-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mrs/YIWiREw7yIDoJTZesypsKXDrL8EiPPKHc2g7fGk+yu/zjPtydkAlwpIIkMxa wbMNPyDvSYhbwY+3kRv8PQ== 0001047469-98-013095.txt : 19980401 0001047469-98-013095.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-013095 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDRIA REAL ESTATE EQUITIES INC CENTRAL INDEX KEY: 0001035443 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954502084 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12993 FILM NUMBER: 98583182 BUSINESS ADDRESS: STREET 1: 135 NORTH LOS ROBLES AVE STREET 2: SUITE 250 CITY: PASEDENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8185780777 10-K 1 FORM 10K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 1-12993 ALEXANDRIA REAL ESTATE EQUITIES, INC. (Exact name of registrant as specified in its charter) MARYLAND 95-4502084 (State or other jurisdiction (IRS Employer I.D. Number) of incorporation or organization) 135 N. LOS ROBLES AVENUE, SUITE 250 PASADENA, CALIFORNIA 91101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (626) 578-0777 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $.01 par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the shares of Common Stock held by non- affiliates was approximately $266.2 million based on the closing price for such shares on the New York Stock Exchange on March 27, 1998. As of March 27, 1998 the Registrant had 11,404,631 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III of this report incorporates information by reference from the definitive Proxy Statement to be mailed in connection with the registrant's annual meeting of stockholders to be held on May 15, 1998. INDEX TO FORM 10-K ALEXANDRIA REAL ESTATE EQUITIES, INC. PAGE REFERENCE PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . 20 Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . 20 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 21 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 21 Item 12. Security Ownership of Certain Beneficial Owners and Management . . 21 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 21 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . 22 i PART I When used herein, the words "believes," "expects," "anticipates," "intends" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, regarding events, conditions and financial trends that may affect the Company's future plan of operation, business strategy, results of operations and financial position. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially from those included within the forward-looking statements as a result of various factors, including, but not limited to, those described below under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the risk factors identified in the Company's Registration Statement on Form S-11 (No. 333-23545) initially filed with the Securities and Exchange Commission on March 18, 1997. The Company disclaims any obligation to update any such factors or to announce publicly the result of any revisions to any of the forward-looking statements. ITEM 1. BUSINESS. BACKGROUND AND FORMATION. Alexandria Real Estate Equities, Inc. ("Alexandria" and, together with its subsidiaries, the "Company"), a Maryland corporation, is a real estate investment trust ("REIT") engaged primarily in the acquisition, management, expansion and selective development of high quality, strategically located properties containing office and laboratory space designed and improved for lease principally to pharmaceutical, biotechnology, diagnostic and personal care products companies, major scientific research institutions and related government agencies (collectively, the "Life Science Industry"). Properties leased to tenants in the Life Science Industry typically consist of suburban office buildings containing scientific research and development laboratories and other improvements that are generic to tenants operating in the Life Science Industry (such properties, "Life Science Facilities"). As of December 31, 1997, the Company owned 22 Life Science Facilities (the "Properties") and two parcels of vacant land, aggregating approximately 4.2 acres, adjacent to the Company's 3535 and 3565 General Atomics Court Properties in the Torrey Pines area of San Diego, California. FORMATION. In connection with the formation of Alexandria in October 1994, Health Science Properties Holding Corporation ("Holdings"), a Maryland corporation formed in September 1993 and capitalized in January 1994, contributed substantially all of its assets and liabilities (other than certain outstanding unsecured notes) to Alexandria in exchange for all of the then issued and outstanding shares of common stock of Alexandria, par value $.01 per share (the "Common Stock"). Holdings was the sole holder of the Common Stock until June 2, 1997, when Alexandria completed its initial public offering (the "Offering") of 6,750,000 shares of Common Stock. On June 26, 1997, Alexandria issued an additional 1,012,500 shares of Common Stock pursuant to the exercise of the over-allotment option granted to the underwriters in connection with the Offering. THE OFFERING AND RECENT DEVELOPMENTS. THE OFFERING. Each of the following transactions occurred in connection with the Offering: - - The 27,500 outstanding shares of Series V Preferred Stock of Alexandria, issued in 1996 in a series of transactions to raise additional equity capital, were converted into 1,659,239 shares of Common Stock. - - The Company acquired 100% of the membership interests in ARE Acquisitions, LLC, a Delaware limited liability company (the "Acquisition LLC"), thereby acquiring three of the Properties, for an aggregate purchase price of approximately $58.8 million. - - The Company repaid approximately $77.7 million of its then-existing mortgage indebtedness with a portion of the net proceeds of the Offering and the net proceeds of (i) an $8.5 million mortgage loan on the Property located at 1431 Harbor Bay 1 Parkway and (ii) a $6.9 million mortgage loan on the Property located at 1102 and 1124 Columbia Street. The Company subsequently repaid the mortgage loan on 1102 and 1124 Columbia Street in November 1997. ACQUISITIONS. Since December 31, 1997 (through March 27, 1998), the Company has acquired 11 additional Life Science Facilities containing an aggregate of 927,000 rentable square feet for an aggregate purchase price of approximately $110 million and made a $6 million loan secured by real estate related to one of these Life Science Facilities. Of these amounts, $103 million was funded through draws on the Company's unsecured line of credit, approximately $13 million through the assumption of existing debt and the remainder with working capital. The recent acquisitions were in California (in the San Diego and San Francisco Bay areas), Seattle, Washington, suburban Maryland, Boston/Cambridge, Massachusetts, Raleigh/Durham, North Carolina and the New York/New Jersey and suburban Philadelphia areas. STRUCTURE. The Company is in the process of modifying its existing corporate structure to facilitate its operation as an umbrella partnership or "UPREIT." The Company has formed an operating partnership (the "Operating Partnership") through which the Company expects to conduct substantially all of its operations. The Company believes that the UPREIT structure will enhance its acquisition activities by providing an additional source of acquisition consideration. Initially, however, the Company will own all of the interests in the Operating Partnership ("OP Units"). BUSINESS AND GROWTH STRATEGY. As of December 31, 1997, the Company owned 22 Properties containing approximately 1.75 million rentable square feet of office and laboratory space located in California (in the San Diego and San Francisco Bay areas), Seattle, Washington and suburban Washington, D.C. (including Maryland and Virginia). The Company also owned two parcels of vacant land aggregating approximately 4.2 acres in San Diego, California. The Company focuses its operations and acquisition activities principally in these markets, as well as in certain other markets, including Boston/Cambridge, Massachusetts, Raleigh/Durham, North Carolina and the New York/New Jersey and suburban Philadelphia areas. See "--Recent Developments." The Company's tenant base is broad and diverse within the Life Science Industry and reflects the Company's focus on regional, national and international tenants with substantial financial and operational resources. For a detailed description of the Properties and tenants, see "Item 2. Properties." The Company is led by a senior management team with extensive experience in both the real estate and Life Science industries and is supported by a highly experienced board of directors. The Company seeks to maximize growth in funds from operations ("FFO") and cash available for distribution to stockholders through effective management, operation, acquisition, expansion and selective development of Life Science Facilities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Funds from Operations" for a complete discussion of how the Company computes and views FFO as well as a discussion of other measures of cash flow. In particular, the Company seeks to increase FFO and cash available for distribution per share by (i) acquiring high quality Life Science Facilities at attractive returns in its target markets; (ii) realizing contractual rental rate escalations; (iii) retenanting and releasing space within its portfolio at higher rental rates, and with minimal tenant improvement costs; (iv) expanding existing Properties or converting existing office space to generic laboratory space that can be leased at higher rental rates; (v) selectively developing properties on a retrofit or build-to-suit basis; and (vi) continuing to implement effective cost control measures, including pass-through provisions in tenant leases for operating expenses and certain capital expenditures. 2 ACQUISITIONS. The Company seeks to identify and acquire high quality Life Science Facilities in its target markets. Critical evaluation of prospective property acquisitions is an essential component of the Company's acquisition strategy. When evaluating acquisition opportunities, the Company assesses a full range of matters relating to the properties, including the quality of the tenants, the condition and capacity of building infrastructure, the quality and generic characteristics of laboratory facilities and the physical condition of the shell structure and common area improvements. Management also considers opportunities available for leasing vacant space and for retenanting occupied space. INTERNAL GROWTH. The Company seeks to achieve internal growth from several sources. The Company seeks to (i) include rental rate escalation provisions in its leases; (ii) acquire undervalued or underperforming properties where it can improve investment returns through releasing of vacant space and replacement of existing tenants with new tenants at higher rental rates; (iii) achieve higher rental rates as existing leases expire; and (iv) expand existing facilities that are fully leased and/or convert existing office space to higher rent generic laboratory space. The Company's ability to negotiate contractual rent escalations in future leases and to achieve increases in rental rates will depend upon market conditions and demand for Life Science Facilities at the time such leases are negotiated and such increases are proposed. DEVELOPMENT. The Company intends to emphasize acquisitions over development in pursuing its growth objectives. However, the Company plans to pursue selective build-to-suit and retrofit development projects where it expects to achieve investment returns that will equal or exceed its returns on acquisitions. The Company generally intends to undertake build-to-suit and retrofit projects only if the Company's investment in infrastructure will be substantially generic in nature and not tenant specific. FINANCING/WORKING CAPITAL. The Company believes that cash provided by operations and its unsecured line of credit will be sufficient to fund its working capital requirements. The Company generally expects to finance future acquisitions initially through the Company's unsecured line of credit and then to refinance such indebtedness with additional equity or debt capital. The Company also may issue Common Stock, OP Units or interests in other subsidiaries as consideration for acquisitions. