<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1996
REGISTRATION NO. 333-921
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BEDFORD PROPERTY INVESTORS, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
68-0306514
(I.R.S. EMPLOYER IDENTIFICATION NO.)
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DONALD A. LORENZ
BEDFORD PROPERTY INVESTORS, INC.
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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MICHAEL J. KENNEDY PAUL C. PRINGLE
SHEARMAN & STERLING BROWN & WOOD
555 CALIFORNIA STREET 555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104 SAN FRANCISCO, CALIFORNIA 94104
(415) 616-1100 (415) 772-1200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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BEDFORD PROPERTY INVESTORS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY PART I ITEMS OF FORM S-2
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ITEM NUMBER AND HEADING
IN FORM S-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Inside Front and Outside
Back Cover Pages; Available Information;
Incorporation of Certain Information by
Reference
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Description of Capital Stock of the Company
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to Registrant..... Outside Front Cover Page; Prospectus Summary;
Price Range of Common Stock and
Distribution History; Selected Consolidated
Financial and Operating Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business and Properties; Management;
Description of Capital Stock of the
Company; Financial Statements
12. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 29, 1996
3,350,000
BEDFORD PROPERTY INVESTORS, INC.
COMMON STOCK
PROSPECTUS
LOGO
------------------------
Bedford Property Investors, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") engaged in the
business of owning, managing, acquiring and developing industrial and suburban
office properties proximate to selected metropolitan areas primarily in the
Western United States. As of December 31, 1995, the Company owned and operated
30 Properties, aggregating approximately 2.6 million rentable square feet and
comprised of 24 industrial properties, five suburban office properties and one
retail property. As of December 31, 1995, the Company's Properties were
approximately 95% occupied by over 300 tenants.
All of the 3,350,000 shares of Common Stock, par value $.02 per share (the
"Common Stock"), offered hereby are being sold by the Company (the "Offering").
Unless otherwise indicated, the information contained in this Prospectus,
including, but not limited to, Common Stock share numbers, share prices and per
share amounts, reflects a one-for-two reverse stock split of the Common Stock of
the Company effected on March 29, 1996. After completion of the Offering, the
senior officers and directors of the Company will beneficially own approximately
18% of the shares of the outstanding Common Stock, with Peter B. Bedford, the
Company's Chairman and Chief Executive Officer, beneficially owning
approximately 14% of such shares, assuming that the Underwriters' over-allotment
option is not exercised. The Common Stock is listed on the New York Stock
Exchange (the "NYSE") and the Pacific Stock Exchange (the "PSE") under the
symbol "BED." On March 28, 1996, the last reported sale price of the Common
Stock on the NYSE was $7 3/8 per share. As adjusted for the reverse stock split,
the last reported sale price of the Common Stock on March 28, 1996 was $14 3/4
per share.
SEE "RISK FACTORS" APPEARING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
RELATING TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share.......................... $ $ $
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Total(3)........................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $475,000.
(3) The Company has granted the several Underwriters an option to purchase up to
502,500 additional shares of Common Stock to cover over-allotments. If all
such shares of Common Stock are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made in New York, New York, on or about
, 1996.
------------------------
MERRILL LYNCH & CO.
SMITH BARNEY INC.
ROBERTSON, STEPHENS & COMPANY
SUTRO & CO. INCORPORATED
------------------------
The date of this Prospectus is , 1996.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ON THE
PACIFIC STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUMMARY..................... 1
The Company.......................... 1
Recent Activities.................... 2
Risk Factors......................... 4
Business Objectives and Growth
Plans............................. 4
Corporate Strategies................. 5
Real Estate Market Overview.......... 5
Business and Properties.............. 7
Table of Properties.................. 8
The Offering......................... 10
Distribution Policy.................. 10
Tax Status of the Company............ 11
Summary Consolidated Financial and
Operating Data.................... 11
RISK FACTORS........................... 13
Geographic Concentration; Dependence
on California Economy............. 13
Historical Losses; Possibility of
Future Losses..................... 13
Risks Inherent in Real Estate
Investments....................... 13
Substantial Increase in Dividend
Requirements; Possible Inability
to Sustain Dividends.............. 15
Tax Risks; Risks Associated with REIT
Status............................ 16
Transfer and Ownership Limitations... 18
Dependence on Key Personnel.......... 19
Competition.......................... 19
Regulatory Compliance................ 20
Risks of Debt Financing.............. 21
Redemption of the Convertible
Preferred Stock................... 22
Registration Rights.................. 22
Risk of Substantial Dilution......... 23
Effect of Market Interest Rates on
Price of Common Stock............. 23
Concentration of Voting Power and
Right to Consent of the Holders of
the Convertible Preferred Stock... 23
Exemption from the Maryland Business
Combination Law................... 24
Anti-takeover Effect of the Charter,
the Bylaws, the Convertible
Preferred Stock and Certain
Provisions of Maryland Law........ 24
Shares Available for Future Sale..... 26
Changes in Policies.................. 26
RECENT ACTIVITIES...................... 27
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PAGE
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THE COMPANY............................ 29
General.............................. 29
History of the Company............... 29
BUSINESS OBJECTIVES AND GROWTH PLANS... 30
Internal Growth...................... 30
Acquisitions......................... 31
Pending Acquisitions................. 33
Development.......................... 33
Dispositions......................... 34
CORPORATE STRATEGIES................... 34
REAL ESTATE MARKET OVERVIEW............ 36
DESCRIPTION OF THE COMPANY'S MARKETS... 39
USE OF PROCEEDS........................ 43
PRICE RANGE OF COMMON STOCK AND
DISTRIBUTION HISTORY................. 43
DISTRIBUTION POLICY.................... 44
CAPITALIZATION......................... 46
SELECTED CONSOLIDATED FINANCIAL AND
OPERATING
DATA................................... 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................. 49
Results of Operations -- 1995
Compared to 1994.................. 49
Results of Operations -- 1994
Compared to 1993.................. 50
Financial Condition.................. 52
Liquidity and Capital Resources...... 52
Potential Factors Affecting Future
Operating Results................. 53
Accounting Developments.............. 53
Inflation............................ 53
BUSINESS AND PROPERTIES................ 53
Table of Properties.................. 55
Location and Type of the Company's
Properties........................ 57
Tenants.............................. 58
Lease Expirations for the
Properties........................ 59
The Industrial Properties............ 59
The Suburban Office Properties....... 63
Development.......................... 68
Employees............................ 68
Insurance............................ 68
</TABLE>
i
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The Credit Facility.................. 68
1996 Mortgage Loans.................. 70
Certain Property Tax Information..... 70
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES........................... 70
MANAGEMENT............................. 73
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS......................... 77
Funding of Acquisition and Financing
Costs............................. 77
Recent Acquisitions with
Affiliates........................ 78
Other Transactions................... 78
DESCRIPTION OF CAPITAL STOCK OF THE
COMPANY.............................. 79
General.............................. 79
Common Stock......................... 79
Convertible Preferred Stock.......... 80
Additional Series of Preferred
Stock............................. 86
Restrictions on Transfer and
Ownership of Capital Stock........ 86
Transfer Agent and Registrar......... 88
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND
BYLAWS................................. 88
Maryland Business Combination Law.... 88
Control Share Acquisitions........... 89
Interested Director Transactions..... 90
Amendments to the Charter and
Bylaws............................ 90
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The Board of Directors............... 90
Advance Notice of Director
Nominations and New Business...... 91
FEDERAL INCOME TAX CONSIDERATIONS...... 92
Federal Income Taxation of the
Company........................... 92
Requirements for Qualification....... 93
Failure to Qualify................... 96
Taxation of U.S. Stockholders........ 97
Special Tax Considerations for
Foreign Stockholders.............. 98
Information Reporting Requirements
and Backup Withholding Tax........ 99
State and Local Tax.................. 99
ERISA CONSIDERATIONS................... 100
SHARES AVAILABLE FOR FUTURE SALE....... 101
UNDERWRITING........................... 103
EXPERTS................................ 104
LEGAL MATTERS.......................... 104
AVAILABLE INFORMATION.................. 104
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE............................ 105
GLOSSARY............................... 106
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENTS SCHEDULE........ F-1
</TABLE>
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in, or incorporated by
reference into, this Prospectus. References herein to the percentage of a
Property or Properties occupied are calculated by dividing rentable square feet
occupied by total rentable square feet, unless otherwise indicated. Unless
otherwise indicated, the information contained in this Prospectus assumes that
the Underwriters' over-allotment option is not exercised. Unless otherwise
indicated, the information contained in this Prospectus, including, but not
limited to, Common Stock share numbers, share prices and per share amounts,
reflects a one-for-two reverse stock split of the Common Stock of the Company
effected March 29, 1996. References to the "Company" in this Prospectus shall be
deemed to include the Company, its predecessors, and those entities of which the
Company has control or owns a majority of the economic interests, unless
otherwise indicated or the context indicates otherwise. The offering of shares
of Common Stock pursuant to this Prospectus is referred to herein as the
"Offering." See "Glossary" for the definitions of certain capitalized terms used
in this Prospectus.
When used in this Prospectus, the words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially, including, but not limited to,
those set forth in "Risk Factors" and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Potential Factors Affecting
Future Operating Results." Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of December 31,
1995, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 30 properties aggregating approximately 2.6 million
rentable square feet and comprised of 24 industrial properties (the "Industrial
Properties"), five suburban office properties (the "Suburban Office Properties")
and one retail property (the "Retail Property"). The Industrial Properties, the
Suburban Office Properties and the Retail Property are hereinafter referred to
individually as a "Property" and collectively as the "Properties." As of
December 31, 1995, the Properties were approximately 95% occupied by over 300
tenants. The Company's Properties are located in Northern and Southern
California, Colorado, Oregon, Utah, Kansas and Minnesota.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth and,
if possible, are subject to limitations on the development of similar
properties. The Company believes that employment growth is a reliable indicator
of future demand for both industrial and suburban office space. In addition, the
Company believes that certain supply-side constraints, such as limited
availability of undeveloped land in a market and of financing for speculative
real estate construction, increase a market's potential for higher average rents
over time. The Company is currently targeting selected markets proximate to
metropolitan areas in Northern and Southern California, Colorado, Oregon, Utah,
Kansas, Arizona and Washington. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial and suburban office properties in
these markets, and in particular in California, provides the potential for
attractive returns through increased occupancy levels, rents and real estate
values, although there can be no assurance that this will occur. The Company
seeks to grow its asset base through the acquisition of industrial and suburban
office properties and portfolios of such properties, as well as through the
development of new industrial and suburban office properties.
The Company is led by an experienced management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office
1
<PAGE> 8
properties in the Western United States. Peter B. Bedford, the Company's
Chairman and Chief Executive Officer, has been engaged in the commercial real
estate business, primarily in the Western United States, for over 30 years and
has been responsible for the ownership, management, acquisition and development
of an aggregate of approximately 18 million square feet of industrial, office
and retail properties, as well as land in 14 states, primarily as founder and
President of Bedford Property Holdings Limited ("BPHL"), a private diversified
real estate holding company. Since his election as the Company's Chairman and
Chief Executive Officer in 1992, Mr. Bedford has been instrumental in assembling
the Company's Board of Directors, in the design and implementation of the
Company's business plan, in the Company's conversion to a self-administered REIT
and in the selection of the Company's experienced management team, many of the
members of which had previously worked with Mr. Bedford at BPHL.
Since the adoption of the Company's new business strategy in February 1993,
the management team has strategically repositioned the Company by (i) purchasing
20 of the Industrial Properties, all five of the Suburban Office Properties and
the Retail Property for approximately $119 million, (ii) developing a research
and development facility in Milpitas, California, (iii) increasing Funds From
Operations from approximately $2.0 million for the year ended December 31, 1993
to approximately $5.0 million for the year ended December 31, 1995, (iv)
obtaining the existing $60 million credit facility (the "Credit Facility") and a
commitment to increase such facility to $100 million, (v) selling 8,333,334
shares of the Company's Series A Convertible Preferred Stock, par value $.01 per
share (the "Convertible Preferred Stock") for $50 million in gross proceeds,
(vi) repaying $11.1 million in mortgage loans and notes payable bearing interest
at rates in excess of those in effect under the Credit Facility and (vii)
selling five real estate assets targeted for sale and selling the Edison Square
Partnerships.
After completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 18% of the shares of the outstanding
Common Stock with Mr. Bedford beneficially owning approximately 14% of such
shares. As of December 31, 1995, Bed Preferred No. 1 Limited Partnership
("BPLP"), a Delaware limited partnership beneficially owned by an investment
fund managed by Aldrich Eastman Waltch, a national real estate investment
adviser whose clients primarily include institutional investors, was the holder
of all of the outstanding shares of the Convertible Preferred Stock. Each of the
8,333,334 outstanding shares of Convertible Preferred Stock is convertible at
the option of the holders, after September 18, 1997, into one half of one share
of the Company's Common Stock, subject to adjustment upon the occurrence of
certain events. Based upon the current conversion ratio and following
conversion, the outstanding shares of Convertible Preferred Stock would
represent approximately 39% of the shares of Common Stock outstanding at the
completion of the Offering.
RECENT ACTIVITIES
INCREASED FUNDS FROM OPERATIONS AND INCREASED DISTRIBUTIONS
The Company's strong operating performance has generated increased earnings
and dividends. For the year ended December 31, 1995, the Company's Funds From
Operations increased to approximately $5.0 million, an increase of approximately
38.6% from approximately $3.6 million for the year ended December 31, 1994. On
March 15, 1996, the Company announced a 14% increase in its quarterly dividend,
increasing the quarterly dividend on its Common Stock from $.21 per share to
$.24 per share. The higher dividend with respect to the first quarter of 1996
will be paid on April 30, 1996 to shareholders of record as of March 29, 1996.
Purchasers of Common Stock in the Offering will not receive this dividend in
respect of the shares of Common Stock offered hereby.
RECENTLY COMPLETED AND PENDING ACQUISITIONS
The Company has an active acquisition program through which it is
continually engaged in identifying, negotiating and consummating acquisitions of
industrial and suburban office properties and portfolios of such properties. On
March 27, 1996 the Company completed the acquisition of a suburban office
building located in Laguna Hills, California, comprising approximately 51,000
rentable square feet for a purchase price of $6.0 million. The Company has
contracted to purchase a five-building industrial property located in Phoenix,
2
<PAGE> 9
Arizona, comprising approximately 143,950 rentable square feet for a purchase
price of $7.9 million. The Company has also reached understandings with respect
to the purchase price and certain other material terms with the sellers of a
suburban office property and an industrial property comprising an aggregate of
approximately 147,000 rentable square feet for an aggregate purchase price of
approximately $13 million. These pending acquisitions are subject to completion
of due diligence and a number of other contingencies and, as a result, no
assurance can be given that these, or any other, acquisitions will be completed.
COMMITMENT TO AMEND THE CREDIT FACILITY
The Company and the lender under the Credit Facility have agreed, in
principle, to amend the Credit Facility to increase the commitment from $60
million to $100 million, extend the term and reduce the interest rates. The
foregoing amendment to the Credit Facility will be conditioned upon, among other
things, the receipt by the Company of net proceeds of at least $45 million from
the Offering. There can be no assurance that the Company will enter into this
amendment to the Credit Facility on these terms, or at all.
EQUITY PRIVATE PLACEMENT
On September 18, 1995 the Company sold 8,333,334 shares of Convertible
Preferred Stock for $50 million in gross proceeds. Holders of shares of
Convertible Preferred Stock are entitled to receive quarterly cumulative
dividends in cash in an amount equal to the greater of (i) $.135 per share or
(ii) the dividends payable with respect to such quarter on the Common Stock into
which the Convertible Preferred Stock is convertible, plus, in both cases, the
accumulated but unpaid dividends on the Convertible Preferred Stock. Each share
of Convertible Preferred Stock is convertible at the option of the holder at any
time after September 18, 1997, into one-half share of Common Stock, subject to
adjustment under certain circumstances.
MORTGAGE FINANCINGS
In March 1996, the Company obtained mortgage loans (the "1996 Mortgage
Loans") in the aggregate principal amount of $20.2 million which bear interest
at a rate of 7.02% per annum and mature in 2003. The proceeds from the 1996
Mortgage Loans were used to pay down a portion of the outstanding balance under
the Credit Facility. As adjusted to reflect the Offering, the 1996 Mortgage
Loans and the acquisition of the property in Laguna Hills, California as if such
transactions had been consummated on February 29, 1996, the Company's total
consolidated indebtedness as of that date equaled approximately 14.0% of the
Company's Total Market Capitalization. In addition, the Company has a loan
commitment for an additional $4.8 million mortgage loan to be funded in April or
May 1996. This mortgage loan is subject to completion of the lender's due
diligence and as a result, there can be no assurance that the loan will be made.
ADOPTION OF NEW FUNDS FROM OPERATIONS INTERPRETATION
Industry analysts generally consider Funds From Operations an appropriate
measure of the operating performance of real estate investment trusts. In March
1995, NAREIT published a "White Paper" setting forth new guidelines that clarify
its definition of Funds From Operations and requested that REITs adopt this new
interpretation beginning in 1996. The new interpretation provides that
amortization of deferred financing costs and depreciation of non-rental real
estate assets are no longer to be added back to net income to calculate Funds
From Operations. In March 1995, the Company implemented the new NAREIT
interpretation for calculating Funds From Operations. The Company also restated
Funds From Operations for periods prior to 1995 in accordance with the 1995
NAREIT White Paper interpretation.
3
<PAGE> 10
RISK FACTORS
An investment in the Company's Common Stock is subject to significant
risks, including, but not limited to, the risk that the Company will incur
future losses, tax risks, the inability of the Company to sustain or pay
dividends and the risks inherent to investments in real estate and real estate
development. In addition to the other information contained or incorporated by
reference in this Prospectus, prospective investors should carefully consider
the factors discussed in the section entitled "Risk Factors" before purchasing
the Common Stock offered hereby.
BUSINESS OBJECTIVES AND GROWTH PLANS
The Company's business objectives are to increase funds available for
distribution to stockholders and to increase stockholders' long-term total
return through the appreciation in value of the Common Stock. To achieve these
objectives, the Company seeks to (i) increase cash flow from its existing
Properties, (ii) acquire quality industrial and suburban office properties
and/or portfolios of such properties and (iii) develop new industrial and
suburban office properties.
INTERNAL GROWTH
The Company seeks to increase cash flow from existing Properties through
(i) the lease-up of vacant space, (ii) the reduction of costs associated with
tenant turnover through the retention of existing tenants, (iii) the negotiation
of increases in rental rates and of contractual periodic rent increases when
market conditions allow it to do so and (iv) the strict containment of operating
expenses and capital expenditures.
ACQUISITIONS
The Company seeks to acquire quality industrial and suburban office
properties and/or portfolios of such properties. The Company believes that (i)
the experience of its management team, (ii) its conservative capital structure
and its existing $60 million Credit Facility, which may be increased to $100
million pursuant to a commitment obtained by the Company, (iii) its
relationships with private and institutional real estate owners, (iv) its strong
relationships with real estate brokers and (v) its integrated asset management
program enable it to effectively identify and capitalize on acquisition
opportunities.
Acquisitions in 1994. From January 1994 through August 1994, the Company
acquired four properties consisting of approximately 676,000 square feet and
comprised of two industrial properties and two suburban office properties. The
total cost of these Properties, including capital expenditures and due diligence
costs, was $25.5 million. At acquisition, it was estimated that these Properties
would provide an initial weighted average unleveraged return on cost (computed
as annualized property NOI from the date of acquisition divided by total
acquisition cost) of 10.6%, assuming no further lease-up. In 1995, the Company
achieved a weighted average unleveraged return on cost of 12.9% on these
Properties.
Acquisitions in 1995. From September 1995 through December 1995, the
Company acquired 20 properties consisting of approximately 1,546,000 square feet
and comprised of 18 industrial properties, one suburban office property and one
retail property. The total cost of these Properties, including estimated capital
expenditures and due diligence costs, was $84.1 million. At acquisition, it was
estimated that these Properties would provide an initial weighted average
unleveraged return on cost (computed as annualized property NOI from the date of
acquisition divided by total acquisition cost) of 10.5%, assuming no further
lease-up.
Acquisition in 1996. On March 27, 1996, the Company completed a $6.0
million acquisition of a suburban office building consisting of approximately
51,000 rentable square feet in Laguna Hills, California. At acquisition, it was
estimated that this Property would provide an initial weighted average
unleveraged return on cost (computed as annualized property NOI from the date of
acquisition divided by total acquisition cost) of 11.7%, assuming no further
lease-up.
DEVELOPMENT
During 1995, the Company commenced the development of a 3.1-acre parcel
located on the Company's Milpitas Town Center property in Milpitas, California.
The property, which was developed on an unleased
4
<PAGE> 11
("speculative") basis, consists of a single-story research and development
facility with approximately 45,090 rentable square feet. Fujitsu PC Corporation
recently signed a five-year lease commencing on May 1, 1996 to occupy 100% of
the facility's rentable square feet, which will serve as the U.S. headquarters
for Fujitsu Ltd.'s laptop computer company. Upon completion of construction, the
Company expects the unleveraged annual return on total project costs of
approximately $3.4 million to be 12.6% (computed as annualized property NOI from
the date the lease was signed divided by total project costs).
CORPORATE STRATEGIES
In pursuing its business objectives and growth plans, the Company intends
to:
- Pursue a market driven strategy which is based upon an analysis of the
regional factors which the Company believes impact the supply of, and
demand for, industrial and suburban office properties;
- Focus its efforts in the Western United States;
- Capitalize on its experienced management team, whose senior officers have
on average over 17 years of experience in the ownership, management,
acquisition and development of industrial and suburban office properties
in the Western United States;
- Plan for future anticipated expenses associated with tenant turnover by
budgeting for tenant improvements, lease commissions and lost income due
to vacancy or construction down-time;
- Concentrate on acquiring general purpose, flexible properties which are
suitable for a diverse range of tenants;
- Utilize its in-house asset and property management personnel in order to
enhance property operating results and increase responsiveness to
tenants' needs;
- Cooperate with local real estate brokers in order to more effectively
attract and retain tenants; and
- Maintain a conservative capital structure by limiting total consolidated
indebtedness to no more than 50% of its Total Market Capitalization.
REAL ESTATE MARKET OVERVIEW
The Company is currently targeting selected suburban markets in Northern
and Southern California, Colorado, Oregon, Utah, Kansas, Arizona and Washington.
The Company believes that due to recent economic improvements in these markets,
and related improvements in the commercial property markets, an investment in
industrial and suburban office properties in these markets, and in particular in
California, provides the potential for attractive returns through increased
occupancy levels, rents and real estate values. In the 1996 edition of Emerging
Trends, a publication of Equitable Real Estate Management, more than 100 real
estate professionals ranked San Francisco, Seattle, Denver, and Phoenix among
the top seven markets in the nation for general real estate investment in 1996.
5
<PAGE> 12
The following charts outline changes in the levels of employment and the
relationship between building permits issued and occupancy levels for the years
1989 through 1995 in the markets where the Company operates or intends to
operate.
EMPLOYMENT IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EMPLOYMENT
(FISCAL YEAR COVERED) (JOBS IN MILLIONS)
<S> <C>
1989 13.588
1990 13.7713
1991 13.6993
1992 13.5485
1993 13.6069
1994 13.8604
1995 14.2573
</TABLE>
BUILDING PERMITS AND OCCUPANCY FOR
INDUSTRIAL PROPERTIES IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BUILDING PERMITS OCCUPANCY
(FISCAL YEAR COVERED) (VALUE IN MILLIONS) (PERCENT)
<S> <C> <C>
1989 1486 88.2
1990 1381 87.8
1991 831 86.1
1992 626 86.8
1993 509 86.9
1994 687 89
1995 969 89.8
</TABLE>
6
<PAGE> 13
BUILDING PERMITS AND OCCUPANCY FOR
OFFICE PROPERTIES IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BUILDING PERMITS OCCUPANCY
(FISCAL YEAR COVERED) (VALUE IN MILLIONS) (PERCENT)
<S> <C> <C>
1989 2631 81.4
1990 1815 80.6
1991 1197 80.3
1992 814 81.4
1993 657 82.8
1994 861 84.7
1995 904 85.6
</TABLE>
- ---------------
(1) Source: U.S. Census Bureau; The Rosen Group. For 1995: employment statistics
are for the full year; value of building permits is for the first 11 months
annualized; and occupancy percentages are as of the end of the third
quarter.
BUSINESS AND PROPERTIES
As of December 31, 1995, the Company owned and operated 30 Properties,
aggregating approximately 2.6 million rentable square feet and comprised of 24
Industrial Properties totalling approximately 2.1 million rentable square feet,
five Suburban Office Properties totalling approximately 424,000 rentable square
feet and one Retail Property totalling approximately 84,000 rentable square
feet. As of December 31, 1995, the Suburban Office Properties and Industrial
Properties were approximately 96% and 95% occupied, respectively, by a total of
291 tenants, of which 71 were Suburban Office Property tenants and 220 were
Industrial Property tenants. As of December 31, 1995, the Retail Property was
99% occupied by 15 tenants.
The following table summarizes certain information as of December 31, 1995
with respect to the Properties. The table does not include information related
to the Company's pending acquisitions.
7
<PAGE> 14
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
YEAR TOTAL TOTAL PERCENT OFFICE/
ACQUIRED/ RENTABLE ANNUALIZED RESEARCH AND
YEAR SQUARE PERCENT BASE DEVELOPMENT NUMBER OF
PROPERTY NAME AND LOCATION CONSTRUCTED FEET OCCUPIED(1) RENT(2) FINISH TENANTS
- ------------------------------- ------------- ---------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Building #3 at Contra Costa
Diablo Industrial Park,
Concord...................... 1990/1983 21,840 100% $ 108,108 50% 1
Building #8 at Contra Costa
Diablo Industrial Park,
Concord...................... 1990/1981 31,800 100% $ 190,800 18% 1
Building #18 at Mason
Industrial Park, Concord..... 1990/1984 28,850 83% $ 159,408 17% 7
Milpitas Town Center,
Milpitas(3).................. 1994/1983 102,620 100% $ 753,936 60% 4
Auburn Court, Fremont.......... 1995/1983 68,030 100% $ 444,660 50% 6
Westinghouse Drive, Fremont.... 1995/1982 24,030 100% $ 132,648 25% 1
350 East Plumeria Drive, San
Jose......................... 1995/1983 142,700 100% $ 1,113,060 52% 1
301 East Grand, South San
Francisco.................... 1995/1974 57,846 71% $ 240,636 21% 2
342 Allerton, South San
Francisco.................... 1995/1969 69,312 100% $ 476,832 15% 4
400 Grandview, South San
Francisco.................... 1995/1976 107,004 100% $ 801,816 37% 5
410 Allerton, South San
Francisco.................... 1995/1970 46,050 100% $ 237,612 12% 1
417 Eccles, South San
Francisco.................... 1995/1964 24,624 100% $ 140,580 8% 2
---------- ----------- ----------- ------ ---
Subtotal/Weighted Average 724,706 97% $ 4,800,096 37% 35
---------- ----------- ----------- ------ ---
GREATER LOS ANGELES AREA, CALIFORNIA
Dupont Industrial Center,
Ontario...................... 1994/1989 451,192 100% $ 1,431,036 5% 17
3002 Dow Business Center,
Tustin....................... 1995/1987-89 192,125 83% $ 1,434,348 50% 54
---------- ----------- ----------- ------ ---
Subtotal/Weighted Average 643,317 95% $ 2,865,384 18% 71
---------- ----------- ----------- ------ ---
DENVER, COLORADO
Bryant Street Annex, Denver.... 1995/1968 55,000 100% $ 221,112 25% 2
Bryant Street Quad, Denver..... 1995/1971-73 155,536 97% $ 460,116 20% 16
---------- ----------- ----------- ------ ---
Subtotal/Weighted Average 210,536 98% $ 681,228 21% 18
---------- ----------- ----------- ------ ---
MINNEAPOLIS/ST. PAUL, MINNESOTA
St. Paul Business Center East,
Maplewood.................... 1995/1984 77,000 90% $ 484,656 70% 12
St. Paul Business Center West,
Maplewood.................... 1995/1981 108,750 81% $ 476,184 52% 26
---------- ----------- ----------- ------ ---
Subtotal/Weighted Average 185,750 85% $ 960,840 59% 38
---------- ----------- ----------- ------ ---
GREATER PORTLAND AREA, OREGON
Twin Oaks Technology Center,
Beaverton.................... 1995/1984 94,177 81% $ 552,744 70% 16
Twin Oaks Business Park,
Beaverton.................... 1995/1984 65,238 94% $ 471,144 100% 14
---------- ----------- ----------- ------ ---
Subtotal/Weighted Average 159,415 86% $ 1,023,888 82% 30
---------- ----------- ----------- ------ ---
KANSAS CITY, KANSAS
Ninety-Ninth Street #3,
Lenexa....................... 1990/1990 50,000 100% $ 293,016 18% 2
Ninety-Ninth Street #1,
Lenexa....................... 1995/1988 35,516 100% $ 282,708 70% 3
Ninety-Ninth Street #2,
Lenexa....................... 1995/1988 12,974 100% $ 98,088 95% 1
Lackman Business Center,
Lenexa....................... 1995/1985 45,956 98% $ 377,808 75% 22
---------- ----------- ----------- ------ ---
Subtotal/Weighted
Average.................. 144,446 99% $ 1,051,620 56% 28
---------- ----------- ----------- ------ ---
TOTAL/WEIGHTED AVERAGE
ALL INDUSTRIAL PROPERTIES...... 2,068,170 95% $11,383,056 36% 220
---------- ----------- ----------- ------ ---
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
YEAR TOTAL TOTAL PERCENT OFFICE/
ACQUIRED/ RENTABLE ANNUALIZED RESEARCH AND
YEAR SQUARE PERCENT BASE DEVELOPMENT NUMBER OF
PROPERTY NAME AND LOCATION CONSTRUCTED FEET OCCUPIED(1) RENT(2) FINISH TENANTS
- ------------------------------- ------------- ---------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
SUBURBAN OFFICE PROPERTIES
GREATER LOS ANGELES AREA, CALIFORNIA(4)
1000 Town Center Drive,
Oxnard....................... 1993/1990 107,653 93% $ 1,769,076 100% 10
Mariner Court, Torrance........ 1994/1989 105,436 97% $ 1,790,412 100% 35
---------- ----------- ----------- ------ ---
Subtotal/Weighted
Average.................. 213,089 95% $ 3,559,488 100% 45
---------- ----------- ----------- ------ ---
SALT LAKE CITY, UTAH
Woodlands II, Salt Lake
City(5)...................... 1993/1990 114,352 95% $ 1,542,984 100% 11
KANSAS CITY, KANSAS
6600 College Boulevard,
Overland Park................ 1995/1982-83 79,316 100% $ 952,884 95% 6
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Village Green, Lafayette(6).... 1994/1983 16,895 100% $ 306,240 100% 9
---------- ----------- ----------- ------ ---
TOTAL/WEIGHTED AVERAGE
ALL SUBURBAN OFFICE
PROPERTIES................... 423,652 96% $ 6,361,596 99% 71
---------- ----------- ----------- ------ ---
RETAIL PROPERTY
Academy Place Shopping Center,
Colorado Springs............. 1995/1980-82 84,347 99% $ 836,748 -- 15
---------- ----------- ----------- ------ ---
TOTAL/WEIGHTED AVERAGE ALL
PROPERTIES................... 2,576,169 95% $18,581,400 47% 306
========= =========== ============ ============= ==========
</TABLE>
- ---------------
(1) Rentable square feet occupied divided by total rentable square feet.
(2) Annualized Base Rent is computed upon the basis of the monthly base rent in
effect under each lease as of December 31, 1995, or, if such monthly base
rent has been reduced by a temporary rent concession, the monthly base rent
that would have been in effect at such date in the absence of such
concession. Annualized Base Rent does not reflect increases or decreases in
monthly rental rates or any lease expirations which are scheduled to occur
or which may occur after December 31, 1995 or the cost of any leasing
commissions or tenant improvements.
(3) The Company is currently developing a 45,090 rentable square foot building
on 3.1 acres of adjoining land. The Company has signed a five-year lease
with Fujitsu PC Corporation, which is scheduled to occupy the entire
facility beginning May 1, 1996. See "Business and Properties--Development."
(4) On March 27, 1996 the Company completed the acquisition of a suburban office
building located in Laguna Hills, California, comprising approximately
51,062 rentable square feet for a purchase price of $6.0 million. See
"Business Objectives and Growth Plans--Acquisitions--Acquisition in 1996."
(5) Rentable square feet includes an 8,268 square foot single-story retail
building which was 100% occupied as of December 31, 1995.
(6) The Company's headquarters are located at Village Green.
9
<PAGE> 16
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders are selling any shares of Common
Stock in the Offering.
<TABLE>
<S> <C>
Common Stock outstanding prior to the Offering............ 3,045,325 shares(1)
Common Stock offered in the Offering...................... 3,350,000 shares
Common Stock to be outstanding after the Offering......... 6,395,325 shares(1)
Common Stock outstanding after the Offering assuming
conversion of all outstanding shares of Convertible
Preferred Stock......................................... 10,561,992 shares(1)
Use of Proceeds........................................... To repay all outstanding indebtedness
under the Credit Facility, to purchase
additional properties and for general
corporate purposes, including working
capital. See "Use of Proceeds."
New York Stock Exchange and Pacific
Stock Exchange Symbol................................... "BED"
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of March 15,
1996.
DISTRIBUTION POLICY
The Company has made regular quarterly distributions to the holders of the
Common Stock in each quarter since the second quarter of 1993 and has increased
the dividend six times from $.10 per share in the second quarter of 1993 to $.21
per share in each of the second, third and fourth quarters of 1995. On March 15,
1996, the Company declared a dividend distribution to its stockholders of record
on March 29, 1996 of $.24 per share of Common Stock for the first quarter of
1996, payable April 30, 1996. Purchasers of Common Stock in the Offering will
not receive this dividend in respect of the shares of Common Stock offered
hereby. All dividend distributions made for the years 1993, 1994 and 1995 were
classified as a return of capital for federal income tax purposes. It is likely,
however, that a substantial portion of the Company's dividend distributions in
1996 will be taxable as ordinary income. The Company currently intends to
continue paying regular quarterly dividends and to distribute amounts sufficient
to maintain its status as a REIT. Dividends are made at the discretion of the
Board of Directors and future distributions by the Company will depend on the
Board of Directors' evaluation of the results of operations of the Company, its
financial condition and capital requirements, restrictions under the Convertible
Preferred Stock, debt instruments and the Maryland General Corporation Law (the
"MGCL"), the annual distribution requirements under the REIT provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), required repayments of
borrowings and such other factors as the Board of Directors deems relevant.
On September 18, 1995 the Company sold 8,333,334 shares of Convertible
Preferred Stock for $50 million in gross proceeds to BPLP. The Company paid
dividends to BPLP in an amount of approximately $.02 per share of Convertible
Preferred Stock for the partial dividend period commencing September 18, 1995
and ended September 30, 1995 and in an amount of $.135 per share of Convertible
Preferred Stock for the fourth quarter of 1995. On March 15, 1996, the Company
declared a dividend distribution in an amount of $.135 per share of Convertible
Preferred Stock for the first quarter of 1996, payable May 15, 1996. Dividends
may be authorized, declared and paid on shares of Common Stock in any fiscal
quarter only if full cumulative dividends have been paid on, or authorized and
set apart on, all shares of Convertible Preferred Stock for all prior dividend
periods through and including the end of such quarter. Holders of shares of
Convertible Preferred Stock are entitled to receive in each calendar quarter,
when and as authorized and declared by the Board of Directors, cumulative
dividends in cash in an amount equal to the greater of (i) an amount per share
of $.135 or (ii) the dividends payable with respect to such quarter on the
Common Stock into which the Convertible Preferred Stock is convertible, plus, in
both cases, the accumulated but unpaid dividends on the Convertible Preferred
Stock.
10
<PAGE> 17
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856-860 of the
Code and (subject to certain exceptions) so long as it qualifies as a REIT is
not subject to federal income taxation at the corporate level on its taxable
income that is distributed to the stockholders of the Company. A REIT is subject
to a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95% of its annual taxable
income. Failure to qualify as a REIT would render the Company subject to tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates, and distributions to the stockholders in any such year would
not be deductible by the Company. Even if the Company qualifies for taxation as
a REIT, the Company may be subject to certain state and local taxes on its
income and property.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data for the Company and its subsidiaries on a historical basis as of and for
the years ended December 31, 1991 through 1995. The following table also sets
forth summary consolidated operating data for the Company and its subsidiaries
on a pro forma basis for the year ended December 31, 1995.
The financial and operating data as of and for the years ended December 31,
1991 through 1995 have been derived from the Company's audited financial
statements. The following data should be read in conjunction with the
Consolidated Financial Statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
The unaudited pro forma operating data for the year ended December 31, 1995
are presented as if (i) property acquisitions and property sales occurring after
December 31, 1994, including the acquisition of the suburban office property in
Laguna Hills, California on March 27, 1996, (ii) the pending acquisition of the
industrial property in Phoenix, Arizona, which is under contract and scheduled
to close in April 1996, (iii) the 1996 Mortgage Loans in the amount of $20.2
million and (iv) the Offering had occurred on January 1, 1995. The unaudited pro
forma balance sheet data as of December 31, 1995 are presented as if (i) the
acquisition of the suburban office property in Laguna Hills, California on March
27, 1996, (ii) the pending acquisition of the industrial property in Phoenix,
Arizona, (iii) the 1996 Mortgage Loans in the amount of $20.2 million and (iv)
the Offering had occurred as of that date. The acquisition of the industrial
property in Phoenix, Arizona which is under contract and scheduled to close in
April 1996 is subject to the completion of due diligence and a number of other
contingencies and, as a result, no assurance can be given that the acquisition
will be completed.
The pro forma data are based upon certain assumptions in addition to those
specified above that are included in the notes to the pro forma financial
statements included elsewhere in this Prospectus. The pro forma financial data
are not necessarily indicative of what the actual financial position and results
of operations of the Company would have been as of and for the periods
indicated, nor do they purport to represent the Company's future financial
position and results of operations.
11
<PAGE> 18
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PRO FORMA ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
1995 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------- ------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE, PROPERTY AND OCCUPANCY
DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income............... $23,840 $11,695 $ 9,154 $ 7,207 $ 9,056 $8,675
Income from property
operations............... 14,589 6,362 4,624 1,597 1,434 1,514
General and administrative
expenses................. 1,457 1,457 1,309 1,303 2,568 2,068
Interest income............. 226 226 56 136 5 602
Interest expense............ 1,934 1,594 955 716 1,191 2,281
Income (loss) before
extraordinary item....... 10,577 2,895 3,609 3,147 (21,943) (5,454)
Net income (loss)........... 10,577 2,895 3,609 3,147 (18,125) (5,454)
Income (loss) applicable to
common stockholders...... 6,077 1,607 3,609 3,147 (18,125) (5,454)
Income (loss) before
extraordinary item per
common share............. $ 0.94 $ 0.52 $ 1.18 $ 1.06 $ (7.34) $(1.82)
Net income (loss) per common
share.................... $ 0.94 $ 0.52 $ 1.18 $ 1.06 $ (6.06) $(1.82)
Weighted average number of
common and common
equivalent shares
outstanding.............. 6,439,549 3,089,549 3,073,832 2,987,950 2,987,950 2,987,950
CASH FLOW INFORMATION:
Net cash provided by
operating
activities............... -- $ 4,898 $ 2,716 $ 1,220 $ 198 $1,765
Net cash provided (used) by
investing activities..... -- (73,259) (19,720) 10,085 (1,750) (1,190)
Net cash provided (used) by
financing activities..... -- 64,655 16,807 (6,550) 1,400 (609)
OTHER DATA:
Funds from operations....... -- $ 5,021 $ 3,622 $ 1,964 $ 879 $ 836
Dividends declared per share
of Common Stock.......... -- $ 0.82 $ 0.71 $ 0.36 -- $ 0.24
Number of Properties........ 32 30 12 9 12 14
Rentable square feet (in
thousands)............... 2,771 2,576 1,157 632 908 1,180
Percent occupied............ 95% 95% 95% 88% 90% 88%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995
----------------------
PRO FORMA ACTUAL
--------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Real estate investments before
accumulated depreciation..... $ 145,361 $131,183
Total assets.................... 157,328 133,478
Mortgage loans payable.......... 20,200 --
Bank loan payable............... -- 43,250
Common stock and other
stockholders' equity......... 79,335 32,435
</TABLE>
12
<PAGE> 19
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
following factors before purchasing the Common Stock offered hereby.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CALIFORNIA ECONOMY
As of December 31, 1995, approximately 62% of the Company's total
Annualized Base Rent was generated by its Properties located in the State of
California. As a result of this geographic concentration, the performance of the
commercial real estate markets and the local economies in various areas within
California could affect the value of such Properties and the rental income from
such Properties and, in turn, the Company's results of operations. In addition,
the geographic concentration of the Company's Properties in California in close
proximity to regions known for their seismic activity exposes the Company to the
risk that operating results could be materially affected by a significant
earthquake. See "-- Risks Inherent in Real Estate Investments -- Effect of
Uninsured Loss."
HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES
The Company had losses of $12.3 million, $5.5 million, $21.9 million and
$286,000 for fiscal years 1990 through 1993, respectively, before taking into
account the gain on the extinguishment of debt in 1992 and gains on sales of
investments and joint venture partnerships in 1993. Although such losses were
due in large part to investments which the Company subsequently divested, there
can be no assurance that the Company will not incur significant losses in the
future. As of December 31, 1995, the Company's consolidated balance sheet
reflected accumulated losses and distributions in excess of net income
aggregating approximately $74.8 million, resulting from the losses referred to
above and the fact that aggregate dividends to stockholders have exceeded net
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS INHERENT IN REAL ESTATE INVESTMENTS
General
Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which the Company invests do not generate sufficient income to meet costs,
including debt service, tenant improvements, third-party leasing commissions and
capital expenditures, the Company's results of operations and ability to make
distributions to its stockholders will be adversely affected. Revenues and
values of the Company's properties may be adversely affected by a number of
factors, including the national economic climate, the local economic climate,
local real estate conditions (such as an oversupply of space or a reduction in
demand for real estate in an area), the attractiveness of the properties to
tenants, competition from other available space, the ability of the Company to
provide adequate maintenance and insurance and to cover other operating costs,
government regulations and changes in real estate, zoning or tax laws, interest
rate levels, the availability of financing and potential liabilities under
environmental and other laws. Historically, the Company has had tenants leasing
space in the Properties who occasionally have been delinquent in their payments.
Further, because the Company generally does not have extensive historical or
financial information on the tenants in its recently acquired Properties, there
may be tenants in the Company's recently acquired Properties who, unknown to the
Company, were delinquent in the payment of their rent in the past. As
substantially all of the Company's income is derived from rental income from
real property, the Company's results of operations and ability to make
distributions to stockholders would be adversely affected if a number of the
Company's tenants or one or more of the Company's significant tenants were
unable to meet their obligations to the Company or failed to renew their leases
with the Company, or if the rental rates upon reletting or renewal of leases
were significantly lower than current or expected rates or if the Company were
unable to lease a significant amount of space on economically favorable terms or
at all. In addition, certain significant expenditures associated with each
equity investment (such as debt service, real estate taxes and maintenance
costs) are generally not reduced when circumstances cause a reduction in rental
income
13
<PAGE> 20
from the investment. Should such events occur, the Company's results of
operations and ability to make distributions to stockholders could be adversely
affected.
Lease Expirations; Renewal of Leases and Reletting of Unleased Space
As of December 31, 1995, leases representing 14%, 26%, 21%, 13% and 12% of
the Company's total Annualized Base Rent at that date were scheduled to expire
in 1996, 1997, 1998, 1999 and 2000, respectively. The Company will be subject to
the risk that, upon expiration, certain of these leases will not be renewed, the
space may not be relet, or the terms of renewal or reletting (including the cost
of required renovations or concessions to tenants) may be less favorable than
current lease terms. See "Business and Properties -- Lease Expirations for the
Properties." In addition, the Company expects to incur costs in making
improvements or repairs to its Properties required by new or renewing tenants
and expenses associated with brokerage commissions payable in connection with
the reletting of space. Similarly, rental income may be reduced due to vacancies
resulting from lease expirations or by construction of tenant improvements
required by renewing or new tenants. If the Company is unable to promptly renew
leases or relet space or to fund expenses relating to tenant turnover, if the
terms of any such renewal or reletting are less favorable than current lease
terms, or if the expenses relating to tenant turnover are greater than expected,
the foregoing could have a material adverse effect on the Company and its
ability to make distributions to stockholders.
Dependence on Certain Tenants
As of December 31, 1995, ten of the Company's tenants accounted for
approximately 30% of its total Annualized Base Rent. If the Company were to lose
any one or more of such tenants, or if any one or more of such tenants were to
declare bankruptcy or to fail to make rental payments when due, there could be a
material adverse effect on the Company and its ability to make distributions to
stockholders. See "-- Bankruptcy of Tenants."
Bankruptcy of Tenants
At any time, a tenant could seek the protection of the bankruptcy laws,
which might result in the modification or termination of such tenant's lease and
cause a reduction in the cash flow of the Company. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
In the event of default by or bankruptcy of a tenant, the Company may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The default, bankruptcy or insolvency of a major
tenant may have an adverse effect on the Company and its ability to make
distributions to stockholders. Moreover, a substantial number of the Company's
tenants are professionals or small- or medium-sized businesses, which are
generally more susceptible to the foregoing risks than are large,
well-capitalized enterprises.
Risks Associated with Real Estate Acquisition and Development
The Company intends to actively seek to acquire industrial and suburban
office properties and portfolios of such properties, which may include the
acquisition of other companies and business entities owning such properties.
Although the Company will engage in due diligence with respect to each new
acquisition, there can be no assurance that the Company will be aware of all
potential liabilities and problems associated with such properties, and the
Company may have limited contractual recourse, or no contractual recourse,
against the sellers of such properties. In that regard, of the 30 Properties
owned by the Company as of December 31, 1995, 24 were acquired in 1994 and 1995,
and there can be no assurance that the Company is aware of all potential
liabilities and problems associated with these recently acquired Properties.
Moreover, it is likely that in the future, the majority of the Company's
properties and portfolios of properties will be acquired on an "as is" basis,
with limited recourse against the sellers. In addition, acquisitions of new
properties entail risks that the investments will fail to perform in accordance
with expectations, and estimates of the costs of improvements to bring an
acquired property up to the Company's standards, and standards established for
the market position intended for that property, may prove inaccurate. To the
extent that the Company acquires properties with substantial vacancies (as it
has in the past), there is a risk that the Company will be unable to
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lease vacant space in a timely manner or at all, and that the costs of obtaining
tenants (such as tenant improvements, lease concessions and brokerage
commissions) could prove more costly than anticipated.
During 1995, the Company commenced the development of a 3.1-acre parcel
located on the Company's Milpitas Town Center property in Milpitas, California.
The property, which was developed on an unleased ("speculative") basis, consists
of a single-story research and development facility with approximately 45,090
rentable square feet. Fujitsu PC Corporation recently signed a five-year lease
commencing on May 1, 1996 to occupy 100% of the facility's rentable square feet.
The Company will be subject to a number of risks relating to the development of
the Milpitas R&D Property and any other industrial and suburban office property
projects it decides to develop, including the risks that financing for such
development may not be available on favorable terms, that a project may not be
completed or may not be completed on schedule or for the amount planned
(resulting in increased debt service expense and construction costs) and that
newly constructed properties may not be leased on profitable terms or at all.
Timely construction may be adversely affected by the failure to obtain
governmental permits, environmental matters, by local or national strikes and by
local or national shortages in building materials or supplies or fuel for
equipment. Any of the foregoing could adversely affect the Company and its
ability to make distributions to stockholders.
Effect of Uninsured Loss
The Company currently carries general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as well as
a $10 million umbrella liability policy. The Company carries property insurance
on a replacement value basis covering both the cost of direct physical damage
and the loss of rental income. Separate flood and earthquake insurance is
provided with an annual aggregate limit of $10 million, subject to varying
deductibles of 7.5% to 25% of total insurable value per building with respect to
earthquake coverage. Certain types of losses, however (such as losses due to
acts of war, nuclear accidents or pollution), may be either uninsurable or not
economically insurable. Likewise, certain losses could exceed the limits of the
Company's insurance policies or could cause the Company to bear a substantial
portion of those losses due to deductibles under those policies. Should an
uninsured loss occur, the Company could lose both its invested capital in and
anticipated cash flow from the property and would continue to be obligated to
repay any outstanding indebtedness incurred to acquire such property. In
addition, a majority of the Properties are located in areas that are subject to
earthquake activity. Although the Company has obtained earthquake insurance
policies for all of its Properties, should one or more Properties sustain damage
as a result of an earthquake, the Company may incur substantial losses up to the
amount of the deductible under its earthquake policy and, additionally, to the
extent that the damage exceeds the policy's maximum coverage. Although the
Company has obtained owner's title insurance policies for each of the
Properties, the title insurance may be in an amount less than the current market
value of certain of the Properties. If a title defect results in a loss that
exceeds insured limits, the Company could lose all or part of its investment in,
and anticipated gains (if any) from, such Property. See "Business and
Properties -- Insurance."
SUBSTANTIAL INCREASE IN DIVIDEND REQUIREMENTS; POSSIBLE INABILITY TO SUSTAIN
DIVIDENDS
The cash dividends payable on the Convertible Preferred Stock, which was
issued in September 1995, will substantially increase the cash required to
continue to pay cash dividends on the Common Stock at current levels. The terms
and conditions of the Convertible Preferred Stock provide that dividends may be
paid on shares of Common Stock in any fiscal quarter only if full cumulative
cash dividends have been paid on all shares of Convertible Preferred Stock in
the amount equal to the greater of (i) an amount per share of $.135 or (ii) the
dividends payable with respect to such quarter on the Common Stock into which
the Convertible Preferred Stock is convertible plus, in both cases, any
accumulated but unpaid dividends on the Convertible Preferred Stock.
Furthermore, if the holders of the Convertible Preferred Stock exercise their
redemption rights and such redemption is not made, the dividend payable on the
Convertible Preferred Stock will increase. See "Description of Capital Stock of
the Company -- Convertible Preferred Stock -- Dividends."
The Convertible Preferred Stock may be redeemed, under certain
circumstances, at the option of the Company or upon demand of the holders of the
Convertible Preferred Stock. Such a redemption would
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decrease the amount of cash available to pay cash dividends on the Common Stock.
At any time after September 18, 1997, the Company may redeem the Convertible
Preferred Stock in whole (but not in part) at its option at a price calculated
by determining an internal rate of return on the Convertible Preferred Stock of
25% per annum for the period from September 18, 1995 until September 18, 1997
and an internal rate of return on the Convertible Preferred Stock of 20% per
annum from and after September 18, 1997 until the date of redemption, but not
beyond September 18, 2000. At any time after September 18, 2000, or at any time
prior thereto if there are less than 400,000 shares of Convertible Preferred
Stock outstanding, the Convertible Preferred Stock may be redeemed in whole or
in part at the option of the Company at a redemption price equal to $6.30 per
share (declining $.06 in each of the first five full years commencing on
September 18, 2000) plus all accrued and unpaid dividends. In addition, after
September 18, 1996, the Company will be required, at the option of the holders
of the Convertible Preferred Stock, to redeem the Convertible Preferred Stock on
demand of the holders thereof on the occurrence of any one or more of the
following: (i) the failure to pay dividends on the Convertible Preferred Stock
for two consecutive quarters, (ii) a default in the payment on certain
institutional debt, (iii) the failure of the Company to obtain any required
consent of the holders of the Convertible Preferred Stock or (iv) the failure to
reach certain financial performance levels. See "Description of Capital Stock of
the Company -- Convertible Preferred Stock -- Redemption."
In addition, the Common Stock issued in connection with the Offering will
further substantially increase the cash required to continue to pay cash
dividends at current levels. Any Common Stock or Preferred Stock that may in the
future be issued to finance acquisitions, upon exercise of stock options or
otherwise would have a similar effect. See "-- Shares Available for Future Sale"
and "Shares Available for Future Sale." The Company's ability to pay dividends
will depend in large part on the performance of its Properties and other
properties that it may acquire in the future. In addition, the Credit Facility
places certain limitations on the Company's ability to pay quarterly dividends
to stockholders.
In addition, the Company's ability to pay dividends is based upon a number
of uncertainties. In particular, the Company acquired 24 of its 30 Properties in
1994 and 1995 and, therefore, has a limited operating history with respect to
those Properties. The Company's ability to pay dividends depends in large part
upon whether these recently acquired Properties, as well as the Company's other
Properties and future acquisitions perform in accordance with expectations.
Likewise, the Company's ability to pay dividends will depend upon, among other
things, occupancy levels at its Properties, its ability to enter into new leases
upon expiration of current leases and costs associated with the renewal or
reletting of space, expenditures with respect to existing and newly acquired
Properties, the amount of its debt and the interest rate thereon, default or
bankruptcy by tenants, and other costs relating to its Properties, as well as
the continued absence of significant expenditures relating to environmental or
other regulatory matters. Most of these matters are beyond the control of the
Company and it is unlikely that the Company's expectations with respect to these
matters will prove accurate in all respects. A significant difference between
such expectations and actual results could have a material adverse effect on the
Company and its ability to pay dividends.
The Company's ability to pay dividends on the Common Stock is further
limited by the MGCL. Under the MGCL, a Maryland corporation may not make a
distribution on its common stock if, after giving effect to such distribution,
either (i) the corporation would not be able to pay indebtedness of the
corporation as such indebtedness becomes due in the usual course of business or
(ii) the corporation's total assets would be less than the sum of the
corporation's total liabilities plus any payments the corporation would be
required to make upon the corporation's dissolution to holders of stock having a
liquidation preference (such as the Convertible Preferred Stock) over common
stock in the event of dissolution. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Liquidation Preference."
TAX RISKS; RISKS ASSOCIATED WITH REIT STATUS
Adverse Consequences of the Failure to Maintain Qualification as a REIT
The Company believes that it has operated so as to qualify as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the
taxable year 1985. However, no assurance can be given that the Company will be
able to continue to operate in a manner enabling it to remain so qualified or
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that it will not be found to have failed to qualify as a REIT for a prior tax
year. In that regard (as discussed below), it is uncertain whether the Company
properly requested written statements from certain stockholders for tax years
1992 and 1993 as required by the regulations issued by the United States
Treasury Department (the "Treasury Regulations") under the Code. Qualification
as a REIT involves the application of highly technical and complex Code
provisions which have only a limited number of judicial and administrative
interpretations, and the determination of various factual matters and
circumstances not entirely within the Company's control may have an impact on
its ability to maintain its qualification as a REIT. For example, in order to
qualify as a REIT, at least 95% of the Company's gross income in any year must
be derived from qualifying sources and the Company must make distributions to
stockholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). In addition, no assurance can be given that new
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to its
qualification as a REIT or the federal income tax consequences of such
qualification. The Company, however, is not aware of any proposal to amend the
tax laws that would significantly and adversely affect the Company's ability to
continue to operate as a REIT.
As a condition to maintaining its status as a REIT, the Code, and the
Treasury Regulations promulgated thereunder, contain a requirement (the "Five or
Fewer Requirement") that, during the last half of each taxable year, not more
than 50% in value of the REIT's outstanding stock be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities). In order to determine if a REIT satisfies the Five or Fewer
Requirement, the Treasury Regulations require a REIT to request written
statements concerning the ownership of its capital stock from certain
stockholders of record (the "Stockholder Polling Requirements"). See "Federal
Income Tax Considerations -- Requirements for Qualification." For tax years 1992
and 1993 (and possibly for certain prior years which tax counsel referred to
below believes are outside the normal period for federal tax audit), it is
uncertain whether the Company properly requested the written statements required
by the Stockholder Polling Requirements from certain clearing organizations
holding Common Stock as nominees for the beneficial owners of such shares.
However, the Company did employ stockholder polling procedures for tax years
1992 and 1993 which it believes went beyond what is required by the Treasury
Regulations under the Code in providing stockholder ownership information for
purposes of determining whether the Company had satisfied the Five or Fewer
Requirement. In that regard, the Company has received an opinion of Shearman &
Sterling, counsel to the Company, to the effect that, based on various
assumptions and factual representations made by the Company, the Company has
not, by virtue of the Stockholder Polling Requirements, failed to qualify as a
REIT with respect to tax years 1992 and 1993. However, such opinion is not
binding on the Internal Revenue Service (the "IRS"). If the IRS were to
successfully challenge such compliance, the Company would lose its status as a
REIT as of the first taxable year in which it was considered not to have
complied with such requirements. See "Federal Income Tax
Considerations -- Failure to Qualify."
The Stock Purchase Agreement, in effect, permits a partner in BPLP to own
up to 8.2% of the outstanding shares of Common Stock of the Company on a fully
diluted basis (that is, treating the Convertible Preferred Stock as if all of
such stock were converted to Common Stock). This is the equivalent of owning
approximately 14.2% of the Convertible Preferred Stock, based on the number of
shares of Common Stock outstanding before the completion of the Offering or
20.8% based on the number of shares of Common Stock outstanding after the
Offering. If each share of the Convertible Preferred Stock and each share of the
Common Stock were relatively equal in value, the ownership of the Convertible
Preferred Stock or the Common Stock upon conversion by BPLP would not cause the
Company to violate the Five or Fewer Requirement since, when the maximum
ownership of each of the partners of BPLP is combined with the ownership of
Peter Bedford, five or fewer individuals would not own more than 50% in value of
the outstanding shares of the Company. Notwithstanding the foregoing, if (i)
there were a substantial decline in the value of a share of the Common Stock
relative to a share of the Convertible Preferred Stock, (ii) five or fewer
individuals owned more than 50% of the Convertible Preferred Stock, and (iii)
such Convertible Preferred Stock constituted more than 50% of the aggregate
value of both the Common Stock and the Convertible Preferred Stock, the Company
could cease to be eligible to be treated as a REIT. The Company believes that
the likelihood of all three circumstances occurring is remote. For example, as
noted, five or fewer "individuals" would need to own more than a 50% interest in
BPLP. The Company believes that most of the
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partners in BPLP are entities which are widely held and not individuals.
Therefore, based upon the "look through" requirement described above, the
Company believes that it is unlikely that five or fewer "individuals" would own
more than 50% of the outstanding shares. Nonetheless, if there were both such a
substantial decline in value of the shares of Common Stock and five or fewer
individuals were treated as owning more than 50% of BPLP, the Company could fail
to qualify as a REIT.
If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. See "Federal Income Tax Considerations."
Effect of Distribution Requirements
To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its taxable income (excluding net
capital gains). In addition, the Company is subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
and 95% of its capital gain net income for the calendar year plus any amount of
such income not distributed in prior years. See "Federal Income Tax
Considerations." Although the Company anticipates that cash flow from operations
will be sufficient to enable it to pay its operating expenses and meet the
distribution requirements discussed above, there can be no assurance that this
will be the case and it may be necessary for the Company to incur borrowings or
otherwise obtain funds to satisfy the distribution requirements associated with
maintaining its qualification as a REIT. In addition, differences in timing
between the receipt of income and the payment of expenses in arriving at taxable
income of the Company could require the Company to incur borrowings or otherwise
obtain funds to meet the distribution requirements that are necessary to
maintain its qualification as a REIT. There can be no assurance that the Company
will be able to borrow funds or otherwise obtain funds if and when necessary to
satisfy such requirements.
TRANSFER AND OWNERSHIP LIMITATIONS
For the purpose of preserving the Company's REIT qualification, the
Company's Charter provides that no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, more than
5% (in value) of the aggregate outstanding shares of all classes of stock of the
Company or more than 5% (in number or value, whichever is more restrictive) of
the outstanding shares of Common Stock, with certain exceptions. In addition, no
holder is permitted to own, either actually or constructively under the
applicable attribution rules of the Code, any shares of any class of the
Company's stock if such ownership would cause more than 50% in value of the
Company's outstanding stock to be owned by five or fewer individuals or would
result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rule of attribution). Acquisition or
ownership (actual or constructive) of the Company's stock in violation of these
restrictions results in automatic transfer of such stock to a trust for the
benefit of a charitable beneficiary or, under certain specified circumstances,
the violative transfer may be deemed void ab initio or the Company may choose to
redeem the violative shares. Mr. Bedford and BPLP are subject to higher
ownership limitations than the other stockholders. Specifically, Mr. Bedford is
not permitted to own more than 15% of the lesser of the number or value of the
outstanding shares of Common Stock, as adjusted to take into account the
conversion of the 8,333,334 shares of Convertible Preferred Stock. BPLP is
permitted to own 100% of the outstanding shares of Convertible Preferred Stock,
but not more than 58% of the
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lesser of the number or value of the outstanding shares of Common Stock, as
adjusted to take into account the conversion of the 8,333,334 shares of
Convertible Preferred Stock. See "Description of Capital Stock of the
Company -- Restrictions on Transfer and Ownership of Capital Stock."
The constructive ownership rules are complex and may cause Common Stock or
Convertible Preferred Stock owned beneficially or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than 5% of the number or value
of outstanding Common Stock or of less than 5% of the value of outstanding
Convertible Preferred Stock (or the acquisition of an interest in an entity
which owns Common Stock or Convertible Preferred Stock) by an individual or
entity could cause that individual or entity (or another individual or entity)
to constructively own Common Stock or Convertible Preferred Stock in excess of
the limits described above, and thus subject such stock to the ownership
restrictions in the Charter. See "Description of Capital Stock of the Company --
Restrictions on Transfer and Ownership of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior officers, and
in particular Peter B. Bedford, its Chairman and Chief Executive Officer. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a material adverse effect on the Company.
In addition, the Credit Facility provides that it is an event of default
thereunder if Mr. Bedford ceases for any reason to be the Chairman or Chief
Executive Officer of the Company and a replacement reasonably satisfactory to
the lenders thereunder has not been appointed by the Board of Directors within
six months thereafter. Additionally, if Mr. Bedford were to cease serving
substantially full-time as Chief Executive Officer of the Company, the holders
of the Convertible Preferred Stock would be entitled to elect the smallest
number of directors constituting a majority of the Board of Directors of the
Company which could result in significant changes in the business objectives,
strategies and other policies of the Company. In addition, the Convertible
Preferred Stock must be redeemed 180 days after such election. However, a
majority of directors who are not elected by the holders of the Convertible
Preferred Stock may rescind such automatic redemption prior to the end of the
180-day period at their discretion. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Redemption." Mr. Bedford and the
Company have entered into an amended employment agreement pursuant to which Mr.
Bedford has agreed to serve as Chairman of the Board and Chief Executive Officer
on a substantially full-time basis until the agreement's expiration on September
18, 2000. This agreement will be automatically renewed for additional
consecutive one-year terms unless either party gives the other notice of
non-renewal. See "Certain Relationships and Related Transactions -- Employment
Agreement."
COMPETITION
Numerous industrial and suburban office properties compete with the
Company's Properties in attracting tenants. Some of these competing properties
are newer, better located or better capitalized than the Company's Properties.
Many of the Company's investments, particularly the Suburban Office Properties,
are located in markets which have a significant supply of available space,
resulting in intense competition for tenants and lower rents. The number of
competitive properties in a particular area could have a material adverse effect
on the Company's ability to lease space in the Properties or at newly acquired
or developed properties. In addition, numerous real estate companies (including
other REITs) compete with the Company in making bids to acquire new properties.
Many of these companies are larger and have substantially greater financial
resources than the Company. The activities of these competitors could cause the
Company to pay a higher purchase price for a new property than it otherwise
would have paid, or may prevent the Company from purchasing a desired property
at all.
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REGULATORY COMPLIANCE
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental consultants and
have been inspected for hazardous materials as part of the Company's acquisition
inspections. None of the Phase I assessments has revealed any environmental
conditions requiring material expenditures for remediation. The Phase I
assessment for Milpitas Town Center indicates that the groundwater under that
Property either has been, or may in the future be, impacted by the migration of
contaminants originating off-site. According to information available to the
Company, the responsible party for this off-site source has been identified and
has begun remediation pursuant to a cleanup program mandated by a California
environmental authority and the cleanup program is backed by an insurance policy
from CIGNA up to $10 million. The Company does not believe that this
environmental matter will impair the future value of Milpitas Town Center in any
significant respect, or that the Company will be required to fund any portion of
the cost of remediation, although there can be no assurance in this regard. No
assurance can be given that these Phase I assessments or the Company's
inspections have revealed all environmental liabilities and problems relating to
its Properties.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may be liable in respect of properties and joint
venture interests previously sold or otherwise divested.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties which the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.
Americans with Disabilities Act Compliance; Government Regulation; Risk of
Increased Regulatory Compliance Costs
Under the Americans with Disabilities Act (the "ADA"), effective in 1992,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA requires removal of access barriers, and noncompliance may result
in imposition of fines by the U.S. government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may in the future incur costs
to comply with the ADA with respect to both existing Properties and properties
which may be acquired in the future, which could have an adverse effect on the
Company and its ability to make distributions to stockholders.
The Properties are, and properties which the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements, although expenditures at properties
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owned by the Company may be required to comply with changes in these laws. No
material expenditures are contemplated at this time in order to comply with any
such laws or regulations; however, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
that would require significant unanticipated expenditures by the Company, which
could have an adverse effect on the Company and its ability to make
distributions to stockholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on the Properties may
result in significant unanticipated expenditures, which could adversely affect
the Company and its ability to make distributions to stockholders.
