
----------------------
Buenaventura, Jaime P. Director /s/ J Buenaventura
----------------------
Conley, Diane L. Director /s/ Diane L. Conley
----------------------
Corcoran, Thomas P. Director /s/ Thomas P. Corcoran
----------------------
Hughes, E. James Vice President /s/ E. James Hughes
----------------------
LePard, William K. Managing Director /s/ William K. LePard
----------------------
McInerney, Ann F. Vice President /s/ Ann McInerney
----------------------
Scott, Robert G. Managing Director, Derivative Sales /s/ Robert Scott
----------------------
Kaufman, Randy A. Managing Director, Derivatives Structuring /s/ Randy Kaufman
----------------------
Ross, Renee A. Managing Director, Global Capital Markets /s/ Renee A. Ross
----------------------
Stokes, Liam G.* Director /s/ Liam G. Stokes
----------------------
Fehrenbach, Brian Trader /s/ Brian Fehrenbach
----------------------
Hutchinson, Robert Trader /s/ Robert Hutchinson
----------------------
Kautz, John Trader /s/ John D. Kautz
----------------------
Mather, James V. Managing Director, Derivatives Trading /s/ J Mather
----------------------
Boisson, Francois Director /s/ Francois Boisson
----------------------
Oakes, David Vice President /s/ David Oakes
----------------------
</TABLE>
* Authorized Signer for BBNA and BSI
<PAGE>
DATE: Aug 31, 1998
TO: ALEXANDRIA REAL ESTATE EQUITIES
ATTN: PETE WILSON
FAX: 626 578 0770
PHONE: 626 578 0777
FROM: BANKBOSTON, N.A.
ATTN: Derivatives Confirmation Unit
FAX: (617) 434-4284
PHONE: (617) 434-4405 or 9929
RE: INTEREST RATE SWAP
Our Ref: 5801608/19209
The purpose of this letter agreement is to set forth the terms and conditions
of the Transaction entered into between BankBoston, N.A. and ALEXANDRIA REAL
ESTATE EQUITIES on the Trade Date specified below (the "Transaction"). This
letter constitutes a "Confirmation" as referred to in the ISDA Master
Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (the
"Definitions"), each as published by the International Swaps and Derivatives
Association, Inc. ("ISDA"), are incorporated into this Confirmation. In the
event of any inconsistency between the Definitions and provisions in this
Confirmation, this Confirmation will govern.
1. This Confirmation evidences a complete and binding agreement between you
and us as to the terms of the Transaction to which this Confirmation relates.
In addition, you and we agree to use our best efforts promptly to negotiate,
execute, and deliver an agreement in the form of the ISDA Master Agreement
(Multicurrency-Cross Border) (the "ISDA Form") published by ISDA, with such
modifications as you and we shall in good faith agree (such agreement, the
"Agreement"). Upon the execution by you and us of the Agreement, this
Confirmation will supplement, form a part of, and be subject to the
Agreement. All provisions contained or incorporated by reference in the
Agreement, upon its execution, shall govern this Confirmation except as
expressly modified below. Until we execute and deliver the Agreement, this
Confirmation shall supplement, form a part of, and be subject to an agreement
in the form of the ISDA Form as if we had executed an agreement in such form
(with a Schedule thereto which provides that Market Quotation and the Second
Method apply for purposes of Section 6(e) of such agreement) on the Trade
Date hereof. In the event of any inconsistency between this Confirmation and
either the ISDA Form or the Agreement, this Confirmation will govern.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
Trade Date : Aug 31, 1998
Effective Date : Sep 02, 1998
Termination Date : May 31, 2000 subject to adjustment
in accordance with the Modified
Following Business Day Convention.
Notional Amount : USD 50,000,000.00
Floating Amounts
Floating Rate Payer : BANKBOSTON, N.A.
Floating Rate Payment Dates : Monthly on the 31st, commencing Sep
30, 1998 and ending on the
Termination Date subject to
adjustment in accordance with the
Modified Following Business Day
Convention.
Floating Rate for initial
Calculation Period : 5.644530 %
Floating Rate Option : USD-LIBOR-ISA
Designated Maturity : 1 month
Spread : None
Floating Rate Day Count
Fraction : ACTUAL /360
- --------------------------------------------------------------------------------
5801608 BankBoston Document - Page 1
<PAGE>
Floating Rate Reset Dates : The first Business Day of each
Calculation Period
Compounding : Inapplicable
Business Days : New York and London
Fixed Amounts
Fixed Rate Payer : ALEXANDRIA REAL ESTATE EQUITIES
Fixed Rate Payment Dates : Monthly on the 31st, commencing
Sep 30, 1998 and ending on the
Termination Date subject to
adjustment in accordance with the
Modified Following Business Day
Convention.