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for a complete discussion of the Company's unsecured line of credit and other outstanding indebtedness. COMPETITION Management believes that the Company is the only publicly traded entity focusing primarily on the acquisition, management, expansion and selective development of Life Science Facilities. However, various entities, including insurance companies, pension and investment funds, partnerships, developers, investment companies and other REITs invest in Life Science Facilities and therefore compete for investment opportunities with the Company. Many of these entities have substantially greater financial resources than the Company and may be able to accept more risk than the Company can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic proximity of its investments. Competition from these entities may reduce the number of suitable investment opportunities offered to the Company or increase the bargaining power of property owners seeking to sell. 3 GOVERNMENT REGULATION The Company and the Properties are subject to various federal, state and local regulatory requirements, including local building codes, environmental and other similar regulations. The Company believes that the Properties are in substantial compliance with all applicable building code and related regulations. ENVIRONMENTAL MATTERS. Under various federal, state and local environmental laws and regulations, a current or previous owner or operator of real estate, as well as certain other parties, may be required to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases on, under, in or from such property, and may be held liable to a governmental entity or to third parties for investigation and cleanup costs and certain damages resulting from such releases. Such laws and regulations typically impose responsibility and liability without regard to whether such person knew of or caused the releases, and the liability under such laws and regulations has been interpreted to be joint and several, unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The cost of investigating and remediating such contamination may be substantial, and the presence of such contamination, or the failure to properly remediate it, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. In addition, the owner of a site may be subject to governmental fines and common law claims by third parties seeking to recover damages and costs resulting from such contamination. Certain other federal, state and local laws and regulations govern the management and disposal of asbestos containing materials ("ACMs"). Such laws and regulations may impose liability for the release of ACMs and may provide for third parties to seek recovery from owners or operators of such property for personal injury associated with ACMs. In connection with the ownership and operation of its properties, the Company may be potentially liable for such costs. ACMs have been detected at certain of the Properties, but are not expected to result in material environmental costs or liabilities to the Company. Federal, state and local laws and regulations also require the removal or upgrading of certain underground storage tanks and regulate the discharge of storm water, wastewater and any water pollutants, the emission of air pollutants, the generation, management and disposal of hazardous or toxic chemicals, substances or wastes, and workplace health and safety. Life Science Industry tenants, including certain of the Company's tenants, engage in various research and development activities involving the controlled use of hazardous materials, chemicals, biological and radioactive compounds. Although the Company believes that the tenants' activities involving such materials comply in all material respects with applicable laws and regulations, the risk of contamination or injury from these materials cannot be completely eliminated. In the event of such contamination or injury, the Company could be held liable for any damages that result, and any such liability could exceed the Company's resources and its environmental remediation coverage. All of the Properties have been, and it is contemplated that all future acquisitions will be, subjected to a Phase I or similar environmental assessment (which generally includes a site inspection, interviews and a records review, but no subsurface sampling). These assessments and certain follow-up investigations (including, as appropriate, asbestos, radon and lead surveys, additional public records review, subsurface sampling and other testing) of the Properties have not revealed any environmental liability that the Company believes would have a material adverse effect on the Company's business or results of operations. Nevertheless, it is possible that the assessments on the Properties have not revealed, or that the assessments on future acquisitions will not reveal, all environmental liabilities and that there may be material environmental liabilities of which the Company is unaware. The Company believes that the Properties currently are in compliance in all material respects with applicable environmental laws. AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act of 1990 (the "ADA"), places of public accommodation and/or commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. Although management of the Company believes that the Properties are substantially in compliance with the present requirements of the ADA, the Company may incur additional costs in connection with such 4 compliance in the future. In addition, a number of additional federal, state and local laws and regulations exist that may require modifications to the Company's properties, or affect certain future renovations thereof, with respect to access by disabled persons. Non-compliance with the ADA could result in the imposition of fines or an award of damages to private litigants, and also could result in an order to correct any non-complying feature. Under certain of the Company's leases, the tenant is responsible for ensuring that the property complies with all laws and regulations, including the ADA. Notwithstanding the foregoing, the Company may be required to make substantial capital expenditures to comply with this law. In addition, provisions of the ADA may impose limitations or restrictions on the completion of certain renovations and thus may limit the overall returns on the Company's investments. FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS AND OPERATIONS. The Company currently is involved only in the real estate industry segment within the United States; the Company has no foreign operations. Accordingly, all financial statements contained herein relate to such industry segment. See "Item 2. Properties" and "Item 8. Financial Statements and Supplementary Data" for detailed financial information regarding the Company's business. EMPLOYEES As of December 31, 1997, the Company had 18 full-time employees. ITEM 2. PROPERTIES. GENERAL. The Properties range in size from approximately 30,000 to 250,000 square feet, are built to accommodate single or multiple tenants and are generally one or two story concrete tilt-up or block and steel frame structures. The exteriors typically resemble traditional suburban office properties, but interior infrastructures are designed to accommodate the needs of Life Science Industry tenants. Such improvements typically are generic to Life Science Industry tenants rather than specific to a particular tenant. As a result, management believes that the improvements have long-term value and utility and are readily usable by a wide range of Life Science Industry tenants. Generic infrastructure improvements for each Property include: reinforced concrete floors, upgraded roof loading capacity and increased floor to ceiling heights; heavy-duty HVAC systems and advanced environmental control technology; significantly upgraded electrical, gas and plumbing infrastructure; and laboratory benches. The Company owns fee simple title in each of the Properties, except with respect to 1311, 1401 and 1431 Harbor Bay Parkway, in which the Company owns a commercial condominium interest, together with an undivided interest in the common areas of the project in which the Property is a part. Leases in the Company's multi-tenant buildings typically have terms of three to seven years, while the single-tenant building leases typically have terms of 10 to 20 years. As of December 31, 1997, approximately 76% of the Company's leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses (including increases thereto) in addition to base rent. In addition, approximately 19% of the Company's leases (on a square footage basis) required the tenants to pay a majority of operating expenses. The remaining leases were gross leases, pursuant to which tenants generally pay for substantially all real estate taxes and insurance, common area and other operating expenses above those for an established base year. Approximately 64% of the Company's leases (on a square footage basis) contained effective annual rent escalations that are either fixed (ranging from 2.5% to 4.0%) or indexed based on a consumer price index or other index. In addition, approximately 77% of the Company's leases (on a square footage basis) provided for the recapture of certain capital expenditures (such as HVAC systems maintenance and/or replacement, roof replacement and parking lot resurfacing), which the Company believes would typically be borne by the landlord in traditional office leases. The leases also typically give the Company the right to review and approve tenant alterations to the property. Generally, tenant-installed improvements remain the property of the Company after termination of the lease. However, the Company is permitted under the terms of most of its leases to require that the tenant remove such improvements and restore the premises to their original condition. As of December 31, 1997, the Company had 42 leases with a total of 35 tenants, and 12 of the Properties were single-tenant properties. 5 As of December 31, 1997, the Company managed 21 of the Properties, and the remaining Property was managed by a major tenant at such Property. All material decisions with respect to all of the Properties are made by the Company. The following table sets forth certain information with respect to the Properties as of December 31, 1997:
PERCENTAGE OF ANNUALIZED ANNUALIZED AGGREGATE BASE RENT NET EFFECTIVE PORTFOLIO PER LEASED RENT PER YEAR BUILT/ RENTABLE PERCENTAGE ANNUALIZED ANNUALIZED SQUARE FEET LEASED SQUARE PROPERTIES RENOVATED(1) SQUARE FEET LEASED(2) BASE RENT(2)(3) BASE RENT (3) FOOT(4) MAJOR TENANTS ---------- ------------ ----------- --------- ------------ --------- ------- ------- ------------- SAN DIEGO 10933 North Torrey 1971/1994 108,133 100% $2,309,136 7.3% $21.35 16.24 The Scripps Research Pines Institute Road San Diego, CA Advanced Tissue Sciences, Inc. 11099 North Torrey 1986/1996 86,962 100 2,208,192 7.0 25.39 23.62 Agouron Pines Pharmaceuticals, Road San Diego, CA Inc. Axys Pharmaceuticals, Inc. 3535 General Atomics 1991 76,084 100 2,554,464 8.1 33.57 32.61 The Scripps Research Court Institute San Diego, CA R.W. Johnson Research Institute(5) Syntro Corporation(6) 3565 General Atomics 1991 43,600 100 1,526,952 4.8 35.02 35.02 Agouron Court Pharmaceuticals, San Diego, CA Inc. 11025 Roselle Street 1983 18,532 59 224,995 0.7 20.45 20.45 Collateral San Diego, CA Therapeutics, Inc. SAN FRANCISCO BAY AREA 1201 Harbor Bay 1983 61,100 100 913,296 2.9 14.95 12.22 Avigen Inc. Parkway American President Alameda, CA Companies, Ltd. 1311 Harbor Bay 1984 30,000 85 407,844 1.3 15.96 15.96 Chiron Corporation Parkway Therasense, Inc. Alameda, CA 1401 Harbor Pay 1986/1994 47,777 100 518,592 1.6 10.85 10.50 Chiron Diagnostics Parkway Alameda, CA 1431 Harbor Bay 1985/1994 70,000 100 1,413,972 4.5 20.20 12.86 U.S. Food & Drug Parkway Administration Alameda, CA SEATTLE, WASHINGTON 1102/1124 Columbia 1975/1997 213,397 100 4,777,368 15.1 22.39 22.05 Fred Hutchinson Street Cancer Seattle, WA **+ Research Center Corixa Corporation Swedish Medical Center SUBURBAN WASHINGTON, D.C. 300 Professional Drive 1989 48,440 100 669,732 2.1 13.83 13.83 Mobile Telesystems, Gaithersburg, MD Inc. Antex Biologics Inc. 401 Professional Drive 1987 62,739 100 1,038,588 3.3 16.55 16.55 Gillette Capital Gaithersburg, MD Corporation(7) 25/35/45 West Watkins 1989/1997 138,938 100 1,900,200 6.0 13.68 13.67 Genetic Therapy, Mill Inc.(8) Road Gaithersburg, MedImmune, Inc. MD 708 Quince Orchard 1982 49,225 100 1,191,600 3.8 24.21 23.87 Gene Logic, Inc. Road Gaithersburg, MD(9) 940 Clopper Road 1989 44,464 63 360,240 1.1 12.90 12.90 Immunomatrix, Inc. Gaithersburg, MD Lockheed Martin Federal Systems, Inc. 1401 Research 1966 48,800 100 722,904 2.3 14.81 14.24 U.S. Bureau of Boulevard Alcohol Rockville, MD Tobacco and Firearms 6 PERCENTAGE OF ANNUALIZED ANNUALIZED AGGREGATE BASE RENT NET EFFECTIVE PORTFOLIO PER LEASED RENT PER YEAR BUILT/ RENTABLE PERCENTAGE ANNUALIZED ANNUALIZED SQUARE FEET LEASED SQUARE PROPERTIES RENOVATED(1) SQUARE FEET LEASED(2) BASE RENT(2) BASE RENT (3) FOOT(4) MAJOR TENANTS ---------- ------------ ----------- --------- ------------ --------- ------- ------- ------------- 1500 East Gude Drive 1981/1986 45,989 83 483,636 1.5 12.62 12.62 bioMerieux Vitek, Rockville, MD Inc. 3/3 1/2 Taft Court 1981/1986 24,460 15 36,600 0.1% 9.68 9.68 bioMerieux Vitek, Rockville, MD Inc. 1413 Research 1967/1996 105,000 100 1,563,456 4.9 14.89 13.33 U.S. Army Corps of Boulevard Engineers Rockville, MD 1550 East Gude Drive 1981/1995 44,500 100 596,004 1.9 $13.39 $13.39 Shire Rockville, MD Pharmaceuticals, PLC(10) 1330 Piccard Drive 1978/1994 131,511 100 1,903,656 6.0 14.48 14.48 Intracel Corporation Rockville, MD 14225 Newbrook Drive 1992 248,186 100 4,341,132 13.7 17.49 17.49 American Medical Chantilly, VA + --------- ---- ----------- ----- ------ ------ Laboratories, Inc. Total/Weighted Average(11): 1,747,837 96.7% $31,662,559 100.0% $18.72 $17.68 --------- ---- ----------- ----- ------ ------ --------- ---- ----------- ----- ------ ------
______________ ** Gross revenues from the Property for the year ended December 31, 1997 represent in excess of 10% of the aggregate gross revenues of the Company for such period. + Book value of the Property represents in excess of 10% of the Company's total assets as of December 31, 1997. (1) Includes year in which construction was completed and, where applicable, year of most recent major renovation. (2) Based on all leases at the respective Property in effect as of December 31, 1997. (3) Annualized Base Rent means the annualized fixed base rental amount in effect as of December 31, 1997 (using rental revenue computed on a straight-line basis in accordance with GAAP) paid by tenants under the terms of their leases. This amount, divided by the rentable square feet leased at the Property as of December 31, 1997, is the Annualized Base Rent per Leased Square Foot. (4) Annualized Net Effective Rent is the Annualized Base Rent in effect as of December 31, 1997, less (for gross leases) real estate taxes and insurance, common area and other operating expenses and (for all leases) amortized tenant improvements and leasing commissions. This amount, divided by the rentable square feet leased at the Property as of December 31, 1997, is the Annualized Net Effective Rent per Leased Square Foot. (5) The R.W. Johnson Research Institute is a wholly owned subsidiary of Johnson & Johnson. (6) Syntro Corporation is a wholly owned subsidiary of Schering-Plough Corporation (7) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette Company, the guarantor of the lessee's obligations under the lease. (8) Genetic Therapy, Inc. is a wholly owned subsidiary of Novartis AG. (9) As of December 31, 1997, Gene Logic, Inc. was converting office space to laboratory space at this Property and expected to take occupancy upon completion in March 1998. (10) Shire Pharmaceuticals, PLC subleases its space from Quest Diagnostics, Inc. (11) Weighted Average based on a percentage of aggregate leased square feet. 7 LOCATION AND TYPE OF SPACE The following table sets forth, as of December 31, 1997, the gross revenues and type of space within the Properties by rentable square footage in each of the Company's existing markets.