RISKS OF DEBT FINANCING
Dependence on Credit Facility and Mortgage Financing
The Credit Facility currently permits the Company to borrow and issue
letters of credit thereunder in an aggregate principal amount of up to $60
million at any time outstanding, subject to certain limitations. Borrowings
under the Credit Facility bear interest at a floating rate and the Company may
from time to time incur or assume other indebtedness which bears interest at a
floating rate. In the event of interest rate increases, the Company's results of
operations may be adversely affected. In that regard, the Company's results of
operations for the last several years have benefitted from historically low
levels of interest rates and could be adversely affected by the recent rise in
interest rates. The Credit Facility is secured by mortgages on 23 Properties
(which Properties collectively accounted for approximately 81% of the Company's
Annualized Base Rent as of December 31, 1995), along with the rental proceeds
from such Properties. As of December 31, 1995, these 23 Properties comprised
approximately 76% of the Company's total assets. The Company anticipates that it
will pledge properties acquired after the completion of this Offering as
collateral under the Credit Facility. In addition, in March 1996, the Company
obtained mortgage loans in the aggregate principal amount of $20.2 million (the
"1996 Mortgage Loans"), which bear interest at a rate of 7.02% per annum and
mature in 2003. The 1996 Mortgage Loans are secured by mortgages on three
Properties (two of which previously were pledged as collateral under the Credit
Facility) accounting collectively for 24% of the Company's Annualized Base Rent
as of December 31, 1995 and comprising 21% of the Company's total assets as of
that date. The Company also has a loan commitment for an additional $4.8 million
mortgage loan to be funded in April or May 1996. This mortgage loan is subject
to the lender's due diligence and as a result, there can be no assurance that
the loan will be made. If the Company fails to meet its obligations under the
Credit Facility, the 1996 Mortgage Loans, or any other debt instruments it may
enter into from time to time, including failure to comply with financial
covenants, the holders of such indebtedness generally would be entitled to
demand immediate repayment of the principal thereof and to foreclose upon any
collateral securing such indebtedness.
The Credit Facility currently expires on September 1, 1998, when the
principal amount of all outstanding borrowings must be paid. Since the term of
the Credit Facility is limited, the Company's ability to continue to fund
acquisitions and provide funds for working capital and other cash needs
following the expiration or utilization of the Credit Facility will depend
primarily on its ability to obtain additional private or public equity or debt
financing. The Company and the lender under the Credit Facility have agreed, in
principle, to amend the Credit Facility, subject to the final approval of the
lender and negotiation of definitive documentation, to increase the commitment
from $60 million to $100 million, extend the term and reduce the interest rates
thereunder. The Company expects that the amended Credit Facility will be secured
by mortgages on some or all of its currently unencumbered Properties and some or
all of its future property acquisitions. The foregoing amendment to the Credit
Facility will be conditioned upon, among other things, the receipt by the
Company of net proceeds of at least $45 million from the Offering. There can be
no assurance that the Company will enter into this amendment to the Credit
Facility on these terms, or at all, or that additional private or public equity
or debt financing will be available. See "Business and Properties -- The Credit
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow from operations will
be insufficient to meet required payments of principal and interest,
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the risk that the Company will not be able to refinance existing indebtedness or
that the terms of any such refinancing will not be as favorable as the terms of
such indebtedness, and the risk that the Company may be unable to finance future
acquisitions or capital expenditures on favorable terms, or at all. In addition,
the Company is subject to the risk that its failure to maintain its REIT status
may constitute an event of default under the Credit Facility. In addition, the
Credit Facility provides that it is an event of default thereunder if Mr.
Bedford ceases for any reason to be Chairman or Chief Executive Officer of the
Company and a replacement reasonably satisfactory to the lender under the Credit
Facility has not been appointed by the Board of Directors within six months
thereafter. In addition, default under or acceleration of any debt instrument
could, pursuant to cross-default clauses, cause or permit the acceleration of
other indebtedness and trigger the right of the holders of the Convertible
Preferred Stock, subject to applicable laws regarding distributions, to cause
the Company to redeem all of the then outstanding shares of Convertible
Preferred Stock at a price of $6.00 per share plus all accrued dividends payable
thereon. Any such default or acceleration could have a material adverse effect
on the Company and its ability to make distributions to stockholders and to
maintain its qualification as a REIT under the Code and could threaten the
continued viability of the Company. See "-- Dependence on Key Personnel,"
"Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Redemption" and "Business and Properties -- The Credit Facility."
Policies on Indebtedness Subject to Change
The Company currently has a policy of limiting its total consolidated
indebtedness to 50% of its Total Market Capitalization, but the organizational
documents of the Company do not contain any limitation on the amount or
percentage of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter its policy of limiting the extent of its borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the Company
and its ability to make distributions to stockholders and in increased risk of
default on its obligations. Moreover, although the Company will consider factors
other than Total Market Capitalization in making decisions regarding the
incurrence of debt (such as the purchase price of properties to be acquired with
debt financing, the estimated market value of properties upon refinancing, and
the ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service), there can be no assurance that the ratio
of total consolidated indebtedness to Total Market Capitalization (or to any
other measure of asset value) will be such that the Company, after meeting debt
service obligations thereon, would be able to make stockholder distributions at
the level currently expected.
REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK
After September 18, 1996, the Company will be required, at the option of
the holders of the Convertible Preferred Stock, to redeem the Convertible
Preferred Stock on demand of the holders thereof on the occurrence of any one or
more of the following: (i) the failure to pay dividends on the Convertible
Preferred Stock for two consecutive quarters, (ii) a default in the payment on
certain institutional debt, (iii) the failure of the Company to obtain any
required consent of the holders of the Convertible Preferred Stock or (iv) the
failure to reach certain financial performance levels. The Company could
experience substantial difficulty in financing any such redemption and may be
required to liquidate a substantial portion of its properties. In addition, it
is likely that the resultant financial strain on the Company's capital resources
would adversely affect the market price of the Common Stock. See "Description of
Capital Stock of the Company -- Convertible Preferred Stock -- Redemption."
REGISTRATION RIGHTS
After September 18, 1997, BPLP and certain of its transferees have the
right to cause the Company to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock for sale to the public. In
addition, pursuant to a registration rights agreement, Mr. Bedford has the right
to require the Company to register up to 250,000 shares under the Securities Act
for offer and sale to the public (including by way of an underwritten public
offering) and to cause such shares to be included in any registration statement
filed by the Company. The right of BPLP and certain of its transferees and Mr.
Bedford to register
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shares of Common Stock (in the case of BPLP, issuable upon conversion of the
Convertible Preferred Stock) and sell them in the public market could have a
material adverse effect on both the market price for the Common Stock and the
Company's ability to raise additional equity capital in the future. See
"-- Shares Available for Future Sale," "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Registration Rights" and "Shares
Available for Future Sale."
RISK OF SUBSTANTIAL DILUTION
At any time after September 18, 1997, the shares of Convertible Preferred
Stock will be convertible, at the option of the holders, into such number of
shares of Common Stock as is determined by dividing $6.00 by the conversion
price then in effect. The current conversion price is $12.00 per share and,
therefore, each share of Convertible Preferred Stock is currently convertible
into one-half of one share of Common Stock. See "-- Shares Available For Future
Sale" and "Shares Available For Future Sale." The conversion price is subject to
adjustment to provide certain antidilution protection to the Convertible
Preferred Stock. Holders of Common Stock could experience substantial dilution
in the event that the Company issues a substantial number of additional shares
of the Common Stock and/or Preferred Stock, either upon conversion of the
Convertible Preferred Stock, in connection with future acquisitions or
otherwise, which issuance could adversely affect the market price of Common
Stock. See "Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Conversion Rights."
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
CONCENTRATION OF VOTING POWER AND RIGHT TO CONSENT OF THE HOLDERS OF THE
CONVERTIBLE PREFERRED STOCK
The holders of the Convertible Preferred Stock have and will continue to
have significant direct and indirect influence over the Company's affairs.
Subject to certain limitations, the consent of BPLP or of any transferee holding
50% or more of the outstanding Convertible Preferred Stock will be required for
the Company to make substantial investments, to issue substantial amounts of
debt, modify executive compensation or employment contracts, or change the
Company's business plan. See "Description of the Capital Stock of the
Company -- Convertible Preferred Stock -- Protective Provisions." In addition,
the budget applicable to the overhead component of the Company's acquisitions
and financing expenditures made through Bedford Acquisitions, Inc., a
corporation wholly-owned by Mr. Bedford, is subject to the approval of BPLP. See
"Certain Relationships and Related Transactions -- Funding of Acquisition and
Financing Costs." As a result, although the Board of Directors and the Company's
management will continue to manage the ordinary business affairs of the Company,
BPLP will have the ability to exercise a controlling influence over most
substantial transactions.
In addition, the holders of the Convertible Preferred Stock as a class
currently have the right to elect two directors. Under certain circumstances,
the holders of the Convertible Preferred Stock will be entitled to elect a
number of directors constituting a majority of the Board of Directors. Such
circumstances include the Company's failure to pay quarterly dividends on the
Convertible Preferred Stock in two consecutive quarters or redeem the
Convertible Preferred Stock pursuant to a valid demand for redemption, and Mr.
Bedford's cessation to serve substantially full-time as Chief Executive Officer
of the Company. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Redemption." Moreover, the Company may not authorize or
create any class or series of stock that ranks equal or senior to the
Convertible Preferred Stock with respect to the payments of dividends or amounts
upon liquidation, dissolution or winding up without the consent of the holders
of a majority of the outstanding shares of Convertible Preferred Stock, voting
together as a single class. Although the Board of Directors generally owes a
fiduciary duty to the Company, there can be no assurance that the interests of
BPLP, and indirectly the directors elected by the holders of the
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Convertible Preferred Stock, will not differ from or conflict with the interests
of the holders of Common Stock.
In addition, upon conversion of the Convertible Preferred Stock into shares
of Common Stock, the holders of the Convertible Preferred Stock would have
considerable influence with respect to the election of directors and the
approval or disapproval of significant corporate actions, since they would hold
approximately 40% of all outstanding shares, assuming such conversion took place
at the completion of the Offering.
As of December 31, 1995, BPLP, an affiliate of Aldrich Eastman Waltch, was
the sole holder of all outstanding shares of the Convertible Preferred Stock. In
view of the substantial influence of the holders of the Convertible Preferred
Stock over the Company's affairs, it should be noted that BPLP's interests do
not necessarily coincide with those of the holders of the Common Stock and
therefore its actions with respect to the Company will not necessarily be in the
best interests of the holders of Common Stock. In addition, BPLP's affiliation
with Aldrich Eastman Waltch, a national real estate investment adviser whose
clients primarily include institutional investors and other affiliates engaged
in businesses competitive with the Company, may give rise to a conflict of
interest.
In addition, as of December 31, 1995, Mr. Bedford's beneficial ownership of
909,662 shares of Common Stock of the Company (including then-exercisable
options to purchase 47,500 shares and options exercisable within sixty days of
such date to purchase 6,250 shares) represented approximately 30% of the
outstanding shares of Common Stock at that date. Mr. Bedford will be the
beneficial owner of the same number of shares at the completion of the Offering,
representing approximately 14% of the outstanding shares of Common Stock at the
completion of the Offering. While Mr. Bedford does not and, upon completion of
the Offering, will not have majority control of the Company, he currently has,
and likely will continue to have, significant influence with respect to the
election of directors and approval or disapproval of significant corporate
actions.
EXEMPTION FROM THE MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any
Interested Stockholder or an affiliate thereof are prohibited for five years
after the date on which the Interested Stockholder becomes an Interested
Stockholder unless approved by two super majority votes of the stockholders.
Under the MGCL, an Interested Stockholder includes any individual or entity
which is the beneficial owner of 10% or more of a corporation's outstanding
stock which is entitled to vote generally in the election of directors ("Voting
Stock"). However, as permitted by the statute, the Board of Directors has
elected to exempt the Company from the "business combination" provision of the
MGCL. Consequently, unless such exemption is amended or repealed by the Board of
Directors, the five-year prohibition and the super majority vote requirements
described above will not apply to any business combination between any
Interested Stockholder and the Company. As a result, the Company may in the
future enter into business combinations with Mr. Bedford, BPLP or other
Interested Stockholders, without compliance by the Company with the super
majority vote requirements and other provisions of the statute. See "Certain
Relationships and Related Transactions," "Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws -- Maryland Business Combination Law."
ANTI-TAKEOVER EFFECT OF THE CHARTER, THE BYLAWS, THE CONVERTIBLE PREFERRED STOCK
AND CERTAIN PROVISIONS OF MARYLAND LAW
The Company's Charter authorizes the Board of Directors to cause the
Company to issue additional shares of Common Stock or Preferred Stock and to set
the preferences, rights and other terms of such Preferred Stock without the
approval of the holders of the Common Stock, provided that the Company must
obtain the consent of BPLP or the transferee of BPLP holding more than 50% of
the outstanding shares of Convertible Preferred Stock in order to issue certain
equity securities and may not authorize or create any class or series of stock
that ranks equal or senior to the Convertible Preferred Stock. See "Description
of Capital Stock of the Company -- Convertible Preferred Stock -- Protective
Provisions" and "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Ranking." Although the Board of Directors has no intention to
issue any shares of Preferred Stock at the present time, it may establish one or
more series
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of Preferred Stock that could, depending on the terms of such series, delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the Company's stock or otherwise be in the best
interests of the holders of Common Stock, or that could have dividend, voting or
other rights that could adversely affect the interests of holders of Common
Stock.
The Charter of the Company also contains other provisions that may delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the stock or otherwise be in the best interests of
the stockholders or that could otherwise adversely affect the interests of the
stockholders, and the Bylaws may be amended by the Board of Directors (subject
to the consent of BPLP) to include provisions that would have a similar effect,
although the Board presently has no such intention. The Charter provides that
the Company must seek the consent of BPLP or the transferee of BPLP holding more
than 50% of the outstanding shares of Convertible Preferred Stock before it may
merge or consolidate or sell assets with a purchase price of more than $10
million. Additionally, the Charter contains provisions limiting the
transferability and ownership of shares of the capital stock of the Company,
which may have the effect of delaying, deferring or preventing a transaction or
a change in control of the Company. For example, these ownership provisions
preclude any potential acquiror from purchasing more than 5% percent in value of
the Company's stock, discouraging any tender offer which may be attractive to
the holders of the Common Stock and limiting the opportunity for stockholders to
receive a premium for their Common Stock that might otherwise exist if an
investor were attempting to assemble a block of shares in excess of 5% in number
or value of the Company's stock, or to otherwise effect a change in control of
the Company. See "Description of Capital Stock of the Company -- Restrictions on
Transfer and Ownership of Capital Stock." In addition, the Charter provides that
the holders of the shares of Convertible Preferred Stock are entitled to receive
$6.30 per share of Convertible Preferred Stock plus accrued and unpaid dividends
on the Convertible Preferred Stock (the "Liquidation Preference") in the event
of (i) any transaction, including a consolidation or merger or corporate
reorganization of the Company, if, immediately after such transaction, the
stockholders of the Company (determined prior to such event) hold fifty percent
or less in interest of the outstanding voting securities of the surviving
corporation, or (ii) a sale of all or substantially all of the assets of the
Company or the acquisition of a majority of the outstanding shares of Common
Stock of the Company by any person (other than certain specified persons,
including Mr. Bedford and affiliates of BPLP). Until the holders of the
Convertible Preferred Stock have been paid the Liquidation Preference in full,
no payment will be made to any holder of Common Stock upon the liquidation,
dissolution or winding up of the Company. See "Description of Capital Stock of
the Company -- Convertible Preferred Stock -- Liquidation Preference."
Although, as described above in "-- Exemption from the Maryland Business
Combination Law," the Board of Directors has elected to exempt the Company from
the "business combination" provisions of the MGCL, such exemption may be amended
or repealed by the Board of Directors at any time, except that the Charter
provides that the Company must seek the consent of specified holders of the
Convertible Preferred Stock before amending or repealing such resolution with
respect to BPLP or with respect to the exercise of any redemption right of the
Convertible Preferred Stock which may constitute a business combination. Such
action by the Board of Directors would impose the "business combination"
restrictions of the MGCL on the Company, which could delay, defer or prevent a
transaction or change in control of the Company that might involve a premium
price for the Company's stock or otherwise be in the best interests of the
stockholders or that could otherwise adversely affect the interests of the
stockholders.
In addition, the MGCL restricts the voting rights of shares deemed to be
"control shares." Under the MGCL, "control shares" are those which, when
aggregated with any other shares held by the acquiror, entitle the acquiror to
exercise voting power within specified ranges. Although the Bylaws provide that
the control share provisions of the MGCL shall not apply to the Company, such
provision of the Bylaws may be amended or eliminated by the Board of Directors
at any time in the future, provided that it obtains the required consent from
BPLP and other specified holders of the Convertible Preferred Stock. Moreover,
any such amendment or elimination of such provision of the Bylaws may result in
the application of the control share provisions of the MGCL not only to control
shares which may be acquired in the future, but also to control shares
previously acquired. The control share provisions of the MGCL could delay, defer
or prevent a transaction or change in control of the Company that might involve
a premium price for the Company's stock or otherwise be in the
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best interests of the stockholders or that could otherwise adversely affect the
interests of the stockholders. See "Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws."
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, may
adversely affect the prevailing market price for the Common Stock. See "Shares
Available for Future Sale."
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
maintaining its qualification as a REIT and with respect to dividends,
acquisitions, debt and investments, are established by the Board of Directors.
Although it has no present intention to do so, the Board of Directors may amend
or revise these and other policies from time to time without a vote of or notice
to the stockholders of the Company (subject to the rights of the holders of the
Convertible Preferred Stock). Accordingly, holders of the shares of Common Stock
will have no control over changes in policies of the Company, including any
policies relating to the payment of dividends or to maintaining qualification as
a REIT.
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RECENT ACTIVITIES
INCREASED FUNDS FROM OPERATIONS AND INCREASED DISTRIBUTIONS
The Company's strong operating performance has generated increased earnings
and dividends. For the year ended December 31, 1995, the Company's Funds From
Operations increased to approximately $5.0 million, an increase of approximately
38.6% from approximately $3.6 million for the year ended December 31, 1994. On
March 15, 1996, the Company announced a 14% increase in its quarterly dividend,
increasing the quarterly dividend on its Common Stock from $.21 per share to
$.24 per share. The higher dividend with respect to the first quarter of 1996
will be paid on April 30, 1996 to shareholders of record as of March 29, 1996.
Purchasers of Common Stock in the Offering will not receive this dividend in
respect of the shares of Common Stock offered hereby.
RECENTLY COMPLETED AND PENDING ACQUISITIONS
The Company has an active acquisition program through which it is
continually engaged in identifying, negotiating and consummating acquisitions of
industrial and suburban office properties and portfolios of such properties. On
March 27, 1996 the Company completed the acquisition of a suburban office
building located in Laguna Hills, California, comprising approximately 51,062
rentable square feet for a purchase price of $6.0 million. The Company has
contracted to purchase a five-building industrial property located in Phoenix,
Arizona, comprising approximately 143,950 rentable square feet for a purchase
price of $7.9 million which is scheduled to close in April 1996. The Company has
also reached understandings with respect to the purchase price and certain other
material terms with the sellers of a suburban office property and an industrial
property comprising an aggregate of approximately 147,000 rentable square feet
for an aggregate purchase price of approximately $13 million. These pending
acquisitions are subject to completion of due diligence and a number of other
contingencies and, as a result, no assurance can be given that these, or any
other, acquisitions will be completed.
COMMITMENT TO AMEND THE CREDIT FACILITY
The Company and the lender under the Credit Facility have agreed, in
principle, to amend the Credit Facility to increase the commitment from $60
million to $100 million, extend the term and reduce the interest rates. The
foregoing amendment to the Credit Facility will be conditioned upon, among other
things, the receipt by the Company of net proceeds of at least $45 million from
the Offering. There can be no assurance that the Company will enter into this
amendment to the Credit Facility on these terms, or at all.
EQUITY PRIVATE PLACEMENT
On September 18, 1995 the Company sold 8,333,334 shares of Convertible
Preferred Stock for $50 million in gross proceeds. Holders of shares of
Convertible Preferred Stock are entitled to receive quarterly cumulative
dividends in cash in an amount equal to the greater of (i) $.135 per share or
(ii) the dividends payable with respect to such quarter on the Common Stock into
which the Convertible Preferred Stock is convertible, plus, in both cases, the
accumulated but unpaid dividends on the Convertible Preferred Stock. Each share
of Convertible Preferred Stock is convertible at the option of the holder at any
time after September 18, 1997, into one-half share of Common Stock, subject to
adjustment under certain circumstances.
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MORTGAGE FINANCINGS
In March 1996, the Company obtained mortgage loans (the "1996 Mortgage
Loans") in the aggregate principal amount of $20.2 million which bear interest
at a rate of 7.02% per annum and mature in 2003. The proceeds from the 1996
Mortgage Loans were used to pay down a portion of the outstanding balance under
the Credit Facility. As adjusted to reflect the Offering, the acquisition of the
property in Laguna Hills, California and the 1996 Mortgage Loans as if such
transactions had been consummated on February 29, 1996, the Company's total
consolidated indebtedness as of that date equaled approximately 14.0% of the
Company's Total Market Capitalization. In addition, the Company has a loan
commitment for an additional $4.8 million mortgage loan to be funded in April or
May 1996. This mortgage loan is subject to completion of the lender's due
diligence and as a result, there can be no assurance that the loan will be made.
ADOPTION OF NEW FUNDS FROM OPERATIONS INTERPRETATION
Industry analysts generally consider Funds From Operations an appropriate
measure of the operating performance of real estate investment trusts. In March
1995, NAREIT published a "White Paper" setting forth new guidelines that clarify
its definition of Funds From Operations and requested that REITs adopt this new
definition beginning in 1996. The new interpretation provides that amortization
of deferred financing costs and depreciation of non-rental real estate assets
are no longer to be added back to net income to calculate Funds From Operations.
In March 1995, the Company implemented the new NAREIT interpretation for
calculating Funds From Operations. The Company also restated Funds From
Operations for periods prior to 1995 in accordance with the 1995 NAREIT White
Paper interpretation.
Funds From Operations does not represent net income or cash flows from
operations as defined by GAAP and does not necessarily indicate that cash flows
will be sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or to cash flows as a measure of liquidity. Funds From Operations does not
measure whether cash flow is sufficient to fund all of the Company's cash needs
including principal amortization, capital improvements and distributions to
stockholders. Funds From Operations also does not represent cash flows generated
from operating, investing or financing activities as defined by GAAP. Further,
Funds From Operations as disclosed by other REITs may not be comparable to the
Company's calculation of Funds From Operations.
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THE COMPANY
GENERAL
Bedford Property Investors, Inc. is a self-administered equity REIT with
investments primarily in industrial and suburban office properties concentrated
in the Western United States. The Company currently owns and operates, either
directly or through one of its wholly-owned subsidiaries, 30 properties
aggregating approximately 2.6 million rentable square feet and comprised of 24
Industrial Properties, five Suburban Office Properties and one Retail Property.
As of December 31, 1995, the Properties were approximately 95% occupied by over
300 tenants. The Company's Properties are located in markets proximate to
metropolitan areas in Northern and Southern California, Colorado, Oregon, Utah,
Kansas and Minnesota.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth and,
if possible, are subject to limitations on the development of similar
properties. The Company believes that employment growth is a reliable indicator
of future demand for both industrial and suburban office space. In addition, the
Company believes that certain supply-side constraints, such as limited
availability of undeveloped land in a market and of financing for speculative
real estate construction, increase a market's potential for higher average rents
over time. The Company is currently targeting selected markets proximate to
metropolitan areas in Northern and Southern California, Colorado, Oregon, Utah,
Kansas, Arizona and Washington. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial and suburban office properties in
these target markets, and in particular in California, provides the potential
for attractive returns through increased occupancy levels, rents and real estate
values, although there can be no assurance that this will occur. The Company
seeks to grow its asset base through the acquisition of individual industrial
and suburban office properties and portfolios of such properties, as well as
through the development of new industrial and suburban office properties.
The Company is led by an experienced management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties in the Western United
States. Peter B. Bedford, the Company's Chairman and Chief Executive Officer,
has been engaged in commercial real estate business, primarily in the Western
United States, for over 30 years and has been responsible for the ownership,
management acquisition and development of an aggregate of approximately 18
million square feet of industrial, office and retail properties, as well as land
in 14 states, primarily as founder and President of Bedford Property Holdings
Limited (BPHL), a privately-held diversified real estate holding company. See
"Management" and "Risk Factors -- Dependence on Key Personnel." Since his
election as the Company's Chairman and Chief Executive Officer in 1992, Mr.
Bedford has been instrumental in assembling the Company's Board of Directors, in
the design and implementation of the Company's business plan, in the Company's
conversion to a self-administered REIT and in the selection of the Company's
experienced management team, many of the members of which had previously worked
with Mr. Bedford at BPHL.
The Company was formerly a Delaware corporation, incorporated in November
1984 under the name of ICM Property Investors Incorporated. On July 1, 1993, the
Company was reincorporated in the state of Maryland under a new name, Bedford
Property Investors, Inc. The Company's principal executive offices are located
at 270 Lafayette Circle, Lafayette, CA 94549. Its telephone number at that
location is (510) 283-8910. The Company also has regional offices in Tustin,
California, and, effective April 1, 1996, in Lenexa, Kansas.
HISTORY OF THE COMPANY
1984-1990. Bedford Property Investors is the successor entity to ICM, a
Delaware corporation which was incorporated in November 1984 and headquartered
in New York. ICM completed an initial public offering in 1985 and subsequently
was operated as an advised REIT with no salaried employees. ICM's initial
business objective was to invest in office properties and mortgages on office
properties throughout the United States, both directly and through joint
ventures. A large number of ICM's investments were made between
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1985 and 1987, when property acquisition prices and property rents were at
historic highs. In 1989, Mr. Bedford began accumulating shares in ICM and by
December 1990, Mr. Bedford owned approximately 29% of ICM's outstanding common
stock as well as 100% of the outstanding common stock of ICM's advisor,
Investors Central Management Corporation (later known as Kingswood Realty
Advisors, Inc.)
1991-1992. As a result of Mr. Bedford's ownership interest in ICM, Mr.
Bedford was placed on its Board of Directors in February 1991. Commencing with
the first quarter of 1991, ICM suspended its quarterly common stock dividend,
and, in the spring of 1991, Mr. Bedford moved ICM's headquarters to Lafayette,
California and put a new management team into place, a number of the members of
which had previously worked with Mr. Bedford at BPHL. In May 1992, Mr. Bedford
was appointed Chairman of the Board and the Company's stockholders subsequently
elected four of the current independent Company Board members, namely Claude M.
Ballard, a Limited Partner of the Goldman Sachs Group, L.P., Anthony Downs, a
Senior Fellow at the Brookings Institution, Anthony M. Frank, former Postmaster
General of the United States and Martin I. Zankel, Senior Partner of the law
firm of Bartko, Zankel, Tarrant & Miller. In July 1992, the Company terminated
its advisory arrangement with Kingswood Realty, became a self-administered REIT
and began hiring salaried employees. In November 1992, Mr. Bedford became the
Company's Chief Executive Officer. During this period, as a part of the process
of strategically repositioning the Company, certain joint ventures were
divested. This process involved properties being transferred to mortgage holders
when mortgage indebtedness was believed by the Company to exceed the property's
then current market value, and in one instance, the general partner of a
partnership in which the Company was a limited partner filing a voluntary
petition for federal bankruptcy protection.
1993-Present. In February 1993, the Board of Directors approved the
Company's new business strategy and announced that the Company would seek to (i)
regionalize its investments primarily in the Western United States, (ii) grow
the asset base of the Company by acquiring industrial and suburban office
properties on a wholly-owned basis, and (iii) develop these property types on a
substantially pre-leased basis. On July 1, 1993, the Company reincorporated in
Maryland and changed its name to Bedford Property Investors, Inc. Since 1993,
the Company's current management team has strategically repositioned the Company
by (i) purchasing 20 of the Industrial Properties, all five of the Suburban
Office Properties and the Retail Property for approximately $119 million, (ii)
developing a research and development facility in Milpitas, California, (iii)
increasing Funds From Operations from approximately $2.0 million for the year
ended December 31, 1993 to approximately $5.0 million for the year ended
December 31, 1995, (iv) obtaining the existing $60 million Credit Facility, and
a commitment to increase such facility to $100 million, (v) selling 8,333,334
shares of the Company's Convertible Preferred Stock for $50 million in gross
proceeds to BPLP, (vi) repaying $11.1 million in mortgage loans and notes
payable bearing interest at rates in excess of those in effect under the Credit
Facility, and (vii) selling five real estate assets targeted for sale
(generating approximately $38.9 million in gross proceeds) and selling the
Edison Square Partnerships (in exchange for a $300,000 note maturing in May
1998).
BUSINESS OBJECTIVES AND GROWTH PLANS
The Company's business objectives are to increase funds available for
distribution to stockholders and to increase stockholders' long-term total
return through the appreciation in value of the Common Stock. To achieve these
objectives, the Company seeks to (i) increase cash flow from its existing
Properties, (ii) acquire quality industrial and suburban office properties
and/or portfolios of such properties and (iii) develop new industrial and
suburban office properties.
INTERNAL GROWTH
The Company seeks to increase cash flow from existing Properties through
(i) the lease-up of vacant space, (ii) the reduction of costs associated with
tenant turnover through the retention of existing tenants, (iii) the negotiation
of increases in rental rates and of contractual periodic rent increases when
market conditions allow it to do so and (iv) the strict containment of operating
expenses and capital expenditures.
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ACQUISITIONS
General
The Company seeks to acquire quality industrial and suburban office
properties and/or portfolios of such properties. The Company believes that (i)
the experience of its management team, (ii) its conservative capital structure
and its existing $60 million Credit Facility, which may be increased to $100
million pursuant to a commitment obtained by the Company, (iii) its
relationships with private and institutional real estate owners, (iv) its strong
relationships with real estate brokers and (v) its integrated asset management
program enable it to effectively identify and capitalize on acquisition
opportunities. Each acquisition opportunity is reviewed to evaluate whether it
meets the following criteria: (i) potential for higher occupancy levels and/or
rents as well as for lower turnover and/or operating expenses, (ii) ability to
generate returns in excess of the Company's weighted average cost of capital,
taking into account the estimated costs associated with tenant turnover (i.e.,
tenant improvements, leasing commissions and the loss of income due to vacancy)
and (iii) availability for purchase at a price at or below estimated replacement
cost. The Company has, however, acquired and may in the future acquire
properties which do not meet one or more of these criteria. This may be
particularly true with the acquisition of a portfolio of properties, which may
include properties that do not meet one or more of the foregoing criteria.
Following completion of an initial review, the Company may make a purchase
offer, subject to satisfactory completion of its due diligence process. The due
diligence process enables the Company to refine its original estimate of a
property's potential performance and typically includes a complete review and
analysis of the property's physical structure, systems, environmental status and
projected financial performance, as well as an evaluation of the local market
and competitive properties and of relevant economic and demographic information.
Mr. Bedford and at least one other member of the Board of Directors typically
visit each proposed acquisition property before the purchase is closed. The
Company's activities relating to the acquisition of new properties, including
the due diligence process, are conducted by Bedford Acquisitions, Inc., a
California corporation wholly-owned by Mr. Bedford. See "Certain Relationships
and Related Transactions -- Funding of Acquisition and Financing Costs."
The Company acquired a total of 24 Properties in 1994 and 1995.
Acquisitions in 1994
From January 1994 through August 1994, the Company acquired four properties
consisting of approximately 676,000 square feet and comprised of two industrial
properties and two suburban office properties. The total cost of these
Properties, including capital expenditures and due diligence costs, was $25.5
million. At acquisition, it was estimated that these Properties would provide an
initial weighted average unleveraged return on cost (computed as annualized
property NOI from the date of acquisition divided by total acquisition cost) of
10.6%, assuming no further lease-up. In 1995, the Company achieved a weighted
average unleveraged return on cost of 12.9% on these Properties. The following
is a brief description of the Properties acquired in 1994.
In January 1994, the Company acquired Mariner Court, a three-story suburban
office building consisting of approximately 105,436 rentable square feet, in
Torrance, California, which is located in the South Bay market of Los Angeles
approximately 25 miles southwest of downtown Los Angeles. The Company paid $7.5
million, or approximately $71 per rentable square foot, for Mariner Court. In
1995, the Company achieved a weighted average unleveraged return on cost of
16.1% on this Property.
In May 1994, the Company acquired Dupont Industrial Center, a
three-building bulk warehouse distribution facility consisting of approximately
451,192 rentable square feet, in Ontario, California, which is located in the
Inland Empire West submarket of Los Angeles approximately 80 miles southeast of
downtown Los Angeles. The Company paid $9.75 million, or approximately $22 per
rentable square foot, for Dupont Industrial Center. In 1995, the Company
achieved a weighted average unleveraged return on cost of 10.6% on this
Property.
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<PAGE> 38
In July 1994, the Company acquired Village Green, a three-building suburban
office property consisting of approximately 16,895 rentable square feet, in
Lafayette, California, which is located in the Lafayette/ Orinda/Moraga
submarket of Contra Costa County market approximately 15 miles east of downtown
San Francisco. The Company paid $1.79 million, or approximately $106 per
rentable square foot, for Village Green. The Company's headquarters are located
at this property. In 1995, the Company achieved a weighted average unleveraged
return on cost of 8.9% on this Property.
In August 1994, the Company acquired Milpitas Town Center, a two-building
industrial property consisting of approximately 102,620 rentable square feet, in
Milpitas, California, which is located in Silicon Valley submarket of San
Francisco approximately 45 miles south of downtown San Francisco. The Company
paid $6.32 million, or approximately $62 per rentable square foot, for Milpitas
Town Center. The Property includes a 3.1 acre parcel of land on which the
Company is developing a 45,090 square foot research and development facility. In
1995, the Company achieved a weighted average unleveraged return on cost of
13.0% on this Property.
Acquisitions in 1995
From September 1995 through December 1995, the Company acquired 20
properties consisting of approximately 1,546,000 square feet and comprised of 18
industrial properties, one suburban office property and one retail property. The
total cost of these Properties, including estimated capital expenditures and due
diligence costs, was $84.1 million. At acquisition, it was estimated that these
Properties would provide an initial weighted average unleveraged return on cost
(computed as annualized property NOI from the date of acquisition divided by
total acquisition cost) of 10.5%, assuming no further lease-up. The following is
a brief description of the Properties acquired in 1995.
In September 1995, the Company acquired 350 East Plumeria Drive, a research
and development building consisting of approximately 142,700 rentable square
feet, in San Jose, California, which is located in the South Bay market of San
Francisco approximately 37 miles south of downtown San Francisco. The Company
paid $8.33 million, or approximately $58 per rentable square foot, for 350 East
Plumeria Drive. At acquisition, it was estimated that this Property would
provide an initial weighted average unleveraged return on cost of 11.7%,
assuming no further lease-up.
In September 1995, the Company acquired Lackman Business Center, a
two-building industrial property consisting of approximately 45,956 rentable
square feet, in Lenexa, Kansas, which is located approximately eight miles
southeast of Kansas City. The Company paid $2.25 million, or approximately $49
per rentable square foot, for Lackman Business Center. At acquisition, it was
estimated that this Property would provide an initial weighted average
unleveraged return on cost of 12.1%, assuming no further lease-up.
In September 1995, the Company acquired Ninety-Ninth Street #1, a
single-story industrial building consisting of approximately 35,516 rentable
square feet, in Lenexa, Kansas, which is located approximately eight miles
southeast of Kansas City. The Company paid $1.95 million, or approximately $55
per rentable square foot, for Ninety-Ninth Street #1. At acquisition, it was
estimated that this Property would provide an initial weighted average
unleveraged return on cost of 11.8%, assuming no further lease-up.
In September 1995, the Company acquired Ninety-Ninth Street #2, a
single-story industrial building consisting of approximately 12,974 rentable
square feet, in Lenexa, Kansas, which is located approximately eight miles
southeast of Kansas City. The Company paid $735,000, or approximately $57 per
rentable square foot, for Ninety-Ninth Street #2. At acquisition, it was
estimated that this Property would provide an initial weighted average
unleveraged return on cost of 11.3%, assuming no further lease-up.
In October 1995, the Company acquired 6600 College Boulevard, a
single-story suburban office building consisting of approximately 79,316
rentable square feet, in Overland Park, Kansas, which is located approximately
ten miles southeast of Kansas City. The Company paid $6.36 million, or
approximately $80 per rentable square foot, for 6600 College Boulevard. At
acquisition, it was estimated that this Property would provide an initial
weighted average unleveraged return on cost of 11.4%, assuming no further
lease-up. See "Certain Relationships and Related Transactions."
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<PAGE> 39
In December 1995, the Company acquired the Landsing Pacific Portfolio,
which comprised substantially all of the real estate assets of the Landsing
Pacific Fund, Inc., a publicly-traded REIT based in San Mateo, California. The
Landsing Pacific Portfolio consists of thirteen industrial properties and one
retail property aggregating approximately 1.0 million rentable square feet
located in Northern California, Colorado, Minnesota and Oregon. The Company paid
$49.7 million, or approximately $50 per rentable square foot, for the Landsing
Pacific Portfolio. At acquisition, it was estimated that the properties in the
Landsing Pacific Portfolio would provide an initial weighted average unleveraged
return on cost of 10.0%, assuming no further lease-up. See "Certain
Relationships and Related Transactions."
In December 1995, the Company acquired 3002 Dow Business Center, a
five-building industrial property consisting of approximately 192,215 rentable
square feet, in Tustin, California, which is located in Orange County
approximately 37 miles south of downtown Los Angeles. The Company paid $11.5
million, or approximately $60 per rentable square foot, for 3002 Dow Business
Center. At acquisition, it was estimated that this Property would provide an
initial weighted average unleveraged return on cost of 10.2%, assuming no
further lease-up.
Acquisition in 1996
On March 27, 1996, the Company completed the acquisition of a suburban
office building, consisting of approximately 51,062 rentable square feet, in
Laguna Hills, California, which is located in Orange County approximately 60
miles south of downtown Los Angeles. The Company paid $6.0 million, or
approximately $118 per rentable square foot, for this property. At acquisition,
it was estimated that this Property would provide an initial weighted average
unleveraged return on cost (computed as annualized property NOI from the date of
acquisition divided by total acquisition cost) of 11.7%, assuming no further
lease-up.
PENDING ACQUISITIONS
The Company has an active acquisition program through which it is
continually engaged in identifying, negotiating and consummating acquisitions of
industrial and suburban office properties and portfolios of such properties. The
Company has contracted to purchase a five-building industrial property located
in Phoenix, Arizona comprising approximately 143,950 rentable square feet. The
Company has also reached understandings with respect to the purchase price and
certain other material terms with the sellers of a suburban office property and
an industrial property comprising an aggregate of approximately 147,000 rentable
square feet for an aggregate purchase price of approximately $13 million. These
pending acquisitions are subject to completion of due diligence and a number of
other contingencies and, as a result, no assurance can be given that these, or
any other, acquisitions will be completed. If these properties are purchased,
the Company expects to pay all or a portion of the purchase price with a portion
of the proceeds of this Offering. See "Use of Proceeds."
DEVELOPMENT
The Company's management team has experience in all phases of the
development process, including market analysis, site selection, zoning, design,
pre-development leasing, construction and permanent financing and construction
management. The Company believes that a general decrease in competition in
development activity as well as lower vacancy rates in most of the Company's
markets will lead to additional attractive development opportunities. During
1995, the Company commenced the development of a 3.1-acre parcel located on the
Company's Milpitas Town Center property in Milpitas, California. The property,
which was developed on an unleased ("speculative") basis, consists of a
single-story research and development facility with approximately 45,090
rentable square feet. Fujitsu PC Corporation recently signed a five-year lease
commencing on May 1, 1996 to occupy 100% of the facility's rentable square feet,
which will serve as U.S. headquarters for Fujitsu Ltd.'s laptop computer
company. Upon completion of construction, the Company expects the unleveraged
annual return on total project costs of approximately $3.4 million to be 12.6%
(computed as annualized property NOI from the date the lease was signed divided
by total project costs). When appropriate and subject to the limitations in the
Credit Facility, the Company will consider the
33
<PAGE> 40
development of new industrial and suburban office properties. See "Business and
Properties -- The Credit Facility."
DISPOSITIONS
In September 1995, the Company sold Cody Street Park, an industrial
property located in Overland Park, Kansas, consisting of approximately 37,856
rentable square feet, to The Realty Associates Fund III, L.P. for $1.5 million.
The proceeds from the sale of Cody Street Park were applied toward the purchase
of Ninety-Ninth Street #1 and Ninety-Ninth Street #2, which were purchased from
The Realty Associates Fund III, L.P. and closed concurrently with the sale of
Cody Street Park. In October 1995, the Company sold the IBM Building, a suburban
office building located in Jackson, Mississippi, consisting of approximately
88,000 rentable square feet, to The Parkway Company for $6.5 million. The sale
of the IBM Building completed the Company's asset repositioning that was
commenced in late 1992.
CORPORATE STRATEGIES
In pursuing its business objectives and growth plans, the Company intends
to:
- PURSUE A MARKET DRIVEN STRATEGY.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth, and
which are, ideally, subject to supply-side constraints. The Company believes
that certain metropolitan areas (e.g., the San Francisco Bay Area, the Los
Angeles Basin, Denver, Portland, Salt Lake City, Kansas City, Phoenix and
Seattle) have multiple suburban "cores" and that the potential for growth in
these metropolitan areas is generally greatest in and around these suburban
cores. The Company believes that such suburban cores emerge as jobs move to the
suburbs and typically offer a well-trained and well-educated work force, high
quality of life and, in many cases, a diversified economic base. The Company
focuses on owning, managing, acquiring and developing properties in these
suburban cores. Additionally, the Company seeks out real estate markets that are
subject to supply-side constraints such as limited availability of undeveloped
land and/or geographic, topographic, regulatory and/or infrastructure
restrictions. The Company believes that such restrictions serve as barriers of
entry to new construction, thereby limiting the supply of new commercial space.
The Company believes that these supply-side constraints, when combined with a
growing employment and population base, enhance the long-term investment
potential of a real estate asset. As a result, the Company searches for real
estate acquisition and development opportunities in real estate markets that
demonstrate some or all of the foregoing characteristics.
- FOCUS ITS EFFORTS IN THE WESTERN UNITED STATES.
In February 1993, the Board of Directors of the Company approved a new
business strategy which, among other things, regionalized the Company's
investment focus primarily in the Western United States. In connection with this
regional investment focus, the Company has repositioned its portfolio of
properties over the last several years. The Company's target markets for future
acquisitions and development include selected suburban markets in Northern and
Southern California, Colorado, Oregon, Utah, Kansas, Arizona and Washington. The
Company believes that this geographic focus, combined with management's market
experience, contributes to a more thorough understanding of these industrial and
suburban office property markets and allows the Company to anticipate trends and
therefore to better identify investment opportunities.
- CAPITALIZE ON ITS EXPERIENCED MANAGEMENT TEAM.
The Company's management team has direct experience in all aspects of
managing a large real estate portfolio. The Company's management team has on
average over 17 years of experience in the ownership, management, acquisition
and development of industrial and suburban office properties in the Western
United States. The Company believes that the experience of its management team
makes it strategically well-positioned for growth.
34
<PAGE> 41
- PLAN FOR FUTURE ANTICIPATED EXPENSES ASSOCIATED WITH TENANT TURNOVER.
The cash flow of a real estate asset can vary significantly from year to
year depending on tenant turnover. When a lease expires and a tenant renews or
vacates its space, costs associated with tenant improvements, lease commissions
and lost income due to vacancy or construction down-time can significantly
reduce property cash flow. Due to the capital intensive nature of suburban
office properties and, to a lesser degree, industrial properties, the Company
believes that planning and budgeting for future costs associated with tenant
turnover is a prudent component of managing the cash flow of the Properties. For
its existing portfolio, the Company estimates the future costs for tenant
improvements, lease commissions and lost income due to vacancy and construction
down-time on a property by property basis. Although these future costs are not
accrued for financial reporting purposes, the Company incorporates these
estimates in its annual budgets and longer-term forecasts and seeks to maintain
cash and/or availability under the Credit Facility adequate to cover these
budgeted expenditures. The Company believes that its ability to commit capital
to fund tenant improvements and pay lease commissions helps to retain and
attract tenants. To the extent that a vacancy in one of the Properties does
occur, the Company believes that its policy of budgeting ahead for anticipated
tenant improvement costs and leasing commissions enables it to compete
effectively for new tenants.
- CONCENTRATE ON ACQUIRING GENERAL PURPOSE, FLEXIBLE PROPERTIES.
The Company concentrates on acquiring general purpose, flexible industrial
and suburban office properties that are suitable for a diverse range of tenants
ranging from small firms to large corporations engaged in various businesses,
rather than acquiring highly-improved properties that cater to a limited number
of tenants based on use and size. The Properties are divisible into units
ranging from approximately 500 square feet to 180,000 square feet in order to
accommodate tenants of various sizes and needs. The Company believes that the
general purpose, flexible nature of its Properties is an important factor in
maintaining an overall high average occupancy rate.
- UTILIZE IN-HOUSE ASSET AND PROPERTY MANAGEMENT.
The Company believes that the long-term value of its Properties is enhanced
through in-house asset management. The Company's asset management team develops
and monitors a comprehensive asset management plan for each Property in an
effort to ensure its efficient operation. The Company's Vice President of
Property/Asset Management works directly with (i) each property manager to
identify and implement opportunities to improve cash flow from each Property and
to maximize each Property's long-term investment value and (ii) the Company's
internal finance and accounting staff to develop and monitor detailed budgets
and financial reports for each Property.
In February 1993, as a part of the current business plan, the Company made
a strategic decision to internalize the property management of its Properties.
All of the Properties, other than those located in Minnesota, Colorado and
Oregon, are currently managed by the Company's in-house property management
team. The Company's objective is to expand its portfolio of properties in each
of its target markets, as economically and strategically appropriate, to a level
sufficient to support a local in-house property manager. The Company conducts
its Southern California property management activities out of its regional
office in Tustin, California and, effective April 1, 1996, the Company's Kansas
City property management activities will be conducted out of its new regional
office in Lenexa, Kansas. The Company's property management staff is generally
responsible for leasing activities, ordinary maintenance and repairs, keeping
financial records on income and expenses, rent collection, payment of operating
expenses and property operations. The Company's property management philosophy
is based on the belief that the long-term value of the Properties is enhanced by
attention to detail and hands-on service provided by professional in-house
property managers. The Company believes that a successful leasing program starts
by servicing existing tenants first. Costs associated with tenant turnover
(i.e., tenant improvements, leasing commissions and the loss of income due to
vacancy) can be significant and, by addressing and attending to existing
tenants' needs, the Company believes that it can increase its retention of
existing tenants and simultaneously make its properties more attractive to
tenants.
35
<PAGE> 42
- COOPERATE WITH LOCAL REAL ESTATE BROKERS.
The Company seeks to develop strong relationships with local real estate
brokers, who can provide access to tenants as well as general market
intelligence and research. The Company believes that these relationships have
enhanced the Company's ability to attract and retain tenants.
- MAINTAIN ITS CONSERVATIVE FINANCIAL LEVERAGE.
As adjusted to reflect the Offering, the 1996 Mortgage Loans and the
acquisition of the property in Laguna Hills, California as if such transactions
had been consummated on February 29, 1996, the Company's total consolidated
indebtedness as of that date equaled approximately 14.0% of the Company's Total
Market Capitalization. The Company currently intends to limit its total
consolidated indebtedness to no more than 50% of its Total Market
Capitalization. The Board of Directors intends, however, to retain the ability
to raise additional capital, including additional debt and equity, in order to
pursue acquisition and development opportunities that meet the Company's
investment criteria. See "Policies with Respect to Certain
Activities -- Financing Policies."
REAL ESTATE MARKET OVERVIEW
The Company is currently targeting selected suburban markets in Northern
and Southern California, Colorado, Oregon, Utah, Kansas, Arizona and Washington.
The Company believes that due to recent economic improvements in these markets,
and related improvements in the commercial property markets, an investment in
industrial and suburban office properties in these markets, and in particular in
California, provides the potential for attractive returns through increased
occupancy levels, rents and real estate values. In the 1996 edition of Emerging
Trends, a publication of Equitable Real Estate Management, more than 100 real
estate professionals ranked San Francisco, Seattle, Denver and Phoenix among the
top seven markets in the country for general real estate investment in 1996.
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<PAGE> 43
The following charts outline changes in levels of employment and the
relationship between building permits issued and occupancy levels for the years
1989 through 1995 in the markets where the Company operates or intends to
operate.
EMPLOYMENT IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EMPLOYMENT
(FISCAL YEAR COVERED) (JOBS IN MILLIONS)
<S> <C>
1989 13.588
1990 13.7713
1991 13.6993
1992 13.5485
1993 13.6069
1994 13.8604
1995 14.2573
</TABLE>
BUILDING PERMITS AND OCCUPANCY FOR
INDUSTRIAL PROPERTIES IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BUILDING PERMITS OCCUPANCY
(FISCAL YEAR COVERED) (VALUE IN MILLIONS) (PERCENT)
<S> <C> <C>
1989 1486 88.2
1990 1381 87.8
1991 831 86.1
1992 626 86.8
1993 509 86.9
1994 687 89
1995 969 89.8
</TABLE>
37
<PAGE> 44
BUILDING PERMITS AND OCCUPANCY FOR
OFFICE PROPERTIES IN THE COMPANY'S MARKETS(1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BUILDING PERMITS OCCUPANCY
(FISCAL YEAR COVERED) (VALUE IN MILLIONS) (PERCENT)
<S> <C> <C>
1989 2631 81.4
1990 1815 80.6
1991 1197 80.3
1992 814 81.4
1993 657 82.8
1994 861 84.7
1995 904 85.6
</TABLE>
- ---------------
(1) Source: U.S. Census Bureau; The Rosen Group. For 1995: employment statistics
are for the full year; value of building permits is for the first 11 months
annualized; and occupancy percentages are as of the end of the third quarter.
THE CALIFORNIA ECONOMIC RECOVERY
Since 1993, the California economy has been recovering from the recession
it experienced from 1990 to 1993. Key forces underlying the state's recovery
include: earlier recovery of the national economy; improvements in the state's
business climate; increase in exports; and growth of high-tech industries. By
late 1995, job growth in California had passed that of the nation, and, as shown
below, California's expected non-farm employment growth rate for 1996 is
approximately 2.2%, exceeding the expected national growth rate of 1.4% for the
same period. The industries contributing to this growth include foreign trade,
professional services, high technology, and tourism and entertainment. Based on
Fortune magazine's annual survey as published in its April 17, 1995 edition, the
state of California increased its share of the nation's 100 fastest-growing
companies from 20% in 1993 to 27% in 1995. The majority of these businesses are
in the high-tech sector and are located in the San Francisco, Los Angeles or San
Diego regions. The expected population growth rate in California in 1996 is
approximately 1.3%, exceeding the expected national growth rate of .71% for the
same period. In addition, personal income in the state is expected to grow at a
rate of 6.0% in 1996, compared to 4.3% growth for the nation as a whole over the
same period. As of December 31, 1995, approximately 62% of the Company's total
Annualized Base Rent was generated by its Properties located in California.
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<PAGE> 45
EXPECTED GROWTH RATES(1)
(IN 1996)
<TABLE>
<S> <C> <C>
POPULATION GROWTH NON-FARM EMPLOYMENT PERSONAL INCOME
U.S. 0.7
CALIFORNIA 1.3
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. 1.4
CALIFORNIA 2.2
U.S. 4.3
CALIFORNIA 6.0
</TABLE>
-----------------------------------------------------------------------
(1) Source: UCLA Business Forecast for the Nation and California, December 1995.
U.S. population data provided for age group 16+ years. California population
data provided for all age groups.
DESCRIPTION OF THE COMPANY'S MARKETS
SAN FRANCISCO BAY AREA, CALIFORNIA
Based on 1992 population of approximately 6.4 million, the San Francisco
Bay Area is the fourth largest metropolitan area of the United States, and
includes the cities of San Francisco, San Jose and Oakland. From 1980 to
mid-year 1992, the San Francisco Bay Area population grew at an average rate of
1.6% per annum, compared with a national average growth rate of approximately
1.1% per annum over a comparable period. The San Francisco Bay Area benefits
from a highly educated work force and wealthy population, as well as from strong
links to the growing economies of the Pacific Rim. In October 1995, the
unemployment rates in the San Francisco Bay Area averaged 5.3%, with
unemployment rates in San Francisco, San Jose and Oakland of 6.0%, 5.6% and
9.2%, respectively, compared with a seasonally adjusted rate of 5.5% for the
nation as a whole on the same date. The San Francisco Bay Area encompasses a
broad spectrum of industries, including the electronics and biotechnology
industries in the Silicon Valley and San Mateo and Alameda Counties, and the
financial services industries in San Francisco, San Mateo, Marin and Contra
Costa Counties.
The San Francisco Bay Area commercial real estate market is one of the
largest in the country. The area is often described in terms of five principal
markets: San Francisco proper, where the Company owns no properties; the
Northern Bay area, principally the counties of Marin, Sonoma and Napa, where the
Company owns no properties; the County of San Mateo, frequently described as the
Peninsula, where the Company owns five Industrial Properties comprising
approximately 305,000 square feet; the counties of Alameda, Contra Costa and
Southern Solano, frequently described as the East Bay, where the Company owns
five Industrial Properties and one Suburban Office Property comprising
approximately 175,000 and 17,000 square feet, respectively; and Santa Clara
County, commonly known as the Silicon Valley, where the Company owns two
Industrial Properties comprising approximately 245,000 square feet.
Silicon Valley, located at the southern end of the San Francisco Bay Area,
is a leading center for technology-oriented industries. Economic conditions in
Silicon Valley have strengthened over the last several years due to a recovery
in the computer industry, growth in the bioscience industry and trade with the
Pacific Rim. The office vacancy rate in the area declined from 13% at year-end
1994 to 8.2% at year-end 1995 on an inventory base of approximately 41 million
square feet. The industrial research and development and warehouse vacancy rate
in the Silicon Valley fell from 9.2% at year-end 1994 to 5.1% at year-end 1995
on an inventory base of more than 206 million square feet.
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<PAGE> 46
The East Bay suburban office market is located on the eastern side of the
San Francisco Bay Area. The office vacancy rate in the Contra Costa County
submarket, which comprised 33 million square feet of suburban office space at
year-end 1995, declined from 9.2% at year-end 1994 to 7.7% at year-end 1995. The
industrial vacancy rate in the submarket known as the East Bay submarket, which
comprised more than 169 million square feet at year-end 1995, declined from
11.1% at year-end 1994 to 9.1% at year-end 1995.
GREATER LOS ANGELES AREA, CALIFORNIA
The five-county Southern California region, which comprises more than 15
million people, includes the counties of Ventura, Los Angeles, Riverside, San
Bernardino and Orange. The Company owns one Suburban Office Property in Ventura
County comprising approximately 108,000 square feet; one Suburban Office
Property in Los Angeles County comprising approximately 105,000 square feet; one
Industrial Property in the Riverside-San Bernardino metropolitan area comprising
approximately 451,000 square feet; and one Industrial Property in Orange County
comprising approximately 192,000 square feet.
Ventura County is the northernmost county in the five-county Southern
California region and is located approximately 70 miles northwest of downtown
Los Angeles. From 1988 through 1992, the Ventura County population grew at an
average rate of approximately 1.8% per annum, compared to the national average
rate of 1.0% per annum over the same period. The office vacancy rate in Ventura
County, which consisted of approximately six million square feet at year-end
1995, declined from approximately 28% at year-end 1990 to approximately 14.4% at
year-end 1995. The decrease in construction of new office space in Ventura
County in conjunction with positive net absorption of office space over the same
period contributed to this decline.
The Riverside-San Bernardino metropolitan area is located approximately 60
miles east of downtown Los Angeles and consists of Riverside and San Bernardino
Counties. From 1988 to 1992, the metropolitan area population increased at an
average rate of approximately 5.0% per annum, compared to a population increase
of 1.0% per annum for the nation as a whole for that period. Due to convenient
access to Ontario International Airport as well as several major freeways, the
metropolitan area is a strategic location for ground transportation throughout
the Southwestern United States. Industrial sector vacancy in the
Riverside -- San Bernardino metropolitan area fell from 12.1% at the end of the
third quarter of 1994 to 9.1% at the end of the third quarter of 1995 on an
inventory of approximately 150 million square feet.
Orange County is the southwestern county in the five-county Southern
California region and is located approximately 35 miles south of Los Angeles.
From 1990 through 1994, the Orange County population increased at an average
rate of approximately 1.9% per annum, compared to a population increase of 1.0%
per annum for the nation as a whole for that period. The vacancy rate in the
Orange County industrial market, which comprises approximately 186 million
square feet, declined from 14.7% at the end of the third quarter of 1994 to
12.9% at the end of the third quarter of 1995.
In general, the five-county Southern California region has been adversely
impacted by defense spending cutbacks. The unemployment rates in Orange County,
Riverside County, San Bernardino County and Ventura County were approximately
5.2%, 9.7%, 7.7% and 7.4%, respectively, in October 1995, compared with a
seasonally adjusted rate of 5.5% for the nation as a whole on the same date.
KANSAS CITY METROPOLITAN AREA, MISSOURI
At year-end 1992, the population in the Kansas City metropolitan area was
approximately 1.6 million, having grown at an average rate of 1.0% per annum
from 1988 to 1992, the same as the average population growth rate per annum for
the nation as a whole during the same period. Kansas City serves as the
transportation, distribution and financial services hub for the farm belt and
also has a large fiber-optic and telecommunications presence. The unemployment
rate in the Kansas City metropolitan area was 3.2% in October 1995, compared
with a seasonally adjusted rate of 5.5% for the nation as a whole on the same
date. The Company owns one Suburban Office Property and four Industrial
Properties in the Kansas City metropolitan area comprising approximately 79,000
square feet and 144,000 square feet, respectively. The suburban office vacancy
in the Kansas City metropolitan area fell from 10.9% at year-end 1993 to 8.2% at
the end of the second quarter of 1995. The industrial property vacancy rate in
the Kansas City metropolitan area
40
<PAGE> 47
declined from 12.7% as of June 1994 to 12.4% as of June 1995 on an inventory
base of approximately 123 million square feet.
PHOENIX, ARIZONA
The Phoenix metropolitan area population was approximately 2.6 million in
1995, having grown at an average rate of 3.9% per annum from 1981 to 1995,
compared with a rate of approximately 1.1% for the nation as a whole during the
same period. From 1991 through 1995, employment growth in the Phoenix
metropolitan market averaged 4.1% per annum, compared to the national average of
1.5% per annum for the same period. The unemployment rate in the Phoenix
metropolitan area was 4.9% in 1994, compared with a rate of 5.4% for the nation
as a whole for the same year. Phoenix has a large high technology, aerospace and
telecommunications presence, and also serves as a distribution and financial
services hub for the southwestern United States.
Although the Company does not currently own any properties in the Phoenix
metropolitan area, it has contracted to purchase a five-building industrial
property comprising approximately 143,950 rentable square feet. The Phoenix
industrial market, which consists of nearly 46 million square feet, had a 10.5%
vacancy rate in 1994, its lowest level in 14 years. In 1992, the Phoenix
suburban office market, which consists of more than 38 million square feet,
experienced positive net absorption of more than 1.1 million square feet and no
new suburban office construction. As a result, the suburban office vacancy rate
in this market fell from 25.1% in 1991 to 22.1% in 1992. In 1994, the suburban
office vacancy rate dropped even further to 13.7%, the lowest vacancy rate since
1980.
DENVER METROPOLITAN AREA, COLORADO
The Denver metropolitan area's population at mid-year 1994 was estimated to
be 1.7 million, having grown at an average rate of 1.4% per annum from 1990 to
mid-year 1994, compared with a national average of approximately 0.24% per annum
over a comparable period. The unemployment rate in the Denver metropolitan area
was 3.2% in October 1995, compared with a seasonally adjusted rate of 5.5% for
the nation as a whole on the same date. The Denver metropolitan area has
diversified away from its traditional oil and gas emphasis, with job growth now
generated by the technological, transportation and telecommunication industries.
Growth in the Denver economy has created stronger demand for suburban office and
industrial properties. The Company owns two Industrial Properties in the Denver
metropolitan area comprising approximately 211,000 square feet. The vacancy rate
in the Denver industrial market, which consisted of over 182 million square feet
at the end of 1995, declined from 5.7% at year-end 1993 to 2.6% at year-end
1995.
PORTLAND METROPOLITAN AREA, OREGON
Based on 1994 population of approximately 1.7 million, Portland is the
largest city in Oregon and the second largest city in the Pacific Northwest.
From 1988 through 1992, the Portland metropolitan area population grew at an
average rate of approximately 2.7% per annum, well above the national average of
approximately 1.0% per annum for the same period. Non-agricultural employment in
the Portland metropolitan area has grown an average of approximately 2.9% per
annum during the five-year period ended December 31, 1993, exceeding the
national average of approximately 1.4% per annum for the same period. The
unemployment rate in the Portland metropolitan area was 3.5% in October 1995,
compared with a seasonally adjusted rate of 5.5% for the nation as a whole on
the same date. Portland has a diverse economic base, ranging from forest
products to electronics, software and health care companies, and a well-educated
work force. The Company owns two Industrial Properties in the Portland
metropolitan area comprising approximately 159,000 square feet. The industrial
vacancy rate in Portland declined from approximately 18.7% at year-end 1988 to
approximately 2.7% at year-end 1995. The current improvement in the industrial
vacancy rate has been driven primarily by positive net absorption of industrial
space and limited new industrial construction. The suburban office vacancy rate
declined from 21.6% at year-end 1988 to 7.4% at year-end 1995. The current
strength of the market, which at year-end 1995 comprised approximately 10
million square feet, is primarily the result of continued employment growth,
positive net absorption of suburban office space and limited new suburban
construction.
41
<PAGE> 48
GREATER SEATTLE AREA, WASHINGTON
Based on 1994 population of approximately 2.2 million, Seattle is the
largest city in the Pacific Northwest. From 1989 through 1993, non-agricultural
employment growth in the Seattle metropolitan area averaged 2.7% per annum,
compared to the national average of approximately 1.4% per annum for the same
period. The unemployment rate in the greater Seattle area was 5.4% in October
1995, compared with a seasonally adjusted rate of 5.5% for the nation as a whole
on the same date. The greater Seattle area has developed a diversified job base
in which the traditional manufacturing and natural resources sectors have been
joined by an increasing number of biotechnology, software, and health care
companies.
Although the Company does not currently own any properties in the Seattle
metropolitan area, it considers the area to be a target market. The two primary
suburban office submarkets in the Seattle metropolitan area are the Eastside and
South markets. The Eastside suburban office submarket (which includes the cities
of Bellevue, Kirkland and Redmond) comprises approximately 15 million square
feet, and with no new suburban office construction and positive net absorption
of more than 297,000 square feet in 1995, the suburban office vacancy rate in
this submarket fell from 9.7% at year-end 1994 to 7.2% at year-end 1995, the
lowest vacancy rate of all submarkets in the Seattle office market. The smaller
5.8 million square foot South suburban office submarket has been adversely
affected by the recent consolidation at Boeing, with negative net absorption
driving up the office vacancy rate from 9.4% at year-end 1989 to 10.6% at
year-end 1995. The South suburban office submarket is expected to be
oversupplied for some time to come. From 1988 through 1994, industrial vacancy
rates in the industrial market fluctuated between 9.2% and 5.0%, and at year-end
1995, the industrial vacancy rate was 5.6%.
SALT LAKE CITY METROPOLITAN AREA, UTAH
The Salt Lake City metropolitan area population, which exceeded 1.1 million
in 1992, grew at an average rate of approximately 1.8% per annum from 1988
through 1992 compared with an average rate of 1.0% per annum for the nation as a
whole over that period. Non-agricultural employment in the Salt Lake City
metropolitan area grew at an average rate of approximately 3.7% per annum from
1989 through 1993, well above the national average of 1.4% per annum for the
same period. The unemployment rate in the Salt Lake City metropolitan area was
2.9% in October 1995, compared with a seasonally adjusted rate of 5.5% for the
nation as a whole on the same date. Salt Lake City's economy is diversified,
with substantial employment in the service, construction, and financial,
insurance and real estate sectors. The Company owns one Suburban Office Property
in this area comprising approximately 114,000 square feet. The suburban office
vacancy rate in the Salt Lake City metropolitan area declined from 26.7% at
year-end 1989 to 6.7% at year-end 1995 on an inventory of over 15 million square
feet. This decline reflects, among other things, a significant decrease in the
construction of new suburban office space, positive net absorption, and strength
in the service and financial, insurance and real estate sectors of the local
economy. The industrial vacancy rate in Salt Lake City declined from 8.3% at
year-end 1991 to 2.1% at year-end 1995.
42
<PAGE> 49
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering are estimated to be
approximately $46.9 million or approximately $57.3 million if the Underwriters'
over-allotment option is exercised in full. The Company will use the net cash
proceeds of the Offering to repay the outstanding principal balance under the
Credit Facility (which amounted to approximately $30.4 million as of March 29,
1996). The Company intends to use the remaining net proceeds to purchase
additional properties, including all or a portion of the three properties
identified in "Business Objectives and Growth Plans -- Pending Acquisitions," if
such properties are purchased by the Company, and for general corporate
purposes, including working capital. The Company is continuously engaged, in the
ordinary course of its business, in the evaluation of properties for
acquisition. Pending application of any remaining net proceeds, the Company will
invest such portion of the net proceeds in interest-bearing accounts and
short-term, interest-bearing securities, which are consistent with the Company's
intention to qualify for taxation as a REIT. Such investments may include, for
example, government and governmental agency securities, certificates of deposit
and interest-bearing bank deposits.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock of the Company trades on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol "BED." The following table sets
forth, for the periods indicated, the quarterly high and low sale prices per
share reported on the New York Stock Exchange and the dividends declared per
share by the Company on the Common Stock during each quarterly period since the
first quarter of 1994. All of the following quotations have been adjusted to
reflect the one-for-two reverse stock split of the Common Stock effected on
March 29, 1996.