Fixed Rate : 5.430000 %
Fixed Rate Day Count Fraction : ACTUAL /360
Business Days : New York and London
Calculation Agent : BANKBOSTON, N.A.
Governing Law : New York law
Documentation : ISDA Master Agreement to be provided
by BANKBOSTON, N.A.
3. Relationship Between Parties
Each party represents to the other party that:
(a) Non-Reliance. It is acting for its own account, and it has made its
own independent decisions to enter this Transaction and as to whether this
Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisers as it has deemed necessary. It is not relying
on any communication (written or oral) from the other party as investment
advice or as a recommendation to enter into this Transaction; it being
understood that information and explanations related to the terms and
conditions of this Transaction shall not be considered investment advice or a
recommendation to enter into this Transaction. It has not received from the
other party any assurance or guarantee as to the expected results of this
Transaction.
(b) Evaluation and Understanding. It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of this
Transaction. It is also capable of assuming, and assumes, the financial and
other risks of this Transaction.
(c) Status of Parties. The other party is not acting as a fiduciary or
an advisor for it in respect of this Transaction.
(d) Risk Management. It has entered into this Transaction for the
purpose of (i) managing its borrowings or investments, (ii) hedging its
underlying assets or liabilities or (iii) in connection with its line of
business.
(e) It is an "eligible swap participant" within the meaning of Commodity
Futures Trading Commission Regulations Section 35.1(b)(2).
4. Settlement Instructions
Payments to ALEXANDRIA REAL ESTATE EQUITIES in USD
*** Payment Instructions To Be Advised ***
Payments to BANKBOSTON, N.A. in USD
*** Payment Instructions To Be Advised ***
- --------------------------------------------------------------------------------
5801608 BankBoston Document - Page 2
5. Contact Instructions
BANKBOSTON, N.A.: Resets/Payments Tel: 617-434-3183
Fax: 617-434-0505
Confirmations Tel: 617-434-4405
Fax: 617-434-4284
ALEXANDRIA REAL ESTATE EQUITIES: Tel: 626 578 0777
Fax: 626 578 0770
Very truly yours,
BANKBOSTON, N.A.
By: By:
--------------------------------- -------------------------------
Name: Jaime Buenaventura Name: John D. Kautz
Title: Director Title: V.P.
Agreed and accepted as of the date first above written:
ALEXANDRIA REAL ESTATE EQUITIES
By:
--------------------------------
Name: Peter J. Nelson
Title: C.F.O.
PLEASE COUNTERSIGN AND FAX TO: (617) 434-4284
ATTN: Derivatives Confirmations
REQUEST CORRECTIONS: (617) 434-4405
- --------------------------------------------------------------------------------
5801608 BankBoston Document - Page 3
<PAGE>
EXHIBIT 12.1
ALEXANDRIA REAL ESTATE EQUITIES, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(in thousands, except ratios)
<TABLE>
<CAPTION>
The Period
October 27,
1994
(inception)
Year Ended December 31, though
--------------------------------------- December 31,
1998 1997 1996 1995 1994
------- -------- ------ ------ ------------
<S> <C> <C> <C> <C> <C>
Earnings (Loss):............................................ 19,403 $(2,797) $2,175 $ 866 $(648)
Add back:
Interest Expense........................................ 14,033 7,043 6,327 3,553 328
Write-Off of Unamortized Loan Costs..................... -- 2,295 -- -- --
Acquisition LLC Financing Costs......................... -- 6,973 -- -- --
------- ------- ------ ------ ------
Earnings Available for Fixed Charges................ 33,436 $13,514 $8,502 $4,419 $(320)
------- ------- ------ ------ ------
Combined Fixed Charges:
Interest Incurred....................................... 16,232 $ 7,139 $6,327 $3,553 $ 328
Write-Off of Unamortized Loan Costs(a).................. -- 2,295 -- -- --
Acquisition LLC Financing Costs(b)...................... -- 6,973 -- -- --
Preferred Dividends..................................... -- 3,038 1,590 -- --
------- ------- ------ ------ ------
Fixed Charges....................................... 16,232 $19,445 $7,917 $3,553 $ 328
------- ------- ------ ------ ------
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends(c)...................................... 2.06 0.69 1.07 1.24 --
Excess of Fixed Charges Over Earnings....................... $ -- $ 5,931 $ -- $ -- $ 648
</TABLE>
- ------------------------
(a) This amount represents unamortized loan costs associated with debt retired
in connection with the IPO.