GROSS REVENUES AND TYPE OF SPACE TOTAL RENTABLE % OF TOTAL RENTABLE ANNUALIZED % OF ANNUALIZED GEOGRAPHIC AREA SQUARE FOOTAGE SQUARE FOOTAGE BASE RENT(1) BASE RENT - ---------------- --------------- ------------------- -------------- --------------- San Diego...................... 333,311 19.0% $ 8,823,739 27.9% San Francisco Bay Area......... 208,877 12.0 3,253,704 10.2 Seattle........................ 213,397 12.2 4,777,368 15.1 Suburban Washington, D.C....... 992,252 56.8 14,807,748 46.8 --------- ------ ----------- ------ Total...................... 1,747,837 100.0% $31,662,559 100.0% --------- ------ ----------- ------ --------- ------ ----------- ------
- ----------------- (1) Annualized Base Rent means the annualized fixed base rental amount in effect as of December 31, 1997 (using rental revenues computed on a straight-line basis in accordance with GAAP) paid by tenants under the terms of their leases. TENANTS The Properties are leased principally to tenants engaged in a variety of activities in the Life Science Industry. The following table sets forth information regarding the Company's leases with its 20 largest tenants based upon Annualized Base Rent as of December 31, 1997. 8 20 LARGEST TENANTS
REMAIN- PERCENTAGE OF ING PERCENTAGE AGGREGATE INITIAL APPROXIMATE PERCENTAGE OF AGGREGATE ANNUALIZED PORTFOLIO NUMBER LEASE AGGREGATE OF AGGREGATE ANNUALIZED PORTFOLIO NET EFFECTIVE ANNUALIZED OF TERM IN RENTABLE LEASED BASE RENT (IN ANNUALIZED RENT (IN NET EFFECTIVE TENANT LEASES YEARS SQUARE FEET SQUARE FEET THOUSANDS)(1) BASE RENT THOUSANDS)(2) RENT ------ ------ ------- ----------- ------------ ------------- ------------ ------------- ------------- American Medical 1 19.0 248,200 14.7% $ 4,341 13.7% $4,341 14.5% Laboratories, Inc. Fred Hutchinson Cancer 2 0.4 131,600 7.8 2,705 8.5 2,686 9.0 Research Center(3) 1.9 6.9 Agouron Pharmaceuticals, 2 2.8 70,500 4.2 2,312 7.3 2,251 7.5 Inc. 3.8 Corixa Corporation 2 0.8 65,200 3.8 1,964 6.2 1,911 6.4 7.0 Intracel Corporation 1 9.0 131,500 7.8 1,904 6.0 1,904 6.4 Advanced Tissue 2 2.7 84,500 5.0 1,721 5.4 1,392 4.7 Sciences, Inc. 2.7 U.S. Army Corps of 1 1.4 105,000 6.2 1,563 4.9 1,399 4.7 Engineers(4) 3.8 U.S. Food & Drug 1 16.0 70,000 4.1 1,414 4.5 900 3.0 Administration R.W. Johnson 1 1.1 45,000 2.7 1,379 4.4 1,306 4.4 Pharmaceutical Research Institute The Scripps Research 2 1.8 41,900 2.5 1,334 4.2 1,111 3.7 Institute 2.5 MedImmune, Inc.(5) 2 8.9 81,300 4.8 1,300 4.1 1,298 4.3 8.9 Axys Pharmaceuticals, 1 4.0 55,500 3.3 1,262 4.0 1,191 4.0 Inc. Gene Logic, Inc. 2 9.9 49,200 2.9 1,192 3.8 1,175 3.9 9.9 Gillette Capital 1 8.3 62,700 3.7 1,039 3.3 1,039 3.5 Corporation(6) U.S. Bureau of Alcohol, 1 3.5 48,800 2.9 723 2.3 695 2.3 Tobacco & Firearms Shire Pharmaceuticals, 1 2.3 44,500 2.6 596 1.9 596 2.0 PLC(7) bioMerieux Vitek, Inc. 1 8.8 42,100 2.5 520 1.6 520 1.7 Chiron Corporation 1 2.0 47,800 2.8 519 1.6 501 1.7 American Presidential 1 0.8 38,100 2.2 494 1.6 494 1.7 Companies, Ltd. Syntro Corporation 1 2.0 12,800 0.8 430 1.4 429 1.4 -- ---- --------- ---- ------- ---- ------- ---- Total/Weighted Average(8) 27 7.8 1,476,200 87.3% $28,712 90.7% $27,139 90.8% -- ---- --------- ---- ------- ---- ------- ---- -- ---- --------- ---- ------- ---- ------- ----
9 ____________ (1) Annualized Base Rent means the annualized fixed base rental amount in effect as of December 31, 1997 (using rental revenue computed on a straight-line basis in accordance with GAAP) paid by tenants under the terms of their leases. (2) Annualized Net Effective Rent is the Annualized Base Rent in effect as of December 31, 1997 (using rental revenue computed on a straight-line basis in accordance with GAAP), less (for gross leases) real estate taxes and insurance, common area and other operating expenses and (for all leases) amortized tenant improvements and leasing commissions. (3) Of the 131,554 rentable square feet leased to Fred Hutchinson Cancer Research Center, leases with respect to 61,465 square feet, 28,466 square feet and 41,623 square feet are subject to expiration in 1998, 1999 and 2004, respectively. Fred Hutchinson Cancer Research Center has the right to terminate the leases at any time after November 30, 1999, upon 12 months prior written notice. (4) Of the 105,000 rentable square feet at 1413 Research Boulevard, leases with respect to 30,000 square feet are subject to expiration in 1999 and leases with respect to 75,000 rentable square feet are subject to expiration in 2001. (5) In addition to the base rent shown, MedImmune, Inc. pays $322,000 per year in reimbursements for improvements installed by the prior owner of the property. These payments, which are accounted for as tenant recovery revenue, continue through the term of the lease. The terms of the lease with MedImmune allow it to terminate such lease at various dates during the lease upon six to 12 months notice and the payment of a termination penalty determined based on the date of the termination. In the event of such early termination, the remaining amount due over the term of the lease for improvements as described above must be paid in full. (6) Gillette Capital Corporation is a wholly owned subsidiary of The Gillette Company, the guarantor of the lessee's obligations under the lease. (7) Shire Pharmaceuticals, PLC subleases its space at 1550 East Gude Drive from Quest Diagnostics, Inc. (8) Weighted Average based on percentage of aggregate leased square feet. ITEM 3. LEGAL PROCEEDINGS. To the Company's knowledge, no litigation is pending against the Company, other than routine actions and administrative proceedings, substantially all of which are expected to be covered by liability insurance or which, in the aggregate, are not expected to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company did not submit any matters to a vote of security holders in the fourth quarter of the fiscal year ended December 31, 1997. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock began trading on the New York Stock Exchange ("NYSE") on May 28, 1997 under the symbol "ARE." On March 27, 1998, the last reported sales price per share of Common Stock on the NYSE was $31 5/8, and there were approximately 168 holders of record of the Common Stock (excluding beneficial owners whose shares are held in the name of CEDE & Co.). The following table sets forth the quarterly high and low sales prices per share of the Common Stock reported on the NYSE and the distributions paid by Alexandria with respect to each such period.
PER SHARE PERIOD(1) HIGH LOW DISTRIBUTION - --------- ---- --- ------------ May 28, 1997 to June 30, 1997.............. 22 1/4 20 5/8 $0.1275(2) July 1, 1997 to September 30, 1997......... 28 9/16 21 5/8 $0.40 October 1, 1997 to December 31, 1997....... 31 7/8 26 5/8 $0.40 January 1, 1998 to March 27, 1998.......... 34 1/8 29 7/8 $0.40(3)
____________ (1) Period commencing on date Common Stock began trading on the NYSE and ending on March 27, 1998. Prior to the Offering and the 1,765.923 to 1 stock split in connection therewith, Alexandria paid the following dividends on its Common Stock during 1996 and 1997: (1) March 26, 1996, distribution of Warrants, pro rata, to purchase 117,362 shares of common stock of Corixa Corporation; (2) September 30, 1996, $183.30 per share; (3) February 3, 1997, $1,549.82 per share; (4) March 31, 1997, $750.01 per share; and (5) June 5, 1997, $475.00 per share. (2) Alexandria paid a distribution of $0.1275 per share of Common Stock on July 18, 1997 for the period May 28, 1997 through June 30, 1997, which is approximately equivalent to a quarterly distribution of $0.40 per share for the full calendar quarter. (3) On February 26, 1998, the Board of Directors of Alexandria authorized the payment of a distribution of $0.40 per share of Common Stock for the quarter ending March 31, 1998 to be paid on April 17, 1998 to holders of record as of the close of business on April 7, 1998. Future distributions by Alexandria will be determined by the Board of Directors and will be dependent upon a number of factors, including actual cash available for distribution, the Company's financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant. To maintain its qualification as a REIT, Alexandria must make annual distributions to stockholders of at least 95% of its taxable income, determined without regard to deductions for dividends paid and by excluding any net capital gains. Under certain circumstances, Alexandria may be required to make distributions in excess of cash flow available for distribution to meet such distribution requirements. In such case, the Company may borrow funds or may raise funds through the issuance of additional debt or equity capital. There can be no assurance that any such distributions will be made by Alexandria. 11 ITEM 6. SELECTED FINANCIAL DATA. The following table should be read in conjunction with the consolidated financial statements included elsewhere in this Form 10-K.