<TABLE>
<CAPTION>
SALE PRICE
-------------- DIVIDENDS
HIGH LOW DECLARED
----- ----- ---------
<S> <C> <C> <C>
1994
First Quarter..................................................... $14 1/2 $ 10 $ .16
Second Quarter.................................................... $ 14 $11 1/2 $ .18
Third Quarter..................................................... $ 14 $11 1/2 $ .18
Fourth Quarter.................................................... $12 1/4 $9 3/4 $ .19
1995
First Quarter..................................................... $12 3/4 $10 3/4 $ .19
Second Quarter.................................................... $11 3/4 $10 1/4 $ .21
Third Quarter..................................................... $13 1/2 $11 1/4 $ .21
Fourth Quarter.................................................... $15 1/4 $12 3/4 $ .21
1996
First Quarter (through March 28, 1996)............................ $ 15 $ 14 $ .24
</TABLE>
As of March 15, 1996 the Company had approximately 462 record holders of
Common Stock. On March 28, 1996, the last reported sale price of the Common
Stock on the NYSE was $7 3/8 per share. This price does not reflect the
one-for-two reverse stock split of the Common Stock effected March 29, 1996. As
adjusted for the reverse stock split, the last reported sale price of the Common
Stock on March 28, 1996 was $14 3/4 per share.
The Company has an automatic dividend reinvestment plan which allows
stockholders to acquire additional shares of Common Stock through the automatic
reinvestment of cash dividends. The Company pays all brokerage commissions
incurred in connection with the purchase of its stock under this plan, up to a
maximum commission of 5%. See "Description of Capital Stock of the
Company -- Common Stock."
43
<PAGE> 50
DISTRIBUTION POLICY
The Company has made regular quarterly distributions to the holders of the
Common Stock in each quarter since the second quarter of 1993, having increased
the dividend six times since that time from $.10 per share in the second quarter
of 1993 to $.21 per share in each of the second, third and fourth quarters of
1995. On March 15, 1996, the Company declared a dividend distribution to its
stockholders of record on March 29, 1996 of $.24 per share of Common Stock for
the first quarter of 1996, payable April 30, 1996. Purchasers of Common Stock in
the Offering will not receive this dividend in respect of the shares of Common
Stock offered hereby. Distributions on the Common Stock by the Company are at
the discretion of the Board of Directors and will depend on the Board of
Directors' evaluation of relevant factors including those enumerated below. See
"Risk Factors -- Substantial Increase in Dividend Requirements; Possible
Inability to Sustain Dividends."
On September 18, 1995, the Company sold 8,333,334 shares of Convertible
Preferred Stock for $50 million in gross proceeds to BPLP. The Company paid
dividends to BPLP in an amount of approximately $.02 per share of Convertible
Preferred Stock for the partial dividend period commencing September 18, 1995
and ended September 30, 1995 and in an amount of $.135 per share of Convertible
Preferred Stock for the fourth quarter of 1995. On March 15, 1996, the Company
declared a dividend distribution in an amount of $.135 per share of Convertible
Preferred Stock for the first quarter of 1996, payable May 15, 1996. Dividends
may be authorized, declared and paid on shares of Common Stock in any fiscal
quarter only if full cumulative dividends have been paid on, or authorized and
set apart on, all shares of Convertible Preferred Stock for all prior dividend
periods through and including the end of such quarter. Holders of shares of
Convertible Preferred Stock are entitled to receive in each calendar quarter,
when and as authorized and declared by the Board of Directors, cumulative
dividends in cash in an amount equal to the greater of (i) an amount per share
of $.135 or (ii) the dividends payable with respect to such quarter on the
Common Stock into which the Convertible Preferred Stock is convertible, plus, in
both cases, the accumulated but unpaid dividends on the Convertible Preferred
Stock. See "Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Dividends."
Distributions on the Common Stock by the Company to the extent of its
current and accumulated earnings and profits for federal income tax purposes
generally will be taxable to stockholders as ordinary income. Distributions in
excess of such earnings and profits generally will be treated as a non-taxable
reduction in the stockholder's basis in its stock to the extent of such basis,
and thereafter as gain from the sale of such stock. For purposes of determining
whether distributions are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to the
Convertible Preferred Stock, and then allocated to the Common Stock. All
dividend distributions made in the years 1993, 1994 and 1995 were classified as
a return of capital stock for federal income tax purposes. It is likely,
however, that a substantial portion of the Company's dividend distributions in
1996 will be taxable as ordinary income. For a discussion of the tax treatment
of distributions to holders of shares of the Company's stock, see "Federal
Income Tax Considerations."
The Company currently intends to continue paying regular quarterly
dividends and to distribute amounts sufficient to maintain its status as a REIT
(see "Federal Income Tax Considerations -- Requirements for Qualification").
Dividends on the Common Stock by the Company are made at the discretion of the
Board of Directors and depend on the Board of Directors' evaluation of the
Company's results of operations, financial condition and capital requirements,
restrictions under the Convertible Preferred Stock, the Credit Facility, any
other debt instruments and the MGCL, the annual distribution requirements under
the REIT provisions of the Code (see "Federal Income Tax
Considerations -- Requirements for Qualification"), required repayments of
borrowings and such other factors as the Board of Directors deems relevant. See
"Risk Factors -- Substantial Increase in Dividend Requirements; Possible
Inability to Sustain Dividends." In particular, dividends may be authorized,
paid and declared on the shares of Common Stock only if full cumulative cash
dividends plus any accumulated but unpaid dividends have been paid on, or
authorized and set apart on, all shares of Convertible Preferred Stock for all
dividend periods through and including the end of such quarter. See "Description
of Capital Stock of the Company -- Convertible Preferred Stock -- Dividends." In
addition, in order to maintain its qualification as a REIT under the Code, the
Company is required to distribute 95% of its taxable
44
<PAGE> 51
income currently. See "Federal Income Tax Considerations -- Requirements for
Qualification." In addition, the Company will be required, upon maturity of the
Credit Facility (which will occur in 1998), to repay all outstanding borrowings
thereunder. The Board of Directors intends to evaluate the amount of the per
share dividend on the Common Stock from time to time and may adjust such
dividend in light of these and other factors.
45
<PAGE> 52
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995, as adjusted for (i) the origination of the 1996 Mortgage
Loans and the application of the net proceeds therefrom to repay indebtedness
under the Credit Facility and (ii) the issuance of the 3,350,000 shares of
Common Stock offered hereby and the application of the net proceeds therefrom
(assuming a public offering price of $15 per share and after deducting the
estimated underwriting discount and offering expenses) to repay indebtedness
under the Credit Facility. The information set forth below should be read in
conjunction with the consolidated historical financial statements and notes
thereto, the unaudited pro forma financial information and notes thereto and the
discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in each case included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
The Credit Facility................................................. $ 43,250 $ --
1996 Mortgage Loan.................................................. -- 20,200
------- --------
Total Debt.................................................. 43,250 20,200
------- --------
Redeemable Preferred Shares:
Series A Convertible Preferred Stock: $.01 par value; 10,000,000
authorized; 8,333,334 issued and outstanding..................... 50,000 50,000
------- --------
Common Stock and Other Stockholders' Equity:
Preferred Stock: $.01 par value; 10,000,000 authorized; none issued
and outstanding.................................................. -- --
Common Stock: $.02 par value; 15,000,000 authorized; 3,045,325
issued and outstanding; 6,395,325 as adjusted.................... 61 128
Additional paid-in capital.......................................... 107,214 154,047
Accumulated losses and distributions in excess of net income........ (74,840) (74,840)
------- --------
Total Common Stock and Other Stockholders' Equity........... 32,435 79,335
------- --------
Total Capitalization........................................ $125,685 $ 149,535
======= ========
</TABLE>
46
<PAGE> 53
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data for the Company and its subsidiaries on a historical basis as of
and for the years ended December 31, 1991 through 1995. The following table also
sets forth selected consolidated operating data for the Company and its
subsidiaries on a pro forma basis for the year ended December 31, 1995.
The financial and operating data as of and for the years ended December 31,
1991 through 1995 have been derived from the Company's audited financial
statements. The following data should be read in conjunction with the
Consolidated Financial Statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
The unaudited pro forma operating data for the year ended December 31, 1995
are presented as if (i) property acquisitions and property sales occurring after
December 31, 1994, including the acquisition of the suburban office property in
Laguna Hills, California on March 27, 1996, (ii) the pending acquisition of the
industrial property in Phoenix, Arizona, which is under contract and scheduled
to close in April 1996, (iii) the 1996 Mortgage Loans in the amount of $20.2
million and (iv) the Offering had occurred on January 1, 1995. The unaudited pro
forma balance sheet data as of December 31, 1995 are presented as if (i) the
acquisition of the suburban office property in Laguna Hills, California on March
27, 1996, (ii) the pending acquisition of the industrial property in Phoenix,
Arizona, (iii) the 1996 Mortgage Loans in the amount of $20.2 million and (iv)
the Offering had occurred as of that date. The acquisition of the industrial
property in Phoenix, Arizona, which is under contract and scheduled to close in
April 1996, is subject to the completion of due diligence and a number of other
contingencies and, as a result, no assurance can be given that the acquisition
will be completed. See "Business Objectives and Growth
Plans -- Acquisitions -- Acquisitions and Pending Acquisitions."
The pro forma data are based upon certain assumptions in addition to those
specified above that are included in the notes to the pro forma financial
statements included elsewhere in this Prospectus. The pro forma financial data
are not necessarily indicative of what the actual financial position and results
of operations of the Company would have been as of and for the periods
indicated, nor do they purport to represent the Company's future financial
position and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business Objectives and Growth
Plans -- Acquisitions," and the financial statements included elsewhere in this
Prospectus.
47
<PAGE> 54
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
PRO FORMA ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
1995 1995 1995 1993 1992 1991
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE, PROPERTY AND OCCUPANCY
DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income................. $23,840 $11,695 $9,154 $7,207 $9,056 $8,675
Income from property
operations................. 14,589 6,362 4,624 1,597 1,434 1,514
General and administrative
expenses................... 1,457 1,457 1,309 1,303 2,568 2,068
Interest income............... 226 226 56 136 5 602
Interest expense.............. 1,934 1,594 955 716 1,191 2,281
Income (loss) before
extraordinary item......... 10,557 2,895 3,609 3,147 (21,943) (5,454)
Net income (loss)............. 10,557 2,895 3,609 3,147 (18,125) (5,454)
Income (loss) applicable to
common stockholders........ 6,077 1,607 3,609 3,147 (18,125) (5,454)
Income (loss) before
extraordinary item per
common share............... $0.94 $0.52 $1.18 $1.06 $(7.34) $(1.82)
Net income (loss) per common
share...................... $0.94 $0.52 $1.18 $1.06 $(6.06) $(1.82)
Weighted average number or
common and common
equivalent shares
outstanding................ 6,439,549 3,089,549 3,073,832 2,987,950 2,987,950 2,987,950
CASH FLOW INFORMATION:
Net cash provided by operating
activities................. -- $4,898 $2,716 $1,220 $198 $1,765
Net cash provided (used) by
investing activities....... -- (73,259) (19,720) 10,085 (1,750) (1,190)
Net cash provided (used) by
financing activities....... -- 64,655 16,807 (6,550) 1,400 (609)
OTHER DATA:
Funds from operations......... -- $5,021 $3,622 $1,964 $879 $836
Dividends declared per share
of Common Stock............ -- $0.82 $0.71 $0.36 -- $0.24
Number of Properties.......... 32 30 12 9 12 14
Rentable square feet (in
thousands)................. 2,771 2,576 1,157 632 908 1,180
Percent occupied.............. 95% 95% 95% 88% 90% 88%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------
PRO FORMA ACTUAL
---------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Real estate investments before
accumulated depreciation..... $145,361 $131,183
Total assets.................... 157,328 133,478
Mortgage loans payable.......... 20,200 --
Bank loan payable............... -- 43,250
Common stock and other
stockholders' equity......... 79,335 32,435
</TABLE>
48
<PAGE> 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Selected Consolidated
Financial and Operating Data set forth above and the Consolidated Financial
Statements and Notes thereto contained elsewhere in this Prospectus.
When used in the following discussion, the words "believes", "anticipates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected, including, but not
limited to, those set forth in "Risk Factors" and in "-- Potential Factors
Affecting Future Operating Results." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Income from Property Operations
Income from property operations (defined as rental income less rental
expenses) increased $1,738,000, or 38%, in 1995 compared with 1994. This is due
primarily to an increase in rental income of $2,541,000 offset by an increase in
rental expenses (which include operating expenses, real estate taxes, and
depreciation and amortization) of $803,000.
The increase in rental income and expenses is primarily attributable to an
increase in real estate investments. The Company acquired the Landsing Pacific
Portfolio and 3002 Dow Business Center in December 1995; 6600 College Boulevard
in October 1995; 350 East Plumeria Drive, Lackman Business Center, Ninety-Ninth
Street #1 and Ninety-Ninth Street #2 in September 1995; Village Green and
Milpitas Town Center in the middle of the third quarter of 1994; and Dupont
Industrial Center in May 1994. These acquisitions increased rental income and
rental expenses by $2,832,000 and $938,000, respectively. Additionally, 1000
Town Center Drive (acquired December 30, 1993) had an increase in rental income
and rental expenses of $553,000 and $304,000, respectively, resulting from a 49%
increase in occupancy from August 1994 to December 1995.
The effect of these acquisitions was partially offset by the sales of the
IBM Building and Cody Street Park, and vacancies at Buildings #3 and #8 at
Contra Costa Diablo Industrial Park, generating a reduction in 1995 rental
income and rental expenses of approximately $683,000 and $204,000, respectively.
Expenses
Interest expense, which includes amortization of loan fees, increased
$639,000, or 67%, in 1995 compared with 1994. The increase is attributable to
the Company's higher level of borrowing on its credit facility to finance the
acquisition of properties in 1994 and the Landsing Pacific Portfolio in December
1995. The loan fee amortization expense for 1995 and 1994 was $277,000 and
$231,000, respectively. General and administrative expenses remained relatively
unchanged in 1995 compared with 1994. In 1995, the increase of $363,000 in
personnel costs associated with a larger real estate portfolio was offset by the
reversal of a $245,000 income tax liability assessed in 1993 by the state of New
Jersey and the decrease of $62,000 in directors and officers (D & O) insurance
expense. D & O insurance was renewed at a lower premium due to the Company's
improved operating performance in the recent years.
Gain (Loss) on Sale
On January 14, 1994, the Company sold its investment in Texas Bank North
for $8,500,000 and recorded a gain of $1,193,000. The gain on the sale of Texas
Bank North primarily resulted from an improvement in the local real estate
economy subsequent to a 1992 write-down of this asset by $3,631,000.
49
<PAGE> 56
On September 20, 1995, the Company sold its investment in Cody Street Park
for $1,500,000, resulting in a loss of $12,000. On October 2, 1995, the Company
sold its investment in the IBM Building for $6,500,000, resulting in a loss of
$630,000. In anticipation of such sale, the Company recorded a provision for
possible loss of $630,000 in the third quarter of 1995.
Dividends
Dividends declared on the Common Stock for the four quarters of 1995
totaled $0.82 per share of Common Stock. Consistent with the Company's policy,
the dividend declared for the last quarter of 1995 was paid in 1996; as a
result, the Company's statement of cash flows for the year ended December 31,
1995 reflects dividends declared for the fourth quarter of 1994 and the first
three quarters of 1995. The dividends declared for the fourth quarter of 1995
and 1994 were $0.21 and $0.19 per share, respectively. Dividends of $163,000 and
$1,125,000 were declared on the $50,000,000 Convertible Preferred Stock for the
third quarter and fourth quarters of 1995, respectively. The declared dividends
on the Convertible Preferred Stock were paid 45 days after each quarter ended.
Government Regulations
The Properties are subject to various federal, state and local regulatory
requirements such as local building codes and other similar regulations. The
Company believes that the Properties are currently in substantial compliance
with all applicable regulatory requirements, although expenditures at the
Properties may be required to comply with changes in these laws. No material
expenditures are contemplated at this time in order to comply with any such laws
or regulations.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under,
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances or the failure to
properly remediate such substances may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental consultants and
have been inspected for hazardous materials as part of the Company's acquisition
inspections. None of these Phase I assessments has revealed any environmental
conditions requiring material expenditures for remediation. The Phase I
assessment for Milpitas Town Center indicates that the ground water under the
property either has been or may in the future be impacted by the migration of
contaminants originating off-site. According to information available to the
Company, the responsible party for this off-site source has been identified and
has begun remediation pursuant to a clean-up program mandated by a California
environmental authority and the clean-up program is backed by an insurance
policy from CIGNA up to $10 million. The Company does not believe that this
environmental matter will impair the future value of Milpitas Town Center in any
significant respect.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances, and
the Company has not been notified by any governmental authority of any
non-compliance or other claim in connection with any of its present or former
properties. The Company does not anticipate that compliance with federal, state
and local environmental protection regulations will have any material adverse
impact on the financial position, results of operations, or liquidity of the
Company.
RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Income from Property Operations
Income from property operations increased $3,027,000, or 190%, in 1994
compared with 1993. This was due to an increase of rental income of $1,947,000
combined with a decrease in rental expenses of $1,080,000. The increase in
rental income is primarily attributable to acquisitions of real estate
investments. The major
50
<PAGE> 57
acquisitions occurring in late 1993 and in 1994 were Woodlands II, 1000 Town
Center Drive, Dupont Industrial Center, Mariner Court and Milpitas Town Center.
These acquisitions increased 1994 rental income by approximately $4,000,000.
This increase was partially offset by the sales of Point West Place and
University Tower in 1993, generating a reduction in 1994 rental income of
approximately $2,500,000.
The decrease in rental expenses is primarily attributable to the decrease
in the amortization of leasing commissions and tenant improvements. The newly
acquired buildings have not yet incurred significant leasing commissions and
tenant improvement costs.
Since leasing commissions and tenant improvement costs are amortized over
the life of the lease (generally three to five years), the impact of having the
portfolio consisting primarily of newly acquired buildings has been a
significant reduction in amortization expense.
Expenses
Interest expense, which includes amortization of loan fees, increased
$239,000, or 33%, in 1994 compared with 1993. The increase is attributable to
the Company's higher level of borrowing on the Credit Facility combined with the
increase in interest rates and amortization expense of loan fees. The higher
level of borrowing was attributable to the acquisition of real estate in late
1993 and 1994. General and administrative expenses remained relatively unchanged
in 1994 compared with 1993.
Gains on Sales
In 1992, management and the Board of Directors decided to revise the
investment strategy and geographic focus of investments from a continental-wide
basis to a Western United States focus. This was done because of the value
growth advantage perceived in the Western United States, new management's
knowledge and experience in real estate in the Western United States and, in
part, because greater management effectiveness and cost efficiencies can be
achieved by operating in a smaller geographic region.
Certain properties in the real estate portfolio were identified for
disposition. Those properties were individually evaluated and written down to
management's best estimate of net realizable value. Such properties continued to
be depreciated during the holding period prior to disposition.
In writing down the properties, the Company relied on studies performed by
outside appraisers and consultants. The three methods used, discounted cash
flows, NOI capitalization and comparable sales, indicated that current market
values of these properties were below their book value.
On May 1, 1993, the Company sold its interest in the Edison Square
partnerships, which were unconsolidated joint ventures, and recorded a gain of
$2,686,000; this gain was due primarily to the book value of those partnerships
having been reduced to negative $2,686,000 as the result of partnership losses.
In August 1993, the Company sold its investment in University Tower for
$15,200,000 and recorded a gain of $407,000. In October 1993, the Company sold
its investment in Point West Place for $7,180,000 and recorded a gain of
$493,000. On January 14, 1994, the Company sold its investment in Texas Bank
North for $8,500,000 and recorded a gain of $1,193,000.
The gains on the sales of University Tower and Point West Place related
primarily to the depreciation of those properties during the holding period. The
gain from the sale of Texas Bank North was due to improvements in 1993 in the
local real estate market.
The significant number of property sales occurring in 1993 and 1994 were
attributable to management's decision to refocus the real estate portfolio on
suburban office and industrial buildings located in the Western United States.
The Company does not expect this level of property sales to occur in the future.
Dividends
Dividends declared on the Common Stock for the four quarters of 1994
totaled $0.71 per share of Common Stock. Consistent with the Company's policy,
the dividend declared for the last quarter of 1994 was paid in 1995; as a
result, the Company's statement of cash flows for the year ended December 31,
1994 reflects
51
<PAGE> 58
dividends declared for the fourth quarter of 1993 and the first three quarters
of 1994. The dividends declared on the Common Stock for the fourth quarter of
1994 and 1993 were $0.19 and $0.14 per share of Common Stock, respectively.
FINANCIAL CONDITION
Total assets of the Company at December 31, 1995 increased by $71,184,000
compared with December 31, 1994, primarily as a result of an increase in real
estate investments (net of depreciation) of $73,911,000. During 1995, the
Company acquired 20 properties and sold 2 properties. Total liabilities at
December 31, 1995 increased by $25,681,000 compared with December 31, 1994,
primarily as a result of increased borrowings under the Credit Facility in order
to finance the purchase of the Landsing Pacific Portfolio.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, the Company's operating activities
provided net cash flow of $4,898,000. Its investing activities provided cash
flow of $7,914,000 from the sale of the IBM Building and Cody Street Park, and
utilized $81,173,000 of cash to acquire real estate investments. The financing
activities provided cash flow of $64,655,000, primarily from the Convertible
Preferred Stock sale of $50,000,000 less issuance costs of $3,631,000, and bank
borrowings of $47,100,000, offset by repayment of bank loans of $26,250,000 and
payment of dividends of $2,568,000.
On September 18, 1995, the Company completed the sale of $50,000,000 of
Convertible Preferred Stock to an entity beneficially owned by an investment
fund managed by Aldrich Eastman Waltch. The Convertible Preferred Stock contains
financial covenants and conditions that if the Company fails to maintain or
achieve, its holders have the right to cause the Company to redeem all of the
outstanding shares of Convertible Preferred Stock at a redemption price of $6.00
per share plus all accrued dividends payable. In that case, the Company could
experience substantial difficulty in financing such redemption and may be
required to liquidate a substantial portion of its properties.
A portion of net cash proceeds from the Convertible Preferred Stock sale
was used to pay off outstanding borrowings under the Company's $23 million
credit facility. The facility, obtained in December 1993 for $20 million and
increased to $23 million in August 1994, was restated and amended to $60 million
on September 18, 1995. The amended facility, which matures on September 1, 1998,
bears interest at a floating rate equal to either the lender's published
"reference rate" plus 0.50% or its "offshore rate" (similar to LIBOR) plus
2.25%. The Credit Facility contains various restrictive covenants including,
among other things, a covenant limiting quarterly dividends to 90% of average
Funds From Operations for the immediately preceding two fiscal quarters.
The facility was used, in part, to finance the acquisitions of Mariner
Court, Dupont Industrial Center, Village Green, and Milpitas Town Center in 1994
and the Landsing Pacific Portfolio in 1995. As of December 31, 1995, the Company
was in compliance with the covenants and requirements of the Credit Facility.
The Company and the lender under the Credit Facility have agreed, in
principle, to amend the Credit Facility, subject to the final approval of the
lender and negotiation of definitive documentation. There can be no assurance,
however, that an agreement between the lender and the Company will actually be
finalized. If finalized, the Company believes that the amendment will increase
the commitment from $60 million to $100 million and reduce the interest rates.
The amendment of the Credit Facility will be conditioned upon the Company's
receipt of net proceeds from the Offering of not less than $45 million.
In March 1996, the Company obtained the 1996 Mortgage Loans in the
aggregate principal amount of $20.2 million which bear interest at a rate of
7.02% per annum and mature in 2003. The Company also has a loan commitment for
an additional $4.8 million mortgage loan to be funded in April or May 1996,
subject to completion of the lender's due diligence. The making of this mortgage
loan is subject to the mortgage lender's due diligence and as a result, there
can be no assurance that the loan will be made.
The Company anticipates that the cash flow generated by its real estate
investments will be sufficient to meet its short-term liquidity requirements.
The Company expects to fund the cost of acquisitions, capital
52
<PAGE> 59
expenditures, costs associated with lease renewals and reletting of space,
repayment of indebtedness, and development of properties from (i) cash flow from
operations, (ii) borrowings under the Credit Facility and, if available, other
indebtedness (which may include indebtedness assumed in acquisitions), (iii) the
sale of real estate investments and (iv) the sale of equity securities and,
possibly, the issuance of equity securities in connection with acquisitions.
The ability to obtain mortgage loans on income-producing property is
dependent upon the ability to attract and retain tenants and the economics of
the various markets in which the properties are located, as well as the
willingness of mortgage-lending institutions to make loans secured by real
property. The ability to sell real estate investments is partially dependent
upon the ability of purchasers to obtain financing at commercially reasonable
rates.
POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS
For the years ended December 31, 1993 and 1994, net income has been
positively affected by gains on sales of real estate investments and joint
venture partnerships. The Company does not anticipate that its 1996 net income
will be materially impacted by such gains on sales.
At the present time, borrowings under the Company's Credit Facility bear
interest at a floating rate. The Company anticipates that its results from
operations in 1996 may be negatively impacted by future increases in interest
rates and substantial borrowings to finance property acquisitions.
While the Company has historically been successful in renewing and
releasing space, the Company will be subject to the risk that certain leases
expiring in 1996 may not be renewed or the terms of renewal may be less
favorable than current lease terms. However, the Company expects to release the
vacant spaces without any material adverse impact on 1996 operations. In
addition, the Company expects to incur costs in making improvements or repairs
to its portfolio of properties required by new or renewing tenants and expenses
associated with brokerage commissions payable in connection with the reletting
of space.
Many other factors affect the Company's actual financial performance and
may cause the Company's future results to be markedly outside of the Company's
current expectations. See "Risk Factors."
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-Lived Assets to Be Disposed Of (FAS 121) and Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).
The Company has adopted FAS 121 effective January 1, 1996 and believes that
adoption will not have a material impact on the Company's 1996 financial
statements. The Company will adopt the disclosure requirements of FAS 123 in
1996 but continue to account for its stock option plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees as
permitted under FAS 123.
INFLATION
Most of the leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. Inflation, however, could result in increases
in the Company's borrowing costs.
BUSINESS AND PROPERTIES
As of December 31, 1995, the Company owned and operated 30 Properties,
aggregating approximately 2.6 million rentable square feet and comprised of 24
Industrial Properties totalling approximately 2.1 million rentable square feet,
five Suburban Office Properties totalling approximately 424,000 rentable square
feet and one Retail Property totalling approximately 84,000 rentable square
feet. Based on rentable square feet, as of
53
<PAGE> 60
December 31, 1995, the Suburban Office Properties and the Industrial Properties
were approximately 96% and 95% occupied, respectively, by a total of 291
tenants, of which 71 were Suburban Office Property tenants and 220 were
Industrial Property tenants. As of December 31, 1995, the Retail Property was
99% occupied by 15 tenants. The Company holds a fee simple interest in all of
the Properties.
The following table summarizes certain information as of December 31, 1995
with respect to the Properties. The table does not include information related
to the Company's pending acquisitions.
54
<PAGE> 61
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
YEAR TOTAL PERCENT OFFICE/ NET
ACQUIRED/ RENTABLE TOTAL RESEARCH AND NUMBER EFFECTIVE
PROPERTY NAME AND YEAR SQUARE PERCENT ANNUALIZED DEVELOPMENT OF RENT/
LOCATION CONSTRUCTED FEET OCCUPIED(1) BASE RENT(2) FINISH TENANTS SQ. FT.(3) LARGEST TENANT(4)
- ------------------ ------------- ---------- ----------- ------------ --------------- ------ ---------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Building #3 at
Contra Costa
Diablo
Industrial Park,
Concord......... 1990/1983.... 21,840 100% $ 108,108 50% 1 $ 4.95 Phase Metrics
Building #8 at
Contra Costa
Diablo
Industrial Park,
Concord......... 1990/1981.... 31,800 100% $ 190,800 18% 1 $ 6.00 Apria Healthcare
Building #18 at
Mason Industrial
Park Concord.... 1990/1984 28,850 83% $ 159,408 17% 7 $ 6.63 Rust Scaffold
Milpitas Town
Center,
Milpitas(5)..... 1994/1983 102,620 100% $ 753,936 60% 4 $ 7.35 Solectron Corp.
Auburn Court,
Fremont......... 1995/1983 68,030 100% $ 444,660 50% 6 Bond Technologies
Westinghouse
Drive,
Fremont......... 1995/1982 24,030 100% $ 132,648 25% 1 $ 5.52 SMT Unlimited
350 East Plumeria
Drive, San
Jose............ 1995/1983 142,700 100% $ 1,113,060 52% 1 $ 7.80 Compression Labs
301 East Grand,
South San
Francisco....... 1995/1974 57,846 71% $ 240,636 21% 2 $ 5.92 Radix Group Int'l
342 Allerton,
South San
Francisco....... 1995/1969 69,312 100% $ 476,832 15% 4 $ 6.88 Danzas Corp.
400 Grandview,
South San
Francisco....... 1995/1976 107,004 100% $ 801,816 37% 5 $ 7.49 Kuehne & Nagel
410 Allerton,
South San
Francisco....... 1995/1970 46,050 100% $ 237,612 12% 1 $ 5.16 See's Candies
417 Eccles, South
San Francisco... 1995/1964 24,624 100% $ 140,580 8% 2 $ 5.71 Haitai America
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 724,706 97% $ 4,800,096 37% 35 $ 6.83
---------- ----- ------------ ----- ------ ----------
GREATER LOS ANGELES AREA, CALIFORNIA
Dupont Industrial
Center, Ben Franklin Retail
Ontario......... 1994/1989 451,192 100% $ 1,431,036 5% 17 $ 3.17 Stores
3002 Dow Business
Center,
Tustin.......... 1995/1987-89 192,125 83% $ 1,434,348 50% 54 $ 8.88 Caltrans
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 643,317 95% $ 2,865,384 18% 71 $ 4.69
---------- ----- ------------ ----- ------ ----------
DENVER, COLORADO
Bryant Street Denver General
Annex, Denver... 1995/1968 55,000 100% $ 221,112 25% 2 $ 4.02 Hospital
Bryant Street
Quad, Denver.... 1995/1971-73 155,536 97% $ 460,116 20% 16 $ 3.09 King Soopers
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 210,536 98% $ 681,228 21% 18 $ 3.31
---------- ----- ------------ ----- ------ ----------
MINNEAPOLIS/ST. PAUL, MINNESOTA
St. Paul Business
Center East,
Maplewood....... 1995/1984 77,000 90% $ 484,656 70% 12 $ 7.01 Eye Technology
St. Paul Business
Center West, Braun Intertec
Maplewood....... 1995/1981 108,750 81% $ 476,184 52% 26 $ 5.41 Engineering
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 185,750 85% $ 960,840 59% 38 $ 6.11
---------- ----- ------------ ----- ------ ----------
GREATER PORTLAND AREA, OREGON
Twin Oaks General Telephone
Technology Co. of NW
Center,
Beaverton....... 1995/1984 94,177 81% $ 552,744 70% 16 $ 7.27
Twin Oaks Business U. S. Postal Service
Park,
Beaverton....... 1995/1984 65,238 94% $ 471,144 100% 14 $ 7.75
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 159,415 86% $ 1,023,888 82% 30 $ 7.48
---------- ----- ------------ ----- ------ ----------
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
YEAR TOTAL PERCENT OFFICE/ NET
ACQUIRED/ RENTABLE TOTAL RESEARCH AND NUMBER EFFECTIVE
PROPERTY NAME AND YEAR SQUARE PERCENT ANNUALIZED DEVELOPMENT OF RENT/
LOCATION CONSTRUCTED FEET OCCUPIED(1) BASE RENT(2) FINISH TENANTS SQ. FT.(3) LARGEST TENANT(4)
- ------------------ ------------- ---------- ----------- ------------ --------------- ------ ---------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KANSAS CITY,
KANSAS
Ninety-Ninth Yellow Technology
Street #3, Services
Lenexa.......... 1990/1990 50,000 100% $ 293,016 18% 2 $ 5.86
Ninety-Ninth
Street #1,
Lenexa.......... 1995/1988 35,516 100% $ 282,708 70% 3 $ 7.96 Snap-on-Tools
Ninety-Ninth
Street #2,
Lenexa.......... 1995/1988 12,974 100% $ 98,088 95% 1 $ 7.56 Health Midwest
Lackman Business
Center,
Lenexa.......... 1995/1985 45,956 98% $ 377,808 75% 22 $ 8.36 Entertel
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 144,446 99% $ 1,051,620 56% 28 $ 7.32
---------- ----- ------------ ----- ------ ----------
TOTAL/WEIGHTED
AVERAGE ALL
INDUSTRIAL
PROPERTIES...... 2,068,170 95% $11,383,056 36% 220 $ 5.81
---------- ----- ------------ ----- ------
SUBURBAN OFFICE PROPERTIES
GREATER LOS ANGELES AREA, CALIFORNIA(6)
1000 Town Center
Drive, Oxnard... 1994/1989 107,653 93% $ 1,769,076 100% 10 $17.66 Nordman, Cormany
Mariner Court, Dodge, Warren &
Torrance........ 1993/1990 105,436 97% $ 1,790,412 100% 35 $17.67 Peters
---------- ----- ------------ ----- ------ ----------
Subtotal/Weighted
Average....... 213,089 95% $ 3,559,488 100% 45 $17.66
---------- ----- ------------ ----- ------ ----------
SALT LAKE CITY,
UTAH
Woodlands II, Salt
Lake City(7).... 1993/1990 114,352 95% $ 1,542,984 100% 11 $14.25 Comphealth CHS
KANSAS CITY,
KANSAS
6600 College
Boulevard,
Overland Park... 1995/1982-83 79,316 100% $ 952,884 95% 6 $12.01 Sprint
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Village Green, Vocational
Lafayette(8).... 1994/1983 16,895 100% $ 306,240 100% 9 $18.23 Instruction Software
---------- ----- ------------ ----- ------ ----------
TOTAL/WEIGHTED
AVERAGE ALL
SUBURBAN OFFICE
PROPERTIES...... 423,652 96% $ 6,361,596 99% 71 $15.62
---------- ----- ------------ ----- ------ ----------
RETAIL PROPERTY
Academy Place
Shopping Center,
Colorado
Springs......... 1995/1980-82 84,347 99% $ 836,748 N/A 15 $10.08 Ross Stores
---------- ----- ------------ ----- ------ ----------
TOTAL/WEIGHTED
AVERAGE ALL
PROPERTIES...... 2,576,169 95% $18,581,400 47% 306 $ 7.59
======== ============= ============== =============== ======== ==========
</TABLE>
- ---------------
(1) Rentable square feet occupied divided by total rentable square feet.
(2) Annualized Base Rent is computed upon the basis of the monthly base rent in
effect under each lease as of December 31, 1995, or, if such monthly base
rent has been reduced by a temporary rent concession, the monthly base rent
that would have been in effect at such date in the absence of such
concession. Annualized Base Rent does not reflect increases or decreases in
monthly rental rates or any lease expirations which are scheduled to occur
or which may occur after December 31, 1995 or the cost of any leasing
commissions or tenant improvements.
(3) Net effective rent per square foot is computed on the basis of (i)
Annualized Base Rent as of December 31, 1995 divided by (ii) total square
feet occupied as of December 31, 1995.
(4) Based upon Annualized Base Rent as of December 31, 1995.
(5) The Company is currently developing a 45,090 foot building on 3.1 acres of
adjoining land. The Company has signed a five-year lease with Fujitsu PC
Corporation, which is scheduled to occupy the entire facility beginning May
1, 1996. See "Business and Properties -- Development."
56
<PAGE> 63
(6) On March 27, 1996 the Company completed the acquisition of a suburban office
building located in Laguna Hills, California, comprising approximately
51,062 rentable square feet for a purchase price of $6.0 million. See
"Business Objectives and Growth Plans -- Acquisitions -- Acquisitions in
1996."
(7) Rentable square feet includes an 8,268 square foot single-story retail
building which was 100% occupied as of December 31, 1995.
(8) The Company's headquarters are located at Village Green.
LOCATION AND TYPE OF THE COMPANY'S PROPERTIES
As of December 31, 1995, the location and type of Properties by rentable
square feet were as follows:
RENTABLE SQUARE FOOTAGE OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
SUBURBAN SUBURBAN PERCENT NUMBER OF
METROPOLITAN AREA INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL PROPERTIES
- --------------------------------------- --------- -------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Greater Los Angeles Area, CA........... 643,317 213,089 -- 856,406 33% 4
San Francisco Bay Area, CA............. 724,706 16,895 -- 741,601 29 13
Greater Kansas City Area, KS........... 144,446 79,316 -- 223,762 9 5
Denver, CO............................. 210,536 -- -- 210,536 8 2
Greater Minneapolis/ St. Paul Area,
MN................................... 185,750 -- -- 185,750 7 2
Greater Portland Area, OR.............. 159,415 -- -- 159,415 6 2
Salt Lake City, UT..................... -- 114,352 -- 114,352 5 1
Colorado Springs, CO................... -- -- 84,347 84,347 3 1
--
--------- ------- ------ --------- ---
Total........................ 2,068,170 423,652 84,347 2,576,169 100% 30
========= ======= ====== ========= === ==
Percent of Total............. 80% 17 % 3% 100%
Number of Properties......... 24 5 1 30
</TABLE>
57
<PAGE> 64
TENANTS
The Company's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following table sets
forth, as of December 31, 1995, information concerning the Company's ten largest
tenants (ranked by Annualized Base Rent as of that date). All of these tenants
occupy the space that they lease from the Company.
<TABLE>
<CAPTION>
ANNUALIZED BASE
RENT UNDER ACTUAL AMOUNT OF
EXPIRING LEASES(1) SCHEDULED BASE TOTAL RENTABLE AREA
---------------------- RENT DUE FROM -------------------
PERCENT OF JANUARY 1, 1996- SQUARE PERCENT OF SCHEDULED LEASE
TENANT AMOUNT TOTAL(2) DECEMBER 31, 1996 FEET TOTAL(3) EXPIRATION DATE
----------------- ----------- ---------- ----------------- -------- ---------- -----------------
<C> <S> <C> <C> <C> <C> <C> <C>
1. Compression
Labs............. $ 1,113,060 6% $ 1,113,060 142,700 5% December 2001
2. Nordman,
Cormany.......... 707,495 4 724,002 29,837 1 May 2000
3. Sprint
Communications... 736,800 4 736,800 62,441 2 December 1999
4. Kinko's Service
Corporation...... 697,089 4 704,655 45,119 2 September 1999 &
August 2001(4)
5. CompHealth....... 601,443 3 602,847 42,590 2 February 1997
6. Ben Franklin
Retail Stores.... 483,600 3 483,600 183,244 7 March 1997
7. Principal Mutual
Life Ins. Co. ... 338,985 2 338,985 22,599 1 January 1998
8. Dodge, Warren &
Peters........... 334,929 2 336,154 13,615 1 December 2002
9. Ross Stores...... 309,624 1 309,624 38,703 1 January 2000
10. See's Candies.... 237,618 1 237,618 46,050 2 April 1998
-- --
--------- --------- -------
Total............ $ 5,560,643 30% $ 5,587,345 626,898 24%
========= == ========= ======= ==
</TABLE>
- ---------------
(1) Annualized Base Rent is computed upon the basis of the monthly base rent in
effect under each lease as of December 31, 1995 or, if such monthly base
rent has been reduced by a temporary rent concession, the monthly base rent
that would have been in effect at such date in the absence of such
concession. Annualized Base Rent does not reflect any increases or decreases
in monthly rental rates or any lease expirations which are scheduled to
occur or which may occur after December 31, 1995 or the cost of any leasing
commissions or tenant improvements.
(2) Calculated based on a total Annualized Base Rent of $18,581,400 as of
December 31, 1995.
(3) Calculated based on a total of 2,576,169 rentable square feet as of December
31, 1995.
(4) Of Kinko's Service Corporation's 45,119 rentable square feet, the lease with
respect to 7,277 square feet expires in September 1999, while a separate
lease with respect to 37,842 square feet expires in August 2001.
As of December 31, 1995, the Company's ten largest tenants (based on
Annualized Base Rent) in the aggregate accounted for approximately 30% of the
Company's total Annualized Base Rent at that date. See "Risk Factors -- Risks
Inherent in Real Estate Investments -- Dependence on Certain Tenants."
58
<PAGE> 65
LEASE EXPIRATIONS FOR THE PROPERTIES
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for the Properties beginning January 1, 1996, assuming that none of
the tenants exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND
PERCENTAGE AND
CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO ANNUALIZED OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- UNDER EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------- --------- --------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996............... 84 378,738 15% 15% $ 2,529 14% 14%
1997............... 85 722,837 30 45 4,772 26 40
1998............... 71 538,713 22 67 3,990 21 61
1999............... 34 328,374 13 80 2,358 13 74
2000............... 33 240,803 10 90 2,287 12 86
2001............... 6 201,782 8 98 1,974 11 97
2002............... 2 17,540 1 99 391 2 99
2003............... 2 10,279 1 100 158 1 100
2004............... 1 2,770 0 100 27 0 100
2005 and
thereafter....... 2 6,191 0 100% 95 0 100%
=== ===
--- --------- --- ------- ---
Total.............. 320 2,448,027 100% $ 18,581 100%
=== ========= === ======= ===
</TABLE>
As set forth in the foregoing table, as of December 31, 1995, leases
representing 14%, 26%, 21%, 13% and 12%, respectively, of the Company's total
Annualized Base Rent were scheduled to expire during 1996, 1997, 1998, 1999, and
2000, respectively. The Company will be subject to the risk that, upon
expiration, certain of these or other leases will not be renewed, the space may
not be relet, or the terms of renewal or reletting (including the cost of
required renovations or concessions to tenants) may be less favorable than
current lease terms. See "Risk Factors -- Risks Inherent in Real Estate
Investments -- Lease Expirations; Renewal of Leases and Reletting of Unleased
Space."
THE INDUSTRIAL PROPERTIES
As of December 31, 1995, the Company owned 24 Industrial Properties
aggregating approximately 2.1 million rentable square feet. All of the
Industrial Properties are located in industrial business parks which have
convenient access to major freeways and/or rail and air transportation and have
grade-level loading for lighter vehicles and vans and/or dock-high facilities
for larger trucks. Most of the Industrial Properties consist of concrete tilt-up
buildings. They are typically designed to be divisible for leasing to multiple
tenants, although six of the Industrial Properties had a single tenant as of
December 31, 1995. As of the same date, the Industrial Properties were
approximately 95% occupied and the average Industrial Property lease was for
approximately 8,587 rentable square feet. All of the Industrial Properties are
well-maintained and professionally managed.
The Company's largest Industrial Property, Dupont Industrial Center, is a
451,192 square foot, three-building warehouse and distribution complex located
in Ontario, California, with approximately 5% office space buildout and internal
clearance heights ranging from 20 to 26 feet. The Property is designed for the
bulk storage of materials and manufactured goods. The Company's remaining 23
Industrial Properties are light industrial properties used for research and
development, design, assembly, packaging and distribution of goods and/or the
provision of services. The light Industrial Properties have office space and
research and development build out ranging from 8% to 100% and internal
clearance heights between 14 and 24 feet. Light industrial properties are
generally characterized by less building depth and clearance height and a
greater office buildout than bulk warehouse properties. Dupont Industrial Center
was constructed in 1989, while the Company's other Industrial Properties have an
average age of approximately 13 years.
59
<PAGE> 66
Leases for the Industrial Properties typically have terms ranging from one
to five years and do not contain purchase options. Some leases also require
periodic rental increases that are either fixed or based on changes in the
Consumer Price Index ("CPI"). Most of the Company's Industrial Property leases
contain tenant expense contribution clauses whereby the tenant pays its pro rata
share of either all property operating expenses or any increase over
predetermined base amounts in operating expenses (e.g., real estate taxes,
insurance, utilities and maintenance). The Company may occasionally enter into
"gross" tenant leases whereby the tenant's estimated expense contribution
payments are calculated and scheduled prior to lease commencement and
subsequently paid in the form of higher base rents.
LEASE EXPIRATIONS FOR THE INDUSTRIAL PROPERTIES
The following table sets forth as of December 31, 1995 the scheduled lease
expirations at the Industrial Properties beginning January 1, 1996, assuming
that none of the tenants exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND
PERCENTAGE AND
CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO ANNUALIZED OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- UNDER EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------- --------- --------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996............... 65 347,142 18% 18% $ 2,005 18% 18%
1997............... 67 622,163 32 50 3,320 29 47
1998............... 50 452,856 23 73 2,738 24 71
1999............... 25 240,513 12 85 1,254 11 82
2000............... 18 147,241 8 93 875 8 90
2001............... 2 145,036 7 100 1,148 10 100
2002............... 0 0 0 100 0 0 100
2003............... 1 2,889 0 100 43 0 100
2004............... 0 0 0 100 0 0 100
2005 and
thereafter....... 0 0 0 100% 0 0 100%
=== ===
--- --------- --- ------- ---
Total.............. 228 1,957,840 100% $ 11,383 100%
=== ========= === ======= ===
</TABLE>
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES,
TENANT IMPROVEMENTS AND LEASING COMMISSIONS FOR THE INDUSTRIAL PROPERTIES
The following table summarizes the Company's tenant improvement and leasing
commission expenditures incurred in the renewal or releasing of space in its
then-owned industrial properties for each of the last four years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Renewed or released space in square feet(1)........ 122,861 18,282 36,828 13,028
Total expenditures................................. $351,587 $37,403 $84,048 $86,297
Average cost per square foot....................... $2.86 $2.05 $2.28 $6.62
</TABLE>
- ---------------
(1) Includes only square footage with respect to which leasing commissions were
paid or improvements were made in connection with the renewal or the
releasing of space.
The Company evaluated each Industrial Property and estimated the total
amount of non-incremental revenue-generating capital expenditures to be incurred
during the year ended December 31, 1996 at approximately $100,000. This amount
represents approximately $0.05 per square foot, based on the existing Industrial
Property square footage of approximately 2.1 million square feet.
60
<PAGE> 67
The Company plans to spend $1.6 million on capital expenditures in 1996 in
connection with improvements to the eighteen Industrial Properties acquired in
the period from September 1995 to December 1995. These expenditures will be
capitalized as part of the purchase price. The Company does not expect to incur
any further substantial capital expenditures in connection with the Industrial
Properties.
DESCRIPTION OF MAJOR INDUSTRIAL PROPERTIES
3002 Dow Business Center and Dupont Industrial Center, two of the Company's
major Industrial Properties, are described below.
3002 Dow Business Center (Tustin, California)
The Company acquired 3002 Dow Business Center in December 1995 for $11.5
million, or approximately $60 per rentable square foot. 3002 Dow Business Center
is a five-building Industrial Property in Tustin, California, which is located
in Orange County approximately 37 miles south of downtown Los Angeles. The
Property is part of a 315-acre master-planned business park commonly known as
the Irvine Industrial Complex -- Tustin, which is located in the southwestern
section of Tustin at the border of the City of Irvine and lies one-half mile
south of Interstate 5 and four miles north of Interstate 405, the two major
north/south freeways in Southern California. Additionally, the Eastern
Transportation Corridor, a 24-mile toll road that has secured its funding and is
expected to be completed by late 1999, is planned to connect with Jamboree
Boulevard at a location approximately one-quarter mile from the Property. The
five buildings, constructed in two phases in 1987 and 1989, are painted concrete
tilt-up structures containing approximately 192,215 rentable square feet. Two of
the buildings comprise 20,960 rentable square feet each and the remaining
buildings comprise 30,168, 33,361 and 86,676 rentable square feet, respectively.
Approximately 50% of the rentable area has been built out as office space. There
are 72 suites among the five buildings ranging in size from 1,560 rentable
square feet to approximately 6,000 rentable square feet, accommodating small
industrial and research and development tenants. Except for the ten suites that
are fully-improved as office or research and development suites, each of the
suites at the Property has roll-up doors and a main door servicing the
industrial portion of each suite. The 12.48-acre site provides parking for 640
vehicles, or approximately 3.3 spaces per 1,000 rentable square feet.
As of December 31, 1995, the Property was 83% occupied by 54 tenants with
an average lease size of approximately 2,672 rentable square feet. Leases range
from 466 to 8,464 rentable square feet and expire from 1996 to 2001. Annualized
Base Rents as of December 31, 1995 range from $1,728 to $71,088. The average net
effective rent per square foot at the end of 1995 was $8.88. The majority of the
leases at this Property are triple net leases requiring the tenants to reimburse
the Company for all normal operating expenses, real estate taxes and insurance
costs. As of December 31, 1995, 53% of the leases also provide for periodic rent
increases based on either a fixed percentage or dollar amount or an index such
as the CPI.
As of December 31, 1995, the largest tenant of 3002 Dow Business Center was
Caltrans, which occupied approximately 8,536 rentable square feet, or 4% of the
rentable square feet of the Property. As of December 31, 1995, this tenant had
two leases, one expiring March 1996 and the other expiring November 1996. The
tenant is currently holding over with respect to the lease which expired in
March 1996, and the Company currently is actively marketing the space.
61
<PAGE> 68
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for 3002 Dow Business Center beginning January 1, 1996, assuming
that none of the tenants exercise renewal options or termination rights.
LEASE EXPIRATIONS
3002 DOW BUSINESS CENTER
<TABLE>
<CAPTION>
PERCENTAGE AND
PERCENTAGE AND
CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO ANNUALIZED OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- UNDER EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------ --------- --------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.............. 21 54,275 34% 34% $ 476 33% 33%
1997.............. 21 50,101 31 65 457 32 65
1998.............. 8 25,534 16 81 227 16 81
1999.............. 3 7,372 5 86 64 4 85
2000.............. 6 20,677 13 99 175 12 97
2001.............. 1 2,336 1 100 35 3 100
2002.............. 0 0 0 100 0 0 100
2003.............. 0 0 0 100 0 0 100
2004.............. 0 0 0 100 0 0 100
2005 and
thereafter...... 0 0 0 100% 0 0 100%
-- === ===
------ --- ------ ---
Total............. 60 160,295 100% $1,434 100%
== ====== === ====== ===
</TABLE>
The current annual realty tax rate for 3002 Dow Business Center is
approximately $1.02 per $100 of assessed value. The total annual tax on the
current assessed value of $13,925,184 at this rate for 1995 is $205,352.
Included in this amount are direct assessments of approximately $6,638 and
annual Mello-Roos bond assessments of approximately $56,677.
Dupont Industrial Center (Ontario, California).
The Company acquired Dupont Industrial Center in May 1994 for $9.75
million, or approximately $22 per rentable square foot. Dupont Industrial Center
is located in Ontario, California within the California Commerce Center, an
industrial development near the Interstate 10 and Interstate 15 interchange in
the Inland Empire West submarket of Los Angeles approximately 80 miles southeast
of downtown Los Angeles. This location provides convenient access to nearby
Ontario International Airport and is a strategic location for ground
transportation into the Los Angeles basin. The Property, which was constructed
in 1989, comprises 451,192 rentable square feet and is the largest of the
Company's Properties based upon rentable square footage. The Property includes
three industrial buildings: Building A, which has 103,491 square feet divisible
to 6,960 square feet with 20-foot vertical clearance; Building B, which has
164,457 square feet divisible to 15,696 square feet with 24-foot vertical
clearance; and Building C, which has 183,244 square feet divisible to 30,000
square feet with 26-foot vertical clearance. Approximately 5% of the rentable
area has been built out as office space. The 19.9-acre site provides ample space
for truck staging and parking spaces for 735 cars, or 1.6 parking spaces per
1,000 rentable square feet. Uses at the Property range from light manufacturing
to heavy bulk distribution/warehousing. There are 56 dock-high and 25
grade-level loading doors.
As of December 31, 1995, 100% of the rentable square footage of Dupont
Industrial Center was occupied by 17 tenants, with an average lease size of
approximately 26,541 rentable square feet and lease terms ranging from one to
seven years. The average occupancy rate for the period from the Company's
purchase of the Property through the end of 1995 was 96%. The average net
effective rents per square foot at the end of 1994 and 1995 for this Property
were $3.13 and $3.17, respectively. Most of the leases at the Property require
tenants to reimburse the Company for all normal operating expenses, real estate
taxes and insurance costs or
62
<PAGE> 69
in some cases a portion of these costs above fixed amounts. However, some of the
leases are "gross" leases in which predetermined expense reimbursements have
been factored into the base rents. The leases also provide for periodic rent
increases based on either a fixed percentage or dollar amount or an index, such
as the CPI.
As of December 31, 1995, the largest tenant of Dupont Industrial Center was
Ben Franklin Retail Stores, Inc., which occupied approximately 183,244 square
feet or 41% of the rentable square feet of the Property. This tenant's lease
expires in March 1997. The Company currently is actively negotiating to renew
the lease and marketing the space. No other tenant occupied 10% or more of the
rentable square footage of this Property as of December 31, 1995.
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for Dupont Industrial Center beginning January 1, 1996, assuming
that none of the tenants exercise renewal options or termination rights.
LEASE EXPIRATIONS
DUPONT INDUSTRIAL CENTER
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED ANNUALIZED
SQUARE FEET SUBJECT ANNUALIZED BASE RENT UNDER
RENTABLE TO EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------------- --------- --------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..................... 6 101,137 22% 22% $ 370 26% 26%
1997..................... 4 232,916 52 74 670 47 73
1998..................... 4 49,171 11 85 185 13 86
1999..................... 2 47,088 10 95 143 10 96
2000..................... 1 20,880 5 100 63 4 100
2001..................... 0 0 0 100 0 0 100
2002..................... 0 0 0 100 0 0 100
2003..................... 0 0 0 100 0 0 100
2004..................... 0 0 0 100 0 0 100
2005 and thereafter...... 0 0 0 100% 0 0 100%
-- === ===
------- --- ------ ---
Total.................... 17 451,192 100% $ 1,431 100%
== ======= === ====== ===
</TABLE>
The current annual realty tax rate for Dupont Industrial Center is
approximately $1.01 per $100 of assessed value. The total annual tax on the
current assessed value of $9,866,025 at this rate for 1995 is $212,254. Included
in this amount are direct assessments of $112,607.
THE SUBURBAN OFFICE PROPERTIES
The Company's five Suburban Office Properties aggregate approximately
424,000 rentable square feet. The Suburban Office Properties are mid-rise
buildings that have relatively narrow bay depths for easy divisibility enabling
the Company to serve a wide array of tenants and to accommodate their expansion,
contraction and/or space re-engineering needs. As of December 31, 1995, the
Suburban Office Properties were approximately 96% occupied and the average lease
in the Suburban Office Properties was for approximately 5,357 rentable square
feet. All of the Suburban Office Properties have adequate on-site parking. Two
of the five Suburban Office Properties have been constructed during the last
five years. The Village Green office complex where the Company's headquarters
are located is twelve years old.
Leases for the Suburban Office Properties have lease terms ranging from one
to ten years and do not contain purchase options. Office tenants occupying 25%
or more of a building typically have leases with initial terms of five years or
more. The office leases generally require tenants to reimburse the Company for
all
63
<PAGE> 70
normal operating expenses, real estate taxes and insurance costs above fixed or
tenant base year amounts. Some of the office leases also provide for periodic
rent increases that are either a fixed percentage or dollar amount or based on
an index, such as the CPI. Renewal provisions typically provide for renewal
rents to be at or near market rates; in some cases, the renewal rent may be less
than the most recent rent in effect under the lease.
LEASE EXPIRATIONS FOR THE SUBURBAN OFFICE PROPERTIES
The following table sets forth as of December 31, 1995 the scheduled lease
expirations of all leases for the Suburban Office Properties beginning January
1, 1996, assuming that none of the tenants exercise renewal options or
termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED ANNUALIZED
SQUARE FEET SUBJECT ANNUALIZED BASE RENT UNDER
RENTABLE TO EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------------- --------- --------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..................... 18 29,836 8% 8% $ 505 8% 8%
1997..................... 16 91,011 22 30 1,361 21 29
1998..................... 16 73,361 18 48 1,106 17 46
1999..................... 7 82,698 20 68 1,058 17 63
2000..................... 11 50,429 12 80 1,048 16 79
2001..................... 3 45,920 11 91 656 10 89
2002..................... 2 17,540 4 95 391 6 95
2003..................... 1 7,390 2 97 115 2 97
2004..................... 1 2,770 1 98 27 1 98
2005 and thereafter...... 2 6,191 2 100% 95 2 100%
-- === ===
------- --- ------ ---
Total.................... 77 407,146 100% $ 6,362 100%
== ======= === ====== ===
</TABLE>
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES,
TENANT IMPROVEMENTS AND LEASING COMMISSIONS FOR THE SUBURBAN OFFICE
PROPERTIES
The following table summarizes the Company's tenant improvement and leasing
commission expenditures incurred in the renewal or releasing of space in its
then-owned suburban office properties for each of the last four years. None of
the currently owned Suburban Office Properties was owned prior to August 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Renewed or released space in square feet(1)... 34,488 42,975 151,854 229,020
Total expenditures............................ $234,105 $156,321 $907,410 $1,079,048
Average cost per square foot.................. $6.79 $3.64 $5.98 $4.71
</TABLE>
- ---------------
(1) Includes only square footage with respect to which leasing commissions were
paid or improvements were made in connection with the renewal or the
releasing of space.
The Company evaluated each Suburban Office Property and estimated the total
amount of non-incremental revenue-generating capital expenditures to be incurred
during the year ended December 31, 1996 at approximately $150,000. This amount
represents approximately $0.35 per square foot, based on the existing Suburban
Office Property square footage of approximately 424,000 square feet.
The Company plans to spend $100,000 on capital expenditures in 1996 in
connection with improvements to 6600 College Boulevard, the Suburban Office
Property acquired in October 1995. These expenditures will
64
<PAGE> 71
be capitalized as part of the purchase price. The Company does not expect to
incur any further substantial capital expenditures in connection with the
Suburban Office Properties.
DESCRIPTION OF MAJOR SUBURBAN OFFICE PROPERTIES
Mariner Court, 1000 Town Center Drive and Woodlands II, three of the
Company's major Suburban Office Properties, are described below.
Mariner Court (Torrance, California)
Mariner Court is located in the Torrance Business Park at the northwest
corner of Del Amo Boulevard and Mariner Avenue in Torrance, California,
approximately 26 miles southwest of downtown Los Angeles. The Property, which
was constructed in 1989, consists of a three-story, approximately 105,436 square
foot office building situated on a 4.7-acre parcel and provides parking spaces
for 368 cars, or approximately 3.5 spaces per 1,000 rentable square feet. The
Property accommodates small office users who reside in nearby residential beach
and coastal communities, such as Palos Verdes, Rolling Hills and Redondo Beach,
and users requiring convenient freeway access to Los Angeles International
Airport as well as the Port of Long Beach.
As of December 31, 1995, 98% of the rentable square footage in Mariner
Court was occupied by 35 tenants, and the average lease size at the Property was
approximately 2,700 rentable square feet. Leases at Mariner Court have terms
ranging from one to ten years and do not contain purchase options. The leases
generally require tenants to reimburse the Company for all normal operating
expenses, real estate taxes and insurance costs above fixed or tenant base year
amounts. The leases also generally provide for periodic rent increases based on
either a fixed percentage or dollar amount or an index, such as the CPI. The
average net effective rents per square foot at the end of 1994 and 1995 for this
Property were $19.32 and $17.67, respectively.
The largest tenant of Mariner Court as of December 31, 1995 was Dodge,
Warren & Peters, an insurance firm, which occupied approximately 13,615 square
feet or 13% of the rentable square feet of the Property. The lease with respect
to this tenant expires in December 2002. No other tenant occupied 10% or more of
the rentable square footage of this Property as of December 31, 1995.
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for Mariner Court beginning January 1, 1996, assuming that none of
the tenants exercise renewal options or termination rights.
LEASE EXPIRATIONS
MARINER COURT
<TABLE>
<CAPTION>
PERCENTAGE AND
PERCENTAGE AND
CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO ANNUALIZED OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- UNDER EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------ --------- --------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.............. 9 15,030 15% 15% $ 259 14% 14%
1997.............. 8 19,890 19 34 378 21 35
1998.............. 11 33,752 33 67 524 29 64
1999.............. 3 4,458 4 71 71 4 68
2000.............. 5 12,114 12 83 192 11 79
2001.............. 1 3,734 4 87 31 2 81
2002.............. 1 13,615 13 100 335 19 100
2003.............. 0 0 0 100 0 0 100
2004.............. 0 0 0 100 0 0 100
2005 and
thereafter...... 0 0 0 100% 0 0 100%
-- === ===
------ --- ------ ---
Total............. 38 102,593 100% $1,790 100%
== ====== === ====== ===
</TABLE>
65
<PAGE> 72
The current annual realty tax rate including direct assessments for Mariner
Court is $1.00 per $100 of assessed value. The total annual tax on the current
assessed value of $7,680,321 at this rate for 1995 is $87,834. Included in this
amount are direct assessments of $11,031.
1000 Town Center Drive (Oxnard, California)
This Property is located adjacent to the intersection of the Pacific Coast
Highway (California Highway 1) and the Ventura Freeway (California Highway 101)
in Oxnard, California, approximately 70 miles northwest of downtown Los Angeles.
Constructed in 1990, the Property consists of a six-story office building with
approximately 107,698 rentable square feet. The Company believes that the
building's modern design and visibility from the highway are distinct marketing
advantages. The 5.5-acre site provides parking spaces for 432 cars, or 4 spaces
per 1,000 rentable square feet.
As of December 31, 1995, approximately 93% of the rentable square footage
of 1000 Town Center Drive was occupied by 10 tenants and the average lease size
at the Property was approximately 9,106 rentable square feet. The average
occupancy rates for 1994 and 1995 were 98% and 97%, respectively. Leases at 1000
Town Center Drive have terms ranging from three to ten years. The leases require
tenants to reimburse the Company for all normal operating expenses, real estate
taxes and insurance costs above fixed or tenant base year amounts. The leases
also generally provide for periodic rent increases based on either a fixed
percentage or dollar amount or an index, such as the CPI. The average net
effective rents per square foot at the end of 1994 and 1995 for this Property
were $17.11 and $17.66, respectively.
The largest tenant of 1000 Town Center Drive as of December 31, 1995 was
Kinko's Service Corporation, which occupied approximately 45,119 square feet or
42% of the rentable square feet of the Property. Kinko's Service Corporation
provides photocopying and printing services. As of December 31, 1995, Nordman,
Cormany, Hair & Compton, a law firm, occupied approximately 29,837 square feet
or 28% of the rentable square feet of the Property. No other tenant occupied 10%
or more of the rentable square footage of this Property as of December 31, 1995.
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for 1000 Town Center Drive beginning January 1, 1996, assuming that
none of the tenants exercise renewal options or termination rights.
LEASE EXPIRATIONS
1000 TOWN CENTER DRIVE
<TABLE>
<CAPTION>
PERCENTAGE AND
PERCENTAGE AND
CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE CUMULATIVE PERCENTAGE
FEET SUBJECT TO ANNUALIZED OF ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- UNDER EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ------------------ --------- --------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996.............. 0 0 0% 0% $ 0 0% 0%
1997.............. 1 2,637 3 3 46 3 3
1998.............. 0 0 0 3 0 0 3
1999.............. 2 10,174 10 13 158 9 12
2000.............. 4 35,012 35 48 798 45 57
2001.............. 2 42,186 42 90 625 35 92
2002.............. 0 0 0 90 0 0 92
2003.............. 1 7,390 7 97 115 6 98
2004.............. 1 2,770 3 100 27 2 100
2005 and
thereafter...... 0 0 0 100% 0 0 100%
-- === ===
------ --- ------ ---
Total............. 11 100,169 100% $1,769 100%
== ====== === ====== ===
</TABLE>
66
<PAGE> 73
The current annual realty tax rate for 1000 Town Center Drive is $1.045 per
$100 of assessed value. The total annual tax on the current assessed value of
$5,946,260 at this rate for 1995 is $170,058. Included in this amount are direct
assessments of $107,916.
Woodlands II (Salt Lake City, Utah)
This Property is situated at the intersection of 4000 South and 700 East, a
major north-south thoroughfare, approximately seven miles southwest of downtown
Salt Lake City, Utah. The Property consists of a six-story, approximately
106,084 rentable square foot office building and an adjacent 8,268 square foot
single-story retail building, both of which were constructed in 1990. Woodlands
II is the second phase of the 15-acre Woodlands Business Park planned
office/retail development, which currently has a total of 267,000 square feet of
office/retail space and 1,273 parking spaces, or approximately 4.8 spaces per
1,000 rentable square feet in the business park.
As of December 31, 1995, approximately 95% of the rentable square footage
in Woodlands II was occupied by 11 tenants, and the average lease size at the
Property was approximately 9,843 rentable square feet. The average occupancy
rates for 1994 and 1995 were 97% and 98%, respectively. Leases at the Property
have terms ranging from three to seven years. The office leases generally
require tenants to reimburse the Company for all normal operating expenses, real
estate taxes and insurance costs above fixed or tenant base year amounts. The
retail leases generally require tenants to reimburse the Company for all normal
operating expenses, real estate taxes and insurance costs. The leases also
generally provide for periodic rent increases based on either a fixed percentage
or dollar amount or an index, such as the CPI. The average net effective rents
per square foot at the end of 1994 and 1995 for this Property were $14.47 and
$14.25, respectively.
As of December 31, 1995, the two largest tenants at the Property were
CompHealth CHS, Inc., a health care consulting company, and Principal Mutual
Life Insurance, which occupied approximately 37% and 20%, respectively, of the
Property's rentable square feet. The leases with respect to these two tenants
expire in February 1997 and January 1998, respectively. No other tenant occupied
10% or more of the rentable square footage of this Property as of December 31,
1995.
The following table sets forth as of December 31, 1995 a schedule of lease
expirations for Woodlands II beginning January 1, 1996, assuming that none of
the tenants exercise renewal options or termination rights.