(b) This amount represents the portion of the purchase price of the
membership interests in ARE Acquisitions, LLC (the "Acquisition LLC") paid
by the Company in excess of the cost incurred by the Acquisition LLC to
acquire the three Life Science Facilities owned by it.
(c) For purposes of calculating the consolidated ratio of earnings to
combined fixed charges and preferred stock dividends, earnings consist
of earnings before income taxes and fixed charges. Fixed charges consist
of interest incurred (including amortization of deferred financing costs
and capitalized interest), write-off of unamortized loan costs,
Acquisition LLC Financing Costs (see Note (b)), and preferred stock
dividends.
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Alexandria Real Estate Equities, Inc.
<TABLE>
<S> <C>
ARE-QRS Corp. ARE-3005 First Avenue, LLC
ARE-GP Holdings QRS Corp. ARE-170 Williams Drive, LLC
ARE-GP/II Holdings QRS Corp. ARE-Western Newbrook, LLC
ARE-GP/III Holdings QRS Corp. ARE-15020 Shady Grove, LLC
ARE 3535/3565 General Atomics Court, LLC ARE-2001 Aliceanna Street, LLC
ARE-10933 North Torrey Pines, LLC ARE-5 Triangle Drive, LLC
ARE-11099 North Torrey Pines, LLC ARE-279 Princeton Road, LLC
Alexandria Real Estate Equities, L.P. ARE-100 Phillips Parkway, LLC
ARE Acquisitions, LLC ARE-50 West Watkins Mill, LLC
ARE-1431 Harbor Bay, LLC ARE-3770 Tansy Street, LLC
ARE-John Hopkins Court, LLC ARE-10505 Roselle Street, LLC
ARE-708 Quince Orchard, LLC ARE-620 Memorial Drive, LLC
ARE-940 Clopper Road, LLC ARE-377 Plantation Street, LLC
ARE-1201 Harbor Bay, LLC ARE-60 Westview, LLC
ARE-1401 Research Boulevard, LLC ARE-One Innovation Drive, LLC
ARE-1500 East Gude, LLC ARE-Five Biotech, LLC
AREE-Holdings, L.P.
AREE-Holdings II, L.P.
ARE-100/800/801 Capitola, LLC
ARE-215 College Road, LLC
ARE-4757 Nexus Centre, LLC
ARE-819/863 Mitten Road, LLC
ARE-Nexus Centre II, LLC
ARE-8000/9000/10000 Virginia Manor, LLC
ARE-10150 Old Columbia, LLC
ARE-11025 Roselle Street, LLC
ARE-Metropolitan Grove I, LLC
ARE-6166 Nancy Ridge, LLC
ARE-79/96 Charlestown Navy Yard, LLC
ARE-5100/5110 Campus Drive, L.P.
ARE-702 Electronic Drive, L.P.
ARE-280 Pond Street, LLC
ARE-150/154 Technology Parkway, LLC
ARE-19 Firstfield Road, LLC
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-34223 and Form S-8 No. 333-60075) pertaining to the Amended
and Restated 1997 Stock Award and Incentive Plan of Alexandria Real Estate
Equities, Inc., the Amended Registration Statement (Form S-3/A No. 333-56449)
of Alexandria Real Estate Equities, Inc. and the related Prospectus, and the
Amended Registration Statement (Form S-3/A No. 333-56451) of Alexandria Real
Estate Equities, Inc. and the related Prospectus, of our report dated January
23, 1999, except for Note 15, as to which the date is February 23, 1999, with
respect to the consolidated balance sheets of Alexandria Real Estate
Equities, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1998, 1997 and 1996 and the
consolidated financial statement Schedule III, rental properties and
accumulated depreciation, which are included in the Form 10-K of Alexandria
Real Estate Equities, Inc. for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
-----------------------
Los Angeles, California
March 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS OF THE COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,554,000
<SECURITIES> 0
<RECEIVABLES> 14,479,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 512,357,000
<DEPRECIATION> 18,611,000
<TOTAL-ASSETS> 530,296,000
<CURRENT-LIABILITIES> 20,698,000
<BONDS> 309,829,000
0
0
<COMMON> 126,000
<OTHER-SE> 199,643,000
<TOTAL-LIABILITY-AND-EQUITY> 530,296,000
<SALES> 0
<TOTAL-REVENUES> 61,016,000
<CGS> 0
<TOTAL-COSTS> 13,390,000
<OTHER-EXPENSES> 14,190,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,033,000
<INCOME-PRETAX> 19,403,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,403,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,403,000
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.58
</TABLE>