FOR THE PERIOD YEAR ENDED DECEMBER 31 OCTOBER 27, 1994 ---------------------------------------- (INCEPTION) THROUGH 1997 1996 1995 DECEMBER 31, 1994 ---------- ---------- ---------- ------------------- (dollars in thousands, except per share amounts) OPERATING DATA: Total revenue................................................ $ 34,846 $ 17,673 $ 9,923 $ 1,011 Total expenses............................................... 37,643 15,498 9,057 1,659 ----------------------------------------------------------- (Loss) income from operations................................ (2,797) 2,175 866 (648) Charge in lieu of taxes...................................... - - (105) - ----------------------------------------------------------- Net (loss) income............................................ $ (2,797) $ 2,175 $ 761 $ (648) ----------------------------------------------------------- ----------------------------------------------------------- Net (loss) income per pro forma share of Common Stock - restated for 1996, 1995 and 1994 (basic and diluted)................................................ $ (0.35) $ 0.60 $ 0.43 $ (0.37) ----------------------------------------------------------- ----------------------------------------------------------- Pro forma weighted average shares of Common Stock outstanding - restated for 1996, 1995 and 1994(1)....... 8,075,864 3,642,131 1,765,923 1,765,923 ----------------------------------------------------------- ----------------------------------------------------------- Cash dividends declared per pro forma share of Common Stock - restated for 1996 and 1995............... $ 1.60 $ 0.87 $ 0.51 $ - ----------------------------------------------------------- ----------------------------------------------------------- BALANCE SHEET DATA (AT PERIOD END): Rental properties - net of accumulated depreciation.......... $ 229,970 $ 146,960 $ 54,353 $ 54,366 Total assets................................................. $ 248,454 $ 160,480 $ 58,702 $ 56,600 Mortgage loans payable and unsecured line of credit.......... $ 70,817 $ 113,182 $ 40,894 $ 39,164 Total liabilities............................................ $ 81,537 $ 120,907 $ 42,369 $ 40,119 Mandatorily redeemable Series V Preferred Stock.............. $ - $ 25,042 $ - $ - Stockholders' equity......................................... $ 166,917 $ 14,531 $ 16,333 $ 16,481 OTHER DATA: Net (loss) income............................................ $ (2,797) $ 2,175 $ 761 $ (648) Add: Special bonus(2)............................................. 353 - - - Stock compensation(3)........................................ 4,239 - - - Post-retirement benefit(4)................................... 632 438 - - Acquisition LLC financing costs(5)........................... 6,973 - - - Write-off of unamortized loan costs(6)....................... 2,295 - - - Depreciation and amortization................................ 4,866 2,405 1,668 63 ----------------------------------------------------------- Funds from operations(7)..................................... $ 16,561 $ 5,018 $ 2,429 $ (585) ----------------------------------------------------------- ----------------------------------------------------------- Cash flows from operating activities......................... $ 3,883 $ (1,646) $ 355 $ (1,024) Cash flows from investing activities......................... $ (87,620) $ (94,900) $ (1,554) $ (29,924) Cash flows from financing activities......................... $ 84,101 $ 97,323 $ 927 $ 32,139 Number of properties owned at period end..................... 22 12 4 4 Rentable square feet of properties owned at period end........................................... 1,747,837 1,031,070 313,042 313,042 Occupancy of properties owned at period end.................. 97% 97% 96% 88%
12 ______________ (1) Pro forma shares of Common Stock outstanding for the years ended December 31, 1997 and 1996 include all shares outstanding after giving effect to the Offering, weighted for the period beginning from the date of the Offering, conversion of all series of preferred stock, the 1,765.923 to 1 stock split, the issuance of the stock grants and exercise of substitute stock options. Pro forma restated shares of Common Stock outstanding for the periods ended December 31, 1995 and 1994 include shares outstanding after giving effect to the 1,765.923 to 1 stock split. (2) Represents a $353,000 special bonus paid to an officer of the Company in connection with the Offering. (3) Represents an accrual for $4,239,000 of non-recurring, non-cash compensation expense relating to the issuance of stock options and stock grants. In connection with the Offering, the holders of options previously granted by Holdings under its 1994 stock option plans received options to purchase shares of Common Stock of the Company in substitution therefor. These substitute options were exercised in connection with the Offering. (4) This adjustment relates solely to the non-cash accrual of a one-time post-retirement benefit for an officer of the Company. (5) In connection with the Offering, the Company acquired the membership interests in the Acquisition LLC for $58,844,000, which exceeded the purchase price paid by the Acquisition LLC for the properties by $6,973,000. This difference was accounted for as a financing cost. (6) Of this amount, $2,147,000 represents the write-off of costs associated with debt paid off in connection with the Offering, and $148,000 represents the write-off of costs associated with debt paid off in November 1997. (7) The Company computes funds from operations ("FFO") in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper ("White Paper"). The White Paper defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring, sales of property and unusual items, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. For a more detailed discussion of FFO, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Funds from Operations." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. OVERVIEW Since its formation in October 1994, the Company has devoted substantially all of its resources to the acquisition and management of high quality, strategically located Life Science Facilities leased principally to tenants in the Life Science Industry in its target markets. In June 1997, the Company completed an initial public offering (the "Offering") of its common stock, par value $.01 per share (the "Common Stock"). In connection with the Offering (and related exercise of the underwriters' over-allotment option), 7,762,500 shares of Common Stock were issued. Aggregate proceeds from the Offering (including proceeds from the exercise of the over-allotment option), net of underwriting discounts and commissions, advisory fees and offering costs, were approximately $138.9 million. The Company receives income from rental revenue (including tenant recoveries) from its properties. Of the 22 properties owned by the Company as of December 31, 1997 (the "Properties"), four were acquired in calendar year 1994, eight in 1996 (the "1996 Acquired Properties"), three in 1997 in connection with the Offering and seven in 1997 subsequent to the Offering (together, the "1997 Acquired Properties"). As a result of the Company's acquisition activities, the financial data shows significant increases in total revenues and expenses for 1997 compared to 1996, largely attributable to the 1997 Acquired Properties, and the recognition of a full year of revenues for the 1996 Acquired Properties. For the foregoing reasons, and due to the effects of the Offering and related transactions, the Company does not believe its year-to-year historical financial data are comparable. Accordingly, the Company also has included pro forma financial information, which gives effect to the Offering and the acquisitions made in 1996 and 1997 in connection therewith. 13 RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 Rental revenue increased by $12.7 million, or 98%, to $25.6 million for 1997 compared to $12.9 million for 1996. The increase resulted primarily from the 1996 Acquired Properties being owned for a full period and the addition of the 1997 Acquired Properties, which together contributed an additional $12.5 million of rental revenue in 1997. Rental revenue from the Properties owned since January 1, 1996 (the "Same Properties") increased by $180,000, or 2%. This increase resulted primarily from the conversion of 19,310 square feet of storage space to higher rent laboratory space at 10933 North Torrey Pines Road in October 1996. Tenant recoveries increased by $4.2 million, or 100%, to $8.4 million for 1997 compared to $4.2 million for 1996. The increase resulted primarily from the 1996 Acquired Properties being owned for a full period and the addition of the 1997 Acquired Properties, which together contributed an additional $3.8 million of tenant recoveries. Tenant recoveries for the Same Properties increased by $416,000, or 19%, due to an increase in operating expenses (particularly utilities) being passed through to the tenants. Other income increased by $273,000, or 48%, to $836,000 for 1997 compared to $563,000 for 1996, resulting from an increase in interest income due to the investment of excess funds from the Offering and increased amounts in capital improvement reserve accounts. Rental operating expenses increased by $4.4 million, or 100%, to $8.8 million for 1997 compared to $4.4 million for 1996. The increase resulted almost entirely from the 1996 Acquired Properties being owned for a full period and the addition of the 1997 Acquired Properties, which together contributed an additional $4.0 million in operating expenses. Operating expenses for the Same Properties increased by $401,000, or 17%, primarily due to increased utility expenses (due to greater usage) which were passed through to the tenants. General and administrative expenses increased by $504,000, or 26%, to $2.5 million for 1997 compared to $2.0 million for 1996 due to the Company's larger scope of operations and increased costs incurred as a result of being a public company. Special bonus of $353,000 in 1997 reflects a bonus paid to an officer of the Company in connection with the Offering. Post retirement benefit expense of $632,000 and $438,000 in 1997 and 1996, respectively, reflects an adjustment for the non-cash accrual associated with a one-time post retirement benefit for an officer of the Company. Stock compensation expense of $4.2 million was recorded in 1997 for the non-recurring, non-cash expense related to the issuance of stock grants and options to officers, directors and certain employees of the Company principally in connection with the Offering. Interest expense increased by $716,000, or 11%, to $7.0 million for 1997 compared to $6.3 million for 1996. The increase resulted from indebtedness incurred to acquire the 1996 Acquired Properties, offset by a reduction in ongoing interest expense due to the payoff of $72.7 million in secured notes payable in June 1997 with proceeds from the Offering. Acquisition LLC financing costs of $7.0 million in 1997 represent the portion of the purchase price of the membership interests in ARE Acquisitions, LLC (the "Acquisition LLC") in excess of the cost incurred by the Acquisition LLC to acquire its three Life Science Facilities. Write-off of unamortized loan costs in 1997 represents the write-off of $2.1 million in loan costs associated with $72.7 million of secured notes repaid with proceeds of the Offering and $148,000 in loan costs associated with the payoff of debt in November 1997. 14 Depreciation and amortization increased by $2.5 million, or 102%, to $4.9 million for 1997 compared to $2.4 million for 1996. The increase resulted primarily from depreciation associated with the 1996 Acquired Properties being owned for a full period and the addition of the 1997 Acquired Properties. As a result of the foregoing, the net loss was $2.8 million for 1997 compared to net income of $2.2 million for 1996. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995 Rental revenue increased by $4.9 million, or 61%, to $12.9 million for the year ended December 31, 1996 compared to $8.0 million for the year ended December 31, 1995. The increase resulted primarily from the 1996 Acquired Properties, which contributed an additional $4.6 million of rental revenue in 1996. Rental revenue from the Properties owned since January 1, 1995 (the "1995 Same Properties") increased by $370,000, or 5%. Of this increase, $320,000 resulted from a full year of rental income in 1996 resulting from the increase in occupancy at 11099 North Torrey Pines Road during 1995. Tenant recoveries increased by $2.5 million, or 147%, to $4.2 million for 1996 compared to $1.7 million for 1995. The increase resulted primarily from the addition of the 1996 Acquired Properties, which contributed an additional $2.1 million of tenant recoveries. Tenant recoveries from the 1995 Same Properties increased by $395,000, or 23%. Of this increase, $300,000 resulted from a new lease at 11099 North Torrey Pines Road. The remaining increase resulted primarily from a new energy management system at 10933 North Torrey Pines Road that allows the Company to more accurately measure and recover from its tenants certain costs of utility usage. Other income increased by $359,000, or 176%, to $563,000 for 1996 compared to $204,000 for 1995. The increase resulted primarily from the addition of the 1996 Acquired Properties, which contributed an additional $337,000 of other income. Rental operating expenses increased by $2.2 million, or 100%, to $4.4 million for 1996 compared to $2.2 million for 1995. The increase resulted primarily from the addition of the 1996 Acquired Properties, which contributed an additional $2.0 million of rental operating expenses. Rental operating expenses from the 1995 Same Properties increased by $162,000, or 7%, primarily as a result of an increase in expenses at 10933 North Torrey Pines Road. General and administrative expenses increased by $364,000, or 23%, to $2.0 million for 1996 compared to $1.6 million for 1995. The increase resulted primarily from additional professional fees incurred during 1996. Post-retirement benefit expense in 1996 represents the non-cash accrual associated with a one-time post-retirement benefit for an officer of the Company. Interest expense increased by $2.8 million, or 80%, to $6.3 million for 1996 compared to $3.5 million for 1995. The increase resulted primarily from indebtedness incurred to acquire the 1996 Acquired Properties, which contributed an additional $2.3 million of interest expense, and debt outstanding under the Company's then-existing unsecured line of credit, which was repaid in July 1996. Depreciation and amortization increased by $737,000, or 44%, to $2.4 million for 1996 compared to $1.7 million for 1995. The increase resulted primarily from depreciation associated with the 1996 Acquired Properties. As a result of the foregoing, net income increased by $1.4 million, or 184%, to $2.2 million for 1996 compared to $761,000 for 1995. 15 LIQUIDITY AND CAPITAL RESOURCES THE OFFERING AND SECURED DEBT The Company completed the Offering in June 1997. Aggregate proceeds of the Offering (including proceeds from the exercise of the over-allotment option), net of underwriting discounts and commissions, advisory fees, and offering costs, were approximately $138.9 million. The Company used such net proceeds, as well as $15.4 million in proceeds from two new mortgage loans, to repay outstanding debt of approximately $77.7 million. In addition, in November 1997, the Company paid off $6.7 million of secured debt with funds from its unsecured line of credit obtained in connection with the Offering. Total secured debt as of December 31, 1997 included the following:
PRINCIPAL BALANCE AT INTEREST MATURITY COLLATERAL DECEMBER 31, 1997 RATE DATE - ---------- -------------------- ---- ---- (IN THOUSANDS) 3535/3565 General Atomics Court, San Diego, CA $ 18,050 9.00% December 2014 1431 Harbor Bay Parkway, Alameda, CA 8,500 7.17% January 2014 1102/1124 Columbia Street, Seattle, WA 21,267 7.75% May 2016 ------------ $ 47,817 ------------ ------------
UNSECURED LINE OF CREDIT In connection with the Offering, the Company obtained an unsecured line of credit providing for borrowings of up to $150 million, consisting of a $100 million activated portion and a $50 million portion that may be activated as needed at the Company's discretion (upon payment of an activation fee) provided that no default exists thereunder. The line of credit provides for borrowings bearing interest at a floating rate based on the Company's election of either a LIBOR based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR based advance, the Company must elect to fix the rate for a one, two, three or six month period. The line of credit contains financial covenants, including, among other things, maintenance of minimum market net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio (all as defined). The Company was in compliance with all such covenants as of December 31, 1997. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. Borrowings under the line of credit are limited to an amount based on a pool of unencumbered assets. Accordingly, as the Company acquires additional unencumbered properties, borrowings available under the line of credit will increase. As of December 31, 1997, borrowings under the line of credit were limited to approximately $103 million, and $23 million was outstanding (leaving $80 million available), at a weighted average rate of interest of 6.9%. The line of credit expires on May 31, 2000 and provides for annual extensions (provided there is no default) for two additional one-year periods upon notice by the Company and consent of the participating banks. In addition, at the Company's election, the line of credit may be converted at any time to a term loan with principal installments over two years from the date of such conversion. RESTRICTED CASH As of December 31, 1997, approximately $3.4 million had been set aside in a restricted cash account to complete the upgrade of laboratory space (as well as certain related improvements to the property) at 1102/1124 Columbia Street pursuant to an agreement between the Company and a tenant. The Company also holds approximately $758,000 in security deposit reserve accounts based on the terms of certain lease agreements. 16 LIQUIDITY REQUIREMENTS Although cash from operations required to fund interest expense has decreased substantially as a result of the Company's reduction in overall debt following the Offering, such reduction has been offset by an increased requirement to use cash from operations to meet distribution requirements to maintain the Company's REIT status. The Company expects to make distributions from cash available for distribution, which is expected to exceed cash historically available for distribution as a result of the reduction in debt described above, as well as the addition of the 1996 and 1997 Acquired Properties. Cash that accumulates on a short-term basis will be used to reduce outstanding balances under the Company's unsecured line of credit or will be invested by the Company primarily in interest-bearing accounts and other short-term, interest-bearing securities that are consistent with the Company's qualification for taxation as a REIT. The Company also believes that net cash provided by operations will be sufficient to fund its recurring non-revenue enhancing capital expenditures, tenant improvements and leasing commissions. The Company expects to meet certain long-term liquidity requirements, such as property acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements, through long-term secured and unsecured indebtedness, including borrowings under the line of credit, and the issuance of additional debt and/or equity securities. EXPOSURE TO ENVIRONMENTAL LIABILITIES In connection with the acquisition of all of the Properties, the Company has obtained Phase I environmental assessments to ascertain the existence of any environmental liabilities or other issues. The Phase I environmental assessments of the Properties have not revealed any environmental liabilities that the Company believes would have a material adverse effect on the Company's financial condition or results of operations taken as a whole, nor is the Company aware of any such material environmental liabilities. HISTORICAL CASH FLOWS Net cash provided by operating activities for 1997 increased by $5.5 million to $3.9 million compared to net cash used by operating activities of $(1.6) million for 1996. The increase resulted primarily from operating cash flows from the addition of the 1996 Acquired Properties and the 1997 Acquired Properties. Net cash used in investing activities decreased by $7.3 million to $(87.6) million for 1997 compared to net cash used in investing activities of $(94.9) million for 1996. This use of cash related primarily to costs associated with the acquisition of the 1997 Acquired Properties. Net cash provided by financing activities decreased by $13.2 million to $84.1 million for 1997 compared to $97.3 million for 1996. The decrease was impacted by $85.8 million of principal reductions in debt, retired principally with proceeds from the Offering, offset by $138.9 million in net proceeds from the Offering, $15.4 million in proceeds from secured debt, and $25.5 million in proceeds from unsecured lines of credit. In addition, the Company paid dividends on the Common Stock of $8.8 million and dividends on preferred stock of $1.1 million during 1997. CAPITAL EXPENDITURES, TENANT IMPROVEMENTS AND LEASING COSTS The following table sets forth total and weighted average per square foot capital expenditures (excluding those expenditures which are recoverable from tenants or are revenue-enhancing) and tenant improvements and leasing costs for the period from October 1994 (inception of operations) to December 31, 1994, and for the years ended December 31, 1995, 1996, and 1997, attributable to leases that commenced at the Properties after acquisition by the Company. 17
TOTAL/ WEIGHTED AVERAGE 1997 1996 1995 1994 ---------------- ---------- ---------- ---------- ---------- CAPITAL EXPENDITURES: Weighted average square feet in 2,426,479 1,342,216 563,901 314,779 205,583 portfolio Property related capital expenditures $ 745,000 $ 547,000 $ 181,000 $ 17,000 $ - Per weighted average square foot in portfolio $ 0.31 $ 0.41 $ 0.32 $ 0.05 $ - TENANT IMPROVEMENTS AND LEASING COSTS: RETENANTED SPACE: Retenanted square feet 276,711 40,953 180,398 49,938 5,422 Tenant improvements and leasing costs $ 1,986,000 $ 164,000 $1,220,000 $ 576,000 $ 26,000 Per square foot leased $ 7.18 $ 4.00 $ 6.76 $ 11.53 $ 4.80 RENEWAL SPACE: Renewal square feet 42,379 1,232 25,063 16,084 - Tenant improvements and leasing costs $ 48,291 $ - $ - $ 48,291 $ - Per square foot leased $ 1.14 $ - $ - $ 3.00 $ -
Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required and to the extent they are recoverable from tenants. The Company maintains an active preventive maintenance program in order to minimize required capital improvements. Tenant improvements and leasing costs also may fluctuate in any given year depending upon factors such as the timing and extent of vacancies, the type of lease (renewal or replacement tenant), the involvement of external leasing agents and overall competitive market conditions. INFLATION As of December 31, 1997, approximately 76% of the Company's leases (on a square footage basis) were triple net leases, requiring tenants to pay substantially all real estate taxes and insurance, common area and other operating expenses (including increases thereto). In addition, approximately 19% of the Company's leases (on a square footage basis) required the tenants to pay a majority of operating expenses. In addition, approximately 64% of the Company's leases (on a square footage basis) contain effective annual rent escalations that are either fixed (ranging from 2.5% to 4.0%) or indexed based on the consumer price index or other index. Accordingly, the Company does not believe that its earnings or cash flow are subject to any significant risk of inflation. An increase in inflation, however, could result in an increase in the Company's variable rate borrowing cost, including borrowings under the unsecured line of credit. IMPACT OF THE YEAR 2000 The Company has evaluated the significance of the change from the year 1999 to the year 2000 on its existing computer system and has taken steps to ensure that its computer system will not be adversely affected thereby. The financial impact of steps taken to accommodate the change for the year 2000 is not anticipated to be material. The Company relies in part on the computer systems of its vendors and other companies. If any such company failed to become year 2000 compliant, the Company could be adversely affected thereby. The Company has surveyed several of its larger vendors, and all have responded that they either are currently year 2000 compliant, or are actively taking steps to become year 2000 compliant. 18 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION Due to the impact of the Offering and related transactions and the acquisitions by the Company in 1996 and 1997, the historical results of operations are not indicative of the Company's future results of operations. The following pro forma condensed consolidated financial information presents the results of operations of the Company as if the Offering (including the exercise of the over-allotment option) and related transactions occurred on January 1, 1996. Pro forma results for the year ended December 31, 1997 do not include the operations of two of the Properties (14225 Newbrook Drive and 1330 Piccard Drive) for the period prior to their acquisition by the Acquisition LLC (on January 13, 1997 and January 15, 1997, respectively). These Properties were owner-occupied prior to purchase and, as a result, there were no historical operating results for these Properties as rental properties. The adjusted pro forma financial information presented below assumes that the new leases entered into with the sellers of such Properties were in effect for the entire period presented. The pro forma and adjusted pro forma financial information presented below is based upon historical information and various assumptions and does not purport to present the actual results that would have occurred had the Offering and related transactions occurred on January 1, 1996, nor to project the Company's results of operations for any future period. CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
ADJUSTED PRO FORMA PRO FORMA ------------------------- ----------- YEAR ENDED DECEMBER 31 1997 1996 1997 ------------- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues $ 38,103 $ 25,249 $ 38,374 Expenses: Rental operations 8,857 6,471 8,865 General and administrative 2,662 2,900 2,662 Interest 4,818 3,836 4,818 Special bonus 353 - 353 Stock compensation 4,239 - 4,239 Post retirement benefit 632 438 632 Write-off of unamortized loan 148 - 148 costs Depreciation and amortization 5,269 3,521 5,309 ----------- ----------- ----------- 26,978 17,166 27,026 ----------- ----------- ----------- Net income $ 11,125 $ 8,083 $ 11,348 ----------- ----------- ----------- ----------- ----------- ----------- Pro forma shares of Common Stock outstanding 11,404,631 11,404,631 11,404,631 ----------- ----------- ----------- ----------- ----------- ----------- Net income per pro forma share of Common Stock outstanding $ 0.98 $ 0.71 $ 1.00 ----------- ----------- ----------- ----------- ----------- -----------
FUNDS FROM OPERATIONS Management believes that funds from operations ("FFO") is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, it provides investors with an understanding of the ability of the Company to incur and service debt, to make capital expenditures and to make distributions. The Company computes FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in its March 1995 White Paper (the "White Paper"), which may differ from the methodology for calculating FFO utilized by other equity REITs, and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent 19 amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. The White Paper defines FFO as net income (loss) (computed in accordance with generally accepted accounting principals ("GAAP")), excluding gains (or losses) from debt restructuring, sales of property and unusual items, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. (See "-Historical Cash Flows" for information regarding these measures of cash flow). The following tables present the Company's FFO for the year ended 1997 on a historical, pro forma and adjusted pro forma basis and for the years ended 1996 and 1995 on a historical basis. The adjusted pro forma information for the year ended December 31, 1997 assumes that leases entered into with sellers of previously owner-occupied properties were in effect for the entire period presented:
(UNAUDITED) (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31 ---------------------------- ----------------------- ADJUSTED PRO PRO 1996 1995 HISTORICAL FORMA FORMA HISTORICAL HISTORICAL ---------- ------- -------- ---------- ---------- (IN THOUSANDS) Net (loss) income $(2,797) $11,125 $11,348 $2,175 $ 761 Add: Special bonus 353 353 353 - - Stock compensation 4,239 4,239 4,239 - - Post-retirement benefit 632 632 632 438 - Acquisition LLC financing costs 6,973 - - - - Write-off of unamoritized loan costs 2,295 148 148 - - Depreciation and amortization 4,866 5,269 5,309 2,405 1,668 ------- ------- ------- ------ ------ Funds from Operations $16,561 $21,766 $22,029 $5,018 $2,429 ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by Regulation S-X are included in this Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 is incorporated by reference from the Company's definitive proxy statement to be mailed in connection with its annual meeting of stockholders to be held on May 15, 1998. ITEM 11. EXECUTIVE COMPENSATION. The information required by Item 11 is incorporated by reference from the Company's definitive proxy statement to be mailed in connection with its annual meeting of stockholders to be held on May 15, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by Item 12 is incorporated by reference from the Company's definitive proxy statement to be mailed in connection with its annual meeting of stockholders to be held on May 15, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 13 is incorporated by reference from the Company's definitive proxy statement to be mailed in connection with its annual meeting of stockholders to be held on May 15, 1998. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND SCHEDULES The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K:
PAGE ---- Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . .F-1 Audited Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1997 and 1996. . . . . . . . .F-2 Consolidated Statements of Operations for the Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . . . . .F-3 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . . . . .F-4 Consolidated Statements of Cash Flows for the Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . . . . .F-5 Notes to Consolidated Financial Statements for the Years ended December 31, 1997, 1996, and 1995. . . . . . . . . . . . . . . . . . . .F-6 Schedule III - Consolidated Financial Statement of Rental Properties and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . F-24
(B) REPORTS ON FORM 8-K. On December 2, 1997, the Company filed a report on Form 8-K relating to the acquisition of certain real property. On January 28, 1998, the Company filed the required financial statements thereto by amendment on Form 8-K/A. (C) EXHIBITS.