LEASE EXPIRATIONS
WOODLANDS II
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE CUMULATIVE
PERCENTAGE OF PERCENTAGE OF
TOTAL LEASED ANNUALIZED
SQUARE FEET SUBJECT ANNUALIZED BASE RENT UNDER
RENTABLE TO EXPIRING LEASES BASE RENT UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ----------------------- EXPIRING -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE LEASES CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE (IN THOUSANDS) PERCENTAGE PERCENTAGE
- ----------------- --------- --------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996............. 1 3,641 3% 3% $ 51 3% 3%
1997............. 4 57,110 53 56 788 51 54
1998............. 3 35,311 33 89 511 33 87
1999............. 1 5,625 5 94 93 6 93
2000............. 1 2,661 2 96 44 3 96
2001............. 0 0 0 96 0 0 96
2002............. 1 3,925 4 100 56 4 100
2003............. 0 0 0 100 0 0 100
2004............. 0 0 0 100 0 0 100
2005 and
thereafter..... 0 0 0 100% 0 0 100%
-- === ===
------- --- ------ ---
Total....... 11 108,273 100% $ 1,543 100%
== ======= === ====== ===
</TABLE>
67
<PAGE> 74
The current annual realty tax rate, including direct assessments, for the
Property is approximately $1.43 per $100 of assessed value. The total annual tax
on the current assessed value of $7,832,440 at this rate for 1995 is $111,842.
Included in this amount are direct assessments of $81.
DEVELOPMENT
During 1995, the Company commenced the development of a 3.1-acre parcel
located on the Company's Milpitas Town Center property in Milpitas, California.
The property, which was developed on an unleased ("speculative") basis, consists
of a single-story research and development facility with approximately 45,090
rentable square feet. Fujitsu PC Corporation recently signed a five-year lease
commencing on May 1, 1996 to occupy 100% of the facility's rentable square feet,
which will serve as the U.S. headquarters for Fujitsu Ltd.'s laptop computer
company. Upon completion of construction, the Company expects the unleveraged
annual return on total project costs of approximately $3.4 million (computed as
annualized property NOI from the date the lease was signed divided by total
project costs) to be 12.6%. The Company's management team has experience in all
phases of the development process, including market analysis, site selection,
zoning, design, pre-development leasing, construction and permanent financing
and construction management. When appropriate and subject to the limitations in
the Credit Facility, the Company will consider the development of new industrial
and suburban office properties.
EMPLOYEES
As of December 31, 1995, the Company had eighteen full-time employees and
one part-time employee. See "Certain Relationships and Related
Transactions -- Funding of Acquisition and Financing Costs." The Company has
hired a nineteenth employee, who will commence employment with the Company on
April 1, 1996. The Company believes that relations with its employees are good.
INSURANCE
The Company currently carries general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as well as
a $10 million umbrella liability policy. The Company carries property insurance
on a replacement value basis covering both the cost of direct physical damage
and the loss of rental income. Separate flood and earthquake insurance is
provided with an annual aggregate limit of $10 million, subject to varying
deductibles of 7.5% to 25% of total insurable value per building with respect to
earthquake coverage. Certain types of losses, however (such as losses due to
acts of war, nuclear accidents or pollution), may be either uninsurable or not
economically insurable. Likewise, certain losses could exceed the limits of the
Company's insurance policies or could cause the Company to bear a substantial
portion of those losses due to deductibles under those policies. Should an
uninsured loss occur, the Company could lose both its invested capital in, and
anticipated cash flow from, the property and would continue to be obligated to
repay any outstanding indebtedness incurred to acquire such property. In
addition, a majority of the Properties are located in areas that are subject to
earthquake activity. Although the Company has obtained earthquake insurance
policies for all of its Properties, should one or more Properties sustain damage
as a result of an earthquake, the Company may incur substantial losses up to the
amount of the deductible under its earthquake policy and, additionally, to the
extent that the damage exceeds the policy's maximum coverage. See "Risk
Factors -- Risks Inherent in Real Estate Investments -- Effect of Uninsured
Loss." The Company also has obtained owner's title insurance policies for each
of the Properties; however, the title insurance may be in an amount less than
the current market value of certain of the Properties. If a title defect results
in a loss that exceeds insured limits, the Company could lose all or part of its
investment in, and anticipated gains (if any) from, such Property. Management
believes that each of the Properties is adequately covered by the Company's
insurance policies. See "Risk Factors -- Risks Inherent in Real Estate
Investments -- Effect of Uninsured Loss."
THE CREDIT FACILITY
The Credit Facility permits borrowings and letters of credit in an
aggregate principal amount of up to $60 million to be outstanding at any one
time, subject to limitations as described below. Outstanding loans
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<PAGE> 75
under the Credit Facility bear interest at a floating rate equal to either the
lender's published "reference rate" plus .50% or its "offshore rate" (similar to
LIBOR) plus 2.25%. As of March 29, 1996, the Credit Facility had an outstanding
principal balance of $30,416,000 and an outstanding letter of credit totalling
$3,000,000. See "Use of Proceeds."
The Company's ability to borrow under the Credit Facility is limited to an
amount (the "Borrowing Base") equal to the lesser of (i) a specified percentage
of the appraised value of the Properties which have been pledged as collateral
under the facility and (ii) an amount calculated quarterly by reference to net
operating income (as defined in the Credit Facility) derived from Properties
pledged as collateral under the Credit Facility. In addition, the Credit
Facility provides that the available credit limit thereunder (currently $60
million) will decrease monthly, pursuant to a specified amortization formula,
commencing on September 1, 1997. To the extent that the Borrowing Base falls to
a level which is below the amount of debt and letters of credit outstanding
under the Credit Facility or borrowings and letters of credit outstanding under
the Credit Facility exceed the reduced credit limit, the Company is required to
reduce borrowings in the amount of excess debt and deliver cash collateral in
the amount of excess letters of credit. See "Risk Factors -- Risks of Debt
Financing."
The Company is required to apply the proceeds from the sale or other
disposition of properties pledged as collateral or from any casualty or
condemnation of properties pledged as collateral to repay borrowings under the
Credit Facility in amounts calculated pursuant to formulas set forth in the
Credit Facility. The Company also is required to apply the net proceeds from the
incurrence of any indebtedness to repay borrowings outstanding under the Credit
Facility.
Borrowings under the Credit Facility may be used by the Company (i) to
finance acquisitions of real property, portfolios of real properties and capital
stock of real estate companies, (ii) subject to certain limitations, to pay for
tenant improvements, leasing commissions and deferred maintenance expenses with
respect to such acquired properties and (iii) subject to certain limitations, to
pay expenses of the Company and to pay dividends to the Company's stockholders.
If the Company borrows under the Credit Facility to purchase a property and
wishes to borrow under the Credit Facility to fund tenant improvements, leasing
commissions and deferred maintenance expenses in respect of such property, the
Company must deliver a budget of proposed tenant improvements, leasing
commissions and deferred maintenance expenses to be paid in connection with such
property. Until such improvements, commissions and expenses have been paid,
either through borrowings under the Credit Facility or otherwise, the amount of
borrowings available under the Credit Facility is reduced by the amount
budgeted.
The Credit Facility is secured by mortgages on 23 Properties (which
Properties collectively accounted for approximately 81% of the Company's
Annualized Base Rent as of December 31, 1995), together with the rental proceeds
from such Properties. As of December 31, 1995, these Properties comprised
approximately 76% of the Company's total assets. Before a new property can be
pledged as collateral under the Credit Facility and added to the Company's
Borrowing Base, potentially increasing its effective credit availability, the
Property must be approved by the lender thereunder.
The Credit Facility contains various restrictive covenants which include,
among other things, a minimum ratio of cash flow to debt service, a maximum
ratio of debt to tangible net worth and limitations on liens, mortgages, the
purchase of undeveloped land, certain indebtedness, partnership and joint
venture activities and a restriction on making loans and investments. The Credit
Facility limits quarterly dividends to 90% of average Funds From Operations for
the immediately preceding two fiscal quarters; however, the lender has agreed to
waive this limitation for the second, third and fourth quarters of 1996 to take
into account the effect of the Offering. The Credit Facility permits the Company
and its subsidiaries to engage in the business of real estate development, but
the Company may develop only "build to suit" projects involving at any one-time
aggregate construction costs of $10 million or less; however, the lender under
the Credit Facility has consented to the Company's development, on an unleased
("speculative") basis, of a 3.1-acre parcel adjacent to the Company's Milpitas
Town Center property.
Amounts outstanding under the Credit Facility must be repaid in full on
September 1, 1998 and no letter of credit may have an expiration date later than
February 1, 1998. The Company does not anticipate that cash
69
<PAGE> 76
flow from operations will be sufficient to enable it to repay amounts
outstanding under the Credit Facility when they become due at maturity. As a
result, the Company's ability to make such payment will depend on its ability to
refinance or extend the Credit Facility or to raise funds through the sale of
equity securities or properties. There can be no assurance that the Company will
be able to do so and the failure by the Company to repay borrowings outstanding
under the Credit Facility when due would likely have the consequences described
above under "Risk Factors -- Risks of Debt Financing."
The Company and the lender under the Credit Facility have agreed, in
principle, to amend the Credit Facility, subject to the final approval of the
lender and negotiation of definitive documentation, to increase the commitment
from $60 million to $100 million, extend the term and reduce the interest rates
thereunder. The Company expects that the amended Credit Facility will be secured
by mortgages on some or all of its currently unencumbered Properties and some or
all of its future property acquisitions. The foregoing amendment to the Credit
Facility will be conditioned upon, among other things, the receipt by the
Company of net proceeds of at least $45 million from the Offering. There can be
no assurance that the Company will enter into this amendment to the Credit
Facility on these terms, or at all.
1996 MORTGAGE LOANS
In March 1996, the Company obtained the 1996 Mortgage Loans in the
aggregate principal amount of $20.2 million, which bear interest at a rate of
7.02% per annum and mature in 2003. The 1996 Mortgage Loans are secured by
mortgages on three Properties (two of which previously were pledged as
collateral under the Credit Facility) accounting collectively for 24% of the
Company's Annualized Base Rent as of December 31, 1995 and comprising 21% of the
Company's total assets as of that date. The Company also has a loan commitment
for an additional $4.8 million mortgage loan to be funded in April or May 1996.
This mortgage loan is subject to completion of the lender's due diligence and as
a result, there can be no assurance that the loan will be made. See "Risk
Factors -- Risks of Debt Financing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CERTAIN PROPERTY TAX INFORMATION
The aggregate real estate property tax obligations paid by the Company
(with or without tenant reimbursement) for the calendar year 1995 were
approximately $1.0 million. Substantially all leases contain provisions
requiring tenants to pay as additional rent their proportionate share of any
real estate taxes or increases (in conjunction with other normal operating
expenses) over base amounts.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time without a
vote of the stockholders and in the discretion of the Board of Directors, except
that changes in certain policies with respect to conflicts of interest must be
consistent with legal requirements.
INVESTMENT POLICIES
- INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE.
The investment objectives of the Company are to increase cash flow and
asset value by actively managing the Properties and by acquiring and developing
additional properties that, either as acquired or after improved management and
leasing activities, will produce additional cash flow. The Company's policy is
to acquire and develop properties primarily to generate current income and
long-term appreciation.
The Company expects to continue its acquisition and development activities
primarily in the Western United States. The Company may, however, acquire or
develop properties elsewhere at the discretion of the Board of Directors. The
Company expects to invest principally in suburban office and industrial
properties, although future investments are not limited by property type and the
Company has set no limit on the amount or percentage of its assets invested in
one property type.
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<PAGE> 77
The Company may develop, purchase or lease income-producing properties,
expand and improve the properties owned, or sell such properties, in whole or in
part, when circumstances warrant. The Company expects that its development
activities will typically be undertaken on a build-to-suit basis for a
particular tenant, or when a significant portion of the building is pre-leased
before construction commences. The Company may also participate with other
entities in property ownership through joint ventures or other types of
co-ownership. Equity investments may be subject to existing or future mortgage
financing and other indebtedness that will have a priority over the equity
interests of the Company.
- SECURITIES OF, OR INTERESTS IN, ENTITIES PRIMARILY ENGAGED IN REAL
ESTATE ACTIVITIES.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Company may also invest in securities of
other REITS, other entities engaged in real estate activities or securities of
other issuers. The Company may also enter into joint ventures or partnerships
for the purpose of obtaining an equity interest in a particular property in
accordance with the Company's other investment policies. The Company does not
currently intend to invest in the securities of other issuers except in
connection with acquisitions of indirect interests in properties. Investments in
these securities are also subject to the Company's policy not to be treated as
an investment company under the Investment Act of 1940, as amended.
- INVESTMENTS IN REAL ESTATE MORTGAGES.
While the Company will emphasize equity real estate investments, the
Company may, in its discretion, invest in mortgages and other real estate
interests consistent with its qualification as a REIT. The Company does not
presently intend to invest to any significant extent in mortgages or deeds of
trust, but may invest in participating or convertible mortgages if the Company
concludes that it may benefit from the cash flow or any appreciation in the
value of the property.
FINANCING POLICIES
As of February 29, 1996, the Company's ratio of total consolidated
indebtedness to Total Market Capitalization, as adjusted to reflect the
Offering, the 1996 Mortgage Loans and the acquisition of the property in Laguna
Hills, California as if such transactions had been consummated on that date,
would have been approximately 14%. The debt-to-Total Market Capitalization
ratio, which is based upon both the market value of the outstanding shares of
Common Stock on a fully diluted basis and the outstanding balance of the
Convertible Preferred Stock, will fluctuate with changes in the price of the
Common Stock (and the issuance of additional Common Stock or shares of preferred
stock, if any) and differs from the debt-to-book capitalization ratio, which is
based upon book values. A company's debt-to-book capitalization ratio may not
reflect the current income potential of its assets and operations, and the
Company believes that a debt-to-Total Market Capitalization ratio is customary
in the REIT industry and provides a more appropriate indication of leverage for
a company whose assets are primarily income-producing real estate.
The Company currently has a policy of limiting its total consolidated
indebtedness to no more than 50% of its Total Market Capitalization. The
Company's Articles of Incorporation and Bylaws do not, however, limit the amount
or percentage of indebtedness that the Company may incur. In addition, the
Company may from time to time modify its debt policy in light of current
economic conditions, relative costs of debt and equity capital, market values of
its properties, general conditions in the market for debt and equity securities,
fluctuations in the market price of Common Stock, growth opportunities, REIT
qualification requirements and other factors. Accordingly, the Company may
increase or decrease its debt-to-Total Market Capitalization ratio beyond the
limits described above.
To the extent that the Board of Directors decides to obtain additional
capital, the Company may raise such capital through additional equity offerings,
debt financings or retention of Funds From Operations (subject to REIT
distribution requirements), or a combination of these methods. Borrowings may be
unsecured or may be secured by any or all of the assets of the Company and may
have full or limited recourse to all or any portion of the assets of the
Company. Indebtedness incurred by the Company or its affiliates may
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<PAGE> 78
be in the form of bank borrowings, purchase money obligations to sellers of
properties, publicly or privately placed debt instruments or financing from
institutional investors or other lenders. The proceeds from any borrowings by
the Company may be used for working capital, to refinance existing indebtedness
or to finance acquisitions, expansions or the development of new properties, and
for the payment of distributions. Other than restrictions that may be imposed by
lenders from time to time in connection with outstanding indebtedness, the
Company has not established limits on the number or amount of mortgages that may
be placed on any single property or on its portfolio as a whole.
CONFLICT OF INTEREST POLICIES
The Company has adopted a policy that, without the approval of a majority
of the Company's disinterested directors, it will not (i) acquire from or sell
to any director, officer of employee of the Company, or any entity in which a
director, officer or employee of the Company beneficially owns more than a 1%
interest, or acquire from or sell to any affiliate of any of the foregoing, any
of the assets or other property of the Company, (ii) make any loan to or borrow
from any of the foregoing persons or (iii) engage in any other transaction with
any of the foregoing persons.
Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities to himself or his affiliates. In
addition, under Maryland law, a contract or other transaction between the
Company and a Director or between the Company and any other corporation or other
entity in which a Director is a director or has a material financial interest is
not void or voidable solely on the grounds of such interest, the presence of
such Director at the meeting at which the contract or transaction is approved or
such Director's vote in favor thereof if (a) the transaction or contract is
approved or ratified, after disclosure of the common directorship or interest,
by the affirmative vote of a majority of disinterested directors, even if the
disinterested directors constitute less than a quorum, or by a majority of the
votes cast by disinterested stockholders, or (b) the transaction or contract is
fair and reasonable to the Company.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise and
may engage in such activities in the future. The Company may issue Preferred
Stock from time to time, in one or more series, as authorized by the Board of
Directors without the need for stockholder approval, except that it may not
authorize, create or increase the authorized amount of any class or series of
equity securities that ranks equal or senior to the Convertible Preferred Stock
with respect to the payments of dividends or amounts upon liquidation,
dissolution or winding up without the consent of the holders of a majority of
the outstanding shares of Convertible Preferred Stock, voting together as a
single class. At all times, the Company intends to make investments in such a
manner as to qualify as a REIT, unless because of circumstances or changes in
the Code (or the Treasury Regulations), the Board of Directors determines that
it is no longer in the best interest of the Company to qualify as a REIT. The
Company's policies with respect to such activities may be reviewed and modified
or amended from time to time by the Company's Board of Directors without a vote
of the stockholders.
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<PAGE> 79
MANAGEMENT
The following table sets forth certain information concerning the Company's
Directors and senior officers. Officers of the Company serve at the discretion
of the Board of Directors, subject, in the case of Mr. Bedford, to the terms of
an employment agreement. See "Certain Relationships and Related Transactions --
Employment Agreement." In addition to the Company's senior officers, eighteen
full-time employees and one part-time employee assist with the management of the
Company's day-to-day operations. The following table also sets forth information
concerning Robert E. Pester, Vice President of Acquisitions of Bedford
Acquisitions, Inc. See "Certain Relationships and Related
Transactions -- Funding of Acquisition and Financing Costs."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Peter B. Bedford..................... 57 Chairman of the Board and Chief Executive Officer
Donald A. Lorenz..................... 46 Executive Vice President and Chief Financial Officer
James R. Moore....................... 55 Vice President of Property/Asset Management
Robert E. Pester..................... 38 Vice President of Acquisitions (Bedford Acquisitions)
Hanh Kihara.......................... 48 Controller
Claude M. Ballard.................... 65 Director
Anthony Downs........................ 64 Director
Thomas G. Eastman.................... 49 Director
Anthony M. Frank..................... 63 Director
Thomas H. Nolan, Jr. ................ 38 Director
Martin I. Zankel..................... 61 Director
</TABLE>
Mr. Bedford has been Chairman of the Board since May 1992 and Chief
Executive Officer since November 1992. He has served as a Director of the
Company since February 1991. Mr. Bedford has been engaged in the commercial real
estate business, primarily in the Western United States, for over 30 years and
has been responsible for the acquisition, ownership, development and management
of an aggregate of approximately 18 million square feet of industrial, office
and retail properties, as well as land in 14 states, primarily as founder and
President of BPHL, a privately-held diversified real estate holding company. Mr.
Bedford is the sole stockholder of BPHL. Mr. Bedford serves on the board of
directors of BankAmerica Corporation, Bixby Ranch Company, a real estate
investment company, and First American Title Guarantee Co., a title insurance
company. Mr. Bedford is the recipient of numerous awards recognizing his
contributions to the real estate industry and serves as a trustee of the Urban
Land Institute, a governor of the Urban Land Foundation and an overseer of the
Hoover Institution. His previous experience also includes serving as Vice
Chairman of the National Realty Committee and of the Hoover Institution and as
Chairman of the Real Estate Advisory Board of the Wharton School of Business.
Mr. Bedford received his B.A. in Economics from Stanford University.
Mr. Lorenz became Executive Vice President of the Company in September 1994
and Chief Financial Officer in July 1995. Previously, Mr. Lorenz served as CEO
of Tri-Ox, a manufacturing company, from 1993 to 1994. He served as Executive
Vice President of BPHL from 1989 to 1994, the Managing Partner of Armstrong,
Gilmour and Associates, a certified public accounting firm, from 1979 to 1989
and Audit Manager with KPMG Peat Marwick LLP from 1971 to 1978. Mr. Lorenz has
been a certified public accountant since 1973. Mr. Lorenz received a B.S. in
Business Administration from California State University - Hayward.
Mr. Moore joined the Company as Vice President of Property/Asset Management
in September 1995. From 1983 to 1994, he was Managing Director of Cushman and
Wakefield, an international commercial real estate services firm. Mr. Moore was
also a branch manager and commercial real estate broker at Cushman and
Wakefield. He has served on the Board of Trustees of The Lindsay Museum since
1984. Mr. Moore has studied at the Commercial Investment Real Estate Institute
and has lectured at the University of San Francisco and San Francisco State
University. He received a B.A. in History from the University of California at
Berkeley, an M.B.A. from the University of San Francisco and is currently
working toward a Doctor of Business Administration at Golden Gate University.
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<PAGE> 80
Mr. Pester has been Vice President of Acquisitions of Bedford Acquisitions
since February 1994. Prior to joining Bedford Acquisitions, he was a real estate
investment consultant from 1992 to 1993, President of the Development Division
of BPHL from 1989 to 1992 and Vice President of Cushman & Wakefield in Northern
California from 1980 to 1989. Mr. Pester received a B.S. in Economics and in
Political Science from the University of California at Santa Barbara.
Ms. Kihara has been the Controller of the Company since May 1993. Prior to
joining the Company she was Controller and Assistant Controller of BPHL from
1990 to 1993. From 1986 to 1990, Ms. Kihara was a Manager of Armstrong, Gilmour
and Associates, a certified public accounting firm. Ms. Kihara has been a
certified public accountant since 1989. Ms. Kihara received a B.S. in
Administration and Accounting from California State University -- Hayward.
Mr. Ballard has been a Director of the Company since May 1992. Mr. Ballard
is also a Trustee of The Urban Land Institute, and a Limited Partner of the
Goldman Sachs Group, L.P. Mr. Ballard also serves on the Board of Directors of
CBL & Associates, a REIT, and Taubman Centers, Inc., a REIT. He is also a
Trustee of Mutual Life Insurance Company of New York, the Chairman of Merit
Equity Partners, Inc., a property acquisition and management company, and a
Director of Horizon Hotels, Inc., a hotel ownership and management company. Mr.
Ballard attended Memphis State University and University of Tennessee.
Mr. Downs has been a Director of the Company since May 1992. Mr. Downs is
also a Senior Fellow at the Brookings Institution, a non-profit policy research
organization, and is a consultant to Salomon Brothers Inc, Aetna Realty
Investors, the real estate investment subsidiary of Aetna Life and Casualty
Company, and the Federal National Mortgage Association. Mr. Downs serves on the
Board of Directors of each of Pittway Corporation, a holding company with equity
interests in publishing and manufacturing entities, General Growth Properties,
Inc., a REIT, Massachusetts Mutual Life Insurance Co., the Urban Institute, the
NAACP Legal Educational Defense Fund, Inc. and the National Housing Partnership
Foundation, a developer of low-income housing. Mr. Downs received a B.A. in
International Relations and Political Theory from Carlton College and an M.A.
and Ph.D. in Economics from Stanford University.
Mr. Eastman has been a Director of the Company since September 1995. Mr.
Eastman is a founder and co-chairman of Aldrich Eastman Waltch, a national real
estate investment adviser. He is a board member and former Chairman of the
National Association of Real Estate Investment Managers. He is a Member of the
Urban Land Institute and its Finance and Membership Committees. He is a Member
of the Executive Committee of the Institutional Real Estate Clearinghouse. Mr.
Eastman received a B.A. from Stanford University and an M.B.A. from Harvard
University.
Mr. Frank has been a Director of the Company since May 1992. Mr. Frank
served as Postmaster General of the United States from 1988 to 1992 and as
Chairman and Chief Executive Officer of First Nationwide Bank from 1971 to 1988.
Prior to that time, he was Chairman of the Federal Home Loan Bank of San
Francisco, Chairman of the California Housing Finance Agency, Chairman of the
Independent Bancorp of Arizona, and the first Chairman of the Federal Home Loan
Mortgage Corporation Advisory Board. Currently, he is Chairman of Acrogen, Inc.,
a biotechnology company, consultant/director of TransAmerica HomeFirst, a
residential mortgage company, and serves on the Board of Directors of each of
Crescent Real Estate Equities, a REIT, Capital Guaranty, a municipal bond
insurer, Irvine Apartment Communities, a REIT, Charles Schwab & Co., a brokerage
firm, Temple-Inland, Inc., a forest products company, General American Investors
Company, Inc., a publicly-traded closed-end investment fund, Living Centers of
America, Inc., a company engaged in the operation of long-term health care
centers, and Adia Services, Inc., a temporary services company. Mr. Frank
received a B.A. from Dartmouth College and an M.B.A. from the Tuck School of
Business at Dartmouth.
Mr. Nolan has been a Director of the Company since September 1995. Mr.
Nolan serves on the Board of Directors of, and directs the management of
commingled investment fund portfolios for, Aldrich Eastman Waltch, a national
real estate investment adviser. Mr. Nolan joined Aldrich Eastman Waltch in 1984.
Mr. Nolan serves on the Board of Directors of Crocker Realty Trust, Inc., a
REIT, and the Partnership Committee of the Taubman Realty Group L.P. Mr. Nolan
earned a B.B.A. in Business Administration from the University of Massachusetts.
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Mr. Zankel has been a Director of the Company since May 1992. Mr. Zankel is
the Senior Partner of the law firm of Bartko, Zankel, Tarrant & Miller, and a
Principal of Independent Holdings, Inc., a REIT. Mr. Zankel was Chairman of the
Board of Directors, Chief Executive Officer and President of Landsing Pacific
Fund, Inc., a REIT. See "Certain Relationships and Related
Transactions -- Acquisitions." Mr. Zankel received a B.S. from the University of
Pennsylvania, The Wharton School of Commerce and Finance, and a J.D. from
University of California, Hastings College of the Law.
All Directors are elected annually and serve until the next meeting of the
stockholders or until the election and qualification of their successors. There
is no family relationship among any of the members of the Board of Directors or
senior officers.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth information regarding compensation paid by
the Company for services rendered during calendar year 1995 for the three most
highly compensated executive officers of the Company who were employed by the
Company as of December 31, 1995 (collectively, the "Named Executive Officers").
No executive officer other than the Named Executive Officers earned more than
$100,000 on an annualized basis in any year. The salary of the Vice
President - Acquisitions was, as of December 31, 1995, paid by Bedford
Acquisitions. See "Certain Relationships and Related Transactions -- Funding of
Acquisition and Financing Costs."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS/SARS
-------------------- ------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) OPTIONS SARS COMPENSATION(2)
- ------------------------------------- -------- -------- ------- ----- --------------
<S> <C> <C> <C> <C> <C>
Management of Bedford Property
Investors:
Peter B. Bedford..................... $150,000 $ 50,000 5,000(3) -0- $6,418
Chief Executive Officer 20,000(4)
Donald A. Lorenz..................... $150,000 $ 87,133 25,000(4) -0- $2,668
Executive Vice President and Chief
Financial Officer
James R. Moore(5).................... $ 50,000 -0- -0- -0- $ --
Vice President Property/Asset
Management
Management of Bedford Acquisitions:
Robert E. Pester..................... $150,000 $149,933 25,000(4) -0- $2,668
Vice President - Acquisitions
</TABLE>
- ---------------
(1) Bonus amounts are based upon the 1995 compensation program implemented by
the Compensation Committee of the Board. Bonuses are based upon the
achievement of certain performance objectives by the Company's executive
officers, including (i) increasing the Company's Funds From Operations
(after deduction for non-incremental revenue generating capital
expenditures, tenant improvements and leasing commissions) and market
capitalization and (ii) the acquisition of additional properties.
(2) Includes auto allowance, premiums paid by the Company for term life
insurance and 401(k) Plan Contributions.
(3) Represents stock options granted pursuant to the Directors' Stock Option
Plan.
(4) Represents stock options granted pursuant to the Employee Stock Option Plan.
(5) Mr. Moore commenced employment with the Company September 1, 1995. His
annual salary is $150,000.
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OPTION GRANTS
The following table sets forth certain information concerning options/SARs
granted during 1995 to the Named Executive Officers.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF SHARE PRICE
TOTAL OPTIONS APPRECIATION FOR OPTION
GRANTED TO TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------ ------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter B. 5,000(1) N/A $ 11.816 3/13/2001 $ 16,320 $ 36,070
Bedford... 20,000(2) 23% $ 11.50 9/13/2005 $144,600 $366,600
Donald A. (3) % 11.50 180,750 458,250
Lorenz.... 25,000 29 $ 9/13/2005 $ $
James R. 0 0
Moore..... 0 0 -- -- $ $
Robert E. (3) % 11.50 180,750 458,250
Pester.... 25,000 29 $ 9/13/2005 $ $
</TABLE>
- ---------------
(1) Stock Options granted pursuant to Directors' Stock Option Plan, which
options vest and become exercisable six months from the date of grant.
(2) Stock Options granted pursuant to Employee Stock Option Plan, which options
vest and become exercisable at a rate of 25% per year past the date of
grant.
(3) In September 1995, the Company established a Management Stock Acquisition
Program. Under the program, options exercised by key members of management
within thirty days of the grant date may be exercised either in cash or with
a note payable to the Company. Mr. Lorenz and Mr. Pester both exercised
their options granted in 1995 pursuant to this program.
AGGREGATE OPTION VALUES AT YEAR-END 1995
The following table sets forth the number of shares and value realized for
options exercised, and the number and aggregate dollar value of Named Executive
Officers unexercised options at the end of 1995.
AGGREGATED OPTIONS/SAR
EXERCISES IN 1995
AND YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF SECURITIES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT YEAR-END OPTIONS AT YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Bedford.............. -0- -0- 47,500 37,500 $ 676,875 $ 534,375
Donald A. Lorenz.............. 25,000 $ 50,000 -0- -0- -0- -0-
Robert E. Pester.............. 25,000 -0- 5,000 10,000 $ 71,250 $ 142,500
James R. Moore................ -0- -0- -0- -0- -0- -0-
</TABLE>
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company are
currently paid an annual retainer fee of $12,500 and an additional fee of $2,500
for each board meeting attended. Any Director attending in person a duly
constituted meeting of a committee of the Board of Directors of which such
Director is a member receives, in addition to any other fees to which he or she
may be entitled, a separate meeting attendance fee equal to $2,500 for his or
her attendance in person at any such committee meeting not
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<PAGE> 83
held on the same day, the day preceding or the day following a regular or
special meeting or the Board of Directors. Any member of the Board of Directors
who participates in a regular or special meeting of the Board of Directors by
conference telephone or similar communications equipment shall receive $600 for
each such meeting. Directors are reimbursed for out-of-pocket expenses in
connection with attendance at meetings. If a Director travels to conduct a site
inspection of a property to be acquired by the Company, such Director is paid
$1,000 per day and reimbursed for related travel expenses. Directors receive no
other compensation for their services on behalf of the Company (except under the
1992 Directors' Stock Option Plan).
Stock Option Plans. See Footnote 6 of the Notes to Consolidated Financial
Statements for a description of the Directors Stock Option Plan and the Employee
Stock Option Plan.
EMPLOYMENT AGREEMENT
On February 16, 1993, the Company entered into an employment agreement with
Mr. Bedford, Chairman and Chief Executive Officer, and amended the agreement on
September 18, 1995. Pursuant to the amended employment agreement, Mr. Bedford
has agreed to serve as Chairman and Chief Executive Officer of the Company on a
substantially full-time basis until the agreement's expiration on September 18,
2000. After September 18, 2000, the agreement will be automatically renewed for
additional one-year terms unless either party gives the other notice of
non-renewal. Under the employment agreement, the Company agrees to pay Mr.
Bedford a salary of not less than $150,000 per annum, plus an automobile and
parking allowance. The amended employment agreement provides for a severance
payment to Mr. Bedford equal to one year's salary in the event that the Company
terminates his employment without cause or Mr. Bedford resigns under specified
circumstances, or due to a change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FUNDING OF ACQUISITION AND FINANCING COSTS
Due to the Company's limited financial resources, its activities relating
to the acquisition of new properties and debt and equity financings are
currently performed by Bedford Acquisitions, a corporation wholly owned by Peter
B. Bedford, the Company's Chairman and Chief Executive Officer, pursuant to a
written contract dated January 1, 1995. The contract provides that Bedford
Acquisitions is obligated to provide services to the Company with respect to the
Company's acquisition and financing activities, and that Bedford Acquisitions is
responsible for the payment of its expenses incurred in connection therewith.
Such expenses include certain costs incurred by the Company on behalf of Bedford
Acquisitions including the cost of officers and directors insurance coverage
under the Company's insurance policy. Bedford Acquisitions must submit to the
Company a direct cost estimate for the Company's approval relating to each
acquisition or financing, setting forth the estimated timing and amount of all
projected Bedford Acquisitions costs relating to the acquisition or financing.
Pursuant to the contract, Mr. Bedford is obligated to make the payments of
Bedford Acquisitions' expenses described above if Bedford Acquisitions fails to
make any such payments in a timely fashion, provided that Mr. Bedford is not
obligated to pay any such amounts exceeding $1 million or following a
termination of Bedford Acquisitions' obligations based on the expiration or
termination of the term of the contract. The contract provides that Bedford
Acquisitions is to be paid a fee in an amount equal to the lesser of (i) 1 1/2%
of the gross amount raised in financings or the aggregate purchase price of
property acquisitions, or (ii) an amount equal to (a) the aggregate amount of
approved expenses funded by Bedford Acquisitions through the time of such
acquisition or financing minus (b) the aggregate amount of fees previously paid
to Bedford Acquisitions pursuant to such arrangement. In no event will the
aggregate amount of fees paid to Bedford Acquisitions exceed the aggregate
amount of costs funded by Bedford Acquisitions. The agreement with Bedford
Acquisitions has a term of one year, is renewable at the option of the Company
for additional one year terms, and will expire no later than January 1, 1998.
From February 1993 through December 1994, the Company's activities relating
to debt and equity financings and the acquisition of new properties were handled
under arrangements similar to the current arrangement with Bedford Acquisitions
through BPI Acquisitions, a separate division within the Company.
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<PAGE> 84
This division operated under an arrangement with Mr. Bedford whereby he provided
acquisitions and financing personnel, allocable overhead costs and the costs of
all due diligence conducted prior to an acquisition. Upon the completion of a
financing or the acquisition of a property, Mr. Bedford was paid a fee by the
Company substantially identical to that described above. In no event could the
aggregate amount of fees paid to Mr. Bedford exceed the aggregate amount of
costs funded by Mr. Bedford.
As of December 31, 1995, the Company had paid Mr. Bedford and Bedford
Acquisitions an aggregate of $3,046,000 for acquisition and financing activities
performed since February 1993 pursuant to the foregoing arrangements which was
$375,000 less than 1.5% of the gross amount raised in completed financings and
the aggregate purchase price of acquired properties. The Company believes that
since the fees charged under the foregoing arrangements (i) have been and
continue to be comparable to those charged by other sponsors of real estate
investment entities or other third party service providers and (ii) have been
and continue to be charged only for services on acquired properties or completed
financings, such fees were and continue to be properly includable in direct
acquisition costs and capitalized as part of the asset or financing activities.
If the Company were to discontinue this arrangement, its acquisition and
financing activities would have to be paid by the Company, as incurred, out of
cash from operations or borrowings and certain of such costs would be reflected
as operating expenses in its statement of operations rather than being
capitalized. For example, without the above-described arrangements with Mr.
Bedford and Bedford Acquisitions, the Company may have incurred substantial
operating expenses relating to acquisition and financing activities; if the
Company had employed the same personnel and incurred the same expenses as
Bedford Acquisitions, net income and Funds from Operations for the year ended
December 31, 1995 each would have been reduced by approximately $600,000 (or
$.14 per common and common equivalent share) compared to the corresponding
amounts actually reported for that period. The Company intends to discontinue
this fee arrangement if and when its operating results permit it to sustain
acquisition and financing activities internally. However, the termination of
this arrangement prior to that time would likely require the Company to decrease
its acquisition and financing efforts, which could have a material adverse
effect on the Company's ability to grow.
RECENT ACQUISITIONS WITH AFFILIATES
In October 1995, the Company completed the acquisition of 6600 College
Boulevard, a single-story office building consisting of approximately 79,316
rentable square feet in Overland Park, Kansas. The building was acquired from
AEW #25 Trust for $6.4 million. AEW #25 Trust is an affiliate of BPLP, which
purchased 8,333,334 shares of the Company's Convertible Preferred Stock for $50
million in September 1995. Thomas G. Eastman and Thomas E. Nolan, Jr., the
Directors of the Company who are affiliated with BPLP, had no role on behalf of
the Company in this acquisition.
In December 1995, the Company acquired the Landsing Pacific Portfolio,
which comprised substantially all of the real estate assets of the Landsing
Pacific Fund, Inc., a publicly-traded REIT based in San Mateo, California. The
Company paid approximately $49.7 million for the Landsing Pacific Portfolio. At
all times relevant to the transaction, Martin I. Zankel, a Director and
stockholder of the Company, was Chairman of the Board of Directors, Chief
Executive Officer and President of the Landsing Pacific Fund, Inc. Mr. Zankel
had no role on behalf of the Company in this acquisition and was excused from
all Board deliberations regarding this matter.
OTHER TRANSACTIONS
Mr. Bedford had a longstanding business relationship with various
affiliates of Kemper Corporation ("Kemper") and Lumbermen's Mutual Casualty
Company (together, the "KL Group") which began in the early 1970s and ended in
early 1994. The parties embarked upon extensive real estate and other ventures
over this period. In 1991, due largely to the decline in real estate values
which affected the general property markets in the United States, it became
desirable to restructure the debt and equity arrangements between Mr. Bedford
and the KL Group. A series of agreements ensued over the next several years to
reconstitute the financial arrangements and assign management of the ventures to
a Kemper affiliate, and on January 26, 1994, Mr. Bedford terminated his
relationship with the KL Group. Mr. Bedford has no further obligations to
Kemper, Lumbermen's or their affiliates.
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<PAGE> 85
Martin I. Zankel, a Director of the Company, and his associates provide
legal services to the Company for which his firm was paid, in the aggregate,
$52,000 in 1995.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The following summary of certain terms of the capital stock of the Company
and Maryland law does not purport to be complete and is subject to and qualified
in its entirety by reference to the Company's Charter and Bylaws and Maryland
law.
GENERAL
The Company's Charter provides that the Company may issue up to 15,000,000
shares of Common Stock, par value $.02 per share (the "Common Stock"),
10,000,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share (the "Convertible Preferred Stock"), and 10,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock"). As of December 31,
1995, there were 3,045,325 shares of Common Stock issued and outstanding and at
the completion of the Offering, there will be 6,395,325 shares of Common Stock
issued and outstanding, as adjusted to give effect to a one-for-two reverse
stock split of the Common Stock, effected March 29, 1996. As of the same date,
there were 8,333,334 shares of Convertible Preferred Stock issued and
outstanding. Under Maryland law, stockholders generally are not liable for a
corporation's debts or obligations.
COMMON STOCK
Subject to the preferential rights of the Convertible Preferred Stock and
any other shares or series of stock, holders of shares of Common Stock are
entitled to receive dividends on such stock if, as and when authorized and
declared by the Board of Directors out of assets legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to its stockholders in the event of its liquidation, dissolution or winding up
after payment of or making adequate provision for all debts and liabilities of
the Company. See "-- Convertible Preferred Stock -- Dividends" and
"-- Convertible Preferred Stock -- Liquidation Preference."
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders except as provided below
regarding the right of the holders of the Convertible Preferred Stock to vote as
a single class with respect to the election of a specified number of Directors
and certain amendments to the Charter (see "-- Convertible Preferred
Stock -- Voting Rights") and, except as provided with respect to any other class
or series of stock, the holders of such shares possess the exclusive voting
power. With respect to the election of Directors, the holders of the Convertible
Preferred Stock have the right to elect two members of the Board of Directors
and, upon the occurrence of certain events, a majority of the members of the
Board of Directors, and the holders of shares of Common Stock have the right to
elect the remaining Directors. See "-- Convertible Preferred Stock -- Voting
Rights -- Election of Directors." There is no cumulative voting in the election
of Directors, which means that the holders of a majority of the outstanding
voting shares of Common Stock can elect all of such remaining directors standing
for election and the holders of the remaining shares of Common Stock will not be
able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption rights or preemptive rights to subscribe for any
securities of the Company.
Under the MGCL and the Charter, the Company cannot dissolve, amend its
Charter, merge, consolidate, sell all or substantially all of its assets, or
engage in a share exchange unless such dissolution, amendment, merger,
consolidation, sale or share exchange is approved by the holders of a majority
of the outstanding shares entitled to vote on the matter. In addition, as set
forth below under the caption "-- Convertible Preferred Stock -- Protective
Provisions," the Charter provides that the holders of the Convertible Preferred
Stock have the right to consent to specified transactions including, but not
limited to, the consolidation or merger of the Company, the issuance of debt in
a principal amount in excess of $10 million, the making of new investments, the
issuance of specified equity securities and the sale of assets in excess of
specified amounts.
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<PAGE> 86
CONVERTIBLE PREFERRED STOCK
As of December 31, 1995, BPLP was the holder of all 8,333,334 outstanding
shares of Convertible Preferred Stock. The following summarizes certain rights
of BPLP, its affiliates and its transferees under the Charter and the Stock
Purchase Agreement between BPLP and the Company.
RANKING
The Convertible Preferred Stock ranks senior to the Common Stock with
respect to the payment of dividends and amounts upon liquidation, dissolution or
winding up of the Company. The Company may not authorize, create or increase the
authorized amount of any class or series of equity securities that ranks equal
or senior to the Convertible Preferred Stock with respect to the payments of
dividends or amounts upon liquidation, dissolution or winding up without the
consent of the holders of a majority of the outstanding shares of Convertible
Preferred Stock, voting together as a single class.
DIVIDENDS
Holders of shares of Convertible Preferred Stock are entitled to receive in
each calendar quarter, when and as authorized and declared by the Board of
Directors, out of assets of the Company legally available for payment,
cumulative dividends in cash in an amount equal to the greater of (i) an amount
per share of $.135 and (ii) the dividends payable with respect to such quarter
in respect of the Common Stock into which each share of the Convertible
Preferred Stock is convertible plus, in both cases, the dividends accumulated
but unpaid on the Convertible Preferred Stock. If the holders of the Convertible
Preferred Stock have exercised the right to redeem such stock and the redemption
payment has not been made, then the rate at which dividends accrue will increase
to $.165 per share until either the redemption price payable with respect to the
Convertible Preferred Stock is paid or the size of the Board is increased to
eleven Directors and the holders of the Convertible Preferred Stock elect four
Directors to fill the newly-created vacancies on the Board of Directors. See
"-- Voting Rights." Dividends on the Convertible Preferred Stock are payable
quarterly in arrears, on such dates as the Board of Directors may determine,
which shall not be later than the 45th day after the end of the calendar
quarter. Dividends began accruing on September 18, 1995 (the date that the
Convertible Preferred Stock was issued), and are cumulative from such date,
whether or not in any dividend period or periods there are funds of the Company
legally available for the payment thereof.
Dividends may be authorized, declared and paid on shares of Common Stock in
any fiscal quarter only if full cumulative dividends have been paid on or
authorized and set apart on all shares of Convertible Preferred Stock at such
quarterly rates for all prior dividend periods through and including the end of
such quarter. In the event that the Company authorizes a distribution payable
other than in cash, then the holders of the Convertible Preferred Stock are
entitled to a proportionate share of such distribution as though the holders of
Convertible Preferred Stock were holders of the number of shares of Common Stock
into which the Convertible Preferred Stock is convertible.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend (but not by redemption or other acquisition
of shares or otherwise) is permitted under the MGCL, amounts that would be
needed if the Company were to be dissolved at the time of the distribution to
satisfy the preferential rights upon dissolution of holders of the Company's
Convertible Preferred Stock and Preferred Stock whose preferential rights upon
dissolution are superior to those receiving the distribution are not to be
included in the Company's total liabilities.
LIQUIDATION PREFERENCE
In the event of a Liquidation Event (as defined below), the holders of
shares of Convertible Preferred Stock are entitled to receive $6.30 per share of
Convertible Preferred Stock plus an amount per share of Convertible Preferred
Stock equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders (the
"Liquidation Preference"), and no more. See "Risk Factors -- Anti-takeover
Effect of the Charter, the Bylaws, the Convertible Preferred Stock and Certain
Provisions of Maryland Law."
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<PAGE> 87
Until the holders of the Convertible Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Common
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
the occurrence of a Liquidation Event (as defined below), the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Convertible Preferred Stock are insufficient to pay in full the Liquidation
Preference, then such assets, or the proceeds thereof, will be distributed pro
rata to the holders of shares of Convertible Preferred Stock in accordance with
their respective holdings thereof.
A "Liquidation Event" is (a) any transaction, including without limitation,
a consolidation or merger of the Company, or other corporate reorganization if,
immediately after such transaction, the stockholders of the Company (determined
prior to such event) hold fifty percent or less in interest of the outstanding
voting securities of the surviving corporation, or (b) a sale of all or
substantially all of the assets of the Company to any person or the acquisition
of a majority of the outstanding shares of Common Stock of the Company by any
person, other than (i) BPLP and its affiliates, (ii) Mr. Bedford, members of his
immediate family, or his affiliates, (iii) any person as a result of the
conversion of shares of Convertible Preferred Stock, or (iv) any underwriter in
either a public or private offering.
REDEMPTION
Redemption may be made at the option of the holders of the Convertible
Preferred Stock or at the option of the Company under the conditions described
below. All redemption payments are to be made in cash, unless the holders of the
Convertible Preferred Stock agree, at their sole discretion, to accept some
alternative payment. If redemption is prohibited under the MGCL or similar
statute, redemption is pro rata to the extent of funds legally available
therefor.
Redemption at Preferred Stockholders' Option
After September 18, 1996, the Company is required, at the option of the
holders of the Convertible Preferred Stock, to redeem the Convertible Preferred
Stock of any holder demanding redemption at a price of $6.00 per share plus all
accrued and unpaid dividends on the occurrence of any one or more of the
following: (a) failure to pay required dividends on the Convertible Preferred
Stock for two consecutive quarters, including all dividends accumulated but
unpaid for all prior quarters; (b) a default in the payment of principal or
interest on any institutional debt (or debts) having an aggregate outstanding
balance greater than (i) $5 million for non-recourse debt, and (ii) $2 million
for recourse debt (which default, in either case, shall not have been cured by
the Company within 30 business days from the time the Company receives written
notification of the default); (c) the failure of the Company to obtain any
consent of BPLP or other holder of Convertible Preferred Stock prior to
completing any major transaction, as and if required pursuant to the terms of
the Charter (see "-- Protective Provisions"); (d) for the calendar year 1996,
the Company's Funds Available for Distribution, as defined in the Charter
("FAD"), fail to reach at least a break-even dividend coverage equal to the full
dividend payable on the Convertible Preferred Stock; (e) for calendar year 1997,
the Company's FAD fails to reach at least a break-even dividend coverage equal
to the full dividend payable on the Convertible Preferred Stock and annual
dividends on the Common Stock equal to a seven percent (7%) yield on $5.72
(before giving effect to the one-for-two reverse stock split effected on March
29, 1996) (rounded to the nearest whole cent); and (f) for calendar year 1998
and subsequent years, the Company's FAD fails to reach at least a break-even
dividend coverage equal to the full dividend payable on the Preferred Stock and
dividends on the Common Stock equal to an eight percent (8%) yield on $5.72
(before giving effect to the one-for-two reverse stock split effected on March
29, 1996) (rounded to the nearest whole cent). Because the Convertible Preferred
Stock is redeemable at the option of the holder, it is reported separately from
the stockholders' equity (i.e., classified as temporary equity) in the Company's
consolidated financial statements.
Redemption at the Option of the Company
Except as provided with respect to automatic redemption under "-- Automatic
Redemption Cancellable at the Option of the Non-Series A Directors," shares of
Convertible Preferred Stock are not redeemable by the Company prior to September
18, 1997. At any time thereafter, the Convertible Preferred Stock may be
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<PAGE> 88
redeemed in whole (but not in part) at the option of the Company. The redemption
price is equal to a price calculated by determining an internal rate of return
on the Convertible Preferred Stock of 25% per annum (treating the purchase price
paid by BPLP as investment "out-flows," and all dividends and other
distributions paid on the Convertible Preferred Stock from the date of issuance
as "in-flows") for the period from September 18, 1995, until September 18, 1997
and an internal rate of return on the Convertible Preferred Stock of 20% per
annum from and after September 18, 1997, until the date of redemption, but not
beyond September 18, 2000.
At any time after September 18, 2000, or at any time prior thereto if there
are less than 400,000 shares of Convertible Preferred Stock outstanding, the
Convertible Preferred Stock may be redeemed in whole or in part at the option of
the Company. The redemption price at such time will be $6.30 per share
(declining $.06 in each of the first five full years commencing on September 18,
2000) plus all accrued and unpaid dividends.
Prior to any redemption by the Company, the holders of Convertible
Preferred Stock have the right to convert the Convertible Preferred Stock into
Common Stock of the Company provided that the holder of Convertible Preferred
Stock shall have surrendered his certificates for conversion and given written
notice of the election to convert not later than the close of business on the
fifth business day prior to the redemption date.
Automatic Redemption Cancellable at the Option of the Non-Series A
Directors
If the right of the holders of the Convertible Preferred Stock to elect the
smallest number of Directors constituting a majority of the Board of Directors
has been triggered as discussed under "-- Voting Rights," and the holders have
elected Directors pursuant to this right, then the Company will be deemed to
have approved a redemption at the option of the Company to take place on the
date 180 days after such election. However, a majority of the Directors who are
not elected by the holders of Convertible Preferred Stock may cancel such a
redemption before the end of such 180-day period in their absolute discretion.
This automatic redemption provision will have no effect on the ability of a
majority of the Board of Directors to effect a redemption at any time following
September 18, 1997.
VOTING RIGHTS
Except as indicated below with respect to the election of Directors,
certain amendments to the Charter and the repeal of the Charter's provisions
regarding business combinations, the holders of shares of Convertible Preferred
Stock have no voting rights. On those matters for which the holders of the
Convertible Preferred Stock have the right to vote, each share is entitled to
one vote.
Election of Directors
The holders of the Convertible Preferred Stock as a class have the right to
elect two Directors. In the event that the number of outstanding shares of
Convertible Preferred Stock represents less than 15% but at least 7% of the
Company's outstanding shares of Common Stock (calculated on an as-converted
basis), then the holders of Convertible Preferred Stock will be entitled to
elect only one member of the Board; should such number represent less than 7%,
such right to elect Directors will terminate altogether.
In addition, if (i) the Company has failed in two consecutive quarters to
pay in full and in a timely manner the quarterly dividends on the Convertible
Preferred Stock (including all dividends accumulated but unpaid for all prior
quarters), (ii) Mr. Bedford ceases to serve substantially full-time as Chief
Executive Officer of the Company, (iii) Mr. Bedford, his affiliates and members
of his immediate family beneficially own fewer than 599,139 shares of Common
Stock of the Company, as adjusted for any stock splits or similar transactions,
or (iv) the Company fails to pay the full redemption price payable to the
holders of a majority of the Convertible Preferred Stock pursuant to a demand
for redemption made by the holders of a majority of the Convertible Preferred
Stock under circumstances in which the holders of the Convertible Preferred
Stock have the right to demand redemption, then immediately thereafter, and
regardless of any subsequent cure, the holders of the Convertible Preferred
Stock are entitled to elect the smallest number of Directors constituting a
majority of the Board of Directors. The number of members of the Board is
currently seven. In order to
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facilitate the effective control of the Board by the holders of the Convertible
Preferred Stock, upon the occurrence of any such event, the number of Directors
then constituting the Board of Directors of the Company will be increased to
eleven, and the holders of the Convertible Preferred Stock will have the
exclusive right to elect four persons to fill newly created vacancies on the
Board of Directors.
Senior Securities; Amendments to the Charter
The approval of holders of a majority of the outstanding shares of
Convertible Preferred Stock, voting as a single class, is required in order to
amend the Charter in a way that would materially and adversely affect the rights
or preferences of the holders of Convertible Preferred Stock or to authorize any
class or series of stock having rights equal or senior to the Convertible
Preferred Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of the Company. The right of the holders
of the Convertible Preferred Stock to vote on the foregoing matters terminates
if the holders of Convertible Preferred Stock hold less than 15% of the
Company's outstanding shares of Common Stock (calculated on an as-converted
basis).
CONVERSION RIGHTS
Shares of Convertible Preferred Stock are convertible at the option of the
holder at any time after September 18, 1997 into such number of shares of Common
Stock as is determined by dividing $6.00 by the conversion price in respect of
the Convertible Preferred Stock (the "Conversion Price"). The current Conversion
Price is $12.00 per share. The Conversion Price is subject to adjustment as
described below. In addition, the holders of Convertible Preferred Stock have
the right to convert the Convertible Preferred Stock into Common Stock prior to
any redemption by the Company.
Fractional shares of Common Stock will not be issued upon conversion but,
in lieu thereof, the Company will pay a cash amount equal to the fair market
value of such fractional interests as determined in good faith by the Board.
The Conversion Price is subject to adjustments in the event that the
Company issues Additional Stock (as defined below) for consideration which, on a
per share basis, is less than the Conversion Price as then in effect. Prior to
September 18, 1997, if the Company issues Additional Stock for a consideration
per share less than the Conversion Price, then the Conversion Price will be
reduced, concurrently with such issue, to a price equal to the consideration per
share received by the Company for such Additional Stock. On or after September
18, 1997, if the Company issues Additional Stock for consideration in an amount
per share which is less than the Conversion Price, then the Conversion Price
will be reduced concurrently with such issue to a price determined by
multiplying the prior Conversion Price by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately prior to such
issuance, assuming conversion of all outstanding shares of Convertible Preferred
Stock at the prior Conversion Price plus the number of shares of Common Stock
which the aggregate consideration received by the Company for the total number
of shares of Additional Stock so issued would purchase at the prior Conversion
Price; and the denominator of which is the number of shares of Common Stock
outstanding immediately prior to such issue, assuming conversion of the
outstanding shares of Convertible Preferred Stock at the prior Conversion Price
plus the number of shares of such Additional Stock so issued. The effect of the
foregoing formula is to reduce the Conversion Price in an amount proportionate
to the amount by which the Conversion Price exceeds the per share consideration
for the Additional Stock, taking into account the amount of Additional Stock
issued relative to the total outstanding shares of Common Stock.
For purposes of the foregoing discussion, "Additional Stock" means all
Common Stock issued by the Company after September 18, 1995, other than Common
Stock issued or issuable at any time: (a) upon conversion of the Convertible
Preferred Stock; (b) upon exercise of options outstanding on September 18, 1995;
(c) upon issue of options granted pursuant to the Company's stock option plans
with respect to employees, directors, and consultants of the Company in amounts
not exceeding the aggregate reserved for issuance under such plans on September
18, 1995, as increased from time to time upon approval by a majority of the
Directors elected by the holders of the Convertible Preferred Stock; (d) upon
issue of warrants to
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underwriters in any firm commitment public offering of securities by the
Company; (e) as a dividend or distribution on Convertible Preferred Stock or any
subdivision, combination, or consolidation of the Common Stock; or (f) by way of
dividend or other distribution on shares of Common Stock the issuance of which
was excluded from the definition of Additional Stock by clauses (a) through (e)
above, or on shares of Common Stock so excluded.
The Conversion Price is also subject to adjustment upon certain events,
including subdivisions, combinations and consolidation of Common Stock. In
addition, in the event that the Company makes a distribution of securities of
the Company other than Common Stock, then provision will be made such that
holders of the Convertible Preferred Stock will receive, upon conversion
thereof, in addition to Common Stock, that amount of securities which they would
have received had their shares of Convertible Preferred Stock been converted as
of the date of such distribution.
If the Common Stock issuable upon conversion of the Convertible Preferred
Stock is changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Price then in effect will be proportionately adjusted,
concurrently with the effectiveness of such reorganization or reclassification,
such that the shares of Convertible Preferred Stock are convertible into a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by
holders upon conversion of the Convertible Preferred Stock immediately before
that change.
PROTECTIVE PROVISIONS
The consent of BPLP or any transferee of BPLP holding more than 50% of the
outstanding shares of Convertible Preferred Stock is required in order for the
Company to effect any of the following transactions (the "Major Transactions"):
(i) the consolidation or merger of the Company; (ii) the issuance or
modification of any debt in a principal amount which exceeds $10 million; (iii)
the making of new investments, including a purchase of real estate operating
companies or REITs, with a purchase price equal to or greater than $10 million,
or any series of purchases within any 90-day period with aggregate purchase
prices exceeding $25 million; (iv) the issuance of any equity securities, other
than pursuant to the Company's stock option plans with respect to compensation
of employees, directors and consultants, and the issuance of equity securities
the proceeds of which will be used to redeem the Convertible Preferred Stock;
(v) the sale of any asset or assets with a sale price in excess of $10 million,
or any series of sales within any 90-day period with aggregate sales prices
exceeding $25 million; (vi) the modification of any executive employment
agreement; (vii) the modification of the contract with Bedford Acquisitions
regarding the provision of acquisition and financing activities or any other
agreement between the Company and Mr. Bedford or any of his affiliates which
would make any of the agreements less favorable to the Company; (viii) the
termination of the Company's status as a REIT; (ix) any substantial change in
the Company's business strategies or annual operating plan (as approved by the
Board of Directors); (x) permitting Mr. Bedford to cease serving as the
substantially full-time chief executive officer of the Company or permitting Mr.
Bedford to dispose of his shares of Common Stock so that Mr. Bedford, his
affiliates and members of his immediate family beneficially own fewer than
599,139 shares of Common Stock; (xi) the issuance of awards of any shares or
options other than those permitted in paragraph (iv); and (xii) any amendment to
the resolution of the Board of Directors exempting BPLP and any affiliate of
BPLP from the provisions of the business combination provisions set forth in
Section 3-602 of the MGCL, and exempting therefrom any transaction resulting
from the exercise of a redemption right of the Convertible Preferred Stock which
may constitute a business combination. See "Risk Factors -- Antitakeover Effect
of the Charter, the Bylaws, the Convertible Preferred Stock and Certain
Provisions of Maryland Law."
In order to protect the Company from violating one of the foregoing
provisions, Mr. Bedford has entered into an agreement with the Company pursuant
to which he has agreed not to sell certain of his shares of Common Stock without
prior approval from the Company.
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The foregoing right to approve the Major Transactions remains effective
until such time as the total outstanding shares of Convertible Preferred Stock
represents less than 15% of the Company's outstanding shares of Common Stock
(calculated on an as-converted basis).
In addition, for so long as the outstanding shares of Convertible Preferred
Stock represent at least 15% of the total of (i) the shares of Common Stock
outstanding, plus (ii) the shares of Common Stock issuable upon the conversion
of the outstanding Convertible Preferred Stock, the Company must obtain the
approval of holders of a majority of the outstanding shares of Convertible
Preferred Stock prior to filing or assenting to or in any other way
participating in the filing of an involuntary petition in bankruptcy or seeking
similar protection from creditors under federal or state bankruptcy or
insolvency laws.
RIGHT TO PARTICIPATE IN FUTURE OFFERINGS
So long as BPLP owns shares of Convertible Preferred Stock which represent
15% or more of the total of (i) the shares of Common Stock outstanding, plus
(ii) the shares of Common Stock issuable upon the conversion of the outstanding
Convertible Preferred Stock, BPLP has the right to purchase for cash its pro
rata share of each issuance by the Company of New Securities (as defined below),
on the same terms and conditions as the New Securities are offered to third
parties. "New Securities" means any voting securities sold and issued for cash
or cash equivalents other than (i) securities issuable upon conversion of any
convertible voting securities; (ii) securities issuable upon exercise of any
options or warrants; (iii) securities issuable pursuant to the Directors' Stock
Option Plan and the Employee Stock Option Plan of the Company; (iv) securities
issuable in consideration of the acquisition of assets or shares of another
entity; (v) securities issuable in a firm commitment underwritten public
offering; (vi) warrants (or the shares of Common Stock issuable upon exercise
thereof) issuable to an underwriter as partial compensation for a firm
commitment underwritten public offering; and (vii) securities issuable in
connection with any stock split, stock dividend or recapitalization of the
Company. Other than BPLP, the holders of the Convertible Preferred Stock will
have no preemptive rights with respect to any shares of stock of the Company or
any other securities of the Company convertible into or carrying rights or
options to purchase any such shares.
REGISTRATION RIGHTS
The outstanding shares of Convertible Preferred Stock are not registered
under the Securities Act, and accordingly may not be re-offered or re-sold in
the United States absent registration under the Securities Act or an applicable
exemption from the registration requirements under the Securities Act. Under the
Stock Purchase Agreement, certain holders of the Convertible Preferred Stock
have the right to request that the Company register the shares of Common Stock
issuable upon the conversion of the Convertible Preferred Stock and any Common
Stock which may be issued or distributed in respect thereof by way of
recapitalization, reclassification, stock dividend, stock split or other
distribution ("Registrable Securities"). Any stockholder owning 40% or more of
the Registrable Securities that have not been sold to the public has the right,
after September 18, 1997, to require the Company to use its best efforts to
register under the Securities Act at least 500,000 shares of Registrable
Securities for resale in up to five registrations upon demand, but not more than
one demand registration in any 12-month period. In addition, the Company has
agreed to include in up to four incidental ("piggyback") registrations shares of
Common Stock held by BPLP, its affiliates or by any transferee of the
registration rights as permitted under the Stock Purchase Agreement (any of
which is a "Holder"), provided that the number of shares of Common Stock that
such Holder requests to be included is not less than 250,000. If the Company
qualifies for the use of Form S-3 as promulgated by the Securities and Exchange
Commission, then at any time after September 18, 1997 and prior to September 18,
2002, any Holder has the right to cause the Company to use its best efforts to
effect a registration of at least 500,000 shares of the Registrable Securities
on behalf of such Holder and other Holders. The registration rights are
assignable by any Holder to any transferee acquiring at least 250,000
Registrable Securities. The Company will pay all registration expenses in
connection with each registration of Registrable Securities pursuant to the
Stock Purchase Agreement. See "Risk Factors -- Registration Rights," "Risk
Factors -- Shares Available for Future Sale" and "Shares Available for Future
Sale."
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EXEMPTION FROM ANTITAKEOVER STATUTE
The Company has exempted from the provisions of Section 3-602 of the
Maryland General Corporation Law ("MGCL") any "business combination" (as defined
in Section 3-601 of the MGCL) between the Company and BPLP or any BPLP Affiliate
and any transaction resulting from the exercise of any redemption right of the
Convertible Preferred Stock that may constitute a business combination. Such
exemption may not be repealed or amended without the consent of BPLP or certain
other specified holders of the Convertible Preferred Stock.
ADDITIONAL SERIES OF PREFERRED STOCK
Shares of Preferred Stock (including any unissued shares of any series of
Preferred Stock, to the extent permitted by the terms of such series) may be
issued from time to time, in one or more series as authorized by the Board of
Directors and subject to the right to consent of certain holders of the
Convertible Preferred Stock. See "-- Convertible Preferred Stock -- Ranking" and
"-- Convertible Preferred Stock -- Protective Provisions." Prior to issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Charter to specify the number of shares of Preferred Stock to be included in
such series and set the terms, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Accordingly, the Board of Directors, without approval of the holders of Common
Stock, could cause the issuance of one or more series of Preferred Stock that
could, depending on the terms of such series, delay, defer or prevent a
transaction or change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interests of the holders
of Common Stock, or that could have dividend, voting or other rights that could
adversely affect the interests of holders of Common Stock. See "Risk
Factors -- Anti-takeover Effect of the Charter, the Bylaws, the Convertible
Preferred Stock and Certain Provisions of Maryland Law." As of the date hereof,
the Company has no present plans to issue any additional series of Preferred
Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF CAPITAL STOCK
GENERAL
The Charter provides that the Board of Directors shall use its reasonable
best efforts to cause the Company and its stockholders to qualify for federal
income tax treatment in accordance with provisions of the Code applicable to a
REIT. In furtherance of the foregoing, the Charter further provides that the
Board of Directors shall use its reasonable best efforts to take such actions as
are necessary and may take such actions, as in its sole judgment and discretion
are desirable, to preserve the status of the Company as a REIT; provided,
however, that if the Board of Directors determines that it is no longer in the
best interests of the Company for the Company to continue to qualify as a REIT,
the Board of Directors may revoke or otherwise terminate the Company's election
to be taxed as a REIT.
LIMITATION ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, the Company must,
among other things, satisfy the Five or Fewer Requirement and 100 Stockholder
Requirement. See "Federal Income Tax Considerations." To reduce the risk that
the Company would fail to meet these requirements, the Charter places
limitations on the transferability of the Company's stock.
Subject to certain exceptions, no holder is permitted to own, either
actually or constructively under the applicable attribution rules of the Code,
more than five percent (in value) of the aggregate of the outstanding shares of
stock of the Company (the "Aggregate Stock Ownership Limit") or more than five
percent (in number or value, whichever is more restrictive) of the outstanding
shares of Common Stock (the "Common Ownership Limit"). In addition to either of
the foregoing ownership limits, no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, any shares
of any class of the Company's stock if such ownership or acquisition (i) would
cause more than 50% in value of the Company's outstanding stock to be owned,
either actually or constructively under the applicable attribution rules of the
Code, by five or fewer individuals (as defined in the Code to include certain
entities) or (ii) would
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result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution). Acquisition or
ownership (actual or constructive) of the Company's stock in violation of these
restrictions results in automatic transfer of such stock to a trust for the
benefit of a charitable beneficiary or, under certain specified circumstances,
the violative transfer may be deemed void ab initio or the Company may choose to
redeem the violative shares.
As noted above, if any transfer of stock occurs which, if effective, will
result in any person (a "Prohibited Owner") beneficially or constructively
owning (under the applicable attribution rules of the Code) shares of stock in
excess of an applicable ownership restriction, such shares will be automatically
transferred to a trust for the benefit of a charitable beneficiary, effective as
of the close of business on the business day prior to the date of the purported
transfer to the Prohibited Owner. While such shares of stock are held in trust,
the trustee will have all voting rights with respect to such shares, and all
dividends or distributions paid on such shares will be paid to the trustee of
the trust for the benefit of the charitable beneficiary (any dividend or
distribution paid on such stock prior to the discovery by the Company that such
shares have been automatically transferred to the trust will, upon demand, be
paid over to the trustee for the benefit of the charitable beneficiary). Within
20 days of receiving notice from the Company of the transfer of shares to the
trust, the trustee of the trust will be required to sell the shares held in the
trust to a person, designated by the trustee, who may own such shares without
violating the ownership restrictions (a "Permitted Holder"). Upon such sale, the
price paid for the shares by the Permitted Holder will be distributed to the
Prohibited Owner to the extent of the lesser of (i) the price paid by the
Prohibited Owner for the share or, if the Prohibited Owner did not give value
for the above (e.g., in the case of a gift, devise or other such transaction),
the market price (as defined in the Charter) on the date of the event which
caused the shares to be held in trust and (ii) the price received by the Trustee
from the sale or other disposition of shares. Any net sales proceeds in excess
of this amount will be paid immediately to the charitable beneficiary.
The Charter exempts Mr. Bedford and BPLP from the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit and creates separate ownership
limitations for each of these two parties. Mr. Bedford is limited to the
ownership, either actual or constructive under the applicable attribution rules
of the Code, of no more than 15% of the lesser of the number or value of the
outstanding shares of Common Stock, as adjusted to take into account the
conversion of the 8,333,334 shares of Convertible Preferred Stock. BPLP is
limited to the ownership, either actual or constructive under the applicable
attribution rules of the Code, of 100% of the outstanding shares of the
Convertible Preferred Stock and 58% of the lesser of the number or value of
outstanding shares of Common Stock, as adjusted to take into account the
conversion of the 8,333,334 shares of Convertible Preferred Stock. If shares of
the Convertible Preferred Stock are redeemed pursuant to the redemption rights
of the Convertible Preferred Stock, the percentage limit applicable to Mr.
Bedford increases automatically so as to permit his continued ownership after
the redemption of the number of shares of Common Stock that he was permitted to
own pursuant to his ownership limitation immediately prior to the redemption,
and BPLP's ownership limitation percentage with respect to shares of Common
Stock decreases by the same amount of Mr. Bedford's increase.
In addition, the Charter permits the Board of Directors to waive, under
certain conditions, the Aggregate Stock Ownership Limit and the Common Stock
Ownership Limit for other stockholders as to any class or series of the
outstanding stock of the Company and to establish an ownership limitation
relating to such stockholders' stock ownership. The Company has agreed in the
Stock Purchase Agreement that it will not unreasonably withhold its consent to
any transfer by BPLP, provided that the proposed transferee supplies such
reasonable representations and undertakings as appropriate to ensure that the
transfer will not cause the Company to lose its status as a REIT.
If the Board of Directors at any time determines in good faith that a
transfer or other event has taken place that results in a violation of the
above-described ownership limits or that a person intends to acquire or has
attempted to acquire constructive or beneficial ownership of stock of the
Company in violation of the above described limits, the Board of Directors is
required to take such action as it deems advisable to refuse to give effect or
to prevent such transfer or other event, including but not limited to causing
the Company to repurchase stock, refuse to give effect to such ownership or
acquisition on the books of the Company or instituting proceedings to enjoin
such transfer or event.
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The constructive ownership rules are complex and may cause Common Stock or
Convertible Preferred Stock owned beneficially or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than five percent of the number
or value of outstanding Common Stock or of less than five percent of the value
of outstanding Convertible Preferred Stock (or the acquisition of an interest in
an entity which owns Common Stock or Convertible Preferred Stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to constructively own Common Stock or Convertible
Preferred Stock in excess of the limits described above, and thus subject such
stock to the Common Ownership Limit or the Aggregate Stock Ownership Limit set
forth in the Charter.
The Charter also requires all persons who own five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder which, in the case of the Company, is one percent) of the outstanding
shares of the stock of the Company to file each year a completed questionnaire
with the Company containing information regarding their ownership of such
shares, as set forth in the Treasury Regulations. In addition, upon demand, each
beneficial or constructive owner of stock of the Company is required to disclose
to the Company in writing such information as the Company in good faith deems
necessary to determine the Company's status as a REIT or to comply with the
requirements of any taxing authority or governmental agency or to determine such
compliance.
LIMITATIONS ON TRANSFER OF CONVERTIBLE PREFERRED STOCK
The terms of the Convertible Preferred Stock prohibit anyone from owning
Convertible Preferred Stock, and permit the Company to invalidate any transfer
of Convertible Preferred Stock, if the Company's Board of Directors, in good
faith, concludes that any such ownership or transfer will or could result in the
Company's losing its REIT status. In addition, the following are prohibited from
purchasing or holding shares of Convertible Preferred Stock or holding shares of
Common Stock issued on conversion of Convertible Preferred Stock (but only so
long as such Common Stock is a "restricted security" as defined in Rule 144):
(i) individuals, (ii) pension plans in which five or fewer individuals own more
than 50% of the actuarial interests, (iii) trusts described in Code section
501(c)(17) that are part of a plan providing for the payment of supplemental
unemployment benefits, (iv) charitable foundations that are private foundations
described in Code section 509(a), (v) portions of a trust described in Code
section 642(c) that are permanently set aside or to be used exclusively to make
charitable contributions, (vi) a corporation with respect to which the stock
ownership requirement of Code section 542(a)(2) is met (generally five or fewer
individuals -- which includes the entities described above -- directly or
through attribution own more than 50% of the value of the corporation's
outstanding stock), and (vii) partnerships or trusts that directly, or through
other partnerships or trusts, are more than 50% owned by individuals or the
entities described above. Under appropriate circumstances, the Board of
Directors may waive one or more of the foregoing restrictions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Convertible
Preferred Stock is Chemical Mellon Shareholder Services LLC.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws of the Company. Copies of the Charter and Bylaws may be obtained as
described under "Available Information."
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any
Interested Stockholder or an affiliate thereof are prohibited for five
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years after the date on which the Interested Stockholder becomes an Interested
Stockholder unless approved by two super-majority votes of the stockholders.
Under the MGCL, an "Interested Stockholder" includes any individual or entity
owning 10% or more of a corporation's outstanding stock which is entitled to
vote generally in the election of directors ("Voting Stock"). However, as
permitted by the statute, the Board of Directors has elected to exempt the
Company from the business combination provision of the MGCL and, therefore,
unless such exemption is amended or repealed by the Board of Directors, the
five-year prohibition and the super-majority vote requirements described above
will not apply to any business combination between any Interested Stockholder
and the Company.
Although the Board of Directors has voted to exempt any business
combination with an Interested Stockholder from the provisions of the business
combination provisions of the MGCL, such exemption may be amended or repealed by
the Board of Directors at any time, except that the exemption may not be
repealed or amended with respect to BPLP, BPLP affiliates, and certain
transactions involving the redemption of the Convertible Preferred Stock. Such
action by the Board of Directors would impose the restrictions of the business
combination provisions of the MGCL on the Company, which could delay, defer or
prevent a transaction or change in control of the Company that might involve a
premium price for the Company's stock or otherwise be in the best interest of
the stockholders or that could otherwise adversely affect the interests of the
stockholders.
CONTROL SHARE ACQUISITIONS
The MGCL also provides that "control shares" (defined below) of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror, by
officers or by directors who are employees of the corporation. The control share
provisions of the MGCL do not apply (a) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction
or (b) to acquisitions approved or exempted by the corporation's charter or
bylaws. The Bylaws of the Company currently contain a provision exempting from
the control share provisions of the MGCL any and all acquisitions by any person
of the Company's shares of stock and, as a result, the control share provisions
currently do not apply to the Company. There can be no assurance, however, that
such provision will not be amended or eliminated by the Board of Directors
(subject to the consent of the holders of the Convertible Preferred Stock
required by the Charter) at any time in the future.
"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Thus, if an acquisition of control shares within one range is approved by
stockholders and is followed by an acquisition of additional control shares by
the same person that results in the total number of control shares owned by that
person being in a higher range, then voting rights for the additional shares in
excess of the previously approved range would also have to be approved by the
stockholders. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last
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control share acquisition by the acquiror or of the stockholders meeting at
which the voting rights of such shares were considered and not approved. If
voting rights for control shares are approved at the stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other stockholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
As stated above, the control share provisions of the MGCL do not currently
apply to the Company because the Bylaws of the Company contain a provision
exempting from the control share provisions of the MGCL any and all acquisitions
by any person of the Company's shares of stock. There can be no assurance,
however, that such provision will not be amended or eliminated by the Board of
Directors (subject to the consent of the holders of the Convertible Preferred
Stock required by the Bylaws) at any time in the future. Moreover, any amendment
or elimination of such provision of the Bylaws may result in the application of
the control share provisions of the MGCL not only to shares which may be
acquired in any future control share acquisitions, but also to shares acquired
in prior control share acquisitions. The potential for such application of the
control share provisions of the MGCL could delay, defer or prevent a transaction
or change in control of the Company that might involve a premium price for the
Company's stock or otherwise be in the best interest of the stockholders.
INTERESTED DIRECTOR TRANSACTIONS
The MGCL provides that a contract or other transaction between a
corporation and any of its directors or between a corporation and any other
entity in which any of its directors is a director or has a material financial
interest is not void or voidable by reason of such common directorship or
interest if: (i) the fact of the common directorship or interest is disclosed or
known to the board of directors and the board of directors ratifies or approves
the contract or transaction by the affirmative vote of a majority of its
disinterested directors; (ii) the fact of the common directorship or interest is
disclosed or known to the stockholders entitled to vote, and the contract or
transaction is authorized, approved or ratified by a majority of the votes cast
by the stockholders entitled to vote, other than the votes of shares owned of
record or beneficially by the interested director or corporation; or (iii) the
contract or transaction is fair and reasonable to the corporation. In addition,
the Company's Charter contains a provision for approval by the disinterested
directors that is substantially similar to the provision of the MGCL referred to
in clause (i) of the preceding sentence.
AMENDMENTS TO THE CHARTER AND BYLAWS
The Charter provides generally that its provisions may be amended only by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter. However, the approval of holders of a majority of the outstanding shares
of Convertible Preferred Stock, voting as a single class, is required in order
to amend the Charter in a way that would materially and adversely affect the
rights or preferences of the holders of Convertible Preferred Stock or to
authorize any class or series of stock having rights equal or senior to the
Convertible Preferred Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up of the Company. See "-- Convertible
Preferred Stock -- Voting Rights."
The Bylaws provide that the Board of Directors has the exclusive power to
adopt, alter or repeal any provision of the Bylaws and to make new Bylaws,
except as provided with respect to the provision regarding the exemption from
the control share provisions of the MGCL, in which case consent of the holders
of the Convertible Preferred Stock is necessary to amend or repeal.
THE BOARD OF DIRECTORS
The Bylaws provide that the number of Directors of the Company may be
established by a majority of the entire Board of Directors but may not be fewer
than three nor more than 15, and at least one-half of the Board of Directors
shall consist of Independent Directors. The Bylaws define "Independent Director"
as a director who is not, directly or indirectly, an affiliate of the Company
(as defined in Rule 144 of the rules promulgated under the Securities Act). Any
vacancy on the Company's Board of Directors for any cause other than an
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increase in the number of Directors shall be filled by a majority of the
remaining Directors (although such majority is less than a quorum). However, any
vacancy that arises because an Independent Director ceases to be a Director of
the Company will be filled by the selection of a successor Director by a
majority vote of the remaining Independent Directors (although less than a
quorum). Any vacancy on the Board created by an increase in the number of
Directors may be filled by a majority vote of the entire Board of Directors,
except that a vacancy which is required to be filled by an Independent Director
pursuant to the Company's Bylaws will be filled by a majority vote of the Board
of Directors' remaining Independent Directors (although less than a quorum). The
Bylaws provide that an individual so elected as a Director will hold office for
the unexpired term of the Director he is replacing. The holders of the
Convertible Preferred Stock have certain rights with respect to the election of
Directors. See "-- Convertible Preferred Stock -- Voting Rights."
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of meeting, (ii) by or at the
discretion of the Board of Directors or (iii) by a stockholder who is entitled
to vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws and (b) with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders, and nominations of persons for election to
the Board of Directors may be made only (i) pursuant to the Company's notice of
meeting, (ii) by or at the discretion of the Board of Directors or (iii)
provided that the Board of Directors has determined that Directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws. The
foregoing provisions of the Company's Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock or the Convertible Preferred Stock.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Common Stock offered hereby.
Shearman & Sterling, counsel to the Company, has reviewed the following
discussion and is of the opinion that it fairly summarizes the federal income
tax considerations that are likely to be material to a holder of Common Stock.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to a particular prospective stockholder in light of his
or her personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions and broker-dealers. The Code
provisions governing the federal income tax treatment of REITs are highly
technical and complex, and this summary is qualified in its entirety by the
applicable Code provisions, rules and Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof. The
following discussion and the opinions of Shearman & Sterling are based on
current law.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF THE
COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that, commencing with its taxable year ending December
31, 1985, it was organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified. The Company has not and does not
intend to request a ruling from the IRS as to its status as a REIT. Based on
various assumptions and factual representations made by the Company, in the
opinion of Shearman & Sterling, counsel to the Company, the Company was
organized in conformity with the requirements for qualification as a REIT, the
Company has operated so as to qualify as a REIT since its taxable year ended
December 31, 1992 (which such counsel believes is the Company's earliest taxable
year which is within the normal period for federal tax audit), and the Company's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. Such qualification depends
upon the Company's ability to meet the various requirements imposed under the
Code through actual operations, as discussed below, and no assurance can be
given that actual operations will meet these requirements. The opinion of
Shearman & Sterling is not binding on the IRS. The opinion of Shearman &
Sterling also is based upon existing law, the Treasury Regulations, currently
published administrative positions of the IRS and judicial decisions, which are
subject to change either prospectively or retroactively. In addition, as
discussed under "Risk Factors -- Tax Risks; Risks Associated with REIT Status,"
for tax years 1992 and 1993 (and possibly for certain prior years which such
counsel believes are outside the normal period for federal tax audit) it is
uncertain whether the Company properly requested the written statements required
by the Treasury Regulations concerning the ownership of its stock by certain
stockholders of record (the "Stockholder Polling Requirements") from certain
clearing organizations holding Common Stock as nominees for the beneficial
owners of such shares. However, the Company did employ stockholder polling
procedures for tax years 1992 and 1993 which it believes went beyond what is
required by the Treasury Regulations in providing stockholder ownership
information for purposes of determining whether the Company satisfied the Five
or Fewer Requirement (defined below under the caption"-- Requirements for
Qualification"). In that regard, the Company has received an opinion of Shearman
& Sterling to the effect that, based on various assumptions and factual
representations made by the Company, the Company has not, by virtue of the
Stockholder Polling Requirements, failed to qualify as a REIT with respect to
tax years 1992 and 1993.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings
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(once at the corporate level and once again at the stockholder level) that
usually results from investments in a corporation.
The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax." Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
Organizational Requirements
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT requirements, (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (v) the beneficial
ownership of which is held by 100 or more persons (the "100 Stockholder
Requirement"), and (vi) during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities) (the "Five or
Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Charter of the Company provides that no holder
is permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 5% (in value) of the aggregate
outstanding shares of all classes of
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stock of the Company or more than 5% (in number or value, whichever is more
restrictive) of the outstanding shares of Common Stock, with certain exceptions.
In addition, no holder is permitted to own, either actually or constructively
under the applicable attribution rules of the Code, any shares of any class of
the Company's stock if such ownership would cause more than 50% in value of the
Company's outstanding stock to be owned by five or fewer individuals or would
result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rule of attribution). See "Description of
Capital Stock of the Company -- Restrictions on Transfer and Ownership of
Capital Stock." In addition, certain investors will be prohibited from
purchasing or holding shares of Convertible Preferred Stock or holding shares of
Common Stock issued on conversion of the Convertible Preferred Stock (but only
so long as such Common Stock is a "restricted security" as defined in Rule 144).
See "Description of Capital Stock of the Company -- Restrictions on Transfer and
Ownership of Capital Stock." In rendering its opinion that the Company has
operated so as to qualify, and its proposed method of operation will enable it
to qualify, as a REIT, Shearman & Sterling is relying on the representation of
the Company that the ownership of its stock has satisfied and will satisfy the
Five or Fewer Requirement and the 100 Stockholder Requirement; and Shearman &
Sterling expresses no opinion as to whether, as a matter of law, the provisions
contained in the Charter or the additional ownership restrictions imposed on the
Convertible Preferred Stock will preclude the Company from failing the Five or
Fewer Requirement or the 100 Stockholder Requirement.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
The Company owns and operates a number of properties through subsidiaries.
Under the Code, a corporation which is a "qualified REIT subsidiary" is not
treated as a separate corporation; rather, all assets, liabilities and items of
income, deduction, and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, the Company's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as assets, liabilities
and items of the Company. While this summary generally does not address state
tax consequences, some states may not recognize a "qualified REIT subsidiary",
which could cause a subsidiary to be taxed or could cause the Company to fail to
qualify as a REIT under such state law.
Income Tests
To maintain qualification as a REIT, three gross income requirements must
be satisfied annually. First, at least 75% of the Company's gross income,
excluding gross income from certain dispositions of property held primarily for
sale to customers in the ordinary course of a trade or business ("prohibited
transactions") for each taxable year, must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from "prohibited transactions")
for each taxable year must be derived from such real property investments and
from dividends, interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, gain from "prohibited
transactions" and gain from the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent generally must not be based in whole or in part on the income or profits of
any person. An amount received or accrued generally will not be excluded from
the term "rents from real property," however, solely by reason of being based on
a fixed percentage or percentages of receipts of sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or a direct or
constructive owner of 10% or more of the REIT, directly or constructively owns
10% or more of such tenant. Third, if rent attributable to personal property,
leased in
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connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the personal
property will not qualify as "rents from real property." Fourth, for rents to
qualify as "rents from real property" the REIT must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; provided, however, that a REIT may provide services
with respect to its properties and the income will qualify as "rents from real
property" if the services are "usually or customarily rendered" in connection
with the rental of room or other space for occupancy only and are not otherwise
considered "rendered to the occupant."
The Company has not and does not anticipate that it will in the future
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts of sales consistent with the rule described above). The Company has not
and does not anticipate that it will in the future derive rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"-- Federal Income Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test;
and in such case, the Company will cease to qualify as a REIT. See "Risk
Factors -- Tax Risks; Risks Associated with REIT Status -- Adverse Consequences
of the Failure to Maintain Qualification as a REIT."
Asset Tests
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and intends in the future to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
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Annual Distribution Requirements
In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its net capital gain or "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its ordinary income for that year, (b) 95% of its capital gain net income for
that year and (c) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during its
Recognition Period, if the Company disposes of any asset subject to the Built-In
Gain Rules, the Company will be required, pursuant to guidance issued by the
IRS, to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition of the asset.
It is expected that the Company's REIT taxable income will continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, as a result of timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or repayments, or capital
expenditures in excess of non-cash deductions. In the event that such timing
differences occur, the Company may find it necessary to seek funds through
borrowings or the issuance of equity securities (there being no assurance that
it will be able to do so) or, if possible to pay taxable stock dividends in
order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be dividends,
taxable as ordinary income; and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. See "Risk
Factors -- Tax Risks; Risks Associated with REIT Status -- Adverse Consequences
of the Failure to Maintain Qualification as a REIT."
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TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes (a) is a citizen or resident
of the United States, (b) is a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof or (c) is an estate or trust, the income of which is subject
to United States federal income taxation regardless of its source. For any
taxable year for which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as follows.
Distributions Generally
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Company's
Preferred Stock, and then allocated to the Common Stock. These distributions are
not eligible for the dividends-received deduction for corporations. To the
extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in the U.S. Stockholder's
Common Stock, and the distribution in excess of a U.S. Stockholder's tax basis
in its Common Stock will be taxable as gain realized from the sale of its Common
Stock. Dividends declared by the Company in October, November or December of any
year payable to a stockholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of the year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Stockholders may not
include on their own federal income tax returns any losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"-- Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
Capital Gain Dividends
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Passive Activity Loss and Investment Interest Limitations
Distributions from the Company and gain from the disposition of Common
Stock will not be treated as passive activity income, and therefore stockholders
may not be able to apply any "passive activity losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation on the deduction of investment interest. Under
recently enacted legislation, net capital gain from the disposition of Common
Stock and capital gain dividends generally will be excluded from investment
income.
Certain Dispositions of Shares
In general, a U.S. Stockholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between the sales
price for such shares and the adjusted tax basis for such shares. Gain or loss
realized upon a sale or exchange of Common Stock by a U.S. Stockholder who has
held such Common Stock for more than one year will be treated as long-term
capital gain or loss, respectively, and
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otherwise will be treated as short-term capital gain or loss. However, losses
incurred on the sale or exchange of Common Stock held for less than six months
(after applying certain holding period rules) will be deemed long-term capital
loss to the extent of any capital gain dividends received by the selling
stockholder from those shares.
Treatment of Tax-Exempt Stockholders
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a 401(k) plan, that
holds the Common Stock as an investment will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
will be subject to tax. In addition, a portion of the dividends paid to certain
pension plans (including 401(k) plans but not including IRAs and government
pension plans) that own more than 10% (by value) of the Company's outstanding
Common Stock and Convertible Preferred Stock will be taxed as unrelated business
taxable income if the Company is treated as predominantly owned within the
meaning of the Code by such pension plans.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign trusts
and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of these rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws on an investment in the
Company, including any reporting requirements.
In general, Non-U.S Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a U.S.
trade or business also may be subject to the branch profits tax under Section
884 of the Code, which is imposed in addition to regular United States federal
corporate income tax generally at the rate of 30%, subject to reduction under a
tax treaty, if applicable. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
To the extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing a Non-U.S. Stockholder's basis in its
Common Stock (but not below zero), and the distribution in excess of a Non-U.S.
Stockholder's tax basis in its Common Stock will be treated as gain realized
from the sale of its Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may be subject to the branch profits tax generally at the rate of 30%, subject
to reduction under a tax treaty, if applicable.
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of all other distributions, unless
reduced by an applicable
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tax treaty. In addition, if the Company designates prior distributions as
capital gain dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding. Because the Company will withhold 30% of all other distributions, a
Non-U.S. Stockholder will be entitled to a refund from the IRS to the extent the
distribution is not a distribution out of earnings and profits.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to United States federal income
taxation. The Common Stock will not constitute a United States real property
interest if the Company is a "domestically controlled REIT." A domestically
controlled REIT is a REIT in which at all times during a specified testing
period less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Stockholders. It is currently anticipated that the Company will be a
domestically controlled REIT and therefore that the sale of Common Stock will
not be subject to taxation under FIRPTA. However, because the Common Stock is
publicly traded, no assurance can be given that the Company will continue to be
a domestically controlled REIT. Notwithstanding the foregoing, capital gains not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S.
Stockholder is a non-resident alien individual who is present in the United
States for 183 days or more during the taxable year and certain other conditions
apply, in which case the non-resident alien individual will be subject to a 30%
tax on his or her U.S. source capital gains. If the Company were not a
domestically controlled REIT, gain on the sale of Common Stock would be subject
to taxation under FIRPTA, and a Non-U.S. Stockholder would be subject to the
same treatment as a U.S. Stockholder with respect to the gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). In such case, under FIRPTA the
purchaser of Common Stock may be required to withhold 10% of the purchase price
and remit this amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed properly to report payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the federal income tax treatment described above. Consequently, prospective
stockholders
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should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Company.
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute for
careful planning with a professional. Employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
various sections of the Code considering purchasing the shares of Common Stock
should consult with their own tax and other appropriate counsel regarding the
application of ERISA and the Code to their purchase of the Common Stock. Benefit
Plans (as defined below) should also consider the entire discussion under the
heading "Federal Income Tax Considerations" as material contained therein is
relevant to any decision by a Plan to purchase the Common Stock.
FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively "Benefit Plans") are
subject to various provisions of ERISA and the Code. Before investing in the
Common Stock of the Company, a Benefit Plan fiduciary should ensure that such
investment is in accordance with ERISA's general fiduciary standards. In making
such a determination, a Benefit Plan fiduciary should ensure that the investment
is in accordance with the governing instruments and the overall policies of the
Benefit Plan, and that the investment will comply with the diversification and
composition requirements of ERISA. In addition, provisions of ERISA and the Code
prohibit transactions involving the assets of a Benefit Plan by persons who have
specified relationships with such Benefit Plan ("Parties in Interest" under
ERISA and "Disqualified Persons" under the Code, collectively referred to herein
as "Parties in Interest"), unless an exemption is available for such
transaction. The consequences of such prohibited transactions include the
imposition of excise taxes, possible disqualification of IRAs and other
liabilities. A Benefit Plan fiduciary should ensure that any investment in
shares of the Common Stock will not constitute or give rise to a direct or
indirect non-exempt prohibited transaction. A Benefit Plan fiduciary should also
consider prohibitions in ERISA relating to improper delegation of control over
or responsibility for "plan assets."
PLAN ASSETS ISSUE
In certain circumstances where a Benefit Plan holds an interest in an
entity, the assets of the entity are deemed to be "plan assets" (the
"Look-Through Rule") of such Benefit Plan for purposes of the prohibited
transactions provisions of the ERISA Code. In addition, under such
circumstances, any person that exercises authority or control with respect to
the management or disposition of such assets is a Benefit Plan fiduciary. "Plan
assets" are not defined in ERISA or the Code, but the United States Department
of Labor has issued a regulation, effective March 13, 1987 (the "Regulation"),
that outlines the circumstances under which a Plan's interest in an entity will
be subject to the Look-Through Rule.
The Regulation applies to the purchase by a Benefit Plan of an "equity
interest" in an entity, such as common stock of a REIT. However, the Regulation
provides an exception to the Look-Through Rule for equity interests that are
"publicly-offered securities."
Under the Regulation, a "publicly-offered security" is a security that is
(1) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (b) sold to a Benefit Plan as part of an offering of
securities, and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such longer period allowed
by the Commission) after the end of the fiscal year of the issuer during which
the offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of each
case. Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax purposes
will not
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itself prevent the security from being considered freely transferable. A class
of securities is considered "widely-held" if immediately after the initial
offering it is owned by 100 or more investors independent of the issuer and of
one another.
It is anticipated by the Company that the Common Stock will meet the
criteria of the publicly-offered securities exceptions to the Look-Through Rule.
Accordingly, the Company believes that, if a Benefit Plan purchases shares of
the Common Stock, the Company's assets should not be deemed to be "plan assets."
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 6,395,325 shares of
Common Stock outstanding, as adjusted to give effect to a one-for-two reverse
stock split of the Common Stock effected March 29, 1996. All of such shares are
freely tradeable without restriction under the Securities Act except for the
909,662 shares beneficially held by Mr. Bedford and 220,400 shares beneficially
held by certain other senior officers and directors of the Company, all of whom
may be deemed "affiliates" of the Company as defined in Rule 144 under the
Securities Act ("Rule 144"). The shares held by Mr. Bedford and such other
senior officers and directors of the Company are eligible for resale pursuant to
Rule 144 under the Securities Act, subject to compliance with certain volume and
other limitations imposed pursuant to Rule 144 and, in the case of Mr. Bedford,
subject to a standstill agreement between Mr. Bedford and the Company, discussed
below.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the date of acquisition of restricted shares from the Company or
any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of Common Stock then outstanding or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 also are subject to certain provisions relating
to the manner of sale, notice requirements and the availability of current
public information about the Company. If three years have elapsed since the date
of acquisition of restricted shares from the Company or from any "affiliate" of
the Company, and the acquiror or subsequent holder thereof is deemed not to have
been an "affiliate" of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to volume limitations, manner of sale
provisions, public information requirements or notice requirements.
"Restricted securities" (as defined in Rule 144) also may be sold pursuant
to a registration statement filed by the Company under the Securities Act or
another exemption from registration that might be available without compliance
with the requirements of Rule 144. In that regard, pursuant to a registration
rights agreement, Mr. Bedford has the right to require the Company to register
up to 250,000 shares of Common Stock under the Securities Act for offer and sale
to the public (including by way of an underwritten public offering) and to cause
such shares to be included in any registration statement filed by the Company.
In connection with the issuance of the Convertible Preferred Stock in
September 1995, Mr. Bedford has agreed not to sell, transfer or otherwise
dispose of any of 599,139 shares of Common Stock beneficially owned by him
without the consent of the Board of Directors. This agreement will remain in
effect until the Company notifies Mr. Bedford that such limitation no longer
applies or the Company no longer qualifies as a REIT under the Code.
In connection with the Offering, the Company's directors and senior
officers, holding in the aggregate 1,130,062 shares of Common Stock, have agreed
that they will not, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, for a period of one year after the date of this
Prospectus, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, or enter into any agreement to sell, any shares of Common Stock or
any securities convertible or exchangeable or exercisable for Common Stock. In
connection with the Offering, the Company has agreed, subject to certain
exceptions, that it will not for a period of 180 days after the date of this
Prospectus, without the prior written consent of Merrill Lynch, Pierce,
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Fenner & Smith Incorporated, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing.
As of December 31, 1995, options to purchase 343,750 shares of Common Stock
were outstanding, of which 200,875 shares were subject to then-exercisable
options. Furthermore, an additional 702,375 shares of Common Stock are reserved
for issuance under the Company's option plans. Upon exercise of these options,
all of the shares will be freely tradeable (except those shares held by
affiliates).
Shares of Convertible Preferred Stock will be convertible at the option of
the holder at any time after September 18, 1997 into such number of shares of
Common Stock as is determined by dividing $6.00 by the then conversion price in
respect of the Convertible Preferred Stock (the "Conversion Price"). The current
Conversion Price is $12.00 per share and, therefore, each share of Convertible
Preferred Stock currently is convertible into one half of one share of Common
Stock. There were 8,333,334 shares of Convertible Preferred Stock outstanding on
December 31, 1995. The Conversion Price is subject to adjustment as described
above, under the heading "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Conversion Rights." The outstanding
shares of Convertible Preferred Stock and the Common Stock issuable upon
conversion thereof are "restricted securities" within the meaning of Rule 144.
In that regard, BPLP and certain of its transferees have the right, in one or
more registrations, to cause the Company to register the shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock for sale to the
public. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Registration Rights."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, may
adversely affect the prevailing market price for the Common Stock. See "Risk
Factors -- Shares Available for Future Sale."
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UNDERWRITING
The Underwriters named below, acting through their Representatives, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc., Robertson,
Stephens & Company LLC and Sutro & Co. Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions of the Purchase
Agreement, to purchase from the Company the number of shares of Common Stock set
forth below opposite their respective names. The Underwriters are committed to
purchase all of such shares if any are purchased. In the event of a default by
an Underwriter, the Purchase Agreement provides that, in certain circumstances,
the purchase commitments of the non-defaulting Underwriters may be increased or
the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
----------
---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Smith Barney Inc..........................................................
Robertson, Stephens & Company LLC.........................................
Sutro & Co. Incorporated..................................................
---------
Total........................................................ 3,350,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share of Common Stock. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Common Stock on sales to certain other dealers. After the
Offering, the public offering price, concession and discount may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an additional 502,500 shares
of Common Stock to cover over-allotments, if any, at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
If the Underwriters exercise this option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the foregoing table bears to the number of shares of
Common Stock initially offered hereby.
The directors and senior officers of the Company have agreed that they will
not, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, directly or indirectly, for a period of one year after the date of
this Prospectus, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, or enter into any agreement to sell, any shares of Common
Stock or any securities convertible or exchangeable or exercisable for Common
Stock. In connection with the Offering, the Company has agreed, subject to
certain exceptions, that it will not for a period of 180 days after the date of
this Prospectus, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing.
Bedford has agreed to pay Merrill Lynch, Pierce, Fenner & Smith
Incorporated a financial advisory fee in connection with the Offering equal to
.25% of the gross proceeds realized from the Offering.
The Company has agreed to indemnify the Underwriters against civil
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
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EXPERTS
The consolidated financial statements and financial statement schedule of
Bedford Property Investors, Inc. as of December 31, 1995 and 1994 and for each
of the years in the three-year period ended December 31, 1995, the Historical
Summaries of Gross Income and Direct Operating Expenses of the Landsing Pacific
Portfolio, 3002 Dow Business Center and 350 East Plumeria Drive for the year
ended December 31, 1994, and the Historical Summary of Gross Income and Direct
Operating Expenses of 6600 College Boulevard for the years ended December 31,
1994, 1993 and 1992 have been included herein and in the registration statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the Offering will be passed upon for the Company by Shearman
& Sterling, San Francisco, California. In addition, the description of federal
income tax consequences contained in the section of the Prospectus entitled
"Federal Income Tax Considerations" is based upon the opinion of Shearman &
Sterling. Certain legal matters related to the Offering will be passed upon for
the Underwriters by Brown & Wood, San Francisco, California.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-2 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission, and in the exhibits thereto.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may be
examined without charge at, or copies obtained upon payment of prescribed fees
from, the Commission and its regional offices listed below.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. The Registration Statement, as well as such
reports, proxy statements and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. Such reports, proxy statements and other information can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005 and the offices of the Pacific Stock Exchange at 301
Pine Street, San Francisco, California 94104.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. The Company's Annual Report on Form 8-K/A filed on February 23, 1996.
3. The Company's Current Report on Form 8-K/A filed on February 16, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of the filing hereof and prior to the
termination of this Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO BEDFORD
PROPERTY INVESTORS, INC., 270 LAFAYETTE CIRCLE, LAFAYETTE, CALIFORNIA 94549,
ATTENTION: INVESTOR RELATIONS (TELEPHONE: (510) 283-8910).
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GLOSSARY
"301 East Grand" refers to one of the Company's five industrial properties
located in the Pacific International Business Center in South San Francisco,
California.
"342 Allerton" refers to one of the Company's five industrial properties
located in the Pacific International Business Center in South San Francisco,
California.
"350 East Plumeria Drive" refers to the Company's industrial property
located in San Jose, California.
"400 Grandview" refers to one of the Company's five industrial properties
located in the Pacific International Business Center in South San Francisco,
California.
"410 Allerton" refers to one of the Company's five industrial properties
located in the Pacific International Business Center in South San Francisco,
California.
"417 Eccles" refers to one of the Company's five industrial properties
located in the Pacific International Business Center in South San Francisco,
California.
"1000 Town Center Drive" refers to the Company's suburban office property
located in Oxnard, California.
"1996 Mortgage Loans" means the $20.2 million loan made to the Company in
March 1996 secured by mortgages on three of the Company's Properties.
"3002 Dow Business Center" refers to the Company's industrial property
located in Tustin, California.
"6600 College Boulevard" refers to the Company's suburban office property
in Overland Park, Kansas.
"Academy Place Shopping Center" refers to the Company's retail property in
Colorado Springs, Colorado.
"BPLP" refers to Bed Preferred No. 1 Limited Partnership, a Delaware
limited partnership and the purchaser of 8,333,334 shares of the Company's
Convertible Preferred Stock issued and sold on September 18, 1995. BPLP is
beneficially owned by an investment fund managed by Aldrich Eastman Waltch, a
national real estate investment adviser whose clients primarily include
institutional investors.
"Annualized Base Rent" means, for any property and at any date, the product
of (i) the monthly base rent in effect with respect to such Property at such
date or, if such monthly base rent has been reduced by a temporary rent
concession, the monthly base rent that would have been in effect at such date in
the absence of such concession, multiplied by (ii) twelve. Annualized Base Rent
does not reflect any increases or decreases in monthly rental rates or lease
expirations which are scheduled to occur or which may occur after the date of
calculation or the cost of any leasing commissions or tenant improvements.
"Auburn Court" refers to one of the Company's two industrial properties
located in Fremont, California.
"Bedford Acquisitions" refers to Bedford Acquisitions, Inc., a California
corporation wholly owned by Mr. Bedford.
"Board of Directors" refers to the board of directors of the Company.
"Bryant Street Annex" refers to one of the Company's two industrial
properties located in Denver, Colorado.
"Bryant Street Quad" refers to one of the Company's two industrial
properties located in Denver, Colorado.
"Bylaws" refers to the Bylaws of the Company and all amendments thereto.
"Building #3 at Contra Costa Diablo Industrial Park" refers to one of the
Company's three industrial properties located in Concord, California.
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"Building #8 at Contra Costa Diablo Industrial Park" refers to one of the
Company's three industrial properties located in Concord, California.
"CPI" refers to the Consumer Price Index.
"Charter" refers to the charter of the Company and all amendments thereto
and restatements thereof.
"Code" refers to the Internal Revenue Code of 1986, as amended.
"Cody Street Park" refers to the industrial property located in Overland
Park, Kansas that the Company sold in September 1995.
"Convertible Preferred Stock" refers to the Company's Series A Convertible
Preferred Stock, par value $.01 per share.
"Credit Facility" refers to the Company's $60 million revolving credit
facility with Bank of America NT & SA.
"Dupont Industrial Center" refers to the Company's industrial property in
Ontario, California.
"Edison Square Partnerships" refers to the Company's partnership interests
in three Edison, New Jersey properties that the Company sold in May 1993.
"Employee Stock Option Plan" refers to the Bedford Property Investors, Inc.
Employee Stock Option Plan, effective September 16, 1985, and amended on June 9,
1993, February 7, 1994 and September 12, 1994.
"Funds From Operations" is defined by the National Association of Real
Estate Investment Trusts as net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (losses) from debt
restructurings and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. Funds From
Operations is presented in conformity with the 1995 NAREIT "White Paper"
interpretation.
"IBM Building" refers to the suburban office property located in Jackson,
Mississippi that the Company sold in October 1995.
"ICM" refers to ICM Property Investors Incorporated, the predecessor
corporation of the Company.
"Industrial Properties" refers to 301 East Grand, 342 Allerton, 400
Grandview, 410 Allerton, 417 Eccles, 3002 Dow Business Center, Auburn Court,
Bryant Street Annex, Bryant Street Quad, Building #3 at Contra Costa Industrial
Park, Building #8 at Contra Costa Industrial Park, Building #18 at Mason
Industrial Park, 350 East Plumeria Drive, Dupont Industrial Center, Lackman
Business Center, Milpitas Town Center, Ninety-Ninth Street #1, Ninety-Ninth
Street #2, Ninety-Ninth Street #3, St. Paul Business Center East, St. Paul
Business Center West, Twin Oaks Business Park, Twin Oaks Technology Center and
Westinghouse Drive.
"Lackman Business Center" refers to one of the Company's four industrial
properties located in Lenexa, Kansas.
"Landsing Pacific Portfolio" refers to the portfolio of the following
Properties that the Company acquired from the Landsing Pacific Fund, Inc., a
publicly-traded REIT based in San Mateo, California: 301 East Grand, 342
Allerton, 400 Grandview, 410 Allerton, 417 Eccles, Academy Place Shopping
Center, Auburn Court, Bryant Street Annex, Bryant Street Quad, St. Paul Business
Center East, St. Paul Business Center West, Twin Oaks Business Park, Twin Oaks
Technology Center and Westinghouse Drive.
"Mariner Court" refers to the Company's suburban office property located in
Torrance, California.
"Mason Industrial Park" refers to one of the Company's three industrial
properties located in Concord, California.
"MGCL" refers to the Maryland General Corporation Law, as amended from time
to time.
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"Milpitas R&D Property" refers to a 3.1-acre parcel located on the
Company's Milpitas Town Center property in Milpitas, California, on which the
Company is developing a single-story research and development facility with
approximately 45,090 rentable square feet on an unleased ("speculative") basis.
"Milpitas Town Center" refers to the Company's industrial property located
in Milpitas, California.
"NAREIT" refers to the National Association of Real Estate Investment
Trusts, Inc.
"Ninety-Ninth Street #1" refers to one of the Company's four industrial
properties located in Lenexa, Kansas, which was acquired in September 1995.
"Ninety-Ninth Street #2" refers to one of the Company's four industrial
properties located in Lenexa, Kansas, which was acquired in September 1995.
"Ninety-Ninth Street #3" refers to one of the Company's four industrial
properties located in Lenexa, Kansas, which was acquired in December 1990.
"NOI" means net operating income, which is rental income less rental
expenses before depreciation and amortization.
"Point West Place" refers to the Point West Place office building located
in Framingham, Massachusetts that the Company sold during 1993.
"positive net absorption" means that, for a given period and area in
question, there is a net increase in the number of square feet of property under
lease.
"Preferred Stock" refers to the Company's Preferred Stock, par value $.01
per share.
"Properties" refers collectively to the Company's 30 Properties, which
include 24 Industrial Properties, five Suburban Office Properties and one Retail
Property.
"REIT" refers to a real estate investment trust, as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.
"Retail Property" refers to Academy Place Shopping Center, the Company's
retail property located in Colorado Springs, Colorado.
"Securities Act" means the Securities Act of 1933, as amended.
"St. Paul Business Center East" refers to one of the Company's two
industrial properties located in Maplewood, Minnesota.
"St. Paul Business Center West" refers to one of the Company's two
industrial properties located in Maplewood, Minnesota.
"Stock Purchase Agreement" refers to the agreement between BPLP and the
Company whereby BPLP agreed to purchase and the Company agreed to sell 8,333,334
shares of Convertible Preferred Stock.
"Suburban Office Properties" refers to Mariner Court, 1000 Town Center
Drive, Village Green, 6600 College Boulevard and Woodlands II.
"Texas Bank North" refers to the Texas Bank North office building located
in San Antonio, Texas that the Company sold in January 1994.
"Total Market Capitalization" means the aggregate market value of the
outstanding shares of Common Stock on a fully-diluted basis plus the outstanding
balance of the Convertible Preferred Stock plus the total consolidated
indebtedness of the Company.
"Twin Oaks Business Park" refers to one of the Company's two industrial
properties in Beaverton, Oregon.
"Twin Oaks Technology Center" refers to one of the Company's two industrial
properties in Beaverton, Oregon.
108
<PAGE> 115
"Village Green" refers to the Company's suburban office property located in
Lafayette, California. The Company's headquarters are located at this property.
"Westinghouse Drive" refers to one of the Company's two industrial
buildings located in Fremont, California.
"Woodlands II" refers to the Company's suburban office property located in
Salt Lake City, Utah.
109
<PAGE> 116
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 117
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENTS SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BEDFORD PROPERTY INVESTORS, INC. -- PRO FORMA
Pro Forma Consolidated Balance Sheet as of December 31, 1995 (unaudited)......... F-2
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995 (unaudited).................................................. F-3
Notes to Pro Forma Financial Statements.......................................... F-4
BEDFORD PROPERTY INVESTORS, INC. -- HISTORICAL
Report of Independent Public Accountants......................................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1994..................... F-8
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and
1993............................................................................ F-9
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993............................................... F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993............................................... F-11
Notes to Consolidated Financial Statements....................................... F-12
Schedule III -- Real Estate and Accumulated Depreciation......................... F-21
LANDSING PACIFIC PORTFOLIO -- HISTORICAL
Independent Auditors' Report..................................................... F-24
Historical Summary of Gross Income and Direct Operating Expenses for the year
ended December 31, 1994......................................................... F-25
Notes to Historical Summary of Gross Income and Direct Operating Expenses........ F-26
3002 DOW BUSINESS CENTER -- HISTORICAL
Independent Auditors' Report..................................................... F-27
Historical Summary of Gross Income and Direct Operating Expenses for the year
ended December 31, 1994......................................................... F-28
Notes to Historical Summary of Gross Income and Direct Operating Expenses........ F-29
6600 COLLEGE BOULEVARD -- HISTORICAL
Independent Auditors' Report..................................................... F-30
Historical Summary of Gross Income and Direct Operating Expenses for the years
ended December 31, 1992, 1993 and 1994.......................................... F-31
Notes to Historical Summary of Gross Income and Direct Operating Expenses........ F-32
350 EAST PLUMERIA DRIVE -- HISTORICAL
Independent Auditors' Report..................................................... F-33
Historical Summary of Gross Income and Direct Operating Expenses for the year
ended December 31, 1994......................................................... F-34
Notes to Historical Summary of Gross Income and Direct Operating Expenses........ F-35
</TABLE>
F-1
<PAGE> 118
BEDFORD PROPERTY INVESTORS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONSOLIDATED PROPERTIES PRO FORMA CONSOLIDATED
HISTORICAL ACQUIRED(1) ADJUSTMENT PRO FORMA
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate investment:
Industrial buildings.................... $ 94,897 $ 8,058 $ -- $102,955
Office buildings........................ 30,025 6,120 -- 36,145
Retail buildings........................ 6,261 -- -- 6,261
------------ ----------- ---------- ------------
131,183 14,178 -- 145,361
Less accumulated depreciation........... 2,219 -- -- 2,219
------------ ----------- ---------- ------------
128,964 14,178 -- 143,142
Cash...................................... 1,027 (14,178) 23,650(3) 10,499
Other assets.............................. 3,487 -- 200(2) 3,687
------------ ----------- ---------- ------------
Total assets.................... $133,478 $ -- $ 23,850 $157,328
========= ========= ======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Bank loan payable......................... $ 43,250 $ -- $(43,250)(2)(3) $ --
Mortgage loan payable..................... -- -- 20,200(2) 20,200
Accounts payable and accrued expenses..... 1,451 -- -- 1,451
Dividend payable.......................... 1,765 -- -- 1,765
Acquisition payable....................... 3,000 -- -- 3,000
Other liabilities......................... 1,577 -- -- 1,577
------------ ----------- ---------- ------------
Total liabilities............... $ 51,043 $ -- $(23,050) $ 27,993
------------ ----------- ---------- ------------
Redeemable preferred stock:
Series A convertible preferred stock,
par value $0.01 per share; authorized
10,000,000 shares, issued and
outstanding 8,333,334 shares;
aggregate redemption amount $50,000;
aggregate liquidation preference
$52,500.............................. 50,000 -- -- 50,000
------------ ----------- ---------- ------------
Common stock and other stockholders'
equity:
Common stock, par value $0.02 per share;
authorized 15,000,000 shares, issued
and outstanding 3,045,325 shares;
6,395,325 pro forma issued and
outstanding.......................... 61 -- 67(3) 128
Additional paid in capital.............. 107,214 -- 46,833(3) 154,047
Accumulated losses and distributions in
excess of net income................. (74,840) -- -- (74,840)
------------ ----------- ---------- ------------
Total common and other
stockholders' equity.......... 32,435 -- 46,900 79,335
------------ ----------- ---------- ------------
Total liabilities and
stockholders' equity.......... $133,478 $ -- $ 23,850 $157,328
========= ========= ======== =========
</TABLE>
F-2
<PAGE> 119
BEDFORD PROPERTY INVESTORS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONSOLIDATED ACQUIRED PROPERTIES PRO FORMA PRO FORMA
HISTORICAL PROPERTIES(4) SOLD(5) ADJUSTMENTS CONSOLIDATED
------------ ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Property operations:
Rental income................ $11,695 $13,230 $ (1,085) $ -- $23,840
Rental expenses:
Operating expenses........ 2,744 1,997 (321) -- 4,420
Real estate taxes......... 1,105 1,451 (143) -- 2,413
Depreciation and
amortization............ 1,484 1,157 (223) -- 2,418
------- ------- ------- ------- -------
Income from property
operations................... 6,362 8,625 (398) -- 14,589
General and administrative
expenses..................... (1,457) -- -- -- (1,457)
Interest income................ 226 -- -- -- 226
Interest expense............... (1,594) -- -- (340)(6) (1,934)
------- ------- ------- ------- -------
Income before gain (loss) on
sales of real estate
investments.................. 3,537 8,625 (398) (340) 11,424
Gains (loss) on sales of real
estate investments........... (642) -- (205) -- (847)
------- ------- ------- ------- -------
Net income..................... $2,895 $ 8,625 $ (603) $ (340) $10,577
======= ======= ======= ======= =======
Net income applicable to common
stockholders................. $1,607 $ 8,625 $ (603) $(3,552)(7) $6,077
======= ======= ======= ======= =======
Net income per common and
common equivalent share...... $0.52 $0.94
======= =======
Weighted average number of
common and common equivalent
shares outstanding(8)........ 3,089,549 6,439,549
</TABLE>
F-3
<PAGE> 120
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) The unaudited pro forma consolidated balance sheet reflects the acquisition
of the Company's property in Laguna Hills ("Laguna Hills") and the pending
acquisition of the Westech Business Center located in Phoenix, Arizona
("Westech Business Center") as if such acquisitions had occurred on December
31, 1995. The Company acquired Laguna Hills on March 27, 1996, and
anticipates purchasing Westech Business Center in April 1996.
The combining balance sheet for these acquisitions as of December 31, 1995
is as follows (in thousands):
<TABLE>
<CAPTION>
WESTECH
LAGUNA BUSINESS
HILLS CENTER TOTAL
------- -------- -------
<S> <C> <C> <C>
Assets:
Real estate investment:
Office buildings................................. $ 6,120 $ -- $ 6,120
Industrial buildings............................. -- 8,058 8,058
Cash............................................. (6,120) (8,058) (14,178)
------- --------
Total assets................................ -- -- --
======= ========
</TABLE>
Consolidated pro forma real estate investments as of December 31, 1995
include capitalized fees of $90,000 paid by the Company to Bedford
Acquisitions, Inc., a corporation wholly owned by Mr. Bedford ("Bedford
Acquisitions"), in connection with the Company's acquisition of Laguna
Hills. The Company anticipates paying $119,000 to Bedford Acquisitions when
Westech Business Center is purchased.
(2) The unaudited pro forma consolidated balance sheet reflects the $20,200,000
of the 1996 Mortgage Loans which occurred on March 27, 1996 as if this
transaction had occurred on December 31, 1995. The Company utilized
$20,000,000 of mortgage proceeds to pay down the outstanding balance on the
Company's credit facility (the "Credit Facility"). The Company incurred
$200,000 of appraisal and closing costs in connection with the funding of
the 1996 Mortgage Loans.
(3) The unaudited pro forma consolidated balance sheet reflects the Offering as
if it had occurred on December 31, 1995 and portions of the net proceeds
utilized to finance the acquisition of Laguna Hills and Westech Business
Center, and to pay down the outstanding balance under the Credit Facility.
(4) The unaudited pro forma consolidated statement of income reflects the
property acquisitions in 1995 as if they had occurred on January 1, 1995.
The Company acquired 350 East Plumeria Drive and Lackman Business Center on
September 19, 1995, Ninety-Ninth Street #1 and Ninety-Ninth Street #2 on
September 20, 1995, 6600 College Boulevard on October 6, 1995, 3002 Dow
Business Center on December 5, 1995 and the Landsing Pacific Portfolio on
December 14, 1995.
The combining historical statement of income for the period from January 1,
1995 to the date of acquisition for these properties is as follows (in
thousands):
<TABLE>
<CAPTION>
NINETY- TOTAL
350 EAST LACKMAN NINTH 6600 3002 DOW LANDSING PROPERTIES
PLUMERIA BUSINESS STREET COLLEGE BUSINESS PACIFIC ACQUIRED
DRIVE CENTER #1 AND #2 BOULEVARD CENTER PORTFOLIO IN 1995
-------- ------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income.................. $1,001 $ 269 $ 326 $ 831 $1,552 $7,056 $ 11,035
Rental expenses
Operating expenses........... 35 41 30 105 210 1,037 1,458
Real estate taxes............ 104 46 49 112 189 801 1,301
Depreciation and
amortization.............. 79 27 35 66 152 616 975
------ ---- ---- ---- ------ ------ -------
Income from property
operations................... $ 783 $ 155 $ 212 $ 548 $1,001 $4,602 $ 7,301
====== ==== ==== ==== ====== ====== =======
</TABLE>
F-4
<PAGE> 121
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
The unaudited pro forma consolidated statement of income also reflects the
purchase of Laguna Hills and the anticipated acquisition of Westech Business
Center as if they had occurred on January 1, 1995. The statement showing the
operating results for the twelve months of 1995 for Laguna Hills and Westech
Business Center and summarizing all the acquisitions in 1995 and 1996 is as
follows (in thousands):
<TABLE>
<CAPTION>
TOTAL TOTAL
WESTECH PROPERTIES PROPERTIES TOTAL
LAGUNA BUSINESS ACQUIRED ACQUIRED PROPERTIES
HILLS CENTER IN 1996 IN 1995 ACQUIRED
------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rental income............................ $1,080 $1,115 $2,195 $ 11,035 $ 13,230
Rental expenses
Operating expenses..................... 345 194 539 1,458 1,997
Real estate taxes...................... 60 90 150 1,301 1,451
Depreciation and amortization.......... 82 100 182 975 1,157
------ ------ ------ ------- -------
Income from property operations.......... $ 593 $ 731 $1,324 $ 7,301 $ 8,625
====== ====== ====== ======= =======
</TABLE>
(5) The unaudited pro forma consolidated statement of income reflects the
elimination of the actual results of operations of Cody Street Park and the
IBM Building from January 1, 1995 through the date of sale. The statement
also reflects the loss on the sale of these properties as if the sales had
occurred on January 1, 1995. The Company sold Cody Street Park on September
20, 1995 and the IBM Building on October 2, 1995.
The combining historical statement of income from January 1, 1995 through
the date of sale for these properties is as follows (in thousands):
<TABLE>
<CAPTION>
IBM
CODY STREET PARK BUILDING TOTAL
---------------- -------- ------
<S> <C> <C> <C>
Rental income..................................... $146 $939 $1,085
Rental expenses:
Operating expenses.............................. 13 308 321
Real estate taxes............................... 25 118 143
Depreciation and amortization................... 45 178 223
------ -------- ------
Income from property operations................... $ 63 $335 $ 398
============ ====== ======
</TABLE>
(6) The pro forma consolidated interest expense consists of the amortization of
loan fees incurred for the restatement and expansion of the Credit Facility
to $60,000,000, amortization of loan fees incurred to secure the 1996
Mortgage Loans, and interest on the 1996 Mortgage Loans of $20,200,000. The
acquisitions of 350 East Plumeria Drive, Lackman Business Center,
Ninety-Ninth Street #1, Ninety-Ninth Street #2, 6600 College Boulevard and
3002 Dow Business Center are financed by the cash proceeds from (i) the sale
of the Convertible Preferred Stock and (ii) the sale of Cody Street Park and
the IBM Building. The acquisition of the Landsing Pacific Portfolio is
financed with the remaining cash proceeds from the Convertible Preferred
Stock, borrowings of $42,700,000 from the Credit Facility and issuance of a
letter of credit of $3,000,000. The acquisition of Laguna Hills and Westech
Business Center (totalling $15,096,000) will be financed with the net
proceeds from the Offering of $46,900,000. Borrowings on the Credit Facility
are to be paid off with net proceeds of the 1996 Mortgage Loans of
$20,000,000 and a portion of the net proceeds from the Offering. The 1996
Mortgage Loans financing was completed on March 27, 1996.
(7) Reflects 9% dividends ($4,500,000) accrued to holders of the Convertible
Preferred Stock less accrued dividends reflected in the historical column of
$1,288,000. The unaudited pro forma consolidated statement of income
reflects the $50,000,000 sale of the Convertible Preferred Stock as if such
transaction had occurred on January 1, 1995. The sale of the Convertible
Preferred Stock was completed on September 18, 1995.
F-5
<PAGE> 122
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(8) The weighted average number of common and common equivalent shares
outstanding shown on the pro forma consolidated statement of income reflects
the Company's one-for-two reverse stock split approved by the shareholders
on March 28, 1996 and the Offering. Additionally, the pro forma consolidated
statement of income has not been adjusted to reflect any interest income
from the unutilized proceeds of the Offering. Such proceeds amount to
approximately $9,000,000.
F-6
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
Bedford Property Investors, Inc.:
We have audited the consolidated balance sheets of Bedford Property
Investors, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement Schedule III -- real estate and accumulated
depreciation as of December 31, 1995. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 financial position of Bedford
Property Investors, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
February 6, 1996, except as to note 11,
which is as of March 29, 1996
F-7
<PAGE> 124
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Real estate investment:
Industrial buildings................................................ $ 94,897 $ 26,253
Office buildings -- held for investment............................. 30,025 23,022
Office buildings -- held for sale................................... -- 8,928
Retail buildings.................................................... 6,261 --
-------- --------
131,183 58,203
Less accumulated depreciation......................................... 2,219 3,150
-------- --------
128,964 55,053
Cash.................................................................. 1,027 4,733
Other assets.......................................................... 3,487 2,508
-------- --------
Total assets................................................ $133,478 $ 62,294
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loan payable..................................................... $ 43,250 $ 22,400
Accounts payable and accrued expenses................................. 1,451 850
Dividend payable...................................................... 1,765 568
Acquisition payable................................................... 3,000 600
Other liabilities..................................................... 1,577 944
-------- --------
Total liabilities........................................... 51,043 25,362
-------- --------
Redeemable preferred stock:
Series A convertible preferred stock, par value $0.01 per share;
authorized 10,000,000 shares, issued and outstanding
8,333,334 shares in 1995; aggregate redemption amount
$50,000; aggregate liquidation preference $52,500................ 50,000 --
-------- --------
Common stock and other stockholders' equity:
Common stock, par value $0.01 per share; authorized 30,000,000
shares, issued and outstanding 6,090,650 shares in 1995,
5,976,900 shares in 1994......................................... 61 60
Additional paid-in capital.......................................... 107,214 107,151
Accumulated losses and distributions in excess of net income........ (74,840) (70,279)
-------- --------
Total common stock and other stockholders' equity........... 32,435 36,932
-------- --------
Total liabilities and stockholders' equity............................ $133,478 $ 62,294
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 125
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Property operations:
Rental income........................................... $ 11,695 $ 9,154 $ 7,207
Rental expenses:
Operating expenses................................... 2,744 2,408 2,520
Real estate taxes.................................... 1,105 916 840
Depreciation and amortization........................ 1,484 1,206 2,250
--------- --------- ---------
Income from property operations........................... 6,362 4,624 1,597
General and administrative expenses....................... (1,457) (1,309) (1,303)
Interest income........................................... 226 56 136
Interest expense.......................................... (1,594) (955) (716)
Income from joint ventures................................ -- -- 2,533
--------- --------- ---------
Income before gain (loss) on sales of real estate
investments............................................. 3,537 2,416 2,247
Gain (loss) on sales of real estate investments........... (642) 1,193 900
--------- --------- ---------
NET INCOME................................................ $ 2,895 $ 3,609 $ 3,147
======== ======== ========
Net income applicable to common stockholders(1)........... $ 1,607 $ 3,609 $ 3,147
--------- --------- ---------
Net income per common and common equivalent share(1):..... $ 0.26 $ 0.59 $ 0.53
======== ======== ========
Weighted average number of common and common equivalent
shares outstanding...................................... 6,179,098 6,147,664 5,975,900
======== ======== ========
</TABLE>
- ---------------
(1) Reflects net income reduced by dividends of $1,288 for the third and fourth
quarters of 1995 on $50,000 of Series A Convertible Preferred Stock issued
on September 18, 1995.
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 126
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
LOSSES AND
DISTRIBUTIONS TOTAL COMMON
ADDITIONAL IN EXCESS STOCK AND OTHER
COMMON PAID-IN OF STOCKHOLDERS'
STOCK CAPITAL NET INCOME EQUITY
------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992.................. $ 60 $ 107,147 $ (73,837) $33,370
Net income.................................. -- -- 3,147 3,147
Dividends to common stockholders
($0.18 per share)......................... -- -- (1,076) (1,076)
--- -------- --------- -------
Balance, December 31, 1993.................. 60 107,147 (71,766) 35,441
Issuance of common stock.................... -- 4 -- 4
Net income.................................. -- -- 3,609 3,609
Dividends to common stockholders
($0.355 per share)........................ -- -- (2,122) (2,122)
--- -------- --------- -------
Balance, December 31, 1994.................. 60 107,151 (70,279) 36,932
Issuance of common stock.................... 1 63 -- 64
Costs of issuance of preferred stock........ -- -- (3,631) (3,631)
Redemption of rights........................ -- -- (60) (60)
Net income.................................. -- -- 2,895 2,895
Dividends to common stockholders
($0.41 per share)......................... -- -- (2,477) (2,477)
Dividends to preferred stockholders (9%).... -- -- (1,288) (1,288)
--- -------- --------- -------
Balance, December 31, 1995.................. $ 61 $ 107,214 $ (74,840) $32,435
=== ======== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 127
BEDFORD PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 2,895 $ 3,609 $ 3,147
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 1,806 1,463 2,349
Loss (gain) on sale of real estate investments........ 642 (1,193) (900)
Gain on sale of joint venture partnership
operations.......................................... -- -- (2,686)
Equity in joint venture partnership operations
(including depreciation of $191 in 1993)............ -- -- 153
Change in other assets................................ (1,679) (930) (777)
Change in accounts payable and accrued expenses....... 601 (615) (252)
Change in other liabilities........................... 633 382 186
-------- -------- --------
Net cash provided by operating activities.................. 4,898 2,716 1,220
-------- -------- --------
INVESTING ACTIVITIES:
Investments in real estate............................... (81,173) (28,009) (11,552)
Proceeds from sales of real estate investments........... 7,914 8,289 21,637
-------- -------- --------
Net cash provided (used) by investing activities........... (73,259) (19,720) 10,085
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from bank loan.................................. 47,100 36,138 5,221
Repayment of bank loan................................... (26,250) (17,359) (6,000)
Issuance of common stock................................. 64 -- --
Net proceeds from sale of preferred stock................ 46,369 -- --
Redemption of rights..................................... (60) -- --
Repayment of mortgage loan............................... -- -- (5,113)
Payment of dividends..................................... (2,568) (1,972) (658)
-------- -------- --------
Net cash provided (used) by financing activities........... 64,655 16,807 (6,550)
-------- -------- --------
Net increase (decrease) in cash............................ (3,706) (197) 4,755
Cash at beginning of year.................................. 4,733 4,930 175
-------- -------- --------
Cash at end of year........................................ $ 1,027 $ 4,733 $ 4,930
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
a) Non-cash investing and financing activities:
Debt incurred in connection with real estate
acquired............................................ $ 3,000 $ 600 $ 1,500
b) Cash paid during the year for interest.................. $ 1,283 $ 585 $ 656
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 128
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Bedford Property Investors Inc. (the Company) is an equity real estate
investment trust with investments primarily in industrial and suburban office
properties concentrated in the Western United States. On July 1, 1993, the
Company (formerly known as ICM Property Investors Incorporated) reincorporated
from the state of Delaware to the state of Maryland under a new name, Bedford
Property Investors, Inc. As of July 1, 1993 the Company's Common Stock traded
under the symbol "BED" on both the New York and Pacific Stock Exchanges.
Concurrent with the reincorporation, the number of authorized shares of
Convertible Preferred Stock was increased from 1,000,000 shares to 10,000,000
shares and the number of authorized shares of Common Stock was increased from
10,000,000 to 30,000,000 shares. Also, the par value of both the Preferred and
Common Stock was reduced from $1.00 to $0.01 per share and Treasury Stock was
eliminated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bedford
Property Investors, Inc., and its wholly-owned subsidiaries. As of May 31, 1993,
the Company no longer had investments in unconsolidated joint venture
partnerships. All significant inter-entity balances have been eliminated in
consolidation.
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
financial statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
FEDERAL INCOME TAXES
The Company has qualified as a real estate investment trust under Sections
856 to 860 of the Internal Revenue Code of 1986, as amended ("the Code"). A real
estate investment trust is generally not subject to Federal income tax on that
portion of its real estate investment trust taxable income ("Taxable Income")
which is distributed to its stockholders, provided that at least 95% of Taxable
Income is distributed. No provision for Federal income taxes has been made in
the consolidated financial statements, as the Company believes it is in
compliance with the Code.
Taxable income differs from net income for financial reporting purposes
primarily because of the different methods of accounting for depreciation. As of
December 31, 1995, for Federal income tax purposes, the Company had an ordinary
loss carry forward of approximately $39,720,000 and a capital loss carry forward
of approximately $15,195,000. All dividend distributions made for 1995 were
classified as return of capital for Federal income tax purposes.
REAL ESTATE INVESTMENTS
Buildings and improvements are carried at cost less accumulated
depreciation. Buildings are depreciated on a straight-line basis over 45 years.
Upon the acquisition of an investment by the Company, acquisition related costs
are added to the carrying cost of that investment. These costs are being
depreciated over the useful lives of the buildings. Leasing commissions and
improvements to tenants' space incurred subsequent to the acquisition are
amortized over the terms of the respective leases. Expenditures for repairs and
maintenance, which do not add to the value or prolong the useful life of a
property, are expensed as incurred. When the Company concludes that the recovery
of the carrying value of a real estate investment is permanently impaired, it
reduces such carrying value to the amount deemed recoverable. Investments which
have been classified as offered for sale are written down to estimated net
realizable value if net realizable value is less than the carrying amount of the
investment.
F-12
<PAGE> 129
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted, effective January 1, 1996, Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of (FAS 121). Under the provisions of
FAS 121, depreciation will not be recorded on properties held for sale. The
Company believes that adoption of FAS 121 will not have a material impact on the
Company's 1996 financial statements.
INCOME RECOGNITION
Rental income from operating leases is recognized in income on a
straight-line basis over the period of the related lease agreement. The
aggregate rental income exceeded contractual rentals by $377,000 and $238,000
for 1995 and 1994, respectively.