EXHIBIT NUMBER EXHIBIT - ------- ------- 3.1++ Articles of Amendment and Restatement of the Registrant 3.2++ Certificate of Correction of the Registrant 3.3++ Amended and Restated Bylaws of the Registrant 4.1+ Specimen Certificate representing shares of Common Stock 10.1 Amended and Restated Executive Employment Agreement by and between the Registrant and Joel S. Marcus, dated January 5, 1994, and amended as of March 28, 1997 10.2 Amended and Restated Executive Employment Agreement by and between the Registrant and Alan D. Gold, dated January 5, 1994, and amended as of March 28, 1997 10.3 Amended and Restated Executive Employment Agreement by and between the Registrant and Gary Kreitzer, dated January 5, 1994, and amended as of March 28, 1997 10.4 Amended and Restated Executive Employment Agreement by and between the Registrant and Steven Stone, dated January 5, 1994, and amended as of March 28, 1997
22
EXHIBIT NUMBER EXHIBIT - ------- ------- 10.5 Second Amendment to the Executive Employment Agreement and General and Special Release by and between the Registrant and Jerry M. Sudarsky, dated May 30, 1997 10.6+++ Executive Employment Agreement between the Registrant and James H. Richardson, dated July 31, 1997 10.7+ Executive Employment Agreement between the Registrant and Peter J. Nelson, dated April 22, 1997 10.8+ Form of Director Indemnification Agreement 10.9 Registration Rights Agreement by and between the Registrant and Health Science Properties Holding Corporation, dated June 2, 1997 10.10+ Standard Lease Form to be executed by tenant and the Registrant as Landlord 10.11+ Form of Management Agreement 10.12+ Stockholders Agreement by and among the Registrant, Health Science Properties Holding Corporation and AEW Partners II, L.P., dated September 9, 1996 10.13 1997 Stock Award and Incentive Plan of the Registrant 10.14+ Form of Non-Employee Director Stock Option Agreement for use in connection with options issued pursuant to the 1997 Stock Option Plan 10.15+ Form of Incentive Stock Option Agreement for use in connection with options issued pursuant to the 1997 Stock Option Plan 10.16+ Form of Nonqualified Stock Option Agreement for use in connection with options issued pursuant to the 1997 Stock Option Plan 10.17 Revolving Loan Agreement among the Registrant, ARE-QRS Corp., ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated June 2, 1997 10.18 Amendment No. 1 to Revolving Loan Agreement among the Registrant, ARE- QRS Corp., ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated September 9, 1997 10.19 Amendment No. 2 to Revolving Loan Agreement among the Registrant, ARE- QRS Corp. ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated January 28, 1998 21.1 List of Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule
___________ + Incorporated by reference to the Registrant's Registration Statement on Form S-11 (No. 333-23545), declared effective by the Commission on May 27, 1997 ++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997, filed with the Commission on August 14, 1997 +++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997, filed with the Commission on November 14, 1997 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALEXANDRIA REAL ESTATE EQUITIES, INC. Dated: March 30, 1998 By: /s/ Joel S. Marcus ---------------------------------- Joel S. Marcus Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ------ ----- /s/ J M Sudarsky - ------------------------------------ Chairman of the Board of Directors March 30, 1998 Jerry M. Sudarsky /s/ Joel S. Marcus - ------------------------------------ Chief Executive Officer (Principal March 30, 1998 Joel S. Marcus Executive Officer) and Director /s/ Alan D. Gold - ------------------------------------ President and Director March 30, 1998 Alan D. Gold /s/ Peter J. Nelson - ------------------------------------ Chief Financial Officer, Treasurer and March 30, 1998 Peter J. Nelson Secretary (Principal Financial and Accounting Officer) /s/ Joseph Elmaleh - ------------------------------------ Director March 30, 1998 Joseph Elmaleh /s/ Viren Mehta - ------------------------------------ Director March 30, 1998 Viren Mehta /s/ David M. Petrone - ------------------------------------ Director March 30, 1998 David M. Petrone /s/ Anthony M. Solomon - ------------------------------------ Director March 30, 1998 Anthony M. Solomon
24 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ------- ------- ------------- 3.1++ Articles of Amendment and Restatement of the Registrant 3.2++ Certificate of Correction of the Registrant 3.3++ Amended and Restated Bylaws of the Registrant 4.1+ Specimen Certificate representing shares of Common Stock 10.1 Amended and Restated Executive Employment Agreement by and between the Registrant and Joel S. Marcus, dated January 5, 1994, and amended as of March 28, 1997 10.2 Amended and Restated Executive Employment Agreement by and between the Registrant and Alan D. Gold, dated January 5, 1994, and amended as of March 28, 1997 10.3 Amended and Restated Executive Employment Agreement by and between the Registrant and Gary Kreitzer, dated January 5, 1994, and amended as of March 28, 1997 10.4 Amended and Restated Executive Employment Agreement by and between the Registrant and Steven Stone, dated January 5, 1994, and amended as of March 28, 1997 10.5 Second Amendment to the Executive Employment Agreement and General and Special Release by and between the Registrant and Jerry M. Sudarsky, dated May 30, 1997 10.6+++ Executive Employment Agreement between the Registrant and James H. Richardson, dated July 31, 1997 10.7+ Executive Employment Agreement between the Registrant and Peter J. Nelson, dated April 22, 1997 10.8+ Form of Director Indemnification Agreement 10.9 Registration Rights Agreement by and between the Registrant and Health Science Properties Holding Corporation, dated June 2, 1997 10.10+ Standard Lease Form to be executed by tenant and the Registrant as Landlord 10.11+ Form of Management Agreement 10.12+ Stockholders Agreement by and among the Registrant, Health Science Properties Holding Corporation and AEW Partners II, L.P., dated September 9, 1996 10.13 1997 Stock Award and Incentive Plan of the Registrant 10.14+ Form of Non-Employee Director Stock Option Agreement for use in connection with options issued pursuant to the 1997 Stock Option Plan 10.15+ Form of Incentive Stock Option Agreement for use in connection with Options issued pursuant to the 1997 Stock Option Plan 10.16+ Form of Nonqualified Stock Option Agreement for use in connection with Options issued pursuant to the 1997 Stock Option Plan 10.17 Revolving Loan Agreement among the Registrant, ARE-QRS Corp., ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated June 2, 1997
25
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE - ------- ------- ------------- 10.18 Amendment No. 1 to Revolving Loan Agreement among the Registrant, ARE-QRS Corp., ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated September 9, 1997 10.19 Amendment No. 2 to Revolving Loan Agreement among the Registrant, ARE-QRS Corp. ARE Acquisitions, LLC, the Banks therein named and the Bank of America NT & SA, dated January 28, 1998 21.1 List of Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27.1 Financial Data Schedule
______________ + Incorporated by reference to the Registrant's Registration Statement on Form S-11 (No. 333-23545), declared effective by the Commission on May 27, 1997 ++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997, filed with the Commission on August 14, 1997 +++ Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997, filed with the Commission on November 14, 1997 26 Report of Independent Auditors To the Board of Directors and Stockholders of Alexandria Real Estate Equities, Inc. We have audited the accompanying consolidated balance sheets of Alexandria Real Estate Equities, Inc. and subsidiaries (the "Company") as of December 31, 1997, and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1997, 1996 and 1995. Our audits also included the consolidated financial statement Schedule III, rental properties and accumulated depreciation. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedule referred to above, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Los Angeles, California January 30, 1998 F-1 Alexandria Real Estate Equities, Inc. and Subsidiaries Consolidated Balance Sheets (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31 1997 1996 ------------------------- ASSETS Rental properties, net $ 229,970 $ 146,960 Cash and cash equivalents 2,060 1,696 Tenant security deposits and other restricted cash 6,799 5,585 Tenant receivables and deferred rent 3,630 1,332 Loan fees and costs (net of accumulated amortization of $175 and $131 in 1997 and 1996, respectively) 1,350 2,502 Other assets 4,645 2,405 ------------------------- Total assets $ 248,454 $ 160,480 ------------------------- ------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable $ 47,817 $ 113,182 Unsecured line of credit 23,000 - Accounts payable, tenant security deposits and other liabilities 6,158 3,650 Dividends payable 4,562 1,550 Due to Health Science Properties Holding Corporation - 2,525 ------------------------- 81,537 120,907 Commitments and contingencies - - Manditorily redeemable Series V cumulative convertible preferred stock, $0.01 par value, $1,000 stated value per share, 50,000 shares authorized; 27,500 issued and outstanding at December 31, 1996 - 25,042 Stockholders' equity: Preferred stock: Series T 8.5% preferred stock, $0.01 par value and $100 stated value per share, 12 shares issued and outstanding at December 31, 1996 - 1 Series U 8.5% cumulative convertible preferred stock, $0.01 par value and $500 stated value per share, 220 shares issued and outstanding at December 31, 1996 - 110 Common stock, $0.01 par value per share, 100,000,000 shares authorized; 11,604,631 and 1,765,923 shares issued and outstanding at December 31, 1997 and 1996, respectively 114 - Additional paid-in capital 173,735 16,195 Accumulated deficit (6,932) (1,775) ------------------------- Total stockholders' equity 166,917 14,531 ------------------------- Total liabilities and stockholders' equity $ 248,454 $ 160,480 ------------------------- -------------------------
SEE ACCOMPANYING NOTES. F-2 Alexandria Real Estate Equities, Inc. and Subsidiaries Consolidated Statements of Operations (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------- Revenues: Rental $ 25,622 $ 12,941 $ 8,020 Tenant recoveries 8,388 4,169 1,699 Other 836 563 204 ----------------------------------------- 34,846 17,673 9,923 Expenses: Rental operations 8,766 4,356 2,228 General and administrative 2,476 1,972 1,608 Interest 7,043 6,327 3,553 Stock compensation 4,239 - - Post retirement benefit 632 438 - Special bonus 353 - - Acquisition LLC financing costs 6,973 - - Write-off of unamortized loan costs 2,295 - - Depreciation and amortization 4,866 2,405 1,668 ----------------------------------------- 37,643 15,498 9,057 ----------------------------------------- (Loss) income from operations (2,797) 2,175 866 Charge in lieu of income taxes - - 105 ----------------------------------------- Net (loss) income $ (2,797) $ 2,175 $ 761 ----------------------------------------- ----------------------------------------- Net (loss) income allocated to preferred stockholders $ 3,038 $ 1,590 $ - ----------------------------------------- ----------------------------------------- Net (loss) income allocated to common stockholders $ (5,835) $ 585 $ 761 ----------------------------------------- ----------------------------------------- Net (loss) income per pro forma share of common stock - restated for 1996 and 1995 (basic and diluted) $ (0.35) $ 0.60 $ 0.43 ----------------------------------------- ----------------------------------------- Pro forma weighted average shares of common stock outstanding - restated for 1996 and 1995 (basic and diluted) 8,075,864 3,642,131 1,765,923 ----------------------------------------- -----------------------------------------
SEE ACCOMPANYING NOTES. F-3 Alexandria Real Estate Equities, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NUMBER OF SERIES T SERIES T SERIES U SERIES U NUMBER OF PREFERRED PREFERRED PREFERRED PREFERRED COMMON COMMON SHARES STOCK SHARES STOCK SHARES STOCK --------- -------- --------- --------- ---------- ------ Balance at January 1, 1995 (restated) - $ - - $ - 1,765,923 $ 18 Issuance of Series T preferred stock 12 1 - - - - Dividends declared and payable on common stock - - - - - - Net income - - - - - - ------------------------------------------------------------- Balance at December 31, 1995 (restated) 12 1 - - 1,765,923 18 Issuance of Series U preferred stock - - 220 110 - - Accretion on Series V preferred stock - - - - - - Cash dividends on Series T, U, & V preferred stock - - - - - - Dividends declared and payable on common stock - - - - - - Net income - - - - - - ------------------------------------------------------------- Balance at December 31, 1996 (restated) 12 1 220 110 1,765,923 18 Accretion on Series V preferred stock - - - - - - Cash dividends on Series T, U and V preferred stock - - - - - - Exercise of compensatory stock options and issuance of stock grants (including compensation expense of $4,161) - - - - 209,615 2 Issuance of common stock in connection with initial public offering, net of offering costs - - - - 7,762,500 78 Conversion of Series V and Series U preferred stock - - (220) (110) 1,666,593 16 Redemption of Series T preferred stock (12) (1) - - - - Dividends declared and payable on common stock - - - - - - Net loss - - - - - - ------------------------------------------------------------- Balance at December 31, 1997 - $ - - $ - 11,404,631 $114 ------------------------------------------------------------- ------------------------------------------------------------- ADDITIONAL PAID-IN ACCUMULATED CAPITAL DEFICIT TOTAL ---------- ----------- -------- Balance at January 1, 1995 (restated) $ 17,110 $ (648) $ 16,480 Issuance of Series T preferred stock - - 1 Dividends declared and payable on common stock - (909) (909) Net income - 761 761 ------------------------------------- Balance at December 31, 1995 (restated) 17,110 (796) 16,333 Issuance of Series U preferred stock - - 110 Accretion on Series V preferred stock (933) - (933) Cash dividends on Series T, U, & V preferred stock - (665) (665) Dividends declared and payable on common stock - (2,489) (2,489) Net income - 2,175 2,175 ------------------------------------- Balance at December 31, 1996 (restated) 16,177 (1,775) 14,531 Accretion on Series V preferred stock (1,911) - (1,911) Cash dividends on Series T, U and V preferred stock - (1,127) (1,127) Exercise of compensatory stock options and issuance of stock grants (including compensation expense of $4,161) 4,190 - 4,192 Issuance of common stock in connection with initial public offering, net of offering costs 138,812 - 138,890 Conversion of Series V and Series U preferred stock 27,045 - 26,951 Redemption of Series T preferred stock - - (1) Dividends declared and payable on common stock (10,578) (1,233) (11,811) Net loss - (2,797) (2,797) ------------------------------------- Balance at December 31, 1997 $173,735 $(6,932) $166,917 ------------------------------------- -------------------------------------