PER SHARE DATA
Per share data are based on the weighted average number of common and
common equivalent shares outstanding during the year. Stock options issued under
the Company's stock option plans are considered Common Stock equivalents and are
included in the calculation of per share data if, upon exercise, they would have
a dilutive effect. Dividends accrued on the $50,000,000, Series A Convertible
Preferred Stock are deducted from net income for purposes of determining net
income applicable to common stockholders.
NOTE 2 -- REAL ESTATE INVESTMENTS
The following table sets forth the Company's real estate investments as of
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
LESS
ACCUMULATED
LAND BUILDING DEPRECIATION TOTAL
------- -------- ----------- --------
<S> <C> <C> <C> <C>
INDUSTRIAL
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Building 3
Contra Costa Diablo Industrial Park,
Concord.................................... $ 495 $ 1,230 $ 138 $ 1,587
Building 8
Contra Costa Diablo Industrial Park,
Concord.................................... 877 1,551 175 2,253
Building 18
Mason Industrial Park, Concord................ 610 1,305 155 1,760
Milpitas Town Center, Milpitas.................. 1,935 5,284 139 7,080
Auburn Court, Fremont........................... 1,410 2,506 2 3,914
Westinghouse Drive, Fremont..................... 270 906 1 1,175
350 E. Plumeria Drive, San Jose................. 3,683 4,783 27 8,439
301 East Grand, South San Francisco............. 2,064 971 1 3,034
342 Allerton, South San Francisco............... 2,549 1,563 1 4,111
400 Grandview, South San Francisco.............. 3,289 3,563 3 6,849
410 Allerton, South San Francisco............... 1,352 901 1 2,252
417 Eccles, South San Francisco................. 659 517 -- 1,176
------ ------ ------- --------
Subtotal................................... 19,193 25,080 643 43,630
------ ------ ------- --------
GREATER LOS ANGELES AREA, CALIFORNIA
Dupont Industrial Center, Ontario............... 3,588 6,142 251 9,479
3002 Dow Business Center, Tustin................ 4,301 7,451 14 11,738
------ ------ ------- --------
Subtotal................................... $ 7,889 $ 13,593 $ 265 $ 21,217
------ ------ ------- --------
</TABLE>
F-13
<PAGE> 130
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
LESS
ACCUMULATED
LAND BUILDING DEPRECIATION TOTAL
------- -------- ----------- --------
<S> <C> <C> <C> <C>
DENVER, COLORADO
Bryant St. Annex, Denver........................ $ 493 $ 877 $ 1 $ 1,369
Bryant St. Quad, Denver......................... 1,412 2,208 2 3,618
------ ------ ------- --------
Subtotal................................... 1,905 3,085 3 4,987
------ ------ ------- --------
MINNEAPOLIS/ST. PAUL, MINNESOTA
St. Paul Business Center -- East, Maplewood..... 764 1,783 2 2,545
St. Paul Business Center -- West, Maplewood..... 1,232 2,391 2 3,621
------ ------ ------- --------
Subtotal................................... 1,996 4,174 4 6,166
------ ------ ------- --------
GREATER PORTLAND AREA, OREGON
Twin Oaks Tech. Center, Beaverton............... 1,464 4,902 4 6,362
Twin Oaks Business Center, Beaverton............ 1,179 2,886 3 4,062
------ ------ ------- --------
Subtotal................................... 2,643 7,788 7 10,424
------ ------ ------- --------
KANSAS CITY, KANSAS
Ninety-Ninth Street #3, Lenexa.................. 360 2,172 244 2,288
Ninety-Ninth Street #1, Lenexa.................. 410 1,571 9 1,972
Ninety-Ninth Street #2, Lenexa.................. 183 564 3 744
Lackman Business Center, Lenexa................. 628 1,663 9 2,282
------ ------ ------- --------
Subtotal................................... 1,581 5,970 265 7,286
------ ------ ------- --------
Total Industrial........................... 35,207 59,690 1,187 93,710
------ ------ ------- --------
SUBURBAN OFFICE
GREATER LOS ANGELES AREA, CALIFORNIA
1000 Town Center Drive, Oxnard.................. 1,785 4,743 373 6,155
Mariner Court, Torrance......................... 3,221 4,528 219 7,530
------ ------ ------- --------
Subtotal................................... 5,006 9,271 592 13,685
------ ------ ------- --------
SALT LAKE CITY, UTAH
Woodlands Tower II, Salt Lake City.............. 945 6,137 364 6,718
KANSAS CITY, KANSAS
6600 College Blvd., Overland Park............... 2,518 3,982 22 6,478
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Village Green, Lafayette........................ 743 1,423 51 2,115
------ ------ ------- --------
Total Suburban Office...................... 9,212 20,813 1,029 28,996
------ ------ ------- --------
RETAIL
Academy Place Shopping Center, Colorado
Springs....................................... 2,880 3,381 3 6,258
------ ------ ------- --------
TOTAL........................................... $47,299 $ 83,884 $ 2,219 $128,964
====== ====== ======= ========
</TABLE>
UNIVERSITY TOWER
During the third quarter of 1992, the Company decided to offer University
Tower for sale. In anticipation of such sale, the Company wrote down its
investment in this property by $3,200,000 in 1992. On August 18,
F-14
<PAGE> 131
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1993, the property was sold for a cash price of $15,200,000 which includes the
reimbursement of tenant relocation costs of $300,000, resulting in a gain of
$407,000.
POINT WEST PLACE
During the fourth quarter of 1992, the Company decided to offer Point West
Place for sale. In anticipation of such sale, the Company wrote down its
investment in this property by $9,290,000 in 1992. On October 1, 1993, the
property was sold for a cash price of $7,180,000, resulting in a gain of
$493,000.
TEXAS BANK NORTH BUILDING
During the fourth quarter of 1992, the Company decided to offer the Texas
Bank North Building for sale. In anticipation of such sale, the Company wrote
down its investment in this property by $3,631,000. In December, 1993, the
Company entered into a contract to sell the Texas Bank North Building for a cash
sale price of $8,500,000. The sale was completed on January 14, 1994 and
resulted in a gain of $1,193,000.
MARINER COURT
The property, a suburban three-story office building located in Torrance,
California, was purchased for $7,500,000 or $71 per square foot on January 5,
1994. The Company recorded acquisition costs of $113,000 paid to Peter B.
Bedford, Chairman of the Board and Chief Executive Officer of the Company (see
Note 5).
DUPONT INDUSTRIAL CENTER
The property, a three-building industrial complex located in Ontario,
California, was purchased for $9,750,000 or $22 per square foot on May 24, 1994.
The Company recorded acquisition costs of $146,000 paid to Mr. Bedford. Because
the property was only 68% leased at the time of purchase, the purchase contract
established a rental income guarantee fund of $400,000 which was disbursed to
the Company until at least 90% of the space was leased. At December 31, 1994,
the rental income guarantee fund was terminated since the property was 91%
leased. The Company had received $264,000 of the rental income guarantee fund.
This amount has been accounted for as a reduction in the cost of the property.
VILLAGE GREEN
The property, a suburban three-building office complex located in
Lafayette, California, was purchased for $1,792,000 or $106 per square foot on
July 7, 1994. The Company recorded acquisition costs of $27,000 paid to Mr.
Bedford.
MILPITAS TOWN CENTER
The property, a suburban two-building research and development complex
located in Milpitas, California, was purchased for $6,320,000 or $62 per square
foot on August 11, 1994. The Company recorded acquisition costs of $95,000 paid
to Mr. Bedford. The property includes a 3.1 acre parcel of land on which the
Company is developing a 45,090 square foot research and development facility.
350 EAST PLUMERIA DRIVE
The property, a suburban research and development facility located in San
Jose, California, was purchased for $8,325,000 or $58 per square foot on
September 19, 1995. The Company also recorded acquisition costs of $125,000 paid
to Bedford Acquisitions, Inc. ("BAI"), a company wholly-owned by Mr. Bedford
(see Note 5).
F-15
<PAGE> 132
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LACKMAN BUSINESS CENTER
The property, a single-story service center industrial project located in
Lenexa, Kansas, was purchased for $2,250,000 or $49 per square foot on September
19, 1995. The Company also recorded acquisition costs of $34,000 paid to BAI.
NINETY-NINTH STREET BUILDINGS 1 AND 2
The properties, two service industrial buildings located in Lenexa, Kansas,
were purchased for $2,685,000 or $55 per square foot on September 20, 1995. The
Company also recorded acquisition costs of $40,000 paid to BAI.
CODY STREET PARK, BUILDING 6
In the third quarter 1995, the Company decided to sell the Cody Street
Park, Building 6. The sale was completed on September 20, 1995, and resulted in
a loss of $12,000.
6600 COLLEGE BOULEVARD
The property, a suburban service center industrial complex located in
Overland Park, Kansas, was purchased for $6,360,000 or $80 per square foot, on
October 6, 1995. The property was acquired from AEW #25 Trust, an affiliate of
BED Preferred No. 1 Limited Partnership which recently purchased $50 million of
the Company's Series A Convertible Preferred Stock. The directors of the Company
who are affiliated with BED Preferred No. 1 Limited Partnership, however, played
no role in this acquisition. The Company also recorded acquisition costs of
$95,000 paid to BAI.
IBM BUILDING
During 1995, the Company continued to offer for sale the IBM Building
located in Jackson, Mississippi. This property was first offered for sale in
1991, at which time the Company's investment in the property was written down by
$2,113,000. On October 2, 1995, the Company completed the sale of the IBM
Building for a cash sale price of $6,500,000, resulting in a loss of $630,000.
3002 DOW BUSINESS CENTER
The property, a five-building industrial project located in Tustin,
California, was purchased for $11,500,000 or $60 per square foot on December 5,
1995. The Company also recorded acquisition costs of $172,500 paid to BAI.
THE LANDSING PACIFIC PORTFOLIO
On December 14, 1995, the Company acquired the Landsing Pacific Portfolio
which consists of thirteen industrial properties and one retail property
aggregating approximately one million rentable square feet located in Maplewood,
Minnesota; Denver and Colorado Springs, Colorado; South San Francisco and
Fremont, California; and Beaverton, Oregon. The Company paid $49,700,000 for the
Landsing Pacific Portfolio or $50 per square foot. The acquisition was financed
with $4,000,000 cash, borrowings of $42,700,000 under the Company's credit
facility and a $3,000,000 payable secured by a letter of credit due one year
from the date of issuance. The Company also recorded acquisition costs of
$594,000 paid to BAI.
The Landsing Pacific Portfolio comprised substantially all of the real
estate assets of the Landsing Pacific Fund, Inc., a publicly-traded REIT based
in San Mateo, California. At all times relevant to the transaction, Martin I.
Zankel, a director and stockholder of the Company, was Chairman of the Board of
Directors, Chief
F-16
<PAGE> 133
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Executive Officer and President of the Landsing Pacific Fund, Inc. Mr. Zankel
had no role on behalf of the Company in this acquisition.
The Company internally manages the majority of its properties and maintains
centralized financial record-keeping. For all the properties located outside of
California, the Company has subcontracted on-site maintenance to local firms.
NOTE 3 -- UNCONSOLIDATED JOINT VENTURE PARTNERSHIPS
EDISON SQUARE
On May 31, 1993, the Company sold its partnership interests in the three
Edison Square properties in exchange for a note receivable of $300,000 with an
interest rate of 8% payable quarterly in July, October, January, and April until
May 31, 1998, at which time the note matures. The sale of the Company's interest
in the three unconsolidated joint venture partnerships resulted in a gain of
$2,686,000.
NOTE 4 -- LEASES
Minimum future rental receipts at December 31, 1995 are as follows (in
thousands):
<TABLE>
<S> <C>
1996............................................. $17,475
1997............................................. 13,963
1998............................................. 9,893
1999............................................. 7,112
2000............................................. 4,146
Thereafter....................................... 3,448
</TABLE>
The total minimum future rental payments shown above do not include tenants'
obligations for reimbursement of operating expenses or taxes as provided by the
terms of certain leases.
NOTE 5 -- RELATED PARTY TRANSACTIONS
Due to the Company's limited financial resources, its activities relating
to the acquisition of new properties and debt and equity financings are
currently performed by BAI pursuant to a written contract dated January 1, 1995.
The contract provides that BAI is obligated to provide services to the Company
with respect to the Company's acquisition and financing activities, and that BAI
is responsible for the payment of its expenses incurred in connection therewith.
The contract provides that BAI is to be paid a fee in an amount equal to the
lesser of (i) 1 1/2% of the gross amount raised in financings or the aggregated
purchase price of the property for acquisitions, or (ii) an amount equal to (a)
the aggregate amount of expenses funded by BAI through the time of such
acquisition or financing minus (b) the aggregate amount of fees previously paid
to BAI pursuant to such arrangement. In no event will the aggregate amount of
fees paid to BAI exceed the aggregate amount of costs funded by BAI. The
agreement with BAI has a term of one year, is renewable at the option of the
Company for additional one-year terms, and will expire no later than January 1,
1998.
From February 1993 through December 1994, the Company's activities relating
to debt and equity financings and the acquisition of new properties were handled
under arrangements similar to the current arrangement with BAI through BPI
Acquisitions, a separate division within the Company. This division operated
under an arrangement with Mr. Bedford whereby he provided acquisitions and
financing personnel, allocable overhead costs and the costs of all due diligence
conducted prior to an acquisition. Upon the completion of a financing or the
acquisition of a property, Mr. Bedford was paid a fee by the Company
substantially identical to that described above. In no event could the aggregate
amount of fees paid to Mr. Bedford exceed the aggregate amount of costs funded
by Mr. Bedford.
F-17
<PAGE> 134
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1995, the Company had paid Mr. Bedford and BAI an
aggregate of $3,046,000 for acquisition and financing activities performed since
February 1993 pursuant to the foregoing arrangements. The Company believes that
since the fees charged under the foregoing arrangements (i) have been and
continue to be comparable to those charged by other sponsors of real estate
investment entities or other third party service providers and (ii) have been
and continue to be charged only for services on acquired properties or completed
financings, such fees were and continue to be properly includable in direct
acquisition costs and capitalized as part of the asset or financing activities.
The Company is leasing 2,400 square feet of industrial space on a
month-to-month basis at a market rental rate of $1,288 per month to a company
wholly owned by Mr. Bedford.
NOTE 6 -- STOCK OPTION PLANS
A total of 1,800,000 shares of the Company's Common Stock have been
reserved for issuance under the Employee Stock Option Plan (the "Employee
Plan"). The Employee Plan expires by its own terms in 2003. The Employee Plan
provides for non-qualified stock options, incentive stock options and stock
appreciation rights. Stock appreciation rights may only be granted in
conjunction with stock options and entitle the holder to receive the difference
between the fair market value and the exercise price of the Common Stock which
would be receivable upon exercise of the underlying option. The exercise of a
stock appreciation right results in the termination of the related option on a
share-for-share basis.
The Employee Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms of options granted, including the
exercise price, the number of shares subject to the option, and the
exercisability of the options. Options granted to employees are immediately
exercisable upon vesting, but typically vest over a four-year period.
The Employee Plan requires that the exercise price of incentive stock
options be at least equal to the fair market value of such shares on the date of
grant and that the exercise price of non-qualified stock options be equal to at
least 85% of the fair market value of such shares on the date of the grant. The
maximum term of options granted is ten years.
At December 31, 1995, options issued under the Employee Plan to purchase
187,500 shares were outstanding at a weighted average exercise price of $6.39
per share, of which 51,750 options were exercisable. Options to purchase 113,750
shares were exercised in 1995, at a weighted average exercise price of $5.57. At
December 31, 1995 1,404,750 shares were available for issuance under the
Employee Plan. Stock appreciation rights were outstanding in connection with
options to purchase an aggregate of 10,000 shares.
A total of 500,000 shares of the Company's Common Stock have been reserved
for issuance under the Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan expires by its own terms in 2002. The Directors' Plan provides
for the grant of non-qualified stock options to directors of the Company. The
Directors' Plan contains an automatic grant feature whereby a director receives
a one-time "initial option" to purchase 50,000 shares upon a director's
appointment to the Board of Directors and thereafter receives automatic annual
grants of options to purchase 10,000 shares upon re-election to the Board of
Directors. Options granted are generally exercisable six months from the date of
grant.
The Directors' Plan requires that the exercise price of options be equal to
the fair market value of the underlying shares on the date of grant. The maximum
term of options granted is five years.
At December 31, 1995, options issued under the Director's Plan to purchase
500,000 shares were outstanding at a weighted average exercise price of $3.38
per share, of which 350,000 options were exercisable. No options had been
exercised under the Directors' Plan.
In September 1995, the Company established a Management Stock Acquisition
program. Under the program, options exercised by key members of management
within thirty days of the grant date may be
F-18
<PAGE> 135
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exercised either in cash or with a note payable to the Company. Such note bears
interest at 7.5% or the Applicable Federal Rate as defined by the Internal
Revenue Service, whichever is higher. The note is due in five years or within
ninety days from termination of employment, with interest payable quarterly.
During 1995, options for 100,000 shares of Common Stock were exercised in
exchange for two notes payable to the Company. The notes, of $287,500 each, bear
interest at 7.5%. The unpaid balance of the notes is included in the
accompanying consolidated balance sheet as a reduction of additional paid-in
capital.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).
The Company will adopt the disclosure requirements of FAS 123 in 1996 but
continue to account for its stock option plans under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees as permitted under FAS
123.
NOTE 7 -- STOCKHOLDER RIGHTS PLAN
On July 18, 1989, the Company's Board of Directors adopted a Stockholder
Rights Plan and declared a dividend distribution of one Right for each share of
the Company's Common Stock outstanding on July 31, 1989. On September 29, 1995,
the Rights were redeemed by the Company at a price of $0.01 per Right.
NOTE 8 -- BANK LOAN PAYABLE
In December 1993, the Company concluded an agreement with Bank of America
for a $20 million revolving line of credit for real estate acquisitions. In
August 1994, the maximum commitment amount of the facility was increased from
$20 million to $23 million. On September 18, 1995, outstanding borrowings under
the facility were repaid and the facility was amended and restated to $60
million. The amended facility, which matures on September 1, 1998, bears
interest at a floating rate equal to either the lender's published "reference
rate" plus 0.50% or its "offshore rate" (similar to LIBOR) plus 2.25%. The
credit facility is secured by mortgages on 23 Properties (which Properties
collectively accounted for approximately 81% of the Company's Annualized Base
Rent as of December 31, 1995), together with the rental proceeds from such
properties. As of December 31, 1995, these properties comprised approximately
76% of the Company's total assets. At December 31, 1995, the Company had
outstanding borrowings of $43,250,000 and letters of credit aggregating
$3,875,000 (including letters of credit totalling $875,000 expiring in March
1996, and a letter of credit of $3,000,000 securing a payable due December 1996
relating to the acquisition of the Landsing Pacific Portfolio). The credit
facility contains various restrictive covenants including, among other things, a
covenant limiting quarterly dividends to 90% of average Funds From Operations
for the immediately preceding two fiscal quarters.
The daily weighted average amount owing to the bank was $15,003,000 and
$8,954,000 in 1995 and 1994, respectively. The weighted average interest rates
in these periods were 8.65% and 8.1%, respectively. The effective interest rate
at December 31, 1995 was 8.14%.
The carrying amount of the above loan approximates fair value as the loan
is at current market rates.
NOTE 9 -- REDEEMABLE PREFERRED STOCK
On September 18, 1995, the Company issued and sold 8,333,334 shares of
Series A Convertible Preferred Stock (the "Convertible Preferred Stock") for
$6.00 per share. Holders of the Convertible Preferred Stock are entitled to
cumulative quarterly dividends in cash in an amount equal to the greater of (i)
$0.135 per share or (ii) the dividends payable in such quarter on the Common
Stock into which the Convertible Preferred Stock is convertible plus, in both
cases, the accumulated but unpaid dividends on the Convertible Preferred Stock.
Dividends may be declared and paid on shares of Common Stock only if full
cumulative dividends have been paid or authorized and set apart on all shares of
Convertible Preferred Stock. The shares of Convertible Preferred Stock are
convertible at any time after September 18, 1997 into an equal number of common
shares. The conversion rate may be adjusted under certain conditions.
F-19
<PAGE> 136
BEDFORD PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Convertible Preferred Stock is redeemable at the option of the Company:
(i) after September 18, 1997 but before September 18, 2000, in whole at a
redemption price providing an internal rate of return to the holder of
Convertible Preferred Stock of 25% per annum for the period from September 18,
1995 to September 18, 1997 and 20% per annum from and after September 18, 1997
until the date of redemption, but not beyond September 18, 2000; (i) after
September 18, 2000, in whole or in part at a redemption price of $6.30 per
share, declining $0.06 per share per year for each of the next five years. Prior
to any redemption by the Company, the holders of the Convertible Preferred Stock
may convert their shares of the Convertible Preferred Stock to shares of Common
Stock.
Redemption of the Convertible Preferred Stock is required, at the option of
the preferred shareholders, after one year at a redemption price of $6.00 per
share plus accrued and unpaid dividends upon the occurrence of any of the
following: failure to pay preferred dividends for two consecutive quarters;
default on payment of certain debt; failure to obtain certain required consents
of the preferred shareholders; or failure to meet certain financial targets.
In the event of liquidation, the holders of the Convertible Preferred Stock
are entitled to receive $6.30 per share plus any accrued and unpaid dividends.
NOTE 10 -- QUARTERLY FINANCIAL DATA-UNAUDITED
The following is a summary of quarterly results of operations for 1995 and
1994 (in thousands of dollars, except per share data):
<TABLE>
<CAPTION>
1995 QUARTERS ENDED 3/31 6/30 9/30 12/31
- ------------------------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Rental revenues....................................... $2,662 $2,616 $2,774 $3,643
Income from property operations....................... 1,427 1,366 1,369(2) 2,200
Income before loss on sale............................ 606 616 669(2) 1,646
Net income............................................ 606 616 27 1,646
Net income (loss) applicable to common
stockholders(1)..................................... 606 616 (133) 518
Net income (loss) per common and common equivalent
share(1):........................................... $ 0.10 $ 0.10 $(0.02) $ 0.08
</TABLE>
<TABLE>
<CAPTION>
1994 QUARTERS ENDED 3/31 6/30 9/30 12/31
- ------------------------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Rental revenues....................................... $1,856 $1,976 $2,473 $2,849
Income from property operations....................... 742 995 1,237 1,650
Income before gain on sale............................ 396 565 549 906
Net income............................................ 1,589 565 549 906
Net income per common and common equivalent share:.... 0.26 0.09 0.09 0.15
</TABLE>
- ---------------
(1) Reflects dividends of $163 and $1,125 for the third and fourth quarters of
1995, respectively, on $50,000 of Series A Convertible Preferred Stock
issued on September 18, 1995.
(2) These amounts were reported in the third quarter of 1995, net of a provision
for loss on sale of real estate investment of $630.
NOTE 11 -- REVERSE STOCK SPLIT
On March 28, 1996 stockholder approval was received at a Special Meeting of
stockholders for a one-for-two reverse Common Stock split. Effective on March
29, 1996, the Company's Board of Directors implemented the split, and
accordingly, as of that date there were 15,000,000 shares of Common Stock
authorized and 3,045,325 common shares outstanding. Par value of the Common
Stock became $0.02 per share at that date. The accompanying financial statements
as of December 31, 1995 have not been adjusted to reflect this change.
F-20
<PAGE> 137
BEDFORD PROPERTY INVESTORS, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
INITIAL COST TO
COMPANY GROSS AMOUNT
---------------- COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED ---------------------- DEPRECIABLE
BUILDINGS & SUBSEQUENT TO ACCUMULATED DATE DATE LIFE
DESCRIPTION LAND IMPROVEMENT ACQUISITION LAND BUILDING TOTAL DEPRECIATION CONSTRUCTED ACQUIRED (YEARS)
- -------------- -------------------- ------------- ------- -------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
BUILDINGS:
GREATER SAN
FRANCISCO
AREA,
CALIFORNIA
Building 3
Contra Costa
Diablo
Industrial
Park,
Concord... $ 495 $ 1,159 $ 71 $ 495 $ 1,230 $ 1,725 $ 138 1983 12/90 45
Building 8
Contra Costa
Diablo
Industrial
Park,
Concord... 877 1,548 3 877 1,551 2,428 175 1981 12/90 45
Building 18
Mason
Industrial
Park,
Concord... 610 1,265 40 610 1,305 1,915 155 1984 12/90 45
Milpitas Town
Center,
Milpitas.... 1,899 4,421 899 1,935 5,284 7,219 139 1983 8/94 45
Auburn Court,
Fremont..... 1,391 2,473 52 1,410 2,506 3,916 2 1983 12/95 45
Westinghouse
Drive,
Fremont..... 267 893 16 270 906 1,176 1 1982 12/95 45
350 E.
Plumeria
Drive, San
Jose........ 3,621 4,704 141 3,683 4,783 8,466 27 1983 9/95 45
301 East
Grand, South
San
Francisco... 2,036 959 40 2,064 971 3,035 1 1974 12/95 45
342 Allerton,
South San
Francisco... 2,516 1,542 54 2,549 1,563 4,112 1 1969 12/95 45
400 Grandview,
South San
Francisco... 3,246 3,517 89 3,289 3,563 6,852 3 1976 12/95 45
410 Allerton,
South San
Francisco... 1,333 889 31 1,352 901 2,253 1 1970 12/95 45
417 Eccles,
South San
Francisco... 649 510 17 659 517 1,176 -- 1964 12/95 45
GREATER LOS
ANGELES
AREA,
CALIFORNIA
Dupont
Industrial
Center,
Ontario..... 3,588 6,162 (20)(F) 3,588 6,142 9,730 251 1989 5/94 45
3002 Dow
Business
Center,
Tustin...... 4,209 7,291 252 4,301 7,451 11,752 14 1987-89 12/95 45
DENVER,
COLORADO
Bryant Street
Annex,
Denver...... 487 866 17 493 877 1,370 1 1968 12/95 45
Bryant Street
Quad,
Denver...... 1,394 2,181 45 1,412 2,208 3,620 2 1971-73 12/95 45
MINNEAPOLIS/ST.
PAUL,
MINNESOTA
St. Paul
Business
Center -- East,
Maplewood... 754 1,758 35 764 1,783 2,547 2 1984 12/95 45
St. Paul
Business
Center -- West,
Maplewood... 1,215 2,359 49 1,232 2,391 3,623 2 1981 12/95 45
GREATER
PORTLAND
AREA, OREGON
Twin Oaks
Tech.
Center,
Beaverton... 1,444 4,836 86 1,464 4,902 6,366 4 1984 12/95 45
Twin Oaks
Business
Park,
Beaverton... 1,163 2,847 55 1,179 2,886 4,065 3 1984 12/95 45
KANSAS CITY,
KANSAS
Building 3
Ninety-Ninth
Street
Park,
Lenexa.... 360 2,167 5 360 2,172 2,532 244 1990 12/90 45
Building 1
Ninety-Ninth
Street
Park,
Lenexa.... 404 1,547 30 410 1,571 1,981 9 1988 9/95 45
Building 2
Ninety-Ninth
Street
Park,
Lenexa.... 180 555 12 183 564 747 3 1988 9/95 45
Lackman
Business
Center,
Lenexa...... 619 1,631 41 628 1,663 2,291 9 1985 9/95 45
</TABLE>
F-21
<PAGE> 138
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
INITIAL COST TO
COMPANY GROSS AMOUNT
---------------- COST CARRIED AT CLOSE OF PERIOD
CAPITALIZED ---------------------- DEPRECIABLE
BUILDINGS & SUBSEQUENT TO ACCUMULATED DATE DATE LIFE
DESCRIPTION LAND IMPROVEMENT ACQUISITION LAND BUILDING TOTAL DEPRECIATION CONSTRUCTED ACQUIRED (YEARS)
- -------------- -------------------- ------------- ------- -------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUBURBAN
OFFICE
PROPERTIES
GREATER LOS
ANGELES
AREA,
CALIFORNIA
1000 Town
Center
Drive,
Oxnard...... 1,785 3,315 1,428 1,785 4,743 6,528 373 1990 12/93 45
Mariner Court,
Torrance.... 3,221 4,279 249 3,221 4,528 7,749 219 1989 1/94 45
SALT LAKE
CITY, UTAH
Woodlands
Tower II,
Salt Lake
City........ 945 5,805 332 945 6,137 7,082 364 1990 8/93 45
KANSAS CITY,
KANSAS
6600 College
Blvd.,
Overland
Park........ 2,480 3,880 140 2,518 3,982 6,500 22 1982-83 10/95 45
GREATER SAN
FRANCISCO
BAY AREA,
CALIFORNIA
Village Green,
Lafayette,
CA.......... 547 1,245 374 743 1,423 2,166 51 1983 7/94 45
RETAIL
PROPERTIES
Academy Place
Shopping
Center,
Colorado
Springs,
CO.......... 2,844 3,339 78 2,880 3,381 6,261 3 1980-82 12/95 45
------ ------ ----- ------ ------ ------- -----
$46,579 $79,943 $ 4,661 $47,299 $83,884 $131,183 $ 2,219
====== ====== ===== ====== ====== ======= =====
(A) (B)
</TABLE>
F-22
<PAGE> 139
NOTES TO SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
(A) An analysis of the activity in real estate for the years ended December 31,
1995, 1994 and 1993 is presented below:
<TABLE>
<CAPTION>
INVESTMENT ACCUMULATED DEPRECIATION
------------------------------ ---------------------------
1995 1994 1993 1995 1994 1993
-------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD............... $ 58,203 $41,225 $53,874 $3,150 $5,263 $ 8,321
Add (deduct):
Sale of University Tower (C)............... -- -- (15,946) -- -- (1,470)
Acquisition of Woodlands Tower II.......... -- -- 6,884 -- -- --
Sale of Point West Place (E)............... -- -- (9,505) -- -- (3,037)
Acquisition of 1000 Town Center Drive...... -- -- 5,190 -- -- --
Sale of Texas Bank North (D)............... -- (10,131) -- -- (3,035) --
Acquisition of Mariner Court............... -- 7,500 -- -- -- --
Acquisition of Dupont Industrial Center.... -- 9,750 -- -- -- --
Acquisition of Village Green............... -- 1,792 -- -- -- --
Acquisition of Milpitas Town Center........ -- 6,320 -- -- -- --
Acquisition of Lackman Business Center..... 2,250 -- -- -- -- --
Acquisition of 350 E. Plumeria Drive....... 8,325 -- -- -- -- --
Sale of Cody Street Park, Building 6 (G)... (1,639) -- -- (203) -- --
Acquisition of Ninety-Ninth Street,
Building 1............................... 1,951 -- -- -- -- --
Acquisition of Ninety-Ninth Street,
Building 2............................... 735 -- -- -- -- --
Sale of IBM Building (H)................... (8,325) -- -- (2,024) -- --
Acquisition of 6600 College Boulevard...... 6,360 -- -- -- -- --
Acquisition of 3002 Dow Business Center.... 11,500 -- -- -- -- --
Acquisition of Landsing Pacific
Portfolio................................ 49,708 -- -- -- -- --
Capitalized costs.......................... 2,115 1,747 728 -- -- --
Depreciation............................... -- -- -- 1,296 922... 1,449
-------- ------- ------- ------ ------ ------
BALANCE AT END OF PERIOD..................... $131,183 $58,203 $41,225 $2,219 $3,150 $ 5,263
</TABLE>
(B) The aggregate cost for Federal income tax purposes is $131,168,000.
(C) On October 2, 1991, the Company acquired its partner's interest in the
University Tower property. As a result of this transaction, the University
Tower investment became wholly owned. In anticipation of proposed sale, the
Company provided a $3,200,000 provision for possible loss related to this
investment in 1992. The property was sold on August 18, 1993.
(D) During 1992, it was decided to offer the Texas Bank North Building for sale.
In anticipation of such sale, the Company wrote down its investment in this
property by $3,631,000 in 1992. The property was sold on January 14, 1994.
(E) During 1992, it was decided to offer Point West Place for sale. In
anticipation of such sale, the Company wrote down its investment in this
property by $9,290,000 in 1992. The property was sold on October 1, 1993.
(F) Rental income guarantee in the amount of $264,000 was received from the
seller and accounted for as a reduction of the cost of the property.
(G) In the third quarter 1995, the Company decided to sell the Cody Street Park,
Building 6. The property was sold on September 20, 1995.
(H) During 1995, the Company continued to offer for sale the IBM Building
located in Jackson, Mississippi. This property was first offered for sale in
1991, at which time the Company's investment in the property was written
down by $2,113,000. The property sold on October 2, 1995.
F-23
<PAGE> 140
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bedford Property Investors, Inc:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the Summary) of the Landsing Pacific Portfolio (the
Property) for the year ended December 31, 1994. The Summary is the
responsibility of management. Our responsibility is to express an opinion on the
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Summary presentation. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying Summary was prepared to comply with the rules and
regulations of the Securities and Exchange Commission and excludes certain
expenses, described in note A, that would not be comparable to those resulting
from the proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, exclusive of
expenses described in note A, of the Landsing Pacific Portfolio for the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
San Francisco, California
November 10, 1995
F-24
<PAGE> 141
THE LANDSING PACIFIC PORTFOLIO
HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues:
Rental income.................................................. $5,803,230
Common area reimbursement...................................... 1,434,574
Other.......................................................... 36,584
----------
7,274,388
----------
Operating expenses:
Real property tax.............................................. 807,850
Repairs and maintenance........................................ 480,572
Utilities...................................................... 207,768
Insurance...................................................... 142,616
Administrative................................................. 76,101
Bad debts and other............................................ 13,734
----------
1,728,641
----------
Operating Income................................................. $5,545,747
==========
</TABLE>
F-25
<PAGE> 142
THE LANDSING PACIFIC PORTFOLIO
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
A. PROPERTY AND BASIS OF ACCOUNTING
The Historical Summary of Gross Income and Direct Operating Expenses has
been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities
and Exchange Commission and relates to the operations of the Landsing Pacific
Portfolio, comprising fourteen properties totalling 1,037,000 rentable square
feet located in Maplewood, Minnesota; Denver and Colorado Springs, Colorado;
South San Francisco and Fremont, California; and Beaverton, Oregon.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees and income taxes as these
expenses would not be comparable to the proposed future operations of the
property.
The acquisition of the property may result in new valuation for purposes of
determining future property tax assessments.
Rental income is recognized on a straight line basis over the term of the
related lease. For 1994, the aggregate rental income exceeded contractual
rentals by $11,441.
B. LEASES
Minimum future rental receipts as of December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
1995............................................... $ 5,470
1996............................................... 4,848
1997............................................... 3,754
1998............................................... 2,231
1999............................................... 1,026
Thereafter......................................... 238
-------
................................................... $17,567
=======
</TABLE>
The minimum future rental payments shown above do not include the tenant's
obligations of the Landsing Pacific Portfolio for reimbursement of operating
expenses, insurance and real estate taxes.
C. ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY
OPERATIONS (UNAUDITED)
Pro forma cash available from operations and pro forma taxable income for
1994 are shown below. Pro forma taxable operating results are derived by
deducting depreciation; however, as a Real Estate Investment Trust (REIT),
Bedford Property Investors, Inc. is not subject to federal income tax if it
qualifies under the Internal Revenue Code ("Code") REIT provisions. That is,
Bedford Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with the provisions
of the Code. Bedford Property Investors, Inc. intends to pay dividends in order
to maintain its REIT status. Dividends paid to the REIT shareholders are
classified as return of capital, dividend income, or capital gains.
<TABLE>
<S> <C>
Revenues(1)...................................................... $7,262,947
Operating expenses............................................... 1,728,641
----------
Cash available from operations................................... 5,534,306
Depreciation expense............................................. 750,136
----------
Taxable income................................................... $4,784,170
==========
</TABLE>
- ---------------
(1) Excludes $11,441 which represents the excess of aggregate rental income on a
straight-line basis over contractual rents.
F-26
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bedford Property Investors, Inc:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the Summary) of 3002 Dow Business Center (the
Property) for the year ended December 31, 1994. The Summary is the
responsibility of management. Our responsibility is to express an opinion on the
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Summary presentation. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying Summary was prepared to comply with the rules and
regulations of the Securities and Exchange Commission and excludes certain
expenses, described in note A, that would not be comparable to those resulting
from the proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, exclusive of
expenses described in note A, of 3002 Dow Business Center for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
January 26, 1996
F-27
<PAGE> 144
3002 DOW BUSINESS CENTER
HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues:
Rental income.................................................................. $1,649,496
Common area reimbursement...................................................... 312,421
Other.......................................................................... 8,703
----------
1,970,620
----------
Operating expenses:
Real property tax.............................................................. 202,000
Repairs and maintenance........................................................ 60,248
Utilities...................................................................... 21,921
Insurance...................................................................... 23,814
Administrative................................................................. 87,429
Bad debts and other............................................................ 73,438
----------
468,850
----------
Operating Income................................................................. $1,501,770
==========
</TABLE>
F-28
<PAGE> 145
3002 DOW BUSINESS CENTER
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
A. PROPERTY AND BASIS OF ACCOUNTING
The Historical Summary of Gross Income and Direct Operating Expenses has
been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities
and Exchange Commission and relates to the operations of 3002 Dow Business
Center, a five-building industrial property located in Tustin, California, with
approximately 192,125 rentable square feet.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees and income taxes as these
expenses would not be comparable to the proposed future operations of the
property.
The acquisition of the property may result in new valuation for purposes of
determining future property tax assessments.
Rental income is recognized on a straight line basis over the term of the
related lease. For 1994, the aggregate rental income exceeded contractual
rentals by $21,097.
B. LEASES
Minimum future rental receipts as of December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
1995................................................ $1,032
1996................................................ 643
1997................................................ 300
1998................................................ 132
1999................................................ 77
Thereafter.......................................... 3
------
$2,187
======
</TABLE>
The minimum future rental payments shown above do not include the tenants'
obligations of 3002 Dow Business Center for reimbursement of operating expenses,
insurance and real estate taxes.
C. ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY
OPERATIONS (UNAUDITED)
Pro forma cash available from operations and pro forma taxable income for
1994 are shown below. Pro forma taxable operating results are derived by
deducting depreciation; however, as a Real Estate Investment Trust (REIT),
Bedford Property Investors, Inc. is not subject to federal income tax if it
qualifies under the Internal Revenue Code ("Code") REIT provisions. That is,
Bedford Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with the provisions
of the Code. Bedford Property Investors, Inc. intends to pay dividends in order
to maintain its REIT status. Dividends paid to the REIT shareholders are
classified as return of capital, dividend income, or capital gains.
<TABLE>
<S> <C>
Revenues(1)...................................................... $1,949,523
Operating expenses............................................... 468,850
----------
Cash available from operations................................... 1,480,673
Depreciation expense............................................. 191,046
----------
Taxable income................................................... $1,289,627
==========
</TABLE>
- ---------------
(1) Excludes $21,097 which represents the excess of aggregate rental income on a
straight-line basis over contractual rents.
F-29
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bedford Property Investors, Inc:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the Summary) of 6600 College Boulevard (the Property)
for the years ended December 31, 1992, 1993 and 1994. The Summary is the
responsibility of management. Our responsibility is to express an opinion on the
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Summary presentation. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying Summary was prepared to comply with the rules and
regulations of the Securities and Exchange Commission and excludes certain
expenses, described in note A, that would not be comparable to those resulting
from the proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, exclusive of
expenses described in note A, of 6600 College Boulevard for the years ended
December 31, 1992, 1993 and 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
December 8, 1995
F-30
<PAGE> 147
6600 COLLEGE BOULEVARD
HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues:
Rental income........................................... $1,044,684 $768,204 $810,472
Common area reimbursement............................... 169,498 148,349 137,015
Other................................................... 2,977 1,187 3,649
-------- -------- --------
1,217,159 917,740 951,136
-------- -------- --------
Operating expenses:
Real property tax....................................... 170,757 127,328 135,211
Repairs and maintenance................................. 66,571 71,876 79,580
Utilities............................................... 4,549 9,891 10,243
Insurance............................................... 5,960 5,610 5,924
Legal and accounting.................................... 4,555 5,070 1,070
Bad debts and other..................................... 1,734 53,130 4,297
-------- -------- --------
254,126 272,905 236,325
-------- -------- --------
Operating Income.......................................... $ 963,033 $644,835 $714,811
======== ======== ========
</TABLE>
F-31
<PAGE> 148
6600 COLLEGE BOULEVARD
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
A. PROPERTY AND BASIS OF ACCOUNTING
The Historical Summary of Gross Income and Direct Operating Expenses has
been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities
and Exchange Commission and relates to the operations of 6600 College Boulevard,
an office complex located in Overland Park, Kansas, with approximately 79,316
rentable square feet.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees and income taxes as these
expenses would not be comparable to the proposed future operations of the
property.
The acquisition of the property may result in new valuation for purposes of
determining future property tax assessments.
Rental income is recognized on a straight line basis over the term of the
related lease. For 1992 and 1994, the aggregate rental income exceeded
contractual rentals by $64,946 and $4,517, respectively. For 1993, the aggregate
contractual rental receipts exceeded rental income by $37,081.
B. LEASES
Minimum future rental receipts as of December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
1995................................................ $ 952
1996................................................ 938
1997................................................ 842
1998................................................ 749
1999................................................ 737
------
$4,218
======
</TABLE>
The minimum future rental payments shown above do not include tenants
obligations for reimbursement of operating expenses, insurance and real estate
taxes.
C. ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY
OPERATIONS (UNAUDITED)
Pro forma cash available from operations and pro forma taxable income for
1992, 1993 and 1994 are shown below. Pro forma taxable operating results are
derived by deducting depreciation; however, as a Real Estate Investment Trust
(REIT), Bedford Property Investors, Inc. is not subject to federal income tax if
it qualifies under the Internal Revenue Code ("Code") REIT provisions. That is,
Bedford Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with the provisions
of the Code. Bedford Property Investors, Inc. intends to pay dividends in order
to maintain its REIT status. Dividends paid to the REIT shareholders are
classified as return of capital, dividend income, or capital gains.
<TABLE>
<CAPTION>
1992 1993 1994
---------- -------- --------
<S> <C> <C> <C>
Revenues(1)....................................... $1,152,213 $954,821 $946,619
Operating expenses................................ 254,126 272,905 236,325
---------- -------- --------
Cash available from operations.................... 898,087 681,916 710,294
Depreciation expense.............................. 101,101 101,101 101,101
---------- -------- --------
Taxable income.................................... $ 796,986 $580,815 $609,193
========== ======== ========
</TABLE>
- ---------------
(1) 1992 and 1994 revenues exclude the excess of aggregate rental income on a
straight-line basis over contractual rents of $64,946 and $4,517,
respectively. 1993 revenues include $37,081 which represents the excess of
the contractual rents over the aggregate rental income on a straight-line
basis.
F-32
<PAGE> 149
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bedford Property Investors, Inc:
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the Summary) of 350 East Plumeria Drive (the
Property) for the year ended December 31, 1994. The Summary is the
responsibility of management. Our responsibility is to express an opinion on the
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Summary is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the Summary. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Summary presentation. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying Summary was prepared to comply with the rules and
regulations of the Securities and Exchange Commission and excludes certain
expenses, described in note A, that would not be comparable to those resulting
from the proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses, exclusive of
expenses described in note A, of 350 East Plumeria Drive for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
October 11, 1995
F-33
<PAGE> 150
350 EAST PLUMERIA DRIVE
HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Revenues:
Rental income.................................................. $ 904,298
Common area reimbursement...................................... 170,864
Other.......................................................... 467
----------
1,075,629
----------
Operating expenses:
Real property tax.............................................. 155,093
Repairs and maintenance........................................ 3,700
Insurance...................................................... 15,771
Administrative................................................. 4,368
----------
178,932
----------
Operating Income................................................. $ 896,697
==========
</TABLE>
F-34
<PAGE> 151
350 EAST PLUMERIA DRIVE
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
A. PROPERTY AND BASIS OF ACCOUNTING
The Historical Summary of Gross Income and Direct Operating Expenses has
been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities
and Exchange Commission and relates to the
operations of 350 East Plumeria Drive, a suburban industrial complex located in
San Jose, California, with approximately 142,620 rentable square feet.
In accordance with Rule 3-14, direct operating expenses are presented
exclusive of depreciation, interest, management fees and income taxes as these
expenses would not be comparable to the proposed future operations of the
property.
The acquisition of the property may result in new valuation for purposes of
determining future property tax assessments.
Rental income is recognized on a straight line basis over the term of the
related lease. For 1994, the aggregate rental income exceeded contractual
rentals by $83,773.
B. LEASES
Minimum future rental receipts as of December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
1995................................................ $ 927
1996................................................ 1,113
1997................................................ 1,199
1998................................................ 1,284
1999................................................ 1,370
Thereafter.......................................... 2,740
------
$8,633
======
</TABLE>
The minimum future rental payments shown above do not include obligations
of 350 East Plumeria Drive's sole tenant under the term of its lease for
reimbursement of operating expenses, insurance and real estate taxes.
C. ESTIMATED TAXABLE OPERATING RESULTS AND CASH TO BE MADE AVAILABLE BY
OPERATIONS (UNAUDITED)
Pro forma cash available from operations and pro forma taxable income for
1994 are shown below. Pro forma taxable operating results are derived by
deducting depreciation; however, as a Real Estate Investment Trust (REIT),
Bedford Property Investors, Inc. is not subject to federal income tax if it
qualifies under the Internal Revenue Code ("Code") REIT provisions. That is,
Bedford Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with the provisions
of the Code. Bedford Property Investors, Inc. intends to pay dividends in order
to maintain its REIT status. Dividends paid to the REIT shareholders are
classified as return of capital, dividend income, or capital gains.
<TABLE>
<S> <C>
Revenues(1)....................................................... $991,856
Operating expenses................................................ 178,932
--------
Cash available from operations.................................... 812,924
Depreciation expense.............................................. 135,894
--------
Taxable income.................................................... $677,030
========
</TABLE>
- ---------------
(1) Excludes $83,773 which represents the excess of aggregate rental income on a
straight-line basis over contractual rents.
F-35
<PAGE> 152
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 13
Recent Activities..................... 27
The Company........................... 29
Business Objectives and Growth
Plans............................... 30
Corporate Strategies.................. 34
Real Estate Market Overview........... 36
Description of the Company's
Markets............................. 39
Use of Proceeds....................... 43
Price Range of Common Stock and
Distribution History................ 43
Distribution Policy................... 44
Capitalization........................ 46
Selected Consolidated Financial and
Operating Data...................... 47
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 49
Business and Properties............... 53
Policies With Respect to Certain
Activities.......................... 70
Management............................ 73
Certain Relationships and Related
Transactions........................ 77
Description of Capital Stock of the
Company............................. 79
Certain Provisions of Maryland Law and
of the Company's Charter and
Bylaws.............................. 88
Federal Income Tax Considerations..... 92
ERISA Considerations.................. 100
Shares Available for Future Sale...... 101
Underwriting.......................... 103
Experts............................... 104
Legal Matters......................... 104
Available Information................. 104
Incorporation of Certain Information
By Reference........................ 105
Glossary.............................. 106
Index to Financial Statements and
Financial Statements Schedule....... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,350,000 SHARES
LOGO
BEDFORD PROPERTY
INVESTORS, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
SMITH BARNEY INC.
ROBERTSON, STEPHENS &
COMPANY
SUTRO & CO. INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 153
BEDFORD PROPERTY INVESTORS
THE COMPANY'S LOGO AND PHOTOGRAPHIC IMAGES OF A NUMBER OF THE COMPANY'S
PROPERTIES ARE INCLUDED HERE, ACCOMPANIED BY CAPTIONS IDENTIFYING THE NAME AND
LOCATION OF SUCH PROPERTIES.
BEDFORD PROPERTY INVESTORS
FOLDOUT INSIDE COVER SHOWS MAP OF UNITED STATES WITH THE LOCATION AND
TYPE OF THE COMPANY'S PROPERTIES AND TARGET MARKETS INDICATED THEREON.
BEDFORD PROPERTY INVESTORS
PHOTOGRAPHIC IMAGES OF A NUMBER OF THE PROPERTIES ARE INCLUDED HERE,
ACCOMPANIED BY CAPTIONS IDENTIFYING THE NAME AND LOCATION OF SUCH PROPERTIES.
<PAGE> 154
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Bedford Property Investors,
Inc. (the "Registrant") in connection with the sale of Common Stock being
registered. All amounts are estimates except the registration fee, the NASD
filing fee and the listing fees for the New York Stock Exchange and the Pacific
Stock Exchange.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 19,993
NASD Filing Fee................................................... 6,279
Legal Fees and Expenses........................................... 225,000
Printing and Engraving Costs...................................... 125,000
Accounting Fees and Expenses...................................... 60,000
Blue Sky Fees and Expenses........................................ 15,000
New York Stock Exchange Listing Fee............................... 13,484
Pacific Stock Exchange Listing Fee................................ 7,500
Miscellaneous..................................................... 2,744
--------
Total................................................... $475,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper personal benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Charter of the
Registrant contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The Charter of the Registrant authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who, while a
director of the Registrant and at the request of the Registrant, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The Bylaws of the
Registrant obligate it, to the maximum extent permitted by Maryland law, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any individual who is a
present or former director or officer of the Registrant or (b) any individual
who, while a director of the Registrant and at the request of the Registrant,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. The Registrant's Charter and Bylaws
also permit the Registrant to indemnify and advance expenses to any person who
served a predecessor of the Registrant in any of the capacities described above
and to any employee or agent of the Registrant or a predecessor of the
Registrant.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Registrant's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, and certain other parties, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the indemnified party was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty,
II-1
<PAGE> 155
(b) the indemnified party actually received an improper personal benefit in
money, property or services or (c) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the MGCL
requires the Registrant, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Registrant
as authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Registrant if it shall ultimately be
determined that the standard of conduct was not met.
Peter B. Bedford's employment agreement provides that the Registrant shall
indemnify Mr. Bedford to the fullest extent permitted by law, provided that the
indemnification applies to Mr. Bedford only so long as he acts in good faith and
is not found to be guilty of recklessness or willful or wanton misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS.
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Purchase Agreement
4.1* -- Specimen Stock Certificate
4.2* -- Charter of the Registrant, as amended
4.3 -- Amended and Restated Bylaws of the Registrant are incorporated herein by
reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the
Registrant's Common Stock
7.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to restrictions upon surplus by
reason of the liquidation preference of the Series A Convertible Preferred Stock
8.1* -- Opinion of Shearman & Sterling as to certain tax matters
10.1 -- The Registrant's Automatic Dividend Reinvestment and Share Purchase Plan, as
adopted by the Registrant, is incorporated herein by reference to Exhibit 4.1 to
Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors
Incorporated dated January 25, 1985
10.2 -- The Registrant's Employee Stock Option Plan, as amended and restated
10.3 -- The Registrant's 1992 Directors' Stock Option Plan, as amended and restated
10.4 -- Amended and Restated Credit Agreement for $60 million revolving line of credit
dated as of September 14, 1995, by and between the Registrant, as Borrower, and
Bank of America National Trust and Savings Association is incorporated herein by
reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
10.5 -- Sale and Option Agreement dated as of August 26, 1995, by and between Kemper
Investors Life Insurance Company, on behalf of itself and Participants (as
defined therein), as Lender, the Registrant, as Purchaser, and Tustin Properties,
as Owner, for 3002 Dow Business Center is incorporated herein by reference to
Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995
</TABLE>
II-2
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
10.6 -- BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings,
Inc., a California corporation and the Registrant is incorporated herein by
reference to Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
10.7 -- Employment Agreement made as of February 17, 1993, by and between ICM Property
Investors Incorporated and Peter B. Bedford is incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form
10-K/A-2 filed on August 8, 1995
10.8 -- Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and
between Peter B. Bedford and the Registrant is incorporated herein by reference
to Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995
10.9 -- Series A Convertible Preferred Stock Purchase Agreement, among the Registrant,
AEW Partners, L.P. and Peter B. Bedford dated as of May 18, 1995, is incorporated
herein by reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995
10.10 -- Amendment No. 1 to the Series A Convertible Preferred Stock Purchase Agreement
dated September 11, 1995, among the Registrant, AEW Partners, L.P. and Peter B.
Bedford, is incorporated herein by reference to Exhibit 10.12 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
10.11 -- Standstill Agreement dated as of September 18, 1995, by and between the
Registrant and Peter B. Bedford is incorporated herein by reference to Exhibit
10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.12 -- Purchase and Sale Agreement dated as of October 19, 1995, between Landsing
Pacific Fund, Inc., a Maryland corporation as Seller, and the Registrant, the
Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed on December 27, 1995
10.13* -- Promissory Note dated March 20, 1996 executed by the Registrant and payable to
the order of the Prudential Insurance Company of America
23.1* -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as
Exhibit 5.1)
23.2* -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as
Exhibit 7.1)
23.3* -- Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1)
23.4* -- Consent of KPMG Peat Marwick LLP, independent auditors
23.5* -- Consent of KPMG Peat Marwick LLP, independent auditors
</TABLE>
- ---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise,
II-3
<PAGE> 157
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1 to
the Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lafayette, State of
California, on the 28th day of March, 1996.
BEDFORD PROPERTY INVESTORS, INC.
By /s/ DONALD. A. LORENZ
------------------------------------
Donald A. Lorenz
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-2 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------------- ---------------
<S> <C> <C>
/s/ PETER B. Chairman, Chief Executive March 28, 1996
BEDFORD Officer and Director
- ----------------------------------- (Principal Executive Officer)
Peter B. Bedford
/s/ DONALD A. LORENZ Executive Vice President and March 28, 1996
- ----------------------------------- Chief Financial Officer
Donald A. Lorenz (Principal Financial Officer)
/s/ HANH KIHARA Controller March 28, 1996
- ----------------------------------- (Principal Accounting Officer)
Hanh Kihara
/s/ CLAUDE M. BALLARD* Director March 28, 1996
- -----------------------------------
Claude M. Ballard
/s/ ANTHONY DOWNS* Director March 28, 1996
- -----------------------------------
Anthony Downs
/s/ THOMAS G. EASTMAN* Director March 28, 1996
- -----------------------------------
Thomas G. Eastman
/s/ ANTHONY M. FRANK* Director March 28, 1996
- -----------------------------------
Anthony M. Frank
/s/ THOMAS H. NOLAN, JR.* Director March 28, 1996
- -----------------------------------
Thomas H. Nolan, Jr.
/s/ MARTIN I. ZANKEL* Director March 28, 1996
- -----------------------------------
Martin I. Zankel
*By:/s/ DONALD A. LORENZ
- -----------------------------------
Donald A. Lorenz
Attorney-in-fact
</TABLE>
II-5
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Purchase Agreement
4.1* -- Specimen Stock Certificate
4.2* -- Charter of the Registrant, as amended
4.3 -- Amended and Restated Bylaws of the Registrant are incorporated herein by
reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the
Registrant's Common Stock
7.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to restrictions upon surplus by
reason of the liquidation preference of the Series A Convertible Preferred Stock
8.1* -- Opinion of Shearman & Sterling as to certain tax matters
10.1 -- The Registrant's Automatic Dividend Reinvestment and Share Purchase Plan, as
adopted by the Registrant, is incorporated herein by reference to Exhibit 4.1 to
Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors
Incorporated dated January 25, 1985
10.2 -- The Registrant's Employee Stock Option Plan, as amended and restated
10.3 -- The Registrant's 1992 Directors' Stock Option Plan, as amended and restated
10.4 -- Amended and Restated Credit Agreement for $60 million revolving line of credit
dated as of September 14, 1995, by and between the Registrant, as Borrower, and
Bank of America National Trust and Savings Association is incorporated herein by
reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
10.5 -- Sale and Option Agreement dated as of August 26, 1995, by and between Kemper
Investors Life Insurance Company, on behalf of itself and Participants (as
defined therein), as Lender, the Registrant, as Purchaser, and Tustin Properties,
as Owner, for 3002 Dow Business Center is incorporated herein by reference to
Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995
10.6 -- BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings,
Inc., a California corporation and the Registrant is incorporated herein by
reference to Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995
10.7 -- Employment Agreement made as of February 17, 1993, by and between ICM Property
Investors Incorporated and Peter B. Bedford is incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form
10-K/A-2 filed on August 8, 1995
10.8 -- Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and
between Peter B. Bedford and the Registrant is incorporated herein by reference
to Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995
10.9 -- Series A Convertible Preferred Stock Purchase Agreement, among the Registrant,
AEW Partners, L.P. and Peter B. Bedford dated as of May 18, 1995, is incorporated
herein by reference to Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995
</TABLE>
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
10.10 -- Amendment No. 1 to the Series A Convertible Preferred Stock Purchase Agreement
dated September 11, 1995, among the Registrant, AEW Partners, L.P. and Peter B.
Bedford, is incorporated herein by reference to Exhibit 10.12 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
10.11 -- Standstill Agreement dated as of September 18, 1995, by and between the
Registrant and Peter B. Bedford is incorporated herein by reference to Exhibit
10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995
10.12 -- Purchase and Sale Agreement dated as of October 19, 1995, between Landsing
Pacific Fund, Inc., a Maryland corporation as Seller, and the Registrant, the
Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed on December 27, 1995
10.13* -- Promissory Note dated March 20, 1996 executed by the Registrant and payable to
the order of the Prudential Insurance Company of America
23.1* -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as
Exhibit 5.1)
23.2* -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as
Exhibit 7.1)
23.3* -- Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1)
23.4* -- Consent of KPMG Peat Marwick LLP, independent auditors
23.5* -- Consent of KPMG Peat Marwick LLP, independent auditors
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 1.1
BEDFORD PROPERTY INVESTORS, INC.
(a Maryland corporation)
3,350,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: March __, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PURCHASE AGREEMENT.............................................................................................. 1
SECTION 1. Representations and Warranties....................................................... 3
(a) Representations and Warranties by the Company........................................ 3
(i) Compliance with Registration Requirements................................... 3
(ii) Incorporated Documents...................................................... 4
(iii) Independent Accountants..................................................... 4
(iv) Financial Statements........................................................ 4
(v) No Material Adverse Change in Business...................................... 5
(vi) Good Standing of the Company................................................ 5
(vii) Good Standing of Subsidiaries............................................... 5
(viii) Capitalization.............................................................. 6
(ix) Authorization of Agreement.................................................. 6
(x) Authorization and Description of Securities................................. 6
(xi) Absence of Defaults and Conflicts........................................... 6
(xii) Absence of Labor Dispute.................................................... 7
(xiii) Absence of Proceedings...................................................... 7
(xiv) Accuracy of Exhibits........................................................ 8
(xv) Absence of Further Requirements............................................. 8
(xvi) Possession of Licenses and Permits.......................................... 8
(xvii) Title to Property........................................................... 9
(xviii) Compliance with Cuba Act.................................................... 9
(xix) Investment Company Act...................................................... 9
(xx) Environmental Laws.......................................................... 9
(xxi) Qualification as a Real Estate Investment Trust............................. 10
SECTION 2. Sale and Delivery to Underwriters; Closing.................................. 10
(a) Initial Securities................................................................... 10
(b) Option Securities.................................................................... 10
(c) Payment.............................................................................. 11
(d) Denominations; Registration.......................................................... 11
SECTION 3. Covenants of the Company............................................................. 11
(a) Compliance with Securities Regulations and Commission
Requests............................................................................. 11
(b) Filing of Amendments................................................................. 12
(c) Rule 434............................................................................. 12
(d) Delivery of Registration Statements.................................................. 12
(e) Delivery of Prospectuses............................................................. 12
(f) Continued Compliance with Securities Laws............................................ 13
(g) Blue Sky Qualifications.............................................................. 13
(h) Rule 158............................................................................. 14
(i) Use of Proceeds...................................................................... 14
(j) Listing.............................................................................. 14
(k) Restriction on Sale of Securities.................................................... 14
(l) Reporting Requirements............................................................... 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4. Payment of Expenses.................................................................. 14
(a) Expenses............................................................................. 14
(b) Termination of Agreement............................................................. 15
SECTION 5. Conditions of Underwriters' Obligations.............................................. 15
(a) Effectiveness of Registration Statement.............................................. 15
(b) Opinions of Counsel for Company...................................................... 15
(c) Opinion of Counsel for Underwriters.................................................. 16
(d) Officers' Certificate................................................................ 16
(e) Accountant's Comfort Letter.......................................................... 16
(f) Bring-down Comfort Letter............................................................ 17
(g) Approval of Listing.................................................................. 17
(h) No Objection......................................................................... 17
(i) Lock-up Agreements................................................................... 17
(j) Additional Documents................................................................. 17
(k) Conditions to Purchase of Option Securities.......................................... 17
(i) Officer's Certificate....................................................... 17
(ii) Opinions of Counsel for Company............................................. 17
(iii) Opinion of Counsel for Underwriters......................................... 18
(iv) Bring-down Comfort Letter................................................... 18
(l) Termination of Agreement............................................................. 18
SECTION 6. Indemnification...................................................................... 18
(a) Indemnification of Underwriters...................................................... 18
(b) Indemnification of Company, Directors and Officers................................... 19
(c) Actions against Parties; Notification................................................ 20
(d) Settlement without Consent if Failure to Reimburse................................... 20
SECTION 7. Contribution......................................................................... 20
SECTION 8. Representations, Warranties and Agreements to Survive Delivery....................... 22
SECTION 9. Termination of Agreement............................................................. 22
(a) Termination; General................................................................. 22
(b) Liabilities.......................................................................... 23
SECTION 10. Default by One or More of the Underwriters........................................... 23
SECTION 11. Notices.............................................................................. 23
SECTION 12. Parties.............................................................................. 23
SECTION 13. Governing Law and Time............................................................... 24
SECTION 14. Effect of Headings................................................................... 24
</TABLE>
ii
<PAGE> 4
Draft of 3/28/96
BEDFORD PROPERTY INVESTORS, INC.
(a Maryland corporation)
3,350,000 Shares of Common Stock
(Par Value $.02 Per Share)
PURCHASE AGREEMENT
March __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Smith Barney Inc.
Robertson, Stephens & Company LLC
Sutro & Co. Incorporated
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Dear Sirs:
Bedford Property Investors, Inc., a Maryland corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch, Smith Barney Inc., Robertson,
Stephens & Company LLC and Sutro & Co. Incorporated are acting as
representatives (in such capacity, the "Representatives"), with respect to the
sale by the Company and the purchase by the Underwriters, acting severally and
not jointly, of the respective numbers of shares of Common Stock, par value $.02
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the Underwriters, acting severally
and not jointly, of the option described in Section 2(b) hereof to purchase all
or any part of 502,500 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 3,350,000 shares of Common Stock (the
"Initial Securities") to be purchased by the Underwriters and all or any part of
the 502,500
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<PAGE> 5
shares of Common Stock subject to the option described in Section 2(b) hereof
(the "Option Securities") are hereinafter called, collectively, the
"Securities."
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (No. 333-921) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, at the time it became effective and including the Rule 430A Information and
the Rule 434 Information, as applicable, is herein called the "Original
Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and the Original Registration Statement and any Rule
462(b) Registration Statement are herein referred to collectively as the
"Registration Statement." The final prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, in the form first furnished to the Underwriters for use in connection with
the offering of the Securities is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus dated
_____, 1996 together with the Term Sheet and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
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<PAGE> 6
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time referred to in Section 2(c) hereof, and agrees with each
Underwriter, as follows:
(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-2 under the 1933 Act. Each of
the Original Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Original Registration Statement or
any Rule 462(b) Registration Statement has been issued under the 1933
Act and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Original Registration Statement,
the Rule 462(b) Registration Statement and any post-effective
amendments thereto became effective and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery referred
to below), (A) the Original Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (B) neither the Prospectus nor any
amendments or supplements thereto contained or will contain an untrue
statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information
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<PAGE> 7
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the Prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the date of
the Prospectus and at the Closing Time, will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statements of operations, changes in stockholders' equity and
cash flows of the Company and its consolidated subsidiaries for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, included in the Registration Statement
present fairly in accordance with GAAP the information required to be
stated therein. The selected consolidated financial and operating data
and the summary consolidated financial and operating data included in
the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The Historical
Summaries of Gross Income and Direct Operating Expenses of Landsing
Pacific Portfolio, 3002 Dow Business Center, 6600 College Boulevard and
350 East Plumeria Drive (the "Properties") included in the Registration
Statement and the Prospectus, together with the related notes, present
fairly the results of operations of the Properties for the periods
specified and have been prepared in conformity with
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<PAGE> 8
GAAP applied on a consistent basis throughout the periods involved. The
pro forma financial statements of the Company and its subsidiaries and
the related notes thereto included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect"), whether or not arising in the
ordinary course of business, (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) except for regular quarterly dividends on the
Series A Convertible Preferred Stock, par value $.02 per share (the
"Convertible Preferred Stock") and the Common Stock in amounts per
share that are consistent with past practice, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Maryland and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
of each "significant subsidiary" as such term is defined in Rule 405
of Regulation S-C under the 1933 Act, (each a "Subsidiary" and,
collectively, the "Subsidiaries") of the Company has been duly
authorized and validly issued, is fully paid and non-assessable and
is owned by the Company, directly
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<PAGE> 9
or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of the Subsidiaries was issued in
violation of the preemptive or similar rights arising by operation of
law, under the charter or by-laws of any Subsidiary or under any
agreement to which the Company or any Subsidiary is a party. Each of
the Subsidiaries is a "qualified REIT subsidiary" within the meaning of
Section 856(i)(2) of the Internal Revenue Code of 1986, as amended.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus).
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The shares of
issued and outstanding Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of Common Stock of the Company was issued in
violation of the preemptive or other similar rights arising by
operation of law, under the charter or by-laws of the Company, under
any agreement to which the Company or any of its subsidiaries is a
party or otherwise. The Securities have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable; the Common Stock conforms to
all statements relating thereto contained or incorporated by reference
in the Prospectus and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to preemptive or other
similar rights arising by operation of law, under the charter and
by-laws of the Company, or under any agreement to which the Company or
any of its subsidiaries is a party.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments") except for such
violations or defaults that would not have a Material Adverse Effect;
and the execution, delivery and performance of this Agreement and the
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<PAGE> 10
consummation of the transactions contemplated herein and in the
Registration Statement (including the use of the proceeds from the sale
of the Securities as described in the Prospectus under the caption "Use
of Proceeds") and compliance by the Company with its obligations
hereunder have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, any Agreement or Instrument except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect, nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties. As used herein, a
"Repayment Event" means any event or condition which gives the holder
of any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any of its subsidiaries' principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of this Agreement
or the performance by the Company of its obligations hereunder; the
aggregate of all pending legal or governmental proceedings to which the
Company or any subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business could not reasonably be expected to result
in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents
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<PAGE> 11
incorporated by reference therein or to be filed as exhibits thereto
which have not been so described and filed as required.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations, state securities laws or the rules and regulations of
the National Association of Securities Dealers, Inc. (the "NASD").
(xvi) Possession of Licenses and Permits. The Company and the
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and the Subsidiaries
have good and marketable title to all real property owned by the
Company and the Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) are not
materially significant in relation to the business of the Company and
the Subsidiaries, considered as one enterprise; and all of the leases
and subleases material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which the Company
or any of the Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor
any of the Subsidiaries has any notice of any material claim of any
sort that has been asserted by anyone adverse to the rights of the
Company or any of the Subsidiaries under any of the leases or subleases
mentioned above, or affecting or questioning the rights of such the
Company or such subsidiary of the continued possession of the leased or
subleased premises under any such lease or sublease.
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<PAGE> 12
(xviii) Compliance with Cuba Act. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the
Registration Statement and except such violations as would not, singly
or in the aggregate, result in a Material Adverse Effect, [to our
knowledge, after due inquiry] (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to any Hazardous Materials or the violation
of any Environmental Laws.
(xxi) Qualification as a Real Estate Investment Trust. At all
times since the date of formation of the Company's predecessor, the
Company has operated and qualified as a real estate investment trust
under Section 856 through 860 of the Internal Revenue Code of 1986, as
amended, and the related regulations, and has met all applicable
organizational and operational requirements for qualification as a real
estate investment trust, including the requirements relating to stock
ownership and annual stockholder reporting, sources of income, nature
of assets and annual
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distributions. Based on the Company's current and anticipated status
and operations, the Company will qualify as a real estate investment
trust for the Company's current taxable year and the Company has no
reason to believe that it will be unable to maintain that status in
subsequent taxable years.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 502,500 shares of Common Stock
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company setting
forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and date of payment and delivery for
such Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Shearman
& Sterling, 555 California Street, San Francisco, California, or at such other
place as shall be agreed upon by the
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Representatives and the Company, at 7:00 A.M. (California time) on the third
(fourth, if the pricing occurs after 4:30 P.M. on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company. Payment shall be made to the Company by
certified or official bank check or checks drawn in, or wire transfer of,
immediately available funds payable to the order of the Company, against
delivery to the Representatives for the respective accounts of the Underwriters
of certificates for the Securities to be purchased by them. It is understood
that each Underwriter has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose check has not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
two full business days before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. on the
business day prior to the Closing Time or the relevant Date of Delivery, as the
case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement, shall become
effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any
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<PAGE> 15
preliminary prospectus, or of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes.
The Company will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company
will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Original Registration
Statement at the time it became effective or to the Prospectus, whether
pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall object.
(c) Rule 434. If the Company uses Rule 434, it will comply
with the requirements of Rule 434 and the Prospectus will not be
"materially different" as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective.
(d) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of experts,
and will also deliver to the Representatives a conformed copy of the
Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the
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<PAGE> 16
Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(f) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time when a prospectus is required by the
1933 Act to be delivered in connection with sales of the Securities,
any event shall occur or condition shall exist as a result of which it
is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus
comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as
the Underwriters may reasonably request.
(g) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the effective date
of the Original Registration Statement and any Rule 462(b) Registration
Statement; provided, however, that the Company shall not be obligated
to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have
been so qualified, the Company will file such statements and reports as
may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Original Registration Statement and any Rule
462(b) Registration Statement.
(h) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its security holders
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as soon as practicable an earning statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(i) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds."
(j) Listing. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange (the
"NYSE") and the Pacific Stock Exchange (the "PSE").
(k) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly,
any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities
to be sold hereunder, (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of
a security outstanding on the date hereof, (C) any shares of Common
Stock issued or options to purchase Common Stock granted pursuant to
existing employee stock option plans or other employee benefit plans
of the Company or (D) any shares of Common Stock issued pursuant to
any dividend reinvestment plan.
(l) Reporting Requirements. The Company, during the period
when the Prospectus, is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale and
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes or duties payable upon the sale of the Securities to the
Underwriters, (iv) the fees and disbursements of the
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<PAGE> 18
Company's counsel, accountants and other advisors, (v) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(g) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities, (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the NASD of the terms of the sale
of the Securities and (x) the fees and expenses incurred in connection with the
listing of the Securities on the NYSE and the PSE. [It is understood, however,
that, except as provided in this Section and Section 6 hereof, the Underwriters
will pay all their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Securities by them, and any
advertising expenses connected with any offers they may make.]
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement and 462(b)
Registration Statement. The Registration Statement has become effective
not later than 5:30 P.M., Washington D.C. time, on the date hereof, any
Rule 462(b) Registration Statement has become effective not later than
10:00 P.M., Washington D.C. time, on the date hereof, and at Closing
Time no stop order suspending the effectiveness of the Registration
Statement or 462(b) Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing
such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A). If the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 424(b).
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(b) Opinions of Counsel for Company. At Closing Time the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the Company, together
with the favorable opinion of Ballard Spahr Andrews & Ingersoll,
special Maryland counsel for the Company, each in form and substance
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of each such letter for each of the other
Underwriters to the effect set forth in Exhibit A-1 and Exhibit A-2
hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood, counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in (ii) to (iv),
inclusive, and the penultimate paragraph of Exhibit A-1 hereto, and
the matters set forth in (i), (iv), (v) (solely as to preemptive or
other similar rights arising by operation of law or under the charter
or by-laws of the Company), (vii) and (viii) (solely as to the
information in the Prospectus under "Description of Capital Stock of
the Company--Common Stock") of Exhibit A-2 hereto. In giving such
opinion such counsel may rely as to all matters governed by the laws
of jurisdictions other than the law of the States of New York and
California and the federal law of the United States, upon the opinions
of counsel satisfactory to you. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and
warranties in Section 1 hereof are true and correct with the same force
and effect as though expressly made at and as of Closing Time, (iii)
the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from KPMG
Peat Marwick LLP a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other
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Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letter" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time the
Representatives shall have received from KPMG Peat Marwick LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(g) Approval of Listing. At the Closing Time the Securities
shall have been approved for listing on the NYSE and the PSE, subject
only to official notice of issuance.
(h) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule C
hereto.
(i) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(j) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall
be true and correct as of each Date of Delivery and, at the relevant
Date of Delivery, the Representatives shall have received:
(i) Officer's Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at the
Closing Time pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinion of
Shearman & Sterling, counsel for the Company, together with
the favorable opinion of Ballard Spahr Andrews & Ingersoll,
Special Maryland counsel for the Company, each in form
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and substance satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities
to be purchased on such Date of Delivery and otherwise to the
same effect as the opinions required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
opinion of Brown & Wood, counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from KPMG Peat
Marwick LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially
in the same form and substance as the letter furnished to the
Representatives pursuant to Section 5(f) hereof, except that
the "specified date" on the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 6 and 7 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of
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any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided that (subject to Section 6(d)
below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
this indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Securities, or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of any Underwriter to
such person, if such is required by law, at or prior to the written confirmation
of the sale of such Securities to such person and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to such loss,
liability, claim, damage or expense.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
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(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law,
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in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
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For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or the NYSE or the PSE, or if trading generally on the
American Stock Exchange or the NYSE or in the over-the-counter market has been
suspended or limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by Federal, California or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
6 and 7 shall survive such termination and remain in full force and effect.
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SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Company shall have the
right to postpone Closing Time or a Date of Delivery for a period not exceeding
seven days in order to effect any required changes in the Registration Statement
or Prospectus or in any other documents or arrangements. As used herein, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at 10900 Wilshire
Boulevard, Suite 900, Los Angeles, California 90024, attention of David L.
Knowles; notices to the Company shall be directed to it at 270 Lafayette Circle,
Lafayette, California 94549, attention of Peter B. Bedford.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the
23
<PAGE> 27
Underwriters and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. Governing Law and Time. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. EXCEPT AS OTHERWISE SET FORTH
HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
24
<PAGE> 28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
BEDFORD PROPERTY INVESTORS,
INC.
By ________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC
SMITH BARNEY INC.
SUTRO & CO. INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _______________________________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
25
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................................
Robertson, Stephens & Company LLC..........................................................
Smith Barney Inc...........................................................................
Sutro & Co. Incorporated...................................................................
---------
Total...................................................................................... 3,350,000
=========
</TABLE>
Sch A - 1
<PAGE> 30
SCHEDULE B
BEDFORD PROPERTY INVESTORS, INC.
3,350,000 Shares of Common Stock
(Par Value $.02 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $-.
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $-, being an amount equal to the
initial public offering price set forth above less $- per share;
provided that the purchase price per share for any Option Securities
purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any
dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities.
Sch B - 1
<PAGE> 31
[SCHEDULE C]
[List of persons and entities
subject to lock-up]
Sch C- 1
<PAGE> 32
Exhibit A-1
FORM OF OPINION OF SHEARMAN & STERLING
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not have a
Material Adverse Effect.
(ii) The Purchase Agreement has been duly authorized, executed
and delivered by the Company.
(iii) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to the best of our knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission.
(iv) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents
incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and supporting
schedules [and other financial or statistical data] included therein or
omitted therefrom, as to which no opinion need be rendered) complied as
to form in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations.
(v) The documents incorporated by reference in the Prospectus
(other than the financial statements and supporting schedules [and
other financial or statistical data] included therein or omitted
therefrom, as to which no opinion need be rendered), when they were
filed with the Commission complied as to form in all material respects
with the requirements of the 1934 Act and the rules and regulations of
the Commission thereunder.
(vi) The Rule 434 Prospectus, if any, was not "materially
different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(vii) To our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the
Company or any of its subsidiaries is a party, or to which the property
of the Company or any of its subsidiaries is subject, before or
A-1-1
<PAGE> 33
brought by any court or governmental agency or body, which are required
to be described in the Prospectus that are not described as required;
(viii) The information in the Prospectus under "Federal Income
Tax Considerations," to the extent that it constitutes matters of law,
summaries of legal matters or legal proceedings, or legal conclusions,
has been reviewed by them and is correct in all material respects; and
the opinion of such firm set forth under "Federal Income Tax
Considerations" is confirmed.
(ix) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that
are not described as required.
(x) All descriptions in the Prospectus of contracts and other
documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto other
than those described or referred to therein or filed or incorporated by
reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xi) To our knowledge, neither the Company nor the [material
Subsidiaries] is in violation of its charter or by-laws and no default
by the Company or the [Subsidiares] exists in the due performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument that is
described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xii) No authorization, approval, consent or order of any
court or governmental authority or agency (other than under the 1933
Act and the 1933 Act Regulations, which have been obtained, or as may
be required under the rules of the National Association of Securities
Dealers, Inc. or the securities or blue sky laws of the various states,
as to which we need express no opinion) is required in connection with
the due authorization, execution and delivery of this Agreement or for
the offering, issuance or sale of the Securities to the Underwriters;
(xiii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the use
of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the
Company with its obligations under the Purchase Agreement will not,
whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event
under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiaries pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or the Subsidiaries is
a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or the Subsidiaries is
subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a Material Adverse Effect),
A-1-2
<PAGE> 34
nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or the Subsidiaries, or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree, known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
of its subsidiaries or any of their respective properties, assets or
operations.
(xiv) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the 1940 Act.
We have not verified, and are not passing upon and do not
assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus, other than those mentioned in subparagraph (ix) above. We
have, however, generally reviewed and discussed such statements with
certain officers of the Company, its counsel and its auditors, and with
your representatives. In the course of this review and discussion,
nothing has come to our attention that would lead us to believe that
the Registration Statement, including the Rule 430A Information and
Rule 434 Information (if applicable), (except for financial statements
and schedules and other financial [or statistical] data included or
incorporated by reference therein, as to which we make no statement),
at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial [or statistical]
data included or incorporated by reference therein, as to which such
counsel need make no statement), at the time the Prospectus was issued,
at the time any such amended or supplemented prospectus was issued or
at the Closing Time, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of the laws of Maryland, upon the
opinion of Ballard Spahr Andrews & Ingersoll, special Maryland counsel
to the Company (which opinion shall be dated and furnished to the
Representatives at the Closing Time, shall be satisfactory in form and
substance to counsel for the Underwriters and shall expressly state
that the Underwriters may rely on such opinion as if it were addressed
to them), provided that Shearman & Sterling shall state in their
opinion that they believe that they and the Underwriters are justified
in relying upon such opinion, and (B), as to matters of fact (but not
as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-1-3
<PAGE> 35
Exhibit A-2
FORM OF OPINION OF
BALLARD SPAHR ANDREWS & INGERSOLL
PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and to enter into and perform
its obligations under this Agreement.
(iii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement or pursuant to
reservations, agreements, employee benefit plans or the exercise of
convertible securities or options referred to in the Prospectus); the
shares of issued and outstanding Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable; no holder of
Common Stock is or will be subject to personal liability by reason of
being such a holder; and none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other
similar rights of any stockholder or warrantholder of the Company
arising by operation of law, under the charter or by-laws of the
Company or under any agreement to which the Company or any of its
subsidiaries is a party.
(iv) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement and, when issued
and delivered by the Company pursuant to the Purchase Agreement against
payment of the consideration set forth in the Prospectus, will be
validly issued and fully paid and non-assessable.
(v) The issuance of the Securities is not subject to
preemptive or other similar rights arising by operation of law, under
the charter or by-laws of the Company or, to the best of our knowledge
and information, otherwise.
(vi) Each Subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not have a Material Adverse Effect; all of the
issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to
the best of our knowledge and information, is owned by the Company,
directly or through
A-2-1
<PAGE> 36
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(vii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and
by-laws of the Company and the requirements of the New York Stock
Exchange and the Pacific Stock Exchange.
(viii) The information in the Prospectus under "Description of
Capital Stock of the Company" and "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws" and in the Registration
Statement under item 15, to the extent that it constitutes matters of
law, summaries of legal matters, the Company's charter and bylaws or
legal proceedings, or legal conclusions, has been reviewed by them and
is correct in all material respects.
We have not verified, and are not passing upon and do not
assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus, other than those mentioned in subparagraph (vii) above. We
have, however, generally reviewed and discussed such statements with
certain officers of the Company, its counsel and its auditors, and with
your representatives. In the course of this review and discussion,
nothing has come to our attention that would lead us to believe that
the Registration Statement, including the Rule 430A Information and
Rule 434 Information (if applicable), (except for financial statements
and schedules and other financial [or statistical] data included or
incorporated by reference therein, as to which we make no statement),
at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial [or statistical]
data included or incorporated by reference therein, as to which such
counsel need make no statement), at the time the Prospectus was issued,
at the time any such amended or supplemented prospectus was issued or
at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-2-2
<PAGE> 37
Exhibit B
-, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Smith Barney Inc.
Robertson, Stephens & Company LLC
Sutro & Co. Incorporated
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Bedford Property Investors, Inc.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of
Bedford Property Investors, Inc., a Maryland corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Smith Barney Inc., Robertson, Stephens & Company
LLC and Sutro & Co. Incorporated propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.02 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder and an officer and/or director
of the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of ___
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any opinion, right or warrant to purchase or otherwise dispose of
or transfer, directly or indirectly, any shares of the Company's Common Stock or
any securities convertible into or
B-1
<PAGE> 38
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file any registration statement
under the Securities Act of 1933, as amended, with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise.
Very truly yours,
Signature:
Print Name:
B-2
<PAGE> 1
Exhibit 4.1
NUMBER SHARES
BED
(LOGO)
CUSIP 076446 30 1
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND RESTRICTIONS
BEDFORD PROPERTY INVESTORS, INC.
A CORPORATION FORMED UNDER THE LAWS OF THE STATE OF MARYLAND
This
Certifies
that
is the
owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$.02 PAR VALUE PER SHARE, OF
=============== BEDFORD PROPERTY INVESTORS, INC. ===============
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by its duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the charter
and Bylaws of the Corporation, as amended or supplemented, copies of which are
on file with the Corporation and the Transfer Agent, to all of which the
holder, by his acceptance hereof, assents. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
(SEAL) (SIG) (SIG)
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED
MELLON SECURITIES TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
CERTIFICATE OF STOCK
<PAGE> 2
IMPORTANT NOTICE
The Corporation will furnish to any stockholder, on request and without charge,
a full statement of the information required by Section 2-211(b) of the
Corporations and Associations Article of the Annotated Code of Maryland with
respect to the designations and any preferences, conversions and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of the
stock of each class which the Corporation has authority to issue and, if the
Corporation is authorized to issue any preferred or special class in series,
(i) the differences in the relative rights and preferences between the shares
of each series to the extent set, and (ii) the authority of the Board of
Directors to set such rights and preferences of subsequent series. The
foregoing summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the charter of the Corporation (the
"Charter"), a copy of which will be sent without charge to each stockholder who
so requests. Such request must be made to the Secretary of the Corporation at
its principal office or to the Transfer Agent.
The shares represented by this certifcate are subject to the restrictions on
Beneficial and Constructive Ownership and Transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment Trust under
the Internal Revenue Code of 1986, as amended (the "Code"). Subject to certain
further restrictions and except as expressly provided in the Corporation's
Charter, (i) no Person may Beneficially or Constructively Own shares of the
Corporation's Common Stock in excess of five percent (in value or number of
shares) of the outstanding shares of Common Stock of the Corporation unless
such Person is an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable), (ii) no Person may Beneficially or Constructively Own
shares of Capital Stock of the Corporation in excess of five percent of the
value of the total outstanding shares of Capital Stock of the Corporation,
unless such Person is an Excepted Holder (in which case the Excepted Holder
Limit shall be applicable), (iii) no Person may Beneficially or Constructively
Own Capital Stock that would result in the Corporation being "closely held"
under Section 856(b) of the Code or otherwise cause the Corporation to fail to
qualify as a REIT, and (iv) no Person may Transfer shares of Capital Stock if
such Transfer would result in the Capital Stock of the Corporation being owned
by fewer than 100 Persons. Any Person who Beneficially or Constructively Owns
shares of Capital Stock which causes or will cause a Person to Beneficially or
Constructively Own shares of Capital Stock in excess or in violation of the
above limitations must immediately notify the Corporation. If any of the
restrictions on transfer or ownership are violated, the shares of Capital Stock
represented hereby will be automatically transferred to a Trustee of a Trust
for the benefit of one or more Charitable Beneficiaries. In addition, upon the
occurrence of certain events, attempted Transfers in violation of the
restrictions described above may be void ab initio. All capitalized terms in
this legend have the meanings defined in the charter of the Corporation, as the
same may be amended from time to time, a copy of which, including the
restrictions on transfer and ownership, will be furnished to each holder of
Capital Stock of the Corporation on request and without charge. Such request
must be made to the Secretary of the Corporation at its principal office or
to the Transfer Agent.
-------------
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
-------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act of ___________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
/ /
--------------------------------------
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________
____________________________________________________________________________
_____________________________________________________________________ shares
of Common Stock of the Corporation represented by this Certificate and do
hereby irrevocably constitute and appoint
__________________________________________________________________ Attorney
to transfer the said shares of Common Stock on the books of the
Corporation, with full power of subsititution in the premises.
Dated ___________________________
NOTICE:
________________________________________________________
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH
THE NAME WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 4.2
ARTICLES OF AMENDMENT OF
CHARTER
OF
BEDFORD PROPERTY INVESTORS, INC.
THIS IS TO CERTIFY THAT:
FIRST: The charter of Bedford Property Investors, Inc., a Maryland
corporation (the "Corporation"), is hereby amended by deleting Section 1 of
Article V in its entirety and replacing it with the following:
Section 1. Authorized Shares. The total number of shares of stock which
the Corporation has authority to issue is 35,000,000 shares, of which
15,000,000 shares are shares of Common Stock, $0.02 par value per share
("Common Stock"), 10,000,000 shares are shares of Preferred Stock, $0.01
par value per share ("Preferred Stock"), and 10,000,000 shares are shares
of Series A Convertible Preferred Stock, $0.01 par value per share ("Series
A Preferred"). The aggregate par value of all authorized shares of stock
having a par value is $500,000.
SECOND: immediately upon the filing (the "Filing") of these Articles of
Amendment for record with the State Department of Assessments and Taxation of
Maryland, every two shares of Common Stock, $0.01 par value per share, of the
Corporation which were issued and outstanding immediately prior to the Filing
with the SDAT shall be changed into one issued and outstanding share of Common
Stock, with any fractional shares of Common Stock being combined and sold on the
open market with the sales proceeds being distributed to the holders of such
fractional shares as cash payment in lieu of such fractional shares. Upon the
Filing, any right, option, warrant or other contract right to purchase any share
or shares of Common Stock, $.01 par value per share, of the Corporation, or any
security convertible into such Common Stock, $.01 par value per share, shall
without further action, evidence an equivalent right, option, warrant or other
contract right to purchase half of such number or numbers of shares of Common
Stock, $.02 par value per share, of the Corporation or, as the case may be, a
security convertible into half such number of shares of Common Stock, $.02 par
value per share, of the Corporation.
THIRD: The amendment to the charter of the Corporation as set forth
above has been duly advised by the board of directors and approved by the
Stockholders of the Corporation as required by law.
<PAGE> 2
FOURTH: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its Chairman of the Board and attested
to by its Secretary on this 29th day of March, 1996.
ATTEST:
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ PETER B. BEDFORD (Seal)
------------------------------
Peter B. Bedford
Chairman of the Board
and Chief Executive Officer
By: /s/ JENNIFER I. MORI
------------------------------
Jennifer I. Mori
Secretary
<PAGE> 3
ARTICLES OF AMENDMENT OF
CHARTER
BEDFORD PROPERTY INVESTORS, INC.
THIS IS TO CERTIFY THAT:
FIRST: The charter of Bedford Property Investors, Inc., a Maryland
corporation (the "Corporation"), is hereby amended by deleting existing Article
VIII in its entirety.
SECOND: The charter of the Corporation is further amended by deleting
the remainder of the penultimate sentence of Article IX following the phrase
"entitled to be cast on the matter."
THIRD: The amendment to the charter of the Corporation as set forth
above has been duly adopted by the board of directors and approved by the
Stockholders of the Corporation as required by law.
FOURTH: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its Chairman of the Board and attested
to by its Secretary on this 29th day of March, 1996.
ATTEST:
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ PETER B. BEDFORD (Seal)
------------------------------
Peter B. Bedford
Chairman of the Board
and Chief Executive Officer
By: /s/ JENNIFER I. MORI
------------------------------
Jennifer I. Mori
Secretary
<PAGE> 4
BEDFORD PROPERTY INVESTORS, INC.
CERTIFICATE OF CORRECTION
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, Peter B. Bedford, whose address is 270
Lafayette Circle, Lafayette, California 94549, is the Chairman of the Board and
Chief Executive Officer of Bedford Property Investors, Inc. (the "Company").
SECOND: The title of the document being corrected hereby is Articles of
Amendment Defining the Terms of the Series A Convertible Preferred Stock and
Amending the Limitations on the Transferability of the Company's Stock (the
"Articles of Amendment").
THIRD: The Articles of Amendment were filed on September 15, 1995.
FOURTH: The provision of the Articles of Amendment which is to be
corrected is as follows:
The eighth line of Article V, Section 5(1) (c) currently reads as
follows:
dissolution of holders of Preferred Stock whose preferential
FIFTH: The corrected provision of the Articles of Amendment is as
follows:
The eighth line of Article V, Section 5(1) (c) shall read as follows:
dissolution of holders of Series A Preferred Stock and Preferred Stock
whose preferential
The undersigned acknowledges this Certificate of Correction to be his
act and states, as to all matters and facts required to be verified under oath,
that, to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
<PAGE> 5
IN WITNESS WHEREOF, I have signed this Certificate of Correction, and I
acknowledge the same to be my act on this 27th day of March, 1996.
ATTEST: BEDFORD PROPERTY INVESTORS,
INC.
/s/ JENNIFER I. MORI /s/ PETER B. BEDFORD
- -------------------- ---------------------------
Jennifer I. Mori Peter B. Bedford
Secretary Chairman of the Board and
Chief Executive Officer
<PAGE> 6
BEDFORD PROPERTY INVESTORS, INC.
CERTIFICATE OF CORRECTION
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, James J. Hanks, Jr., whose address is 300 East
Lombard Street, 19th Floor, Baltimore, Maryland 21202, is the incorporator of
Bedford Property Investors, Inc. (the "Company").
SECOND: The title of the document being corrected hereby is the
Articles of Incorporation.
THIRD: The Articles of Incorporation were filed on June 29, 1993.
FOURTH: The provisions of the Articles of Incorporation which are to
be corrected are as follows:
(i) The sixth line of Article VI, Section 2 currently reads as
follows:
of holders or shares entitle to cast a majority of all the votes
(ii) The third line of Article VI, Section 3 currently reads as
follows:
time to time of shares of its stock of any class. whether now or
(iii) The second line of Article VIII, Section 2(c)(i) currently
reads as follows:
MarketValue (as hereinafter defined) as of the date of the
consummation
(iv) The seventh line of Article VIII, Section 2(c)(i) currently
reads as follows:
dealers' fees) aid by the Interested Stockholder for any shares
of
(v) The eighth line of Article VIII, Section 3 (a)(iii) currently
reads as follows:
owned by any Interested Stockholder of any Affiliate of any
Interested
FIFTH: The corrected provisions of the Articles of Incorporation are
as follows:
(i) The sixth line of Article VI, Section 2 shall read as follows:
of holders of shares entitled to cast a majority of all the votes
(ii) The third line of Article VI, Section 3 shall read as follows:
time to time of shares of its stock of any class, whether now or
(iii) The second line of Article VIII, Section 2(c)(i) shall read as
follows:
Market Value (as hereinafter defined) as of the date of the
consummation
(iv) The seventh line of Article VIII, Section 2(c)(i) shall read as
follows:
dealers' fees) paid by the Interested Stockholder for any shares
of
(v) The eighth line of Article VIII, Section 3(a)(iii) shall read as
follows:
owned by any Interested Stockholder or any Affiliate of any
Interested
The undersigned acknowledges this Certificate of Correction to be his
act and states, as to all matters and facts required to be verified under oath,
that, to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, I have signed this Certificate of Correction, and I
acknowledge the same to be my act on this 27th day of March, 1996.
/s/ James J. Hanks, Jr.
-----------------------
James J. Hanks, Jr.
Incorporator
<PAGE> 7
ARTICLES OF AMENDMENT DEFINING THE
TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK AND
AMENDING THE LIMITATIONS ON THE TRANSFERABILITY OF
THE COMPANY'S STOCK
THIS IS TO CERTIFY THAT:
FIRST: The charter of Bedford Property Investors, Inc., a Maryland
corporation (the "Corporation"), is hereby amended by (a) deleting existing
Section 1 of Article V and adding a new Section 1 as follows and (b) adding new
Section 5 to Article V as follows:
Section 1. Authorized Shares. The total number of shares of stock which
the Corporation has authority to issue is 50,000,000 shares, of which
30,000,000 shares are shares of Common Stock, $0.01 par value share
("Common Stock"), 10,000,000 shares are shares of Preferred Stock, $0.01
par value per share ("Preferred Stock"), and 10,000,000 shares are shares
of Series A Convertible Preferred Stock, $.01 par value per share ("Series
A Preferred"). The aggregate par value of all authorized shares of stock
having a par value is $500,000.
Section 5. Series A Preferred Stock. The preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications and terms and conditions of redemption
of the Series A Preferred are set forth below. The Board of Directors may
reclassify any unissued shares of Series A Preferred from time to time in
one or more classes or series of stock of the Corporation.
1. Cumulative Dividends.
(a) (i) The holders of outstanding shares of the Series A
Preferred shall be entitled to receive in each fiscal quarter,
when and as authorized and declared by the Board of Directors,
out of any assets at the time legally available therefor,
dividends in cash at the greater of (X) the rate of $0.135 (THE
"DIVIDEND RATE") per share or (Y) the dividends payable with
respect to such quarter in respect of the Common Stock into
which each share of the Preferred Stock is Convertible, plus,
in both cases, dividends accumulated on the Series A Preferred
but unpaid for all prior quarters, before any cash dividend is
paid on the Common Stock for such quarter. If any shares of
Series A
1
<PAGE> 8
Preferred have been called for redemption by the holders of the
Series A Preferred but the redemption payment has not been made
thereon on the redemption date for any reason whatsoever, then
the rate at which dividends shall accrue on such shares shall
increase to $0.165 per share until the earlier of (A) the
payment of the redemption price, or (B) such time as the size
of the board has been increased to eleven pursuant to Paragraph
3(a) hereof and the holders of Series A Preferred have elected
four directors to fill the newly created vacancies. The right
to dividends on shares of Series A Preferred shall be
cumulative.
(ii) Such dividends or distributions shall be payable
quarterly (commencing with the calendar quarter ending
September 30, 1995) in arrears on such dates as the Board of
Directors may from time to time determine, which shall not be
later than the 45th day after the end of the calendar quarter.
Any dividends payable on Series A Preferred for any partial
dividend period (including the period commencing on the date
the shares are initially issued and ending on September 30,
1995) will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends or distributions
(other than dividends payable solely in shares of Common Stock)
may be authorized and declared and paid upon shares of Common
Stock in any fiscal quarter of the Corporation only if
dividends shall have been paid on or declared and set apart
upon all shares of Series A Preferred at such quarterly rates
for all prior periods through and including the end of such
quarter.
(b) In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences
of indebtedness issued by the Corporation or other persons,
assets (excluding cash distributions) or options or rights to
purchase any such securities or evidences of indebtedness,
then, in each such case the holders of the Series A Preferred
shall be entitled to a proportionate share of any such
distribution as though the holders of the Series A Preferred
were the holders of the number of
2
<PAGE> 9
shares of Common Stock of the Corporation into which their
shares of Series A Preferred are convertible as of the record
date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.
(c) In determining whether a distribution (other than
upon voluntary or involuntary liquidation), by dividend (but
not by redemption or other acquisition of shares or otherwise),
is permitted under the Maryland General Corporation Law,
amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of Preferred
Stock whose preferential rights upon dissolution are superior
to those receiving the distribution shall not be added to the
Corporation's total liabilities.
2. Liquidation Preference.
(a) In the event of any Liquidation Event (as defined at
(b) below) either voluntary or involuntary, the holders of the
Series A Preferred shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock by
reason of their ownership thereof, the amount of $6.30 per
share plus any accrued and unpaid dividends, for each share of
Series A Preferred then held by them (the "SERIES A LIQUIDATION
PREFERENCE"). If, upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series A
Preferred shall be insufficient to permit the payment to such
holders of the full Series A Liquidation Preference, then the
entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably in satisfaction
of the Series A Liquidation Preference in proportion to the
aggregate preferential amounts owed to each holder of the
Series A Preferred. After payment has been made to the holders
of the Series A Preferred of their full Series A Liquidation
Preference, any remaining assets shall be
3
<PAGE> 10
distributed ratably to the holders of the Common Stock.
(b) For purposes of this Paragraph 2, any transaction,
including without limitation a consolidation or merger of the
Corporation (other than for purposes of reincorporation), or
other corporate reorganization of the Corporation with or into
any other corporation or corporations, immediately after which
transaction the stockholders of the Corporation (determined
prior to such event) hold fifty percent or less in interest of
the outstanding voting securities of the surviving corporation,
or a sale of all or substantially all of the assets of the
Corporation or the acquisition of a majority of the outstanding
shares of Common Stock of the Corporation by a person other
than (i) AEW Partners, L.P. and its Affiliates, (ii) as a
result of the conversion of the Series A Preferred Stock, (iii)
Peter Bedford or his Affiliates or members of his immediate
family (his spouse, issue, brothers, sisters and their
respective issue and trusts for the benefit of such persons) or
(iv) underwriters in a public or private placement, shall be
treated as a Liquidation Event. "AFFILIATE" shall mean with
respect to any person, any other person controlling, controlled
by or under direct or indirect common control with such person
(for the purposes of this definition "control", when used with
respect to any specified person, shall mean the power to direct
the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing).
(c) The value of securities and property paid or
distributed pursuant to this Paragraph 2 shall be computed at
fair market value at the time of payment by the Corporation or
at the time made available to stockholders, all as determined
by the Board of Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if such
securities are listed on any established stock exchange or a
national market system, their fair market value shall
4
<PAGE> 11
be the closing sales price for such securities as quoted on
such system or exchange (or the largest such exchange) for the
date the value is to be determined (or if there are no sales
for such date, then for the last preceding business day on
which there were sales), as reported in the Wall Street Journal
or similar publication, and (ii) if such securities are
regularly quoted by a recognized securities dealer but selling
prices are not reported, their fair market value shall be the
mean between the high bid and low asked prices for such
securities on the date the value is to be determined (or if
there are no quoted prices for such date, then for the last
preceding business day on which there were quoted prices).
(d) Nothing hereinabove set forth shall affect in any way
the right of each holder of Series A Preferred to convert such
shares at any time and from time to time into Common Stock in
accordance with Paragraph 4 hereof.
3. Voting Rights and Voting Switch. Except as expressly provided
in this Charter, the holders of Series A Preferred shall have no
voting rights.
(a) Directors. The holder of shares of Series A Preferred
as a class shall have the right to elect two members of the
Board of Directors (which right to elect such two directors
shall be construed for the purposes of this Charter as the
right to vote generally in the election of directors) and the
holders of shares of Common Stock shall have the right to elect
the remaining directors; provided, however, that if at any time
(i) the Corporation has failed in two consecutive quarters to
pay in full and in a timely manner the quarterly dividends on
the Series A Preferred as required by Paragraph 1 (including
all dividends accumulated but unpaid for all prior quarters),
(ii) Peter Bedford shall cease to serve as the substantially
full-time chief executive officer of the corporation, (iii)
Peter Bedford and his Affiliates and members of his immediate
family (his spouse, issue, brothers, sisters and their
respective spouses and issue and trusts for the benefit of such
persons) own beneficially fewer than
5
<PAGE> 12
1,198,278 shares of Common Stock of this Corporation (adjusted
for any stock splits or similar transactions), or (iv) the
Company fails to pay the full redemption price on the shares of
Series A Preferred subject to redemption pursuant to Paragraph
5(c) on any redemption date (provided that such redemption was
made at the request of holders of a majority of the then
outstanding shares of Series A Preferred), then the holders of
Series A Preferred shall immediately (and regardless of any
subsequent cure) and thereafter be entitled to elect the
smallest number of directors constituting a majority of the
Board of Directors, and the holders of Common Stock, as a
class, shall retain the right to elect the remaining directors.
The number of authorized directors is seven and such number
cannot be increased without the consent of the holders of
Series A Preferred. In order to facilitate the effective
control of the Board of Directors by the holders of Series A
Preferred upon the occurrence of any event identified in (i),
(ii), (iii) or (iv) above, the size of the Board shall
automatically be increased to eleven, and the holders of the
Series A Preferred, voting together as single class, shall have
the exclusive right to elect four persons to fill such newly
created vacancies on the Board of Directors. All directors
elected by the vote of the Series A Preferred shall be referred
to as "Series A Directors". The holders of Series A Preferred
may elect the Series A Directors by unanimous written consent,
by a special meeting of the holders of Series A Preferred, or
at an annual meeting of stockholders of the Corporation. Any
special meeting of the holders of Series A Preferred may be
called by holders who hold at least 10% of the outstanding
shares of Series A Preferred or by a Series A Director and
shall be held at the time and place specified by the holder or
director calling the meeting. A majority of the holders of the
Series A Preferred shall constitute a quorum for the purposes
of any such special meeting. In the case of any vacancy
occurring among the Series A Directors, a majority of the
remaining Series A Directors, if any, may elect a successor to
hold office for the unexpired term of such Series A Director.
If
6
<PAGE> 13
all Series A Directors shall cease to serve as directors before
their terms expire, the holders of Series A Preferred then
outstanding may, by unanimous written consent or at a special
meeting of the holders of Series A Preferred, elect successors
to hold office for the unexpired terms of the Series A
Directors.
(b) Senior Securities. Authorization of any series or
class of equity securities ranking senior or equal to the
Series A Preferred with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up of the
Corporation, must be approved by the affirmative vote of
holders of at least a majority of the outstanding shares of
Series A Preferred, voting together as a single class.
(c) Amendment. Any amendment to the Charter of the
Corporation which would materially adversely affect the
preferences or rights of the Series A Preferred must be
approved by affirmative vote of the holders of at least a
majority of the outstanding shares of Series A Preferred,
voting together as a single class.
(d) Termination. The voting rights set forth at (b) and
(c) above shall terminate if the Common Shares issuable upon
conversion of the outstanding shares of Series A Preferred
shall represent less than 15% of the total of (i) outstanding
shares of Common Stock and (ii) the number of shares of Common
Stock that would be outstanding upon conversion of the
outstanding Series A Preferred. If the Common Shares issuable
upon conversion of the outstanding Series A Preferred represent
less than 15% but 7% or more of such total, the voting rights
set forth at (a) above shall provide that the holders of shares
of Series A Preferred Stock as a class shall only have the
right to elect one member of the Board of Directors rather than
two; and provided further that the voting rights set forth at
(a) above shall terminate if the Common Shares issuable upon
conversion of the outstanding shares of Series A Preferred
Stock represent less than 7% of such total.
7
<PAGE> 14
(e) Mechanics. Solely for purposes of this Paragraph 3,
each holder of shares of Series A Preferred shall be entitled
to one vote for each such share of Series A Preferred held on
the record date for the vote or consent of stockholders.
(f) Notice of Meetings. The holder of each share of the
Series A Preferred shall be entitled to notice of any
stockholders' meeting in the manner provided in the Bylaws of
the Corporation.
4. Conversion. The holders of the Series A Preferred shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Subject to Subsection (c), each
share of Series A Preferred shall be convertible, at the option
of the holder thereof, at any time after September 18, 1997 at
the office of the Corporation or any transfer agent for the
Series A Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing $6.00 for each share of Series A Preferred by the
Conversion Price at the time in effect for such share. The
initial Conversion Price for shares of Series A Preferred shall
be $6.00 per share; provided, however, that such Conversion
Price shall be subject to adjustment as set forth in Subsection
(c) below.
(b) Mechanics of Conversion. Before any holder of Series
A Preferred shall be entitled to convert the same into shares
of Common Stock, the certificate or certificates therefor shall
be surrendered, duly endorsed, at the office of the Corporation
or of any transfer agent for the Series A Preferred, and the
holder shall give written notice by mail, postage prepaid, to
the Corporation at its principal office, of the election to
convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred, or to the nominee or
nominees of such holder, a certificate or certificates
8
<PAGE> 15
for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series A Preferred
to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. No fractional
shares of Common Stock shall be issued upon conversion of
shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon
conversion, the Corporation shall pay in cash an amount equal
to the fair market value of such fractional interest as
determined in good faith by the Corporation's Board of
Directors. In determining the amount of fractional share
payments, all of the shares of a single holder of Series A
Preferred shall be aggregated so that no holder shall receive a
fractional share payment equal to or exceeding the value of one
share.
(c) Conversion Price Adjustments. The Conversion Price of
Series A Preferred shall be subject to adjustment from time to
time as follows:
(i) Special Definitions. For purposes of this
Paragraph 4(c), the following definitions shall apply:
(l) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible
Securities.
(2) "ORIGINAL ISSUE DATE" with respect to the
Series A Preferred shall mean the date on which the
first share of such Series A Preferred was issued.
(3) "CONVERTIBLE SECURITIES" shall mean any
evidence of indebtedness, shares (other than the
Common Stock or Series A
9
<PAGE> 16
Preferred Stock) or other securities convertible into
or exchangeable for Common Stock.
(4) "ADDITIONAL STOCK" shall mean all Common
Stock issued (or, pursuant to Paragraph 4(c)(iii),
deemed to be issued) by the Corporation after the
Original Issue Date, other than Common Stock issued
or issuable at any time:
(A) upon conversion of the Series A
Preferred;
(B) upon exercise of Options outstanding on
the Original Issue Date;
(C) upon issue of options to officers,
directors, and employees of, and consultants to
the Corporation pursuant to the Amended Employee
Stock Option Plan and Directors Stock Option Plan
of this Corporation in amounts not exceeding the
aggregate reserved for issuance under such plans
on the Original Issue Date, as increased from
time to time provided that any such increase is
approved by a majority of the Series A Directors;
(D) upon issue of warrants to underwriters in
any firm commitment public offering of securities
by this Corporation;
(E) as a dividend or distribution on Series A
Preferred or any event for which adjustment is
made pursuant to subparagraph (c) (vi) hereof;
(F) by way of dividend or other distribution
on
10
<PAGE> 17
Common Stock excluded from the definition of
Additional Stock by the foregoing clauses (A),
(B), (C), (D), (E) or this clause (F) or on
Common Stock so excluded.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular
share of Series A Preferred shall be made as a result
of the issuance of Additional Stock unless the
consideration per share for such Additional Stock
issued or deemed to be issued by the Corporation is
less than the Conversion Price in effect on the date
of, and immediately prior to such issue, for such
share of Series A Preferred.
(iii) Deemed Issue of Additional Shares of Common
Stock.
(1) Options and Convertible Securities.
Except as otherwise provided in Paragraph 4 (c)
(ii), in the event the Corporation at any time or
from time to time after the Original Issue Date
shall issue any Options or Convertible Securities
or shall fix a record date for the determination
of holders of any class of securities entitled to
receive any such Options or Convertible
Securities, then the maximum number of shares (as
set forth in the instrument relating thereto
without regard to any provisions contained
therein for a subsequent adjustment of such
number) of Common Stock issuable upon the
exercise of such Options or, in the case of
Convertible Securities and Options therefor, the
conversion or exchange of such Convertible
Securities, shall be deemed to be shares of
Additional Stock issued as of the time of such
issue or, in case such a record date shall have
been fixed, as of the close of business on such
record date, provided that
11
<PAGE> 18
Additional Stock shall not be deemed to have been
issued unless the consideration per share
(determined pursuant to Paragraph 4(c) (v)
hereof) of such Additional Stock would be less
than the Conversion Price in effect on the date
of and immediately prior to such issue, or such
record date, as the case may be, and provided
further that in any such case in which Additional
Stock is deemed to be issued.
(A) no further adjustment in the
Conversion Price for such series shall be
made upon the subsequent issue of
Convertible Securities or shares of Common
Stock upon the exercise of such Options or
conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the
passage of time or otherwise, for any
increase or decrease in the consideration
payable to the Corporation, or in the number
of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof,
the Conversion Price computed upon the
original issue thereof (or upon the
occurrence of a record date with respect
thereto), and any subsequent adjustments
based thereon, shall, upon any such increase
or decrease becoming effective, be
recomputed to reflect such increase or
decrease insofar as it affects such Options
or the rights of conversion or exchange
under such Convertible Securities;
(C) upon the expiration of any such
Options or any
12
<PAGE> 19
rights of conversion or exchange under such
Convertible Securities which shall not have
been exercised, the Conversion Price
computed upon the original issue thereof (or
upon the occurrence of a record date with
respect thereto), and any subsequent
adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(I) in the case of Convertible
Securities or Options for Common Stock,
the only Additional Stock issued was
Common Stock, if any, actually issued
upon the exercise of such Options or
the conversion or exchange of such
Convertible Securities and the
consideration received therefor was the
consideration actually received by the
Corporation for the issue of all such
Options, whether or not exercised, plus
the consideration actually received by
the Corporation upon such exercise, or
for the issue of all such Convertible
Securities which were actually
converted or exchanged, plus the
additional consideration, if any,
actually received by the Corporation
upon such conversion or exchange, and
(II) in the case of Options for
Convertible Securities, only the
Convertible Securities, if any,
actually issued upon the exercise
thereof
13
<PAGE> 20
were issued at the time of issue of
such Options, and the consideration
received by the Corporation for the
shares of Additional Stock deemed to
have been then issued was the
consideration actually received by the
Corporation for the issue of all such
Options, whether or not exercised, plus
the consideration deemed to have been
received by the Corporation upon the
issue of the Convertible Securities
with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause
(B) or (C) above shall have the effect of
increasing the Conversion Price to an amount
which exceeds the lower of (i) the
Conversion Price on the date immediately
prior to the original adjustment date, or
(ii) the Conversion Price that would have
resulted from any issuance of Additional
Stock between such date and such
readjustment date; and
(E) in the case of any Options which
expire by their terms not more than 90 days
after the date of issue thereof, no
adjustment of the Conversion Price shall be
made until the expiration or exercise of all
such Options.
(2) Stock Dividends. In the event the
Corporation at any time or from time to time
after the Original Issue Date shall pay any
dividend on the Common Stock payable in Common
Stock, then and
14
<PAGE> 21
in any such event, Additional Stock shall be
deemed to have been issued immediately after the
close of business on the record date for the
determination of holders of any class of
securities entitled to receive such dividend;
provided, however, that if such record date is
fixed and such dividend is not fully paid the
only Additional Stock deemed to have been issued
will be the number of shares of Common Stock
actually issued in such dividend, and such shares
will be deemed to have been issued as of the
close of business on such record date, and the
Conversion Price shall be recomputed accordingly.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Stock
(1) Prior to September 18, 1997. If prior to
September 18, 1997, the Corporation shall issue
Additional Stock (including Additional Stock
deemed to be issued pursuant to Paragraph 4 (c)
(iii)) for a consideration per share less than
the Conversion Price for the Series A Preferred
in effect on the date of and immediately prior to
such issue, then and in such event, such
Conversion Price shall be reduced, concurrently
with such issue, to a price equal to the
consideration per share received by the
Corporation for such Additional Stock.
(2) On or after September 18, 1997. If on or
after September 18, 1997, the Corporation shall
issue Additional Stock (including Additional
Stock deemed to be issued pursuant to Paragraph
4(c) (iii)) for a consideration per share less
than the Conversion Price for the Series A
Preferred in effect on the date of and
15
<PAGE> 22
immediately prior to such issue, then and in such
event, such Conversion Price shall be reduced
concurrently with such issue, to a price
(calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of
shares of Common Stock outstanding immediately
prior to such issue (including all shares of
Common Stock issuable upon conversion of the
outstanding Series A Preferred) plus the number
of shares of Common Stock which the aggregate
consideration received by the Corporation for the
total number of shares of Additional Stock so
issued would purchase at such Conversion Price;
and the denominator of which shall be the number
of shares of Common Stock outstanding immediately
prior to such issue (including all shares of
Common Stock issuable upon conversion of the
outstanding Series A Preferred) plus the number
of shares of such Additional Stock so issued.
(v) Determination of Consideration. For purposes
of this Paragraph 4 (c), the consideration received
by the Corporation for the issue of any shares of
Additional Stock shall be computed as follows:
(1) Cash and Property: Such consideration
shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash
received by the Corporation excluding amounts
paid or payable for accrued interest or
accrued dividends;
(B) insofar as it consists of property
other than cash, be computed at the
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<PAGE> 23
fair value thereof at the time of such issue,
as determined in good faith by the Board: and
(C) in the event Additional Stock is
issued together with other shares or
securities or other assets of the Corporation
for consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (A) and (B)
above, as determined in good faith by the
Board.
(2) Options and Convertible Securities. The
consideration per share received by the
Corporation for Additional Stock deemed to have
been issued pursuant to Paragraph 4(c) (iii) (1),
relating to Options and Convertible Securities,
shall be determined by dividing:
(X) the total amount, if any, received or
receivable by the Corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent adjustment
of such consideration) payable to the
Corporation upon the exercise of such Options
or the conversion or exchange of such
Convertible Securities, or in the case of
Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities; by
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<PAGE> 24
(Y) the maximum number of shares of
Common Stock (as set forth in the instruments
relating thereto, without regard to any
provision contained therein for a subsequent
adjustment of such number) issuable upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) Adjustments for Subdivisions,
Combinations or Consolidation of Common Stock. In
the event the outstanding shares of Common Stock
shall be subdivided (by stock split, or
otherwise), into a greater number of shares of
Common Stock, the Conversion Price for each
series then in effect shall, concurrently with
the effectiveness of such subdivision, be
proportionately decreased. In the event the
outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of
Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of
such combination or consolidation, be
proportionately increased.
(vii) Adjustments for Other Distributions. In
the event the Corporation at any time or from
time to time makes, or fixes a record date for
the determination of holders of Common Stock
entitled to receive any distribution payable in
securities of the Corporation other than shares
of Common Stock and other than as otherwise
adjusted in this Paragraph 4 or as otherwise
provided in Paragraph 1(b), then and in each such
event provision shall be made so that the holders
of Series A Preferred shall receive upon
conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which
they would have received had their shares of
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<PAGE> 25
Series A Preferred been converted into shares of
Common Stock on the date of such event and had
they thereafter, during the period from the date
of such event to and including the date of
conversion, retained such securities receivable
by them as aforesaid during such period, subject
to all other adjustments called for during such
period under this Paragraph 4 with respect to the
rights of the holders of the Series A Preferred.
(viii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock
issuable upon conversion of the Series A
Preferred shall be changed into the same or a
different number of shares of any other class or
classes of stock, whether by capital
reorganization, reclassification or otherwise
(other than a subdivision or combination of
shares, consolidation or merger provided for
above), the Conversion Price then in effect
shall, concurrently with the effectiveness of
such reorganization or reclassification, be
proportionately adjusted such that the shares of
Series A Preferred shall be convertible into, in
lieu of the number of shares of Common Stock
which the holders would otherwise have been
entitled to receive, a number of shares of such
other class or classes of stock equivalent to the
number of shares of Common Stock that would have
been subject to receipt by the holders upon
conversion of the Series A Preferred immediately
before that change.
(d) No Impairment. The Corporation will not, by
amendment of its Charter or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation
but will at all times in good faith assist in the
carrying out of all the provisions of this Paragraph
4 and in the
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<PAGE> 26
taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights
of the holders of Series A Preferred against
impairment.
(e) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the
Conversion Price for the Series A Preferred pursuant
to this Paragraph 4, the Corporation at its expense
shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and
furnish to each holder of such Series A Preferred a
certificate setting forth such adjustment or
readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any
time of any holder of Series A Preferred, furnish or
cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price in effect at
the time for such series, and (iii) the number of
shares of Common Stock and the amount, if any, of
other property which at the time would be received
upon the conversion of such Series A Preferred
(f) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders
of any class of securities for the purpose of
determining the holders thereof who are entitled to
receive any dividend or other distribution, any right
to subscribe for, purchase, or otherwise acquire any
shares of stock of any class or any other securities
or property, or to receive any other right, this
Corporation shall mail to each holder of Series A
Preferred, at least 20 days prior to the date
specified therein, a notice specifying the date on
which any such record is to be taken for the purpose
of such dividend, distribution or right, and the
amount and character of such dividend, distribution,
or right.
(g) Reservation of Stock Issuance Upon
Conversion. The Corporation shall at all times
reserve and keep available out of its authorized but
unissued Common Stock solely
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for the purpose of effecting the conversion of the
shares of the Series A Preferred such number of its
shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all
outstanding shares of Series A Preferred and if at
any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the
Series A Preferred, in addition to such other
remedies as shall be available to the holder of such
Series A Preferred, the Corporation will take such
corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(h) Notices. Any notice required by the
provisions of this Paragraph (4) to be given to the
holders of shares of Series A Preferred shall be
deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of
record at his address appearing on the books of this
Corporation.
5. Redemption. The Series A Preferred shall be
redeemable as follows:
(a) Redemption at the Option of the Corporation
after 1997 but Prior to 2000. At any time after
September 18, 1997, but prior to September 18, 2000,
the Series A Preferred may be redeemed in whole (but
not in part) at the option of the Corporation. The
Corporation will give notice to the holders of Series
A Preferred of its intent to redeem the Series A
Preferred not less than 30 nor more than 60 days
prior to the date set for redemption. The redemption
price shall be that amount necessary to cause the
holders of the Series A Preferred to have received an
internal rate of return (defined below) of 25% per
annum over the period of the first two years
commencing with the Original Issue Date and an
internal rate of return of 20% per annum over the
period from and after two years after the Original
Issue Date until the date of redemption (but not
beyond September 18, 2000). For the purposes of this
paragraph
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<PAGE> 28
(a), "internal rate of return" or "IRR" shall be
calculated using the acquisition purchase price paid
by the holders of the Series A Preferred under the
stock purchase agreement under which such shares were
originally issued as the investment "out-flows", with
payments of dividends or other distributions received
by the Series A Preferred holders hereunder taken
into account as "in-flows" provided that (i) the
original purchasers of the Series A Preferred shall
be deemed to be the holders of the Series A Preferred
for the purposes of calculating investment amounts
and receipts, (ii) the fact that such holders may
from time to time finance or leverage funds invested
in the purchase of the Series A Preferred shall not
affect either the characterization or calculation of
such investment amounts (i.e. neither receipt of the
proceeds of any such financing nor the payment of any
debt service or costs related to such financing shall
be taken into account), (iii) neither the fact of any
transfer of Series A Preferred from the original
holders nor the amount of any consideration received
by the original holders or paid by the successor
holders in connection with any transfer shall affect
the calculation of internal rate of return and (iv)
all items of investment/expense and receipt shall be
deemed to have been invested/expended or received on
the last day of the calendar month in which they
occur. An example of the calculation of IRR is
attached as Schedule 1.
(b) Redemption at the Option Of the Corporation
after Five Years of Upon Less than 400,000 Shares
Outstanding. Notwithstanding the provisions of
Paragraph 5(a), (i) at any time after September 18,
2000, or (ii) at any time prior thereto if there
shall be less than 400,000 shares of Series A
Preferred outstanding (adjusted for any stock splits
or similar transactions), the Series A Preferred may
be redeemed in whole or in part at the option of the
Corporation. The Corporation will give notice to the
holders of the Series A Preferred of its intent to
redeem the Series A Preferred not less than 30 nor
more than 60 days prior to the redemption date. The
redemption price
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<PAGE> 29
shall be $6.30 per share (declining $0.06 for each of
the first 5 full years after September 18, 2000),
plus in each case, all accrued and unpaid dividends.
(c) Redemption as Preferred Stockholders Option.
After September 18, 1996, the Corporation will be
required, at the option of the holders of the Series
A Preferred, to redeem the Series A Preferred of any
holder demanding redemption at a price of $6.00 per
share plus all accrued and unpaid dividends on the
occurrence of any one or more of the following:
(i) failure in two consecutive quarters to
pay in full the quarterly dividends on the Series
A Preferred required by paragraph 1 of this
Section 5 (including all dividends accumulated
but unpaid for all prior quarters);
(ii) a default in the payment of principal
or interest on any institutional debt (or debts)
having an outstanding balance (or balances
aggregating) greater than (a) $5 million for
non-recourse debt, and (b) $2 million for
recourse debt (which default, in either case,
shall not have been cured by the Corporation
within 30 business days from the time the
Corporation receives written notification of the
default);
(iii) failure to comply with paragraph 6
hereof;
(iv) for calendar year 1996, the
Corporation's FAD (defined below) fails to reach
at least a break-even dividend coverage equal to
the full dividend payable on the Series A
Preferred;
(v) for calendar year 1997, the
Corporation's FAD fails to reach at least a
break-even dividend coverage equal to the full
dividend payable on the Series A Preferred and
annual dividends on the Common Stock equal to at
least a seven percent (7%) yield on $5.72; and
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<PAGE> 30
(vi) for calendar year 1998 and subsequent
years, the Corporation's FAD fails to reach at
least a break-even dividend coverage equal to the
full dividend payable on the Preferred Stock and
dividends on the Common Stock equal to at least
an eight percent (8%) yield on $5.72 (rounded to
the nearest whole cent).
For purposes of this Charter, Funds Available for Distribution ("FAD")
shall mean "Funds From Operations" minus "Non-Revenue Enhancing Capital
Expenditures". The calculation of FAD shall be made by the Corporation and the
Corporation's independent public accounting firm shall prepare a special use
report on such calculation.
"Funds From Operations" or "FFO" shall be defined in accordance with
the FFO White Paper prepared in March 1995 by the National Association of Real
Estate Investment Trusts and shall mean the Corporation's net income (computed
in accordance with generally accepted accounting principles in effect on
December 31, 1994, applied in a manner consistent with the Corporation's
accounting policies and practices as of that date), excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. As the White
Paper provides, only depreciation and amortization of assets uniquely
significant to the real estate industry will be added back. Amounts added back
would include real property depreciation, amortization of capitalized leasing
expenses, tenant allowances or improvements, and the like. Specifically excluded
are the add back of items such as the amortization of deferred financing costs,
depreciation of computer software, company office improvements, and other items
commonly found in other industries and required to be recognized as expenses in
the calculation of net income. Items classified by generally accepted accounting
principles as extraordinary or unusual, along with significant non-recurring
events that materially distort the comparative measurement of company
performance over time, are not meant to be reductions or increases in FFO, and
should be disregarded in its calculation. The use of a corporate form versus a
partnership form for unconsolidated partnerships and joint ventures should not
affect the determination of whether an entity is to be treated as a joint
venture for purposes of the definition. Gains or losses on sales of securities
or undepreciated land shall be included in FFO, unless they are unusual and
nonrecurring.
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<PAGE> 31
"Non-Revenue Enhancing Capital Expenditures" shall mean those capital
expenditures (computed in accordance with generally accepted accounting
principles consistently applied) made with respect to existing - real property
that the Corporation has owned and leased to others in order to continue (but
not those expenditures designed to enhance) the revenue-generating capacity of
the property; the following categories of capital expenditures shall not be
included for this purpose (and accordingly, the listed capital expenditures will
not be deducted from FFO in computing FAD): capital expenditures relating to (i)
acquisitions, (ii) deferred maintenance on acquisitions, (iii) tenant
improvements and leasing commissions on square footage that was not leased at
the time of acquisition, (iv) development of new properties or material new
elements of existing properties, and (v) improvements to bring a property into
compliance with governmental regulations.
(d) Waiver. The Corporation shall promptly notify
each holder of Series A Preferred of the occurrence of
any event set forth at (c) above, and unless such holder
has submitted a notice of redemption to the Corporation
on or before 90 days after receipt of the Corporation's
notice, the holder shall be deemed to have waived the
right to have shares of Series A Preferred redeemed as a
result of such occurrence. No such waiver shall
constitute a waiver of rights with respect to any
subsequent occurrence.
(e) Redemption Date: Notice of Redemption. The notice
of redemption submitted by the Corporation or a Series A
Preferred Stockholder shall set forth: (i) the redemption
date which shall be not less than 30 nor more than 60
days after the date of the notice in the case of notice
submitted by the Corporation and not less than 30 nor
more than 180 days after the date of the notice in the
case of notice submitted by a Series A Preferred
stockholder; (ii) the redemption price; and (iii) the
place at which the shareholders may obtain payment of the
redemption price upon surrender of their share
certificates. In case of a partial redemption of Series A
Preferred, such redemption shall be pro rata among the
various holders thereof or as determined by lot in the
discretion of the Board of Directors. On or before the
redemption date, each holder of shares called for
redemption
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<PAGE> 32
shall surrender the certificate representing such shares
to the Corporation at the place designated in the
redemption notice and shall thereupon be entitled to
receive payment of the redemption price on the redemption
date. If less than all of the shares represented by a
surrendered certificate are redeemed, the Corporation
shall issue a new certificate representing the unredeemed
shares.
If, on or before the redemption date, the Corporation has cash funds
available or has deposited for such purpose in trust with a bank or trust
company sufficient funds to pay the redemption price in full to the holders of
all shares called for redemption, the shares so called shall be deemed to be
redeemed as of the date of deposit, dividends on those shares shall cease to
accrue and no interest shall accrue on redemption price from and after the
redemption date.
All Conversion Rights shall remain valid and effective following the
Corporation's notice of redemption, provided that the right to convert shares
shall terminate at the close of business on the fifth day prior to the
redemption date if the holder thereof has not exercised its Conversion Right in
accordance with Paragraph 4(b) on or prior to such date. Any amounts so
deposited on account of the redemption price of shares converted subsequent to
the date of deposit shall be repaid to the Corporation forthwith upon the
conversion of such shares.
(f) Automatic Redemption and Authority for Non-Series
A Directors to Cancel. In the event that the size of the
Board of Directors has been increased to eleven pursuant
to Clauses (i), (ii) or (iii) of Paragraph 3(a) hereof
and the holders of Series A Preferred have elected four
Series A Directors to fill the newly created vacancies
(the date on which the last of such four directors is
elected being referred to as the "Board Switch Date"),
then all of the shares of Series A Preferred shall be
redeemed on the 180th day following the Board Switch Date
pursuant to paragraph 5(a) or 5(b) (other than the notice
requirements and with any automatic redemption occurring
prior to September 18, 1997 being deemed a redemption
pursuant to paragraph 5(a)), as applicable, from holders
of record of such Shares as of the close of business on
the 150th day following the Board Switch Date, unless a
majority of the directors who are not Series A Directors
rescind such automatic redemption
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prior to the 180th day following the Board Switch Date.
Nothing in this paragraph (f) is intended to limit the
rights of the Series A Preferred to effect a redemption
pursuant to paragraph 5(c) or to limit the authority of a
majority of the full board to effect a redemption
pursuant to paragraphs 5(a) or 5(b), including the
ability to call the Series A Preferred for redemption
during the 180 day period following a Board Switch Date
notwithstanding the rescission of an automatic redemption
by the directors who are not Series A Directors pursuant
to this clause (f) during that period.
(g) Payment in Cash. All redemption payments shall be
made in cash; provided, however, that if shares of Series
A Preferred are called for redemption pursuant to
paragraph 5(c) and the Corporation does not reasonably
believe that it can obtain the cash necessary to make the
redemption payment by the redemption date, the
Corporation within 30 days after the date of the
redemption notice may provide the holders of Series A
Preferred a proposal to pay the redemption price in other
than cash, including real property, fully-collateralized
senior promissory notes or other assets. Such proposal
shall contain a valuation of any assets proposed to be
transferred or to be used as collateral to secure the
Corporation's obligations. The holders of a majority of
the outstanding shares of Series A Preferred called for
redemption shall have the right in their absolute
discretion, for any reason or no reason, for a period of
30 days to accept or reject such proposed alternative
redemption payment following submittal by the
Corporation. If holders of a majority of the outstanding
shares of Series A Preferred fail to respond within such
30 day period, they shall be deemed to have rejected such
proposal.
(h) Payment Prohibited By Law. If the Corporation
fails to make a redemption payment because such payment
is prohibited by Section 2-311 of the Maryland General
Corporation Law or similar statute, then on the
redemption date the Corporation shall provide to the
holders of Series A Preferred,
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<PAGE> 34
whose shares are subject to redemption, payment of the
maximum amount that may then be legally paid, on a pro
rata basis, together with a certificate of the chief
executive or chief financial officer of the Corporation
setting forth the computation made under the applicable
statutory provision to determine what amount could be
legally paid. Thereafter, until the shares subject to
redemption have been fully redeemed, within fifteen days
after the end of each month, the Corporation shall
provide the holders of Series A Preferred whose shares
are subject to redemption, a similar certificate showing
the computation of the maximum legally permitted
redemption payment that may be made as of the end of such
month, together with the maximum permitted payment, if
any, on a pro rata basis. All shares of Series A
Preferred for which the redemption payment has not been
made on the redemption date shall be considered to be
outstanding for all purposes. Nothing in this paragraph
(h) is intended to limit the other rights of the Series A
Preferred relating to the failure of the Company to make
a redemption payment.
6. Protective Provisions.
(a) For so long as the shares of Common Stock
issuable upon conversion of the outstanding shares of
Series A Preferred represent at least 15% of the total of
(a) the shares of Common Stock outstanding, plus (b) the
shares of Common Stock issuable upon conversion of the
outstanding Series A Preferred, then the Corporation
shall not voluntarily file or assent to or in any other
way participate in the filing of an involuntary petition
in bankruptcy or seek similar protection from creditors
under federal or state bankruptcy or insolvency laws
without first obtaining the approval of holders of a
majority of the outstanding shares of Series A Preferred.
(b) For so long as (I) either the original purchaser
of the Series A Preferred still holds shares of Series A
Preferred or at least one holder holds more than 50% of
the outstanding shares of Series A Preferred and (II) the
shares of Common Stock issuable
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upon conversion of all outstanding shares of Series A
Preferred represent at least 15% of the total of (A) the
shares of Common Stock outstanding, plus (B) the shares
of Common Stock issuable upon conversion of the
outstanding Series A Preferred, then the Corporation
shall not take any of the following actions without first
obtaining the approval of the original purchaser or, if a
holder other than the original purchaser owns more than
50% of the outstanding shares of Series A Preferred, such
holder ("the Approving Person"):
(i) The issuance of or modification of any debt
in principal amount which exceeds $10 million;
(ii) New investments, including a purchase of
real estate operating companies or real estate
investment trusts, as defined in Section 856 of the
Internal Revenue Code of 1986 ("REIT"), with a
purchase price equal to or greater than $10 million,
or any series of purchases within any 90 day period
with aggregate purchase prices exceeding $25 million;
(iii) Issuance of any equity securities other
than options granted pursuant to the Director Option
Plan or the Employee Option Plan or Common Stock
issued upon exercise of such options (except approval
will not be required upon issuance of any equity
securities the proceeds of which will be used to
redeem the Series A Preferred);
(iv) Sale of any asset or assets with a sales
price in excess of $10 million, or any series of
sales within any 90 day period with aggregate sales
prices exceeding $25 million;
(v) Consolidation or merger of the Corporation;
(vi) Modification in any material respect of any
employment agreement with an executive officer of the
Corporation, including compensation;
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<PAGE> 36
(vii) Modification of the agreement between the
Corporation and Westminster Holdings, Inc., a
California corporation, or any other agreement
between the Corporation and Peter Bedford or any
Affiliate of Peter Bedford which would make such
agreement less favorable to the Corporation, or
entering into any new agreement, arrangement or
transaction with Peter Bedford or any Affiliate of
Peter Bedford; provided, however, that this clause
(vii) shall not apply to the Standstill Agreement to
be entered into between Peter Bedford and the
Corporation;
(viii) Issuance of awards of any shares or
options other than those permitted in paragraph (iii)
above;
(ix) The termination of the Corporation's
status as a REIT for tax purposes;
(x) Any substantial change in the
Corporation's business strategies;
(xi) Permit Peter Bedford's ceasing to serve as
substantially full-time chief executive officer of
the Corporation or disposing of his shares of Common
Stock 80 that Peter Bedford and his Affiliates and
members of his immediate family, his spouse, issue,
brothers, sisters, and their respective spouses and
issue, and trusts for the benefit of such persons)
own beneficially less than 1,198,278 shares of Common
Stock (as adjusted for stock splits or similar
transactions); and
(xii) any amendment to the resolution of the
Board of Directors exempting from the terms of
Section 3-602 of the Maryland General Corporation Law
and the Charter any transaction between AEW Partners,
L.P. (or any Affiliate of AEW Partners, L.P.) and the
Corporation and any transaction contemplated by or
resulting from the exercise of any redemption right
of the
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<PAGE> 37
Series A Preferred which may constitute a business
combination.
With respect to each of the above transactions, the Approving Person shall be
provided with the information regarding the proposed transaction ten business
days (any day, Monday through Friday, in which the New York Stock Exchange is
open for regular trading) prior to the scheduled approval date. If the Approving
Person shall not deliver a written notice objecting to the particular
transaction before the end of such ten business day period, the Approving Person
shall be deemed to have consented to such transaction.
(c) In the event that any holder of Series A
Preferred takes any legal action to enforce any of its
rights under this Section 5 of Article V of the
Corporation's Charter, the non-prevailing party shall be
required to pay the costs and expenses of the prevailing
party incurred in connection with such action, including
attorney and witness fees.
SECOND: The charter of the Corporation is further amended by replacing
Article VII in its entirety with the following:
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1. Definitions. For the purpose of this Article VII, the
following terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership
Limit" shall mean not more than five percent in value of the aggregate of
the outstanding shares of Capital Stock. The value of the outstanding
shares of Capital Stock shall be determined by the Board of Directors of
the Corporation in good faith, which determination shall be conclusive for
all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares
of Capital Stock is held directly or indirectly (including by a nominee),
and shall include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. The terms "Beneficial Owner", "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meaninqs.
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Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions in New York City are authorized or required by law,
regulation or executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or
series of stock of the Corporation, including, without limitation, Common
Stock, Preferred Stock and Series A Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Trust as determined pursuant to Section
7.3.6, provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522
of the Code.
Charter. The term "Charter" shall mean the charter of the Corporation,
as that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Stock Ownership Limit. The term "Common Stock Ownership Limit"
shall mean not more than five percent (in value or in number of shares,
whichever is more restrictive) of the aggregate of the outstanding shares
of Common Stock of the Corporation. The number and value of outstanding
shares of Common Stock of the Corporation shall be determined by the Board
of Directors of the Corporation in good faith, which determination shall be
conclusive for all purposes hereof.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares
of Capital Stock is held directly or indirectly (including by a nominee),
and shall include interests that would be treated as owned through the
application of Section 318 (a) of the Code, as modified by Section 856 (d)
(5) of the Code. The terms "Constructive Owner", "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a stockholder of
the Corporation for whom an Excepted Holder Limit is created by these
Articles or by the Board of Directors pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of
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<PAGE> 39
Directors pursuant to Section 7.2.7, and subject to adjustment pursuant to
Section 7.2.8: (a) for Peter B. Bedford, fifteen percent of the lesser of
the number or value of the outstanding shares of Common Stock, (b) for AEW
Partners, L.P., a Delaware limited partnership ("AEW") together with a
partnership or limited liability company that is 100% owned directly or
indirectly by AEW, (i) fifty-eight percent of the lesser of the number or
value of the outstanding shares of Common Stock and (ii) one hundred
percent of the outstanding shares of Series A Preferred Stock and (c) for
other, subsequently designated Excepted Holders, as to any class or series
of the outstanding Capital Stock, the percentage limit established by the
Board of Directors pursuant to Section 7.2.7. For these purposes, the
outstanding Common Stock shall include the shares of Common Stock into
which outstanding shares of Series A Preferred Stock are convertible, and
if shares of the Series A Preferred Stock are redeemed by the Corporation,
(a) the percentage limit applicable to Peter Bedford shall be automatically
increased so as to permit his continued ownership after the redemption of
that number of shares Common Stock that he was permitted to own under the
applicable Excepted Holder Limit immediately before the redemption, and (b)
notwithstanding Section 7.2.7(d), the percentage limit with respect to
shares of Common Stock applicable to AEW shall be automatically decreased
by the same amount as the increase in (a).
Initial Date. The term "Initial Date" shall mean the date upon which
the Articles of Amendment containing this Article VII are filed with the
State Department of Assessments and Taxation of Maryland.
Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on
any date shall mean the last sale price for such Capital Stock, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, for such Capital Stock, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the NYSE
or, if such Capital Stock is not listed or admitted to trading on the NYSE,
as reported on the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which such Capital Stock is listed or admitted to trading or, if such
Capital Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation
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<PAGE> 40
System or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if such Capital
Stock is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in such Capital Stock selected by the Board of Directors of the
Corporation or, in the event that no trading price is available for such
Capital Stock, the fair market value of the Capital Stock, as determined in
good faith by the Board of Directors of the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law,
as amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections
401(a) or 501(c) (17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section
642 (c) of the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity and also
includes a group as that term is used for purposes of Section 13 (d) (3) of
the Securities Exchange Act of 1934, as amended, and a group to which an
Excepted Holder Limit applies.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of
Section 7.2.1, would Beneficially Own or Constructively Own shares of
Capital Stock, and if appropriate in the context, shall also mean any
Person who would have been the record owner of the shares that the
Prohibited Owner would have so owned.
REIT. The term "REIT" shall mean a real estate investment trust within
the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Article VI, Section 9 of the Charter that it is no
longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT or that compliance with the restrictions and
limitations on Beneficial Ownership, Constructive Ownership and Transfers
of shares of Capital Stock set forth herein is no longer required in order
for the Corporation to qualify as a REIT.
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<PAGE> 41
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event
that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such
events, of Capital Stock or the right to vote or receive dividends on
Capital Stock, including (a) the granting or exercise of any option (or any
disposition of any option), (b) any disposition of any securities or rights
convertible into or exchangeable for Capital Stock or any interest in
Capital Stock or any exercise of any such conversion or exchange right and
(c) Transfers of interests in other entities that result in changes in
Beneficial or Constructive Ownership of Capital Stock; in each case,
whether voluntary or involuntary, whether owned of record, Constructively
Owned or Beneficially Owned and whether by operation of law or otherwise.
The terms "Transferring" and "Transferred" shall have the correlative
meanings.
Trust. The term "Trust" shall mean any trust provided for in Section
7.3.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of the Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period commencing on
the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in
excess of the Aggregate Stock Ownership Limit, (2) no Person,
other than an Excepted Holder, shall Beneficially Own or
Constructively Own shares of Common Stock in excess of the Common
Stock Ownership Limit and (3) no Excepted Holder shall
Beneficially Own or Constructively Own shares of Capital Stock in
excess of the Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own shares
of Capital Stock to the extent that such Beneficial or
Constructive Ownership of Capital Stock would result in the
Corporation being "closely held" within the
35
<PAGE> 42
meaning of Section 856(h) of the Code (without regard to whether
the ownership interest is held during the last half of a taxable
year), or otherwise failing to qualify as a REIT (including, but
not limited to, Beneficial or Constructive Ownership that would
result in the Corporation owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of
the Code if the income derived by the Corporation from such tenant
would cause the Corporation to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code).
(iii) Notwithstanding any other provisions contained herein,
any Transfer of shares of Capital Stock (whether or not such
Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange
or automated interdealer quotation system) that, if effective,
would result in the Capital Stock being beneficially owned by less
than 100 Persons (determined under the principles of Section
856(a)(5) of the Code) shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Capital
Stock.
(b) Transfer in Trust. If any Transfer of shares of Capital Stock
(whether or not such Transfer is the result of a transaction entered
into through the facilities of the NYSE or any other national
securities exchange or automated inter-dealer quotation system) occurs
which, if effective, would result in any Person Beneficially Owning or
Constructively Owning shares of Capital Stock in violation of Section
7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock, the
Beneficial or Constructive Ownership of which otherwise would
cause such Person to violate Section 7.2.1(a)(i) or (ii)(rounded
to the nearest whole shares), shall be automatically transferred
to a Trust for the benefit of a Charitable Beneficiary, as
described in Section 7.3, effective as of the close of business on
the Business Day prior to the date of such Transfer, and such
Person shall acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of
this sentence would not be
36
<PAGE> 43
effective for any reason to prevent the violation of Section
7.2.1(a)(i) or (ii), then the Transfer of that number of shares of
Capital Stock that otherwise would cause any Person to violate
Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the
intended transferee shall acquire no rights in such shares of
Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 7.2.1 or that a Person intends to acquire
or has attempted to acquire Beneficial or Constructive Ownership of any
shares of Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee thereof shall
take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, without limitation,
causing the Corporation to redeem shares, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer or other event; provided, however, that any Transfers
or attempted Transfers or other events in violation of Section 7.2.1 shall
automatically result in the transfer to the Trust described above, and,
where applicable, such Transfer (or other event) shall be void ab initio as
provided above irrespective of any action (or non-action) by the Board of
Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Capital Stock that will or may violate Section
7.2.1(a), or any Person who would have owned shares of Capital Stock that
resulted in a transfer to the Trust pursuant to the provisions of Section
7.2.1(b) shall immediately give written notice to the Corporation of such
event, or in the case of such a proposed or attempted transaction, give at
least 15 days prior written notice, and shall provide to the Corporation
such other information as the Corporation may request in order to determine
the effect, if any, of such Transfer on the Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the Initial
Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower
percentage as required by the Code or the Treasury Regulations
promulgated thereunder) of the outstanding shares of Capital
37
<PAGE> 44
Stock, within 30 days after the end of each taxable year, shall
give written notice to the Corporation stating the name and
address of such owner, the number of shares of Capital Stock and
other shares of the Capital Stock Beneficially Owned and a
description of the manner in which such shares are held. Each such
owner shall provide to the Corporation such additional information
as the Corporation may request in order to determine the effect,
if any, of such Beneficial Ownership on the Corporation's status
as a REIT and to ensure compliance with the Capital Stock
Ownership Limit.
(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of
record) who is holding Capital Stock for a Beneficial or
Constructive Owner shall provide to the Corporation such
information as the Corporation may request, in good faith, in
order to determine the Corporation's status as a REIT and to
comply with requirements of any taxing authority or governmental
authority or to determine such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Article VI, Section 9 of
the Charter, nothing contained in this Section 7.2 shall limit the
authority of the Board of Directors of the Corporation to take such other
action as it deems necessary or advisable to protect the Corporation and
the interests of its stockholders in preserving the Corporation's status as
a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the application
of any of the provisions of this Section 7.2, Section 7.3, or any
definition contained in Section 7.1, the Board of Directors of the
Corporation shall have the power to determine the application of the
provisions of this Section 7.2 or Section 7.3 with respect to any situation
based on the facts known to it. In the event Section 7.2 or 7.3 requires an
action by the Board of Directors and the Charter fails to provide specific
guidance with respect to such action, the Board of Directors shall have the
power to determine the action to be taken so long as such action is not
contrary to the provisions of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors of the
Corporation, in its sole discretion, may exempt a Person from the
Aggregate Stock Ownership
38
<PAGE> 45
Limit and the Common Stock Ownership Limit, as the case may be, and may
establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to
ascertain (to the extent practicable and prudent) that no
individual's Beneficial or Constructive Ownership of such shares
of Capital Stock will violate Section 7.2.1(a)(ii);
(ii) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to
ascertain (to the extent practicable and prudent) that such Person
does not and represents that it will not own, actually or
Constructively, an interest in a tenant of the Corporation (or a
tenant of any entity owned or controlled by the Corporation) that
would cause the Corporation to own, actually or Constructively,
more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of
the Code) in such tenant and the Board of Directors obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain this fact (for this purpose, a
tenant from whom the Corporation (or an entity owned or controlled
by the Corporation) derives (and is expected to continue to
derive) a sufficiently small amount of revenue such that, in the
opinion of the Board of Directors of the Corporation, rent from
such tenant would not adversely affect the Corporation's ability
to qualify as a REIT, shall not be treated as a tenant of the
Corporation); and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action
which is contrary to the restrictions contained in Sections 7.2.1
through 7.2.6) will result in such shares of Capital Stock being
automatically transferred to a Trust in accordance with Sections
7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section 7.2.7(a),
the Board of Directors of the Corporation may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in
form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem
39
<PAGE> 46
necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any
ruling or opinion, the Board of Directors may impose such conditions or
restrictions as it deems appropriate in connection with granting such
exception.
(c) Subject to Section 7.2.1(a) (ii), an underwriter which
participates in a public offering or a private placement of Capital
Stock (or securities convertible into or exchangeable for Capital
Stock) may Beneficially Own or Constructively Own shares of Capital
Stock (or securities convertible into or exchangeable for Capital
Stock) in excess of the Aggregate Stock Ownership Limit, the Common
Stock Ownership Limit, or both such limits, but only to the extent
necessary to facilitate such public offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such
Excepted Holder at any time, or (2) pursuant to the terms and
conditions of the agreements and undertakings entered into with such
Excepted Holder in connection with the establishment of the Excepted
Holder Limit for that Excepted Holder. No Excepted Holder Limit shall
be reduced to a percentage that is less than the Common Stock Ownership
Limit.
Section 7.2.8. Increase in Aggregate Stock Ownership and Common Stock
Owner Limits. The Board of Directors may from time to time increase the
Common Stock Ownership Limit and the Aggregate Stock Ownership Limit.
Section 7.2.9 Legend. Each certificate for shares of Capital Stock
shall bear the following legend:
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person may
Beneficially or Constructively Own shares of the Corporation's Common
Stock in excess of five percent (in value or number of shares) of the
outstanding shares of Common Stock of the Corporation unless such
Person is an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable); (ii) no Person may Beneficially or Constructively
Own shares of
40
<PAGE> 47
Capital Stock of the Corporation in excess of five percent of the value
of the total outstanding shares of Capital Stock of the Corporation,
unless such Person is an Excepted Holder (in which case the Excepted
Holder Limit shall be applicable); (iii) no Person may Beneficially or
Constructively Own Capital Stock that would result in the Corporation
being "closely held" under Section 856 (h) of the Code or otherwise
cause the Corporation to fail to qualify as a REIT; and (iv) no Person
may Transfer shares of Capital Stock if such Transfer would result in
the Capital Stock of the Corporation being owned by fewer than 100
Persons. Any Person who Beneficially or Constructively owns or attempts
to Beneficially or Constructively Own shares of Capital Stock which
causes or will cause a Person to Beneficially or Constructively Own
shares of Capital Stock in excess or in violation of the above
limitations must immediately notify the Corporation. If any of the
restrictions on transfer or ownership are violated, the shares of
Capital Stock represented hereby will be automatically transferred to a
Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain events,
attempted Transfers in violation of the restrictions described above
may be void ab initio. All capitalized terms in this legend have the
meanings defined in the charter of the Corporation, as the same may be
amended from time to time, a copy of which, including the restrictions
on transfer and ownership, will be furnished to each holder of Capital
Stock of the Corporation on request and without charge.
Section 7.3 Transfer of Capital Stock in Trust
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other
event described in Section 7.2.1(b) that would result in a transfer of
shares of Capital Stock to a Trust, such shares of Capital Stock shall be
deemed to have been transferred to the Trustee as trustee of a Trust for
the exclusive benefit of one or more Charitable Beneficiaries. Such
transfer to the Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or other event
that results in the transfer to the Trust pursuant to Section 7.2.1 (b).
The Trustee shall be appointed by the Corporation and shall be a Person
unaffiliated with the Corporation and any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Corporation as provided in Section
7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Shares of Capital
Stock held by the Trustee shall be issued and outstanding shares of Capital
Stock of the Company. The
41
<PAGE> 48
Prohibited Owner shall have no rights in the shares held by the Trustee.
The Prohibited Owner shall not benefit economically from ownership of any
shares held in trust by the Trustee, shall have no rights to dividends and
shall not possess any rights to vote or other rights attributable to the
shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect
to shares of Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by the
Corporation that the shares of Capital Stock have been transferred to the
Trustee shall be paid with respect to such shares of Capital Stock to the
Trustee upon demand and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights
with respect to shares held in the Trust and, subject to Maryland law,
effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by the Corporation that the shares
of Capital Stock have been transferred to the Trustee and (ii) to recast
such vote in accordance with the desires of the Trustee acting for the
benefit of the Charitable Beneficiary. Notwithstanding the provisions of
this Article VII, until the Corporation has received notification that
shares of Capital Stock have been transferred into a Trust, the Corporation
shall be entitled to rely on its share transfer and other stockholder
records for purposes of preparing lists of stockholders entitled to vote at
meetings, determining the validity and authority of proxies, and otherwise
conducting votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of receiving
notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares
held in the Trust to a person, designated by the Trustee, whose ownership
of the shares will not violate the ownership limitations set forth in
Section 7.2.1(a). Upon such sale, the interest of the Charitable
Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as provided in this Section 7.3.4. The Prohibited
Owner shall receive the lesser of (1) the price paid by the Prohibited
Owner for the shares or, if the Prohibited Owner did not give value for the
shares in connection with the event causing the
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<PAGE> 49
shares to be held in the Trust (e.g., in the case of a gift, devise or
other such transaction), the Market Price of the shares on the day of the
event causing the shares to be held in the Trust and (2) the price per
share received by the Trustee from the sale or other disposition of the
shares held in the Trust. Any net sales proceeds in excess of the amount
payable to the Prohibited Owner shall be immediately paid to the Charitable
Beneficiary. If, prior to the discovery by the Corporation that shares of
Capital Stock have been transferred to the Trustee, such shares are sold by
a Prohibited Owner, then (i) such shares shall be deemed to have been sold
on behalf of the Trust and (ii)' to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to this Section 7.3.4,
such excess shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the Trustee.
Shares of Capital Stock transferred to the Trustee shall be deemed to have
been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction
that resulted in such transfer to the Trust (or, in the case of a devise or
gift, the Market Price at the time of such devise or gift) or (ii) the
Market Price on the date the Corporation, or its designee, accepts such
offer. The Corporation shall have the right to accept such offer until the
Trustee has sold the shares held in the Trust pursuant to Section 7.3.4.
Upon such a sale to the Corporation, the interest of the Charitable
Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By written
notice to the Trustee, the Corporation shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in
the Trust such that (i) the shares of Capital Stock held in the Trust would
not violate the restrictions set forth in Section 7.2.1(a) in the hands of
such Charitable Beneficiary and (ii) each such organization must be
described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each of Sections
170(b)(1)(A), 2055 and 2522 of the Code.
THIRD: The charter of the Corporation is further amended by replacing
Article VIII, Section 3, Paragraph (c) in its entirety with the following:
(c) A person shall be a "beneficial owner" or shall
beneficially own" stock of the Corporation:
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<PAGE> 50
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of Voting Stock.
FOURTH: The charter of the Corporation is further amended by replacing
Article VIII, Section 3, Paragraph (e) in its entirety with the following:
(e) "Affiliate" or "Associates" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in
effect on April 5, 1993.
FIFTH: The amendments to the charter of the Corporation as hereinabove set
forth have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law and by the Charter of the
Corporation.
SIXTH: The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment was 40,000,000, of which
30,000,000 were shares of Common Stock, $0.01 par value per share, and
10,000,000 were Preferred Stock, $0.01 par value per share. The aggregate par
value of all authorized shares of stock having a par value was $400,000.00.
SEVENTH: The total number of shares of stock which the Corporation has
authority to issue, pursuant to the charter of the Corporation as hereby
amended, is 50,000,000, of which 30,000,000 are shares of Common Stock, $0.01
par value per share, 10,000,000 are shares of Preferred Stock, $0.01 par value
per share, and 10,000,000 are shares of Series A Convertible
44
<PAGE> 51
Preferred Stock. The aggregate par value of all authorized shares of stock
having a par value is $500,000.00
EIGHTH: The undersigned Chairman of the Board acknowledges these Articles
of Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its Chairman of the Board and attested to by
its Secretary on this 13th day of September, 1995.
ATTEST:
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ Peter B. Bedford
Chairman of the Board
and Chief Executive Officer
Peter B. Bedford
By: /s/ Jennifer I. Mori
Secretary
Jennifer I. Mori
(Seal)
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<PAGE> 52
SCHEDULE 1
REDEMPTION PRICE CALCULATION
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
Preferred Stock $ 50,000,000 50,000,000 50,000,000 50,000,000
Accrued Redemption
Premium 0 8,000,000 18,000,000 27,100,000
------------ ------------ ------------ ------------
Total Investment
Basis(1) 50,000,000 58,000,000 68,000,000 77,100,000
Internal Rate of
Return 25.00% 25.00% 20.00% 20.00%
------------ ------------ ------------ ------------
Total Return 12,500,000 14,500,000 13,600,000 15,420,000
Minimum Dividends
Paid (4,500,000) (4,500,000) (4,500,000) (4,500,000)
------------ ------------ ------------ ------------
Accrued Redemption
Premium $ 8,000,000 $ 10,000,000 $ 9,100,000 $ 10,920,000
============ ============ ============ ============
Redemption Price(2) $ 58,000,000 $ 68,000,000 $ 77,100,000 $ 88,020,000
============ ============ ============ ============
</TABLE>
Footnotes:
(1) Beginning of 12 month period.
(2) End of 12 month period.
Note: The above analysis calculates the redemption price at the end of four
consecutive twelve month periods. The actual redemption price would be
calculated based upon the exact number of days between the date of initial
investment and the date of redemption utilizing the required internal rates of
return applicable to each period and the actual dividends paid, as such
dividends paid may exceed the minimum dividends indicated above.
<PAGE> 53
BEDFORD PROPERTY INVESTORS, INC.
ARTICLES OF INCORPORATION
ARTICLE I
INCORPORATOR
The undersigned, James J. Hanks, Jr., whose address is 300 East Lombard
Street, Baltimore, Maryland 21202, being at least 18 years of age, does hereby
form a corporation under the general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Bedford Property Investors, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")), for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real estate
investment trust as defined under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
the State of Maryland is James J. Hanks, Jr., c/o Ballard Spahr Andrews &
Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202. The name and
address of the resident agent of the Corporation in the State of Maryland is
James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard
Street, Baltimore, Maryland 21202. The resident agent is an individual residing
in the State of Maryland.
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<PAGE> 54
ARTICLE V
STOCK
Section 1. Authorized Shares. The total number of shares of stock which
the Corporation has authority to issue is 40,000,000 shares, of which 30,000,000
are shares of Common Stock, $.01 par value per share ("Common Stock"), and
10,000,000 are shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"). The aggregate par value of all authorized shares of stock having a par
value is $400,000.00.
Section 2. Common Stock. Each share of Common Stock shall entitle the
holder thereof to one vote.
Section 3. Preferred Stock. The Preferred Stock may be issued, from
time to time, in one or more series as is authorized by the Board of Directors.
Prior to issuance of shares of each series, the Board of Directors by resolution
shall designate that series to distinguish it from all other series and classes
of stock of the Corporation, shall specify the number of shares to be included
in the series and shall set the terms, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption. Subject to the express
terms of any other series of Preferred Stock outstanding at the time and
notwithstanding any other provisions of the charter of the Corporation, the
Board of Directors may increase or decrease the number of shares of, or alter
the designation or classify or reclassify, any unissued shares of any series of
Preferred Stock by setting or changing, in any one or more respects, from time
to time before issuing the shares, the terms, preferences, conversion of other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of the shares
of any series of Preferred Stock.
Section 4. Charter and Bylaws. All persons who shall acquire stock in
the Corporation shall acquire the same subject to the provisions of the charter
and the Bylaws of the Corporation.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 1. Number and Classification. The number of directors of the
Corporation initially shall be five, which number may be increased or decreased
pursuant to the Bylaws of the Corporation; provided, however, that (a) if there
is stock outstanding and so long as there are three or more stockholders,
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<PAGE> 55
the number of directors shall never be less than three and (b) if there is stock
outstanding and so long as there are less than three stockholders, the number of
directors may not be less than the number of stockholders. The names of the
directors who shall serve effective immediately and until the first annual
meeting of stockholders and until their successors are duly elected and qualify
are:
Claude M. Ballard
Peter B. Bedford
Anthony Downs
Anthony M. Frank
Martin I. Zankel
Section 2. Extraordinary Actions. Except as otherwise herein
specifically provided, notwithstanding any provision of law permitting or
requiring any action to be taken or authorized by the affirmative vote of the
holders of a greater number of votes, any such action shall be effective and
valid if taken or authorized by the affirmative vote of holders or shares
entitle to cast a majority of all the votes entitled to be cast on the matter.
Section 3. Authorization by Board of Stock Issuance. The Board of
Directors of the Corporation may authorize the issuance from time to time of
shares of its stock of any class. Whether now or hereafter authorized, or
securities convertible into shares of its stock of any class, whether now or
hereafter authorized, for such consideration as the Board of Directors may deem
advisable, subject to such restrictions or limitations, if any, as may be set
forth in the charter or the Bylaws of the Corporation or in the general laws of
the State of Maryland.
Section 4. Preemptive Rights. Except as may be provided by the Board of
Directors in authorizing the issuance of shares of Preferred Stock pursuant to
Article V, Section 3, no holder of shares of stock of the Corporation shall, as
such holder, have any preemptive right to purchase or subscribe for any
additional shares of the stock of the Corporation or any other security of the
Corporation which it may issue or sell.
Section 5. Indemnification. The Corporation shall have the power, to
the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a preceding to, (a) any individual who is a
present or former director, officer or employee of the Corporation or (b) any
individual who, while a director of the Corporation and at the request of the
Corporation, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, partnership, joint venture,
trust,
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<PAGE> 56
employee benefit plan or other enterprise. The Corporation shall have the power,
with the approval of its Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
Section 6. Related Party Transactions. Without limiting any other
procedures available by law or otherwise to the Corporation, the Board of
Directors may authorize any agreement or other transaction with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization, although one or more of the directors or officers of the
Corporation may be a party to any such agreement or an officer, director,
stockholder or member of such other party, and no such agreement or transaction
shall be invalidated or rendered void or voidable solely by reason of the
existence of any such relationship if the existence is disclosed or known to the
Board of Directors, and the contract or transaction is approved by the
affirmative vote of a majority of the disinterested directors, even if they
constitute less than a quorum of the Board. Any director of the Corporation who
is also a director, officer, stockholder or member of such other entity may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors considering such matter.
Section 7. Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter of the Corporation and in the
absence of (a) actual receipt of an improper benefit in money, property or
services or (b) an adverse judgment or other final adjudication based on a
finding that an act or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action being adjudicated, shall be
final and conclusive and shall be binding upon the Corporation and every holder
of shares of its stock: the amount of the net income of the Corporation for any
period and the amount of assets at any time legally available for the payment of
dividends, redemption of its stock or the payment of other distribution on its
stock; the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining the
fair value, of any asset owned or held by the Corporation; and any matters
relating to the acquisition, holding and disposition of any assets by the
Corporation.
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<PAGE> 57
Section 8. Reserved Powers of Board. The enumeration and definition of
particular powers of the Board of Directors included in this Article VI shall in
no way be limited or restricted by reference to or inference from the terms of
any other clause of this or any other provision of the Certificate of
Incorporation of the Corporation, or construed or deemed by inference or
otherwise in an any manner to exclude or limit the powers conferred upon the
Board of Directors under the general laws of the State of Maryland as now or
hereafter in force.
Section 9. REIT Qualification. The Board of Directors shall use its
reasonable best efforts to cause the Corporation and its stockholders to qualify
for federal income tax treatment in accordance with the provisions of the Code
applicable to a REIT. In furtherance of the foregoing, the Board of Directors
shall use its reasonable best efforts to take such actions as are necessary, and
may take such actions as in its sole judgment and discretion are desirable, to
preserve the status of the Corporation as a REIT; provided, however, that if the
Board of Directors determines that it is no longer in the best interests of the
Corporation for it to continue to qualify as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code.
ARTICLE VII
RESTRICTION ON TRANSFER OF
SHARES AND CERTAIN STOCK REPURCHASES
Section 1. Refusal to Transfer. The Corporation is authorized to refuse
to accept for transfer or to issue a new certificate for any shares of capital
stock delivered for transfer if the Board of Directors in good faith concludes
that any such sale, transfer or issuance will or could result in the loss of
status of the Corporation as a "real estate investment trust" within the meaning
set forth in the Internal Revenue Code of 1986, as amended, the regulations
thereunder, or any interpretation thereof by a court or other governmental
agency of competent jurisdiction.
Section 2. Repurchases. The Corporation shall not purchase, directly or
indirectly, at a price above the market price prevailing at the time of
purchase, any stock from any person or any Affiliate or Associate (as
hereinafter defined) of such person, who beneficially owns more than three
percent (3%) of the outstanding stock of the class of stock to be purchased,
unless (a) such purchase has been approved by an affirmative vote of the holders
of a majority of the aggregate outstanding voting stock of the Corporation held
by stockholders other than such person or any Affiliate or Associate of such
person, or (b) the Corporation offers to purchase from all stockholders of the
Corporation,
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<PAGE> 58
other than such person or any Affiliate or Associate of such person, all shares
of such class and all shares convertible into such class for a price at least
equal to the price being offered to such person or any Affiliate or Associate of
such person; provided, however, that notwithstanding the foregoing, the Board of
Directors may authorize the Corporation to purchase, directly or indirectly, on
terms approved by the Board of Directors, any stock from any person or any
Affiliate or Associate of such person without the vote or consent of the
stockholders to the extent such purchase is deemed by the Board in good faith to
be necessary to meet the requirements for a real estate investment trust" within
the meaning set forth in the Internal Revenue Code of 1986, as amended, the
regulations thereunder, or any interpretation thereof by a court or other
governmental agency of competent jurisdiction.
Section 3. Beneficial Owner. A person shall be a "beneficial
owner" or shall "beneficially own" stock of the Corporation:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly: or
(b) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right
to vote pursuant to any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
Section 4. Affiliates. "Affiliate" or Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and regulations under the Securities Exchange Act of 1934, as in effect on April
5, 1993.
ARTICLE VIII
BUSINESS COMBINATIONS
Section 1. Necessary Vote. In addition to any vote otherwise required
by law or these Articles of Incorporation, a Business Combination, as
hereinunder defined, shall require the affirmative vote of the holders of at
least eighty percent (80%) of the voting power of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the
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<PAGE> 59
election of directors (the "Voting Stock"), voting together as a single class.
Section 2. Exceptions. The provisions of Section 1 of this
Article VIII shall not apply to any Business Combination if:
(a) The Corporation is at the time of the consummation of the
Business Combination, and at all times throughout the preceding twelve
months has been, directly or indirectly, the beneficial owner of a
majority of each class of the outstanding "equity securities" (as
defined in Rule 3all-1 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on November 9, 1984) of
the Interested Stockholder (as hereinafter defined) which is a party to
such transaction; or
(b) Such Business Combination has been approved by a majority of
the Board of Directors who, at the time such approval is given, were
not Affiliates (as hereinafter defined) or nominees of the Interested
Stockholder and were members of the Board of Directors prior to the
time that the Interested Stockholder became an Interested Stockholder
("Disinterested Directors"), and any successor of a Disinterested
Director who is not an Affiliate or nominee of the Interested
Stockholder and who is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Board of
Directors; or
(c) All of the following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market
Value (as hereinafter defined) as of the date of the consummation
of the Business Combination of consideration other than cash to be
received per share by holders of Voting Stock in such Business
Combination shall be at least equal to the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) aid by the Interested Stockholder for
any shares of Voting Stock acquired by it (1) within the two-year
period immediately prior to the first public announcement of the
proposal of the Business Combination or (2) in the transaction in
which it became an Interested Stockholder, whichever is higher;
and
(ii) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or
in the same form as the Interested Stockholder has previously paid
for shares of such Voting Stock. If the Interested Stockholder
paid for shares of any class of Voting Stock with varying forms
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<PAGE> 60
of consideration, the form of consideration to be paid by the
Interested Stockholder for such class of Voting Stock shall be
either cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired by the
Interested Stockholder.
Section 3. Definitions. For the purposes of this Article VIII:
(a) A "Business Combination" shall mean:
(i) any merger or consolidation of the Corporation with or
into (1) any Interested Stockholder (as hereinafter defined) or
(2) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or an Affiliate of any
Interested Stockholder of any of the assets of the Corporation
having an aggregate fair market value of Five Million Dollars
($5,000,000.00) or more; or
(iii) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation or
any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity securities of the
Corporation convertible into such class of equity securities which
is directly or indirectly owned by any Interested Stockholder of
any Affiliate of any Interested Stockholder; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder.
(b) "Interested Stockholder" shall mean any individual, firm,
corporation (other than the Corporation) or other entity which, as of
the record date for the determination of stockholders entitled to
notice of and to vote on any of the transactions described in clauses
(i) through (iv) of subsection (a) of this Section 3, or
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<PAGE> 61
immediately prior to the consummation of any such transaction, is the
beneficial owner of ten percent (10%) or more of the outstanding Voting
Stock;
(c) "Beneficial owner" or "beneficially own" shall have the
meaning set forth in Section 3 of Article VII of these Articles of
Incorporation.
(d) For the purpose of determining whether a person is an
Interested Stockholder pursuant to subsection (b) of this Section 3,
the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through the application of Section 3 of
Article VII of these Articles of Incorporation but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options or otherwise.
(e) "Affiliate" or "Associate" shall have the meaning set forth in
Section 4 of Article VII of these Articles of Incorporation.
(f) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date of the consummation of the Business Combination of a
share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc., Automated Quotation System or
any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock was
determined by the Board of Directors in good faith; and (ii) in the
case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board of
Directors in good faith.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
charter, of any shares of outstanding
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<PAGE> 62
stock. Any amendment to the charter of the Corporation shall be valid only if
such amendment shall have been approved by the affirmative vote of a majority of
all the votes entitled to be cast on the matter, except that eighty percent
(80%) of the outstanding voting stock of the Corporation, voting together as a
single class shall be required to amend or adopt any provisions inconsistent
with Article VIII of these Articles of Incorporation or with the reference to
Article VIII in this sentence. All rights and powers conferred by the charter of
the Corporation on stockholders, directors and officers are granted subject to
this reservation.
ARTICLE X
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors, officers and employees, no
director, officer or employee of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article X, nor the adoption or amendment of any other provision
of the charter or the Bylaws of the Corporation inconsistent with this Article
X, shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 29th day of June, 1993.
/s/ James J. Hanks, Jr.
James J. Hanks, Jr.
10
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
FILE NUMBER
788650
March 29, 1996
Bedford Property Investors, Inc.
Attn: Donald A. Lorenz,
Executive Vice President
and Chief Financial Officer
270 Lafayette Circle
Lafayette, California 94549
Re: Bedford Property Investors, Inc.
--------------------------------
Ladies and Gentlemen:
We have acted as Maryland counsel to Bedford Property Investors, Inc.,
a Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of Amendment No. 1 to the Registration Statement on
Form S-2, filed by the Company to register 3,852,500 shares (the "Shares") of
the Company's Common Stock, $.02 par value per share ("Common Stock"), under
the Securities Act of 1933, as amended (the "1933 Act"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined the originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement on Form S-2, filed by the Company with
the Securities and Exchange Commission on February 14, 1996 (the "Registration
Statement");
2. The charter of the Company, as amended (the "Charter"), certified
as of a recent date by the State Department of Assessments and Taxation of
Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by the
Secretary of the Company;
<PAGE> 2
Bedford Property Investors, Inc.
March 29, 1996
Page 2
4. A certificate as of a recent date of the SDAT as to the good
standing of the Company;
5. Resolutions provided by Shearman & Sterling, counsel to the
Company, which have been adopted by the Board of Directors and are to be
adopted by the Pricing Committee of the Board of Directors (the "Pricing
Committee Resolutions"), regarding the issuance of the Shares, certified as of
a recent date by the Secretary of the Company;
6. A certificate executed by Jennifer I. Mori, Secretary of the
Company, dated March 29, 1996; and
7. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us, there are no facts inconsistent with the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and the obligations of all of the parties set
forth therein are legal, valid and binding and are enforceable in accordance
with all stated terms except as limited (a) by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other laws relating to or
affecting the enforcement of creditors' rights or (b) by general equitable
principles.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents is legally competent
to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and
complete. There are no oral or written modifications of or amendments to the
Documents, and there has been
<PAGE> 3
Bedford Property Investors, Inc.
March 29, 1996
Page 3
no waiver of any of the provisions of the Documents, by actions or conduct of
the parties or otherwise.
5. The Pricing Committee Resolutions will be adopted by the Pricing
Committee of the Board of Directors prior to the offering of any of the
Securities.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The Shares have been duly authorized and, when sold and delivered
against payment therefore in the manner described in such authorization, will
be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to compliance with securities (or "blue sky") laws of
the State of Maryland or as to federal or state law regarding fraudulent
transfers. The opinion expressed herein is subject to the effect of judicial
decisions which may permit the introduction of parol evidence to modify the
terms or the interpretation of agreements. We assume no further obligation to
supplement this opinion if any applicable law changes after the date hereof or
if we become aware of any fact that might change the opinion expressed herein
after the date hereof.
This opinion is being furnished to you solely for your benefit and may
not be relied upon by, quoted in any manner to, or delivered to any other person
or entity without, in each instance our prior written consent.
<PAGE> 4
Bedord Property Investors, Inc.
March 29, 1996
Page 4
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the anme of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE> 1
EXHIBIT 7.1
[LETTERHEAD]
FILE NUMBER
788650
March 29, 1996
Bedford Property Investors, Inc.
Attn: Donald A. Lorenz,
Executive Vice President
and Chief Financial Officer
270 Lafayette Circle
Lafayette, California 94549
Re: Amendment No. 1 to Registration Statement
on S-2 (No. 333-921): 3,852,500 Shares
of Common Stock, $.02 Par Value Per Share
-----------------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Bedford Property Investors, Inc.,
a Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of up to 3,852,500 shares (the
"Shares") of its Common Stock, $.02 par value per share (the "Common Stock"), by
the Company, pursuant to the above-referenced Registration Statement on Form
S-2, filed by the Company with the Securities and Exchange Commission on the
date hereof (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "1933 Act"). We have examined a copy of the charter of the Company
as certified by the State Department of Assessments and Taxation of Maryland
(the "Charter") and copies of resolutions of the Board of Directors of the
Company, or a duly appointed committee thereof, relating to the sale and
issuance of the Shares, certified as of a recent date by the Secretary of the
Company, and such other documents as we have deemed relevant to expressing the
opinion contained herein.
The Charter provides that in the event of any Liquidation Event (as
defined in the Charter), either voluntary or involuntary, the holders of shares
of Series A Preferred Stock, $.01 par value per share, of the Company (the
"Series A Preferred Stock") shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Company to holders of the Common Stock by reason of their ownership thereof,
the amount of $6.30 per share plus any accrued and unpaid dividends, for each
share of Series A Preferred Stock then held by such holders.
You have requested our opinion with respect to whether there are any
restrictions upon surplus of the Company by reason of
<PAGE> 2
Bedford Property Investors, Inc.
March 29, 1996
Page 2
the excess of the amount of the liquidation preference of the Series A
Preferred Stock over the par value of such stock, and also as to any remedies
that will be available to securities holders for or after payment of any
dividend that would reduce surplus to an amount less than the amount of such
excess.
There are no express restrictions upon surplus of a Maryland
corporation contained in the Constitution or statutes of Maryland. However,
under Section 2-311(a) of the Maryland General Corporation Law ("MGCL"), a
corporation may not make a distribution if, after giving effect to the
distribution, the corporation would not be able to pay its indebtedness as such
indebtedness becomes due in the usual course of business or if the
corporation's total assets would be less than the sum of its total liabilities
plus, unless the charter permits otherwise, the amount that would be needed, if
the corporation were to be dissolved at the time of distribution, to satisfy the
preferential rights upon dissolution of stockholders, such as holders of the
Series A Preferred Stock, whose preferential rights on dissolution are superior
to those receiving the distribution.
Article V, Section 5(1)(c) of the Charter specifically provides that:
In determining whether a distribution (other than upon
voluntary or involuntary liquidation), by dividend (but not by
redemption or other acquisition of shares or otherwise), is
permitted under the Maryland General Corporation Law, amounts
that would be needed if the Corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights
of dissolution of holders of Series A Preferred Stock and
Preferred Stock whose preferential rights upon dissolution
are superior to those receiving the distribution shall not be
added to the Corporation's total liabilities.
Accordingly, it is our opinion that the excess of the liquidation
preference of the Series A Preferred Stock over its par value does not
constitute a restriction upon the surplus of the Company. In view of the
foregoing, it is also our opinion that there are no remedies to any stockholder
of the Company before or after payment of any dividend that would reduce
surplus to an amount less than the excess of the liquidation preference of
Series A Preferred Stock over its par value. We are not aware of any
<PAGE> 3
Bedford Property Investors, Inc.
March 29, 1996
Page 3
published decision of an appellate court of the State of Maryland on this
question.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion concerning any other law. The
opinion expressed herein is subject to the effect of judicial decisions which
may permit the introduction of parol evidence to modify the terms or the
interpretation of agreements. We assume no obligation to supplement this
opinion if any applicable law changes after the date hereof or if we become
aware of any fact that might change the opinion expressed herein after the date
hereof.
This opinion is being furnished to you solely for your benefit.
Accordingly, it may not be relied upon by, quoted in any manner to, or
delivered to any other person or entity without, in each instance, our prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE> 1
Exhibit 8.1
SHEARMAN & STERLING
FAX: 415 616-1199 555 CALIFORNIA STREET ABU DHABI
SAN FRANCISCO, CALIFORNIA 94104-1522 BUDAPEST
415 616-1100 DUSSELDORF
FRANKFURT
LONDON
LOS ANGELES
WRITER'S DIRECT NUMBER: NEW YORK
PARIS
SAN FRANCISCO
TAIPEI
March 29, 1996 TOKYO
TORONTO
WASHINGTON, D.C.
Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, California 94549
Issuance of Common Stock
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
aspects in connection with the public offering by Bedford Property Investors,
Inc., a Maryland corporation (the "Company") of shares of Common Stock pursuant
to the Registration Statement or Form S-2 (Registration No. 333-921), as amended
(the "Registration Statement"). The Company, by action of its predecessor ICM
Property Investors, Inc., has elected to be treated as a real estate investment
trust (a "REIT") as defined in section 856 of the Internal Revenue Code of 1986,
as amended (the "Code").
In rendering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement. We also have relied on
statements as to matters of fact made in the letter from an Officer of the
Company (the "Letter"). We have assumed that the statements made in the Letter
are true and correct and that the Letter has been signed by appropriate and
authorized officers of the Company.
<PAGE> 2
Bedford Property Investors, Inc. 2
Based on the foregoing and the Code, the income tax regulations issued
by the United States Treasury Department thereunder (the "Regulations"), rulings
of the Internal Revenue Service (the "IRS") and court decisions, all as in
effect on the date hereof, we are of the opinion that, for Federal income tax
purposes:
(a) The Company was organized in conformity with the requirements
for qualification as a REIT, the Company has operated in a manner so as
to qualify as a REIT for all taxable years since the taxable year ended
December 31, 1992 (which we believe is the Company's earliest taxable
year which is within the normal period for federal tax audit), and the
Company's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT.
(b) The discussion contained under the captions "Risk Factors--Tax
Risks; Risks Associated with REIT Status" and "Certain Federal Income
Tax Considerations" in the Registration Statement has been reviewed by
us and, to the extent that it constitutes statements of law or legal
conclusions, is correct in all material respects; and our opinions (in
addition to opinion (a) above) set forth under such captions are
confirmed.
Qualification of the Company as a REIT, however, will depend upon the Company's
satisfaction, through actual annual operating results, of the various
qualification tests imposed by the Code, and no assurance can be made that the
Company's actual annual operations will be able to satisfy or will actually
satisfy these various qualification tests. We do not undertake to monitor
whether the Company will, in fact, through actual annual operating results,
satisfy the various qualification tests, and we express no opinion whether the
Company actually will satisfy these various qualification tests in the future.
We hereby consent to the use of our name and opinions under the
headings "Risk Factors--Tax Risks; Risks Associated with REIT Status" and
"Certain Federal Income Tax Considerations" in the Registration Statement and
the reference to our name under the heading "Legal Matters" in the Registration
Statement. This opinion has been delivered to you and is intended solely for
your benefit. It may not be relied upon for any other purpose or by any other
person or entity without our prior written approval, and it may not be made
available to any other person or entity.
This opinion relates solely to Federal income tax law, and we do not
undertake to render any opinion as to the qualification of the Company as a REIT
under any state or local corporate franchise or income tax laws. In accordance
with customary practice relating to opinion letters, our opinion speaks only as
of the date hereof; we disclaim any duty to update such opinion.
<PAGE> 3
Bedford Property Investors, Inc. 3
Very truly yours,
SHEARMAN & STERLING
A.C.G.
L.E.C.
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
$20,200,000 Los Angeles, California
Loan Nos.: 6 101 024 March 20, 1996
6 101 025
6 101 027
FOR VALUE RECEIVED, the undersigned, BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation ("Maker"), having an address at 270 Lafayette Circle,
Lafayette, California 94549, PROMISES TO PAY TO THE ORDER OF THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA ("Prudential"), a New Jersey corporation
authorized to do business in the State of California (Prudential and its
successors and assigns who become holders of this Promissory Note (the "Note")
are hereinafter collectively referred to as "Holder"), to Prudential at Morgan
Guaranty Trust Company, 23 Wall Street, New York, New York 10019, Account No.
050-54-493, referencing Loan Nos. 6 101 024, 6 101 025 and 6 101 027, or at
such other place as Holder, may from time to time designate,the principal sum
of Twenty Million Two Hundred Thousand and No/100 Dollars ($20,200,000.00),
together with interest on the amount advanced from the date funds are first
disbursed hereunder until paid at a rate per annum equal to the Interest Rate
(as hereinafter defined). For the first payment due under the loan, interest
shall be calculated on the basis of a 365-day year and the actual number of
days in each month. Thereafter, interest shall be calculated on the basis of a
360-day year and 30-day month; except with respect to partial months in which
case interest shall be calculated on the basis of the actual number of days in
the year and the actual number of days elapsed in the period during which it
accrues, in accordance with the terms and conditions set forth below.
1. Definitions. For the purpose of this Note, the following terms shall
have the meanings set forth below; certain other terms are defined where they
appear in this Note:
(a) "Deeds of Trust" means, collectively, that certain (i) Deed
of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents
and Agreements (Dupont Industrial Center, Ontario), of even date herewith,
executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary"
and recorded in the Official Records of San Bernardino County, California, (ii)
Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases,
Rents and Agreements (Tustin Business Park), of even date herewith, executed by
Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded
in the Official Records of Orange
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<PAGE> 2
County, California, and (iii) Deed of Trust, Security Agreement and Fixture
Filing with Assignment of Leases, Rents and Agreements (Woodlands II), of even
date herewith, executed by Maker as "Trustor" to the benefit of Prudential as
"Beneficiary" and recorded in the Official Records of Salt Lake County, Utah.
(b) "Discount Rate" means the interest rate, which when compounded
monthly, is equivalent to the Treasury Rate, when compounded semi-annually.
(c) "Interest Rate" means a rate of interest per annum of seven and
02/100 percent (7.02%).
(d) "Loan Documents" means this Note, the Deeds of Trust, and all
other documents, with the exception of each of the four documents entitled
"Hazardous Substances Remediation and Indemnification Agreement" each of even
date herewith (collectively, the "Remediation and Indemnification Agreements")
executed by Maker in favor of Holder, now or hereafter governing, securing or
executed in connection with the indebtedness evidenced by this Note or any
portion of such indebtedness.
(e) "Loan" means the loan evidenced by this Note.
(f) "Maturity Date" means that date which is the fifteenth (15th) day
of March, 2003.
(g) "Prepayment Amount" means the amount of the Principal Balance
prepaid on a Prepayment Date.
(h) "Prepayment Date" means any date, prior to the Maturity Date, upon
which all or any portion of the Principal Balance is prepaid.
(i) "Prepayment Premium" shall have the meaning set forth in Paragraph
6(a) hereof.
(j) "Present Value of the Loan" means the present value, discounting
from a Prepayment Date at the Discount Rate, of all payments of principal and
interest which would have been payable on the Prepayment Amount from the
Prepayment Date through and including the Maturity Date.
(k) "Principal Balance" means the outstanding principal balance of
this Note from time to time outstanding.
(l) "Secondary Interest Rate" means a rate of interest equal to the
greater of (i) eighteen percent (18%) per annum, or (ii) a per annum rate equal
to five percent (5%) over the prime rate (for corporate loans at large United
States
- 2 -
<PAGE> 3
money center commercial banks) published in the Wall Street Journal on the
first business day of each month in which such default occurs or continues.
(m) "Treasury Rate" means the interest rate, conclusively determined by
Holder on the Prepayment Date equal to the semi-annual yield on the Treasury
Constant Maturity Series with maturity equal to the remaining weighted average
life of the Loan for the week prior to the Prepayment Date, as reported in
Federal Reserve Statistical Release H.15 -- Selected Interest Rates ("Release
H.15"). The rate will be determined by linear interpolation between the yields
reported in Release H.15, if necessary. In the event Release H.15 is no longer
published, Holder shall select a comparable publication to determine the
Treasury Rate.
2. Payments. Subject to the provisions of the first paragraph of this Note
with respect to the calculation of the first payment hereunder, commencing on
the fifteenth day of April, 1996 and continuing on the fifteenth day of each
calendar month thereafter through and including the fifteenth day of March,
1998, monthly payments of interest only at the Interest Rate shall be due and
payable. Commencing on the fifteenth day of April, 1998 and continuing on the
fifteenth day of each calendar month thereafter through and including the
fifteenth day of February, 2003 monthly installments of principal and interest
in the amount of $143,027.22 shall be due and payable with the entire unpaid
Principal Balance plus accrued interest and other amounts payable under the Loan
Documents being due and payable on the Maturity Date.
3. Treatment of Payments. All payments due under this Note or the Loan
Documents shall be paid by Maker in lawful money of the United States of
America on the date such payment is due. All such payments shall be made
without deduction for any present or future taxes, levies, imposts, deductions,
charges or withholdings (including U.S., state or local income taxes), which
amounts shall be paid by Maker. Payments from Maker to Holder under this Note
shall be applied first to the payment of any expense reimbursements under the
Loan Documents, any Per Diem Late Charges or Late Charges (each as hereinafter
defined) and any Prepayment Premium due thereon, in such order as Holder shall
determine, then to accrued and unpaid interest, with the remainder to be
applied to the Principal Balance.
4. Per Diem Late Charges, Late Charges and Secondary Interest.
(a) If Maker fails timely to pay any sum due and payable under this
Note on or before the date due, a late charge equal to Three Hundred Dollars
($300) per day (the "Per Diem Late Charge") shall be assessed for each day that
such
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<PAGE> 4
payment is not paid from and including the first day following the date such
payment was due to and including the date upon which such payment is made;
provided, however, that notwithstanding the foregoing, if such payment,
together with all accrued Per Diem Late Charges, is not made on or before the
fifteenth (15th) day following the date due, a late charge equal to four cents
($.04) for each dollar ($1.00) of each such late payment (the "Late Charge")
shall be immediately due and payable. The Late Charge shall be in lieu of the
Per Diem Late Charges that shall have accrued during the immediately preceding
fifteen (15) day period. Maker acknowledges and agrees that its failure to make
timely payments will result in Holder incurring additional expense in servicing
the Loan, and that it is extremely difficult and impractical to ascertain the
extent of such damages and that the Per Diem Late Charges and the Late Charge
represent fair and reasonable estimates, considering all of the circumstances
existing on the date of the execution of this Note, of the costs that Holder
will incur by reason of such late payment. Holder agrees to comply with
Section 2954.5 of the California Civil Code with respect to the giving of
notice prior to imposing a Per Diem Late Charge or Late Charge, as such Section
or any successor Section may now or hereafter be in effect. Acceptance of any
Per Diem Late Charge or Late Charge shall not constitute a waiver of the
default with respect to the late payment, and shall not prevent Holder from
exercising any of the other rights or remedies available hereunder or at law or
in equity.
(b) Maker further acknowledges and agrees that during the time that
any payment of principal, interest or other amount due under this Note shall be
delinquent, Holder will incur additional costs and expenses attributable to its
loss of use of money due to and to the adverse impact on Holder's ability to
meet its other obligations and avail itself of other opportunities. Maker agrees
that it is extremely difficult and impractical to ascertain the extent of such
expenses, and Maker therefore agrees that interest at the Secondary Interest
Rate shall accrue on any deliquent payments of principal, interest or other
amounts due under this Note or any Loan Document from the date such payments
were due and for so long as non-payment continues, regardless of whether or not
there has been an acceleration of the maturity of the indebtedness evidenced by
this Note.
5. Event of Default and Secondary Interest.
(a) The occurrence of an "Event of Default" under any Loan Document
shall constitute an Event of Default under this Note. Upon the occurrence of an
Event of Default (including without limitation the failure of the Maker to
observe the provisions of Paragraph 4.2 of each of the Deeds of Trust), Holder,
at its option may cause the Principal Balance
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<PAGE> 5
together with all unpaid accrued interest, any Prepayment Premium (as
hereinafter defined) and any other sums evidenced or secured by this Note or
any Loan Document, to be immediately due and payable, without further
presentment, demand, protest or notice of any kind, by so notifying Maker in
writing ("Acceleration Notice").
(b) Maker agrees that from and after the delivery of an Acceleration
Notice pursuant to Paragraph 5(a) hereof, interest at the Secondary Interest
Rate shall accrue on the Principal Balance and all unpaid accrued interest and
other sums evidenced or secured by this Note or any Loan Documents.
6. Prepayment
(a) If for any reason the Principal Balance or any portion thereof is
prepaid (whether by operation of law, acceleration or otherwise) on a date
prior to the Maturity Date, Maker shall pay to Holder as liquidated damages,
immediately upon demand, together with the related principal prepayment and any
unpaid accrued interest, a prepayment charge (the "Prepayment Premium") equal
to the greater of:
(1) the product of (x) one percent (1%) of the Prepayment
Amount multiplied by (y) a fraction, the numerator of which
is the number of full months remaining until the Maturity
Date as of the Prepayment Date and the denominator of
which is the number of full months comprising the term of
the Loan; or
(2) the Present Value of the Loan less the sum of (x) the
Prepayment Amount, and (y) unpaid accrued interest, if any.
(b) Maker shall have the right voluntarily to prepay all or any portion
of the Principal Balance, together with accrued interest thereon, provided that
Maker gives Holder not less than thirty (30) days prior written notice of its
intention to prepay, and delivers to Holder, on or before the Prepayment Date,
the Prepayment Premium as calculated above, together with the Prepayment Amount
and all accrued interest and other sums due under the Loan Documents.
(c) Maker agrees that such Prepayment Premium represents the reasonable
estimate of Holder and Maker of a fair average compensation for the loss that
may be sustained by Holder due to the payment of any of the Principal Balance
prior to the Maturity Date; and by initialing this provision in the space
provided below, Maker hereby declares that Holder's agreement to enter into
this transaction on the terms set forth
-5-
<PAGE> 6
in this Note and in the other Loan Documents constitutes adequate and valuable
consideration, given individual weight by Maker for this agreement. Such
Prepayment Premium shall be paid without prejudice to the right of Holder to
collect any other amount provided to be paid hereunder. Holder shall not be
obligated to actually reinvest the Prepayment Amount in any Treasury
obligations as a condition to receiving the Prepayment Premium.
INITIALS OF MAKER: /s/ DL
----------
(d) Notwithstanding anything to the contrary contained in this Section
6, Maker shall have a right to prepay in full the entire outstanding balance
due under this Note on or after February 15, 2003 without payment of the
Prepayment Premium.
7. Security. This Note is secured, among other security, by the Deeds of
Trust and the other Loan Documents, which contain provisions for the
acceleration of the maturity of this Note upon the occurrence of certain
described events.
8. Holder's Rights; No Waiver by Holder. The rights, powers and remedies
of Holder under this Note shall be in addition to all rights, powers and
remedies given to Holder under the Loan Documents and any other agreement or
document securing or evidencing the indebtedness evidenced hereby or by virtue
of any statute or rule of law, including, but not limited to, the California
Uniform Commercial Code and the Utah Uniform Commercial Code. All such rights,
powers and remedies shall be cumulative and may be exercised successively or
concurrently in Holder's sole discretion without impairing Holder's security
interest, rights or available remedies. Any forbearance, failure or delay by
Holder in exercising any right, power or remedy shall not preclude further
exercise thereof, and every right, power or remedy of Holder shall continue in
full force and effect until such right, power or remedy is specifically waived
in a writing executed by Holder. Maker waives any right to require the
Beneficiary (as defined in each of the Deeds of Trust) to proceed against any
person or to pursue any remedy in Holder's power.
9. Maker's Waivers.
(a) Maker and any endorsers of this Note, and each of them, hereby
waive diligence, demand, presentment for payment, notice of non-payment,
protest and notice of protest, and specifically consent to and waive notice of
any renewals or extensions of this Note, whether made to or in favor of Maker
or any person or persons. Maker and any endorsers of this Note expressly waive
all right to the benefit of any statute of limitations and any moratorium,
reinstatement, marshalling,
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<PAGE> 7
forbearance, extension, redemption, or appraisement now or hereafter provided
by the Constitution or the laws of the United States or of any state thereof,
as a defense to any demand against Maker or any such endorsers, to the fullest
extent permitted by law.
(b) Maker hereby waives any right to trial by jury with respect to
any action or proceeding brought by Maker, Holder or any other person relating
to (i) the indebtedness evidenced by this Note, or (ii) the Loan Documents.
Maker hereby agrees that this Note constitutes a written consent to waiver of
trial by jury pursuant to the provisions of California Code of Civil Procedure
Section 631 and Maker does hereby constitute and appoint Holder its true and
lawful attorney-in-fact, which appointment is coupled with an interest, and
Maker does hereby authorize and empower Holder, in the name, place and stead of
Maker, to file this Note with the clerk or judge of any court of competent
jurisdiction as statutory written consent to waiver of trial by jury.
(c) Maker hereby expressly waives any right it may have under
California Civil Code 2954.10 to prepay this Note, in whole or in part, without
prepayment charge, upon acceleration of the Maturity Date of this Note, and
agrees that if for any reason, a prepayment of any or all of this Note is made,
whether voluntarily or upon or following any acceleration of the Maturity Date
of this Note by the Holder, then Maker shall pay, concurrently therewith, a
Prepayment Premium calculated pursuant to Paragraph 6 hereof. By initialling
this provision in the space provided below, Maker hereby declares that Holder's
agreement to make the Loan at the Interest Rate and for the term set forth
in this Note constitutes adequate consideration, given individual weight by
Maker, for this waiver and agreement.
INITIALS OF MAKER: /s/ DL
--------
10. Transfers by Holder. This Note or any interest in this Note and the
Loan Documents may be hypothecated, transferred or assigned by Holder without
the prior consent of Maker.
11. Amendment. This Note may be amended or modified only by an
instrument in writing which by its express terms refers to this Note and which
is duly executed by the party sought to be bound thereby.
12. Successors and Assigns. This Note shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
-7-
<PAGE> 8
13. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
14. Authority. Each individual executing this Note on behalf of a
partnership, corporation or other entity states that he or she is duly
authorized to execute and deliver this Note on behalf of said entity, in
accordance with duly and regularly adopted existing authority and, if
necessary, resolution of the governing body of such organization, and that this
Note is binding upon said entity in accordance with its terms.
15. Time. Time is of the essence with respect to each and every term
and provision of this Note.
16. Usury. Notwithstanding any provision herein, the total liability
for payments in the nature of interest shall not exceed the applicable limits
imposed by any applicable state or federal interest rate laws. If any payments
in the nature of interest, additional interest, and other charges made hereunder
are held to be in excess of the applicable limits imposed by any applicable
state or federal laws, it is agreed that any such amount held to be in excess
shall be considered payment of principal and the indebtedness evidenced thereby
shall be reduced by such amount in the inverse order of maturity so that the
total liability for payments in the nature of interest, additional interest and
other charges shall not exceed the applicable limits imposed by any applicable
state or federal interest rate laws in compliance with the desires of Holder and
Maker.
17. Notices. All notices, consents and other communications required
or permitted by this Note shall be in writing and shall be given in the manner
set forth in the Deeds of Trust.
18. Attorneys' Fees. The undersigned agrees to pay all costs,
including reasonable attorneys' fees and expenses, incurred by Holder in
enforcing payment or collection of this Note or the terms of any Loan Document,
whether or not suit is filed.
19. Limitation on Personal Liabilities.
(a) Except as expressly set forth in paragraph 19(b) below, the
recourse of Holder with respect to the obligations evidenced by this Note shall
be solely to the Property (which for the purposes of this Note shall mean,
collectively, the properties defined as the "Property" in each of the Deeds of
Trust).
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<PAGE> 9
(b) Notwithstanding anything to the contrary contained in this Note or in
any Loan Document, nothing shall be deemed in any way to impair, limit or
prejudice the rights of Holder:
(i) in foreclosure proceedings or in any ancillary proceedings brought
to facilitate Holder's foreclosure on the Property or any portion
thereof;
(ii) to recover from Maker damages or costs (including without
limitation reasonable attorneys' fees) incurred by Holder as a
result of waste to the Property by Maker;
(iii) to recover from Maker any condemnation or insurance proceeds
attributable to the Property which were not paid to Holder or
used to restore the Property in accordance with the terms of the
Deeds of Trust;
(iv) to recover from Maker any rents, profits, security deposits,
advances, rebates, prepaid rents or other similar sums
attributable to the Property collected by or for Maker following
an Event of Default and not properly applied to the reasonable
fixed and operating expenses of the Property, including payments
of the Loan;
(v) to pursue the personal liability of Maker under the provisions
of paragraph 9.26 of each of the Deeds of Trust, including
any indemnification provisions under said paragraph;
(vi) to exercise any other specific rights or remedies afforded Holder
under any provisions of the Loan Documents or at law or in equity
(or to recover under any guarantee given in connection with the
Loan);
(vii) to recover from Maker the amount of any unpaid taxes, assessments,
and/or utility charges affecting the Property and to collect from
Maker any sums expended by Holder in fulfilling the
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<PAGE> 10
obligations of Maker, as lessor, under any leases affecting
the Property, which obligations accrued prior to Holder's (or
Holder's nominee's) acquisition of title to the Property;
provided, however, that the cost of any obligations of Maker
as lessor under any such leases which have been expressly
approved by Holder shall not be a recourse liability of Maker;
(viii) to pursue any personal liability of Maker under the
Remediation and Indemnification Agreements;
(ix) to recover from Maker damages or costs incurred by
Holder as a result of any non-willful misrepresentation by
Maker in connection with the Property, the Loan Documents or
the Loan Applications, or any other aspect of the Loan; and
(x) to recover from Maker damages or costs incurred by Holder
as a result of Maker's failure to obtain and maintain in
effect all the insurance required in the Loan Documents.
(e) The agreement contained in this Paragraph 19 to limit the personal
liability of Maker shall become null and void and of no further force or
effect in the event;
(i) that the Property or any part thereof or any interest
therein shall be further encumbered by a voluntary lien
securing any obligation upon which Maker shall be personally
liable for repayment;
(ii) of any breach or violation of paragraph 4.2 of any of
the Deeds of Trust; or
(iii) of any intentional fraud or willful and material
misrepresentation by Maker in connection with the Property,
the Loan Documents or the Loan Applications.
(d) The agreement contained in this Section 19 to limit the personal
liability of Maker shall become null and
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<PAGE> 11
void and of no further force or effect in the event of the execution,
modification, amendment and/or termination of any leases for the occupancy of
space in any portion of the Property which remains encumbered by any of the
Deeds of Trust, without Holder's prior written approval if such approval is
required under the terms of the Loan Documents (such leases being hereinafter
referred to as "Unapproved Leases"), such that the net rentable area covered by
Unapproved Leases exceeds twenty percent (20%) of the total net rentable area
of all of the Property which remains encumbered by any of the Deeds of Trust.
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be
executed and delivered effective as of the date first written above.
"Maker":
BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation
By: /s/ Donald A. Lorenz
----------------------------
/s/ Donald A. Lorenz
----------------------------
[Printed Name and Title]
Executive Vice President
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Bedford Property Investors, Inc.:
We consent to the use of our report dated February 6, 1996(except as to
note 11, which is as of March 29, 1996) relating to the consolidated financial
statements of Bedford Property Investors, Inc. included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
San Francisco, California
March 29, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Bedford Property Investors, Inc.:
We consent to the use of our reports dated October 11, 1995, November 10,
1995, December 8, 1995 and January 26, 1996 relating to the historical summaries
of gross income and direct operating expenses of 350 East Plumeria Drive, the
Landsing Pacific Portfolio, 6600 College Boulevard and 3002 Dow Business Center,
respectively, included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG Peat Marwick LLP
San Francisco, California
March 29, 1996