SEE ACCOMPANYING NOTES F-4 Alexandria Real Estate Equities, Inc. and Subsidiaries Consolidated Statements of Cash Flows (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31 1997 1996 1995 -------- -------- -------- OPERATING ACTIVITIES Net (loss) income $ (2,797) $ 2,175 $ 761 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 4,866 2,405 1,668 Stock option compensation 4,161 - - Changes in operating assets and liabilities: Tenant security deposits and other restricted cash (1,214) (4,371) (779) Tenant receivables and deferred rent (2,298) (502) (709) Loan fees and costs 906 (2,402) (15) Other assets (2,249) (1,231) (982) Accounts payable, tenant security deposits and other liabilities 2,508 2,280 411 --------------------------------- Net cash provided by (used in) operating activities 3,883 (1,646) 355 INVESTING ACTIVITIES Additions to rental properties (3,566) (1,578) (1,554) Purchase of rental properties (84,054) (93,322) - --------------------------------- Net cash used in investing activities (87,620) (94,900) (1,554) FINANCING ACTIVITIES Proceeds from secured notes payable 15,360 77,260 1,250 Proceeds from issuance of common stock 138,919 - - Proceeds from issuance of Series V preferred stock (net of issuance costs of $3,391) - 24,109 - Proceeds from issuance of Series U preferred stock - 110 - Proceeds from unsecured lines of credit 25,500 - 1,000 (Decrease) increase in due to Health Science Properties Holding Corporation (2,525) 2,420 105 Principal reductions on unsecured line of credit (2,500) (4,000) - Principal reductions on secured notes payable (80,725) (972) (519) Common dividends paid (8,800) (939) (909) Preferred dividends paid (1,127) (665) - Redemption of Series T preferred stock (1) - - --------------------------------- Net cash provided by financing activities 84,101 97,323 927 Net increase (decrease) in cash and cash equivalents 364 777 (272) Cash and cash equivalents at beginning of year 1,696 919 1,191 --------------------------------- Cash and cash equivalents at end of year $ 2,060 $ 1,696 $ 919 --------------------------------- --------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest and financing costs, net of interest capitalized $ 13,552 $ 5,953 $ 3,409 --------------------------------- ---------------------------------
SEE ACCOMPANYING NOTES. F-5 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 1997 and 1996 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BACKGROUND Alexandria Real Estate Equities, Inc. (known as Health Science Properties, Inc. prior to 1997), a Maryland corporation (the "Company"), is a real estate investment trust ("REIT") formed in 1994. The Company and its subsidiaries were formed to acquire, manage and selectively develop properties for lease principally to participants in the life science industry ("Life Science Facilities"). As of December 31, 1997 and 1996, the Company owned 22 and 12 Life Science Facilities, respectively, in four and three states, respectively, consisting of 1,748,000 and 1,031,000 rentable square feet, respectively. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries which own, directly or indirectly, Life Science Facilities. All significant intercompany accounts and transactions have been eliminated in consolidation. THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS On June 2, 1997, the Company completed an initial public offering (the "Offering") of 6,750,000 shares of common stock. The Offering price was $20.00 per share, resulting in gross proceeds of $135,000,000. On June 26, 1997, the underwriters exercised their over-allotment option provided for in the Offering, and the Company issued an additional 1,012,500 shares of common stock, resulting in additional gross proceeds of $20,250,000. The aggregate net proceeds of the Offering (including exercise of the over-allotment option), net of underwriting discounts and commissions, advisory fees and offering costs, were approximately $138,890,000. F-6 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED) The following transactions also occurred in June 1997 in connection with the Offering: - - The Company paid off debt of approximately $77,723,000, including (i) mortgage debt of $72,698,000, (ii) debt of $2,500,000 outstanding under its prior unsecured line of credit, and (iii) debt of $2,525,000 to Health Science Properties Holding Corporation ("Holdings"). Holdings owned all of the Company's common stock prior to the Offering and 15.5% of the common stock of the Company after the Offering and the exercise of the over- allotment option. - - The Company obtained two new mortgage loans totaling $15,360,000. - - The Company acquired an entity that owns three Life Science Facilities from affiliates of PaineWebber Incorporated, the lead managing underwriter for the Offering, for an aggregate purchase price of $58,844,000 (see Note 9). - - Each previously outstanding share of the Company's common stock was split into 1,765.923 shares of common stock. The share data as of and for the years ended December 31, 1996 and 1995 has been restated to reflect the effects of the stock split. - - All of the previously outstanding shares of Series T preferred stock were redeemed at their stated value ($1,200 in the aggregate) (see Note 6). - - All of the previously outstanding shares of Series U preferred stock and Series V preferred stock were converted into shares of common stock (7,354 shares in the aggregate for Series U and 1,659,239 shares in the aggregate for Series V) (see Note 6). - - Officers, directors and certain employees of the Company were granted an aggregate of 152,615 shares of the Company's common stock. In addition, officers, directors and certain employees of the Company were granted options to purchase 57,000 shares of the Company's common stock in substitution for stock options previously issued by Holdings (see Notes 5 and 8). These options were exercised at a nominal exercise price in connection with the Offering. F-7 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED) - - Officers, directors and employees of the Company were granted options under the Company's 1997 stock option plan to purchase an aggregate of 600,000 shares of common stock of the Company at the Offering price (see Note 8). - - A special bonus of $353,000 was paid to an officer of the Company. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. RENTAL PROPERTIES Rental properties consist of the Company's portfolio of Life Science Facilities, recorded at cost. Costs associated with acquiring and renovating properties are capitalized as incurred. If events or circumstances indicate that the carrying amount of a property may be impaired, the Company would make an assessment of its recoverability by estimating the future undiscounted cash flows, excluding interest charges, of the property. If the carrying amount were to exceed the aggregate future cash flows, the Company would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Based upon such periodic assessments, no impairment has been determined and no rental properties carrying amounts have been adjusted. F-8 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RENTAL PROPERTIES (CONTINUED) Maintenance and repairs are expensed as incurred. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is provided using the straight-line method using estimated lives of 30 to 40 years for buildings and building improvements, 20 years for land improvements, and the term of the respective lease for tenant improvements. RESTRICTED CASH Restricted cash as of December 31, 1997 and 1996, consists of a tenant improvement reserve of $3,364,000 and $4,715,000, respectively, established by the Company pursuant to a lease at one of the Company's properties, funds held in trust of $1,966,000 and none, respectively, as additional security on a note with the City of Seattle, and security deposit funds and other restricted cash of $1,469,000 and $870,000, respectively. In connection with the repayment of the note with the City of Seattle, the cash held in trust was returned to the Company in February 1998 (see Note 4). LOAN FEES AND COSTS Fees and costs incurred in obtaining long-term financing are amortized over the terms of the related loans and included in interest expense. RENTAL INCOME Rental income from leases with scheduled rent increases, free rent and other rent adjustments are recognized on a straight-line basis over the lease term. Amounts currently recognized as income, and expected to be received in later years, are included in tenant receivables and deferred rent. Amounts received currently, but recognized as income in future years, are included in unearned rent. OTHER INCOME Other income consists of interest income and other income associated with the operations of the properties. Interest income was $588,000, $118,000 and $57,000 in 1997, 1996 and 1995, respectively. F-9 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LEASING COMMISSIONS Leasing commissions are amortized on a straight-line basis over the term of the related lease. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value of financial instruments at December 31, 1997 and 1996 were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Based on the borrowing rates currently available to the Company for bank loans with similar maturities, the fair value of secured notes payable as of December 31, 1997 and 1996 is approximately $46,822,000 and $113,215,000, respectively. All other financial instruments are stated at amounts that approximate their fair value. NET (LOSS) INCOME PER SHARE Historical per share data has not been presented because it is not meaningful due to the material changes in the Company's capital structure as a result of the Offering. The Company has adopted Statement of Financial Accounting Standards No. 128 ("FAS 128") and has restated pro forma net income per share for the years ended December 31, 1996 and 1995. Because the impact of the Company's stock options outstanding as of December 31, 1997 is antidilutive, diluted net income per share is not presented for 1997. There were no dilutive stock options on a pro forma basis for 1996 and 1995. F-10 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET (LOSS) INCOME PER SHARE (CONTINUED) Pro forma shares of common stock outstanding for the years ended December 31, 1997 and 1996 include all shares outstanding after giving effect to the 1,765.923 to 1 stock split, the issuance of stock grants, the issuance and exercise of substitute stock options and the conversion of the Series U and Series V preferred stock. In addition, shares issued to the public in connection with the Offering have been weighted for the period of time they were outstanding. Pro forma shares of common stock outstanding for the year ended December 31, 1995 include all shares outstanding after giving effect to the 1,765.923 to 1 stock split. The following table sets forth the computation of net (loss) income per pro forma share of common stock outstanding:
YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------------------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net (loss) income $ (2,797) $ 2,175 $ 761 ---------- ---------- ---------- ---------- ---------- ---------- Pro forma shares of common stock before shares issued in the Offering - restated for 1996 and 1995 3,642,131 3,642,131 1,765,923 Shares issued in the Offering, weighted for period outstanding 4,433,733 - - ---------- ---------- ---------- Pro forma weighted average shares - restated for 1996 and 1995 8,075,864 3,642,131 1,765,923 ---------- ---------- ---------- ---------- ---------- ---------- Pro forma net (loss) income per pro forma share - restated for 1996 and 1995 $ (0.35) $ 0.60 $ 0.43 ---------- ---------- ---------- ---------- ---------- ---------- Pro forma dividends declared per share - restated for 1996 and 1995 $ 1.60 $ 0.87 $ 0.51 ---------- ---------- ---------- ---------- ---------- ----------
F-11 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES As a REIT, the Company is not subject to federal income taxation as long as it meets a number of organizational and operational requirements and distributes all of its taxable income to its stockholders. Since the Company believes it has met these requirements and the Company's distributions exceeded taxable income, no federal income tax provision has been reflected in the accompanying consolidated financial statements for 1997 and 1996. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. For the year ended December 31, 1997, the Company reported that 37.6% of its distributions with respect to common stock represented a return of capital for federal income tax purposes, while none of the distributions for the year ended December 31, 1996 represented a return of capital. For the year ended December 31, 1995, before the Company elected to be taxed as a REIT, deferred income taxes were recognized for tax consequences of temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods and tax net operating loss carryforwards. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 2. RENTAL PROPERTIES Rental properties are as follows:
DECEMBER 31 1997 1996 ------------------------ (DOLLARS IN THOUSANDS) Land $ 46,283 $ 28,383 Building and improvements 189,624 121,236 Tenant and other improvements 2,867 1,535 ------------------------ 238,774 151,154 Less accumulated depreciation (8,804) (4,194) ------------------------ $229,970 $146,960 ------------------------ ------------------------
F-12 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. RENTAL PROPERTIES (CONTINUED) Four of the Company's rental properties are encumbered by deeds of trust and assignments of rents and leases associated with the properties (see Note 4). The net book value of these properties as of December 31, 1997 is $70,663,000. The Company leases space under noncancelable leases with remaining terms of 1 to 20 years. Certain tenants are also obligated to reimburse the Company for specific operating expenses. The Company capitalizes interest to properties under construction and renovation during the period the asset is undergoing activities to prepare it for its intended use. Total interest capitalized was $96,000 in 1997. Total interest incurred for the years ended December 31, 1997, 1996 and 1995 was $7,139,000, $6,327,000 and $3,553,000, respectively. A majority of the Company's lease agreements require that the lessee pay all taxes, maintenance, insurance and certain other operating expenses applicable to the leased properties. Minimum lease payments to be received under the terms of the operating lease agreements, excluding expense reimbursements, as of December 31, 1997, are as follows (in thousands): 1998 $ 31,642 1999 27,734 2000 24,079 2001 20,869 2002 17,095 Thereafter 107,032 -------- $228,451 -------- --------
Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. UNSECURED LINE OF CREDIT In connection with the Offering, the Company obtained an unsecured line of credit providing for borrowings of up to $150,000,000, consisting of a $100,000,000 activated portion and a $50,000,000 portion that may be activated as needed at the Company's discretion (upon the payment of an activation fee) provided no default exists under the line of credit facility. Borrowings under the line of credit bear interest at a floating rate which is based on the Company's election of either a LIBOR based rate or the higher of the bank's reference rate and the Federal Funds rate plus 0.5%. For each LIBOR based F-13 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. UNSECURED LINE OF CREDIT (CONTINUED) advance, the Company must elect to fix the rate for a one, two, three or six month period. The line of credit contains financial covenants, including, among other things, maintenance of minimum market net worth, a total liabilities to gross asset value ratio, and a fixed charge coverage ratio (all as defined). The Company was in compliance with all covenants as of December 31, 1997. In addition, the terms of the line of credit restrict, among other things, certain investments, indebtedness, distributions and mergers. Borrowings under the line of credit are limited to an amount based on a pool of unencumbered assets. Accordingly, as the Company acquires additional unencumbered properties, borrowings available under the line credit will increase. As of December 31, 1997, borrowings under the line of credit were limited to approximately $103,000,000, and $23,000,000 was outstanding (leaving $80,000,000 available), at a weighted average rate of interest of 6.9%. The line of credit expires on May 31, 2000 and provides for annual extensions (provided there is no default) for two additional one-year periods. In addition, at the Company's election, the line of credit may be converted at any time to a term loan with principal installments over two years from the date of such conversion. In connection with obtaining the line of credit, the Company incurred $705,000 in fees and costs, which are being amortized over the term of the line of credit. In addition, the Company is required to continue to pay certain periodic fees for the line of credit, depending on the usage of the facility. The fees are included as part of interest expense. 4. SECURED NOTES PAYABLE As of December 31, 1997, the Company had three notes payable to banks and an insurance company, secured by first and second deeds of trust on four rental properties. The notes bear interest at fixed rates ranging from 7.17% to 9.00% and are due at various dates through 2016. As of December 31, 1997 and 1996, the outstanding balances under these notes were $47,817,000 and $61,292,000, respectively. As of December 31, 1996, the Company had an aggregate of $51,890,000 outstanding under two notes payable and two secured lines of credit with PaineWebber Incorporated, the City of Seattle and two banks. The loans bore interest at variable rates based upon LIBOR or the prime rate. As of December 31, 1996, the interest rates on these loans ranged from 8.28% to 9.75%. In connection with the Offering, the Company repaid $46,030,000 of the balance outstanding as of December 31, 1996. The remaining F-14 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. SECURED NOTES PAYABLE (CONTINUED) $5,860,000 was repaid in November 1997. In connection with the retirement of these loans, the Company wrote-off $2,147,000 of unamortized loan costs, including the cost of certain interest rate cap agreements. Future principal payments due on secured notes payable as of December 31, 1997, are as follows (in thousands): 1998 $ 1,009 1999 2,451 2000 2,320 2001 2,502 2002 2,699 Thereafter 36,836 ------- $47,817 ------- -------
5. NON-CASH TRANSACTIONS Stock compensation expense represents non-cash compensation expense associated with stock grants and stock options issued to officers, directors and certain employees of the Company in connection with the Offering. Stock compensation expense of $4,239,000 was recognized to record the stock grants and the issuance and exercise of substitute stock options (see Note 8). In connection with the Offering, outstanding shares of the Company's Series U preferred stock and Series V preferred stock were converted into shares of common stock (see Note 6). The common stock issued was recorded at the book value of the Series U preferred stock and the Series V preferred stock (an aggregate of $27,061,000). 6. PREFERRED STOCK AND EXCESS STOCK SERIES V CUMULATIVE CONVERTIBLE PREFERRED STOCK Prior to the Offering, the Company had 27,500 shares of manditorily redeemable Series V cumulative convertible preferred stock outstanding. The stated value of each share was $1,000. In connection with the Offering, the shares were converted into 1,659,239 shares of common stock. The conversion rate was computed to provide for an internal rate of return on the stated value of each share, equal to 20% less the return previously received from prior dividends. F-15 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. PREFERRED STOCK AND EXCESS STOCK (CONTINUED) SERIES V CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED) Prior to conversion, Series V preferred stockholders were entitled to dividends at an annual rate of 10% of the stated value per share during the first twelve dividend periods or such larger amount as would be payable on an as converted basis if the Series V preferred stock were converted to common stock. Dividends were cumulative and payable in quarterly equal installments on March 31, June 30, September 30, and December 31 of each year. Offering costs associated with the issuance of the Series V preferred stock were deducted from the proceeds of the issuance. Until the conversion of the Series V preferred stock into shares of common stock in 1997, the Company accreted the amount of the offering costs and the difference between the minimum yield requirement on the Series V preferred stock (20% per annum) and the minimum dividend payment as a charge to additional paid-in capital. SERIES T AND SERIES U PREFERRED STOCK Holders of each of the Series T and Series U preferred stock were entitled to dividends at an annual rate of 8.5% of the stated value per share. In connection with the Offering, all of the previously outstanding shares of Series T preferred stock (12 shares) were redeemed at their stated value ($1,200 in the aggregate). In connection with the Offering, all of the previously outstanding shares of Series U preferred stock (220 shares) were converted into an aggregate of 7,354 shares of common stock. PREFERRED STOCK AND EXCESS STOCK AUTHORIZATIONS The charter of the Company authorizes the issuance of up to 100,000,000 shares of preferred stock and 200,000,000 shares of excess stock (as defined), none of which was issued and outstanding at December 31, 1997. 7. COMMITMENTS AND CONTINGENCIES LITIGATION The Company currently is not subject to any material legal proceedings or claims, nor, to management's knowledge, are any material legal proceedings or claims being threatened. F-16 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) POST-RETIREMENT BENEFIT In 1997, in connection with the Offering, an officer of the Company retired. In connection with the officer's retirement, the Company agreed to pay a post-retirement benefit equal to $150,000 for each of the first three years following the Offering, and $90,000 per year (plus an annual increase of 2% per year) thereafter for the remainder of the longer of the executive's life and the executive's current spouse's life. In 1997 and 1996, the Company recorded a post-retirement expense for past services equal to $632,000 and $438,000, respectively (pursuant to a prior agreement). The accrual was based upon the estimated number of payments to be made, discounted at a rate of 8%. As of December 31, 1997, the accrued liability for post-retirement benefit is $1,037,000. For the year ended December 31, 1997, the Company paid $75,000 under the retirement agreement of which $42,000 represented interest. EMPLOYEE RETIREMENT SAVINGS PLAN Effective January 1, 1997, the Company adopted a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code ("Code"), whereby participants may contribute a portion of their compensation to their respective retirement accounts, in an amount not to exceed the maximum allowed under the Code. The plan provides for matching contributions by the Company, which amounted to $36,000 for the year ended December 31, 1997. Plan participants are immediately vested in their contributions and in the matching contributions by the Company. CONCENTRATION OF CREDIT RISK The Company maintains its cash and cash equivalents at insured financial institutions. The combined account balances at each institution periodically exceed FDIC insurance coverage, and, as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. Management believes that the risk is not significant. The Company is dependent on rental payments from a limited number of tenants, and the inability of any single tenant to make its lease payments could adversely affect the Company and its ability to make distributions to stockholders. As of December 31, 1997, the Company had 42 leases with a total of 35 tenants, and 12 of the Company's 22 properties were single tenant properties. At December 31, 1997, three of the Company's tenants accounted for approximately 29.5% of the Company's aggregate annualized base rent. F-17 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) CONCENTRATION OF CREDIT RISK (CONTINUED) The Company does not generally require collateral or other security from its tenants other than security deposits. The Company has available from certain tenants two irrevocable letters of credit totaling $858,000 which are used as security deposits for two leases. 8. STOCK OPTION PLANS AND STOCK GRANTS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee and director stock options, stock grants and stock appreciation rights. Under APB 25, if the exercise price of employee and director stock options granted by the Company equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 1997 STOCK OPTION PLAN In connection with the Offering, the Company adopted a stock option and incentive plan (the "1997 Stock Option Plan"). The 1997 Stock Option Plan is administered by the Compensation Committee of the Board of Directors and provides for the grant of incentive stock options intended to qualify as such under Section 422 of the Code, non-qualified stock options, stock appreciation rights and restricted stock to employees, officers, directors and independent contractors (including non-employee directors) of the Company with respect to 900,000 shares of common stock. The 1997 Stock Option Plan permits the Compensation Committee to select eligible employees, officers, directors and independent contractors (including non-employee directors) of the Company to receive awards, to determine the type and number of awards to be granted and to determine the terms, conditions, restrictions and performance criteria relating to any award. As of December 31, 1997, there were 701,000 options outstanding under the 1997 Stock Option Plan. The Company has reserved 900,000 shares of common stock for issuance under the 1997 Stock Option Plan. During the year ended December 31, 1997, the Company granted 701,000 stock options under the 1997 stock option plan at exercise prices ranging from $20.00 to $30.94 (the market price at date of grant). All of these options have a ten year term. Options for 671,000 shares vest ratably in three annual installments from the date of grant. The F-18 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED) 1997 STOCK OPTION PLAN (CONTINUED) remaining 30,000 options (which were issued to non-employee directors) were exercisable immediately upon the date of grant. Pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value of the options issued under the 1997 Stock Option Plan was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997: risk-free interest rate of 5.82%; dividend yield ranging from 5.17% to 8%; volatility factor of the expected market price of the Company's common stock of 28.7%; and a weighted average expected life of the option of five years. For purposes of the following pro forma disclosures for the year ended December 31, 1997, the estimated fair value of these options has been amortized to expense over the vesting periods (in thousands, except per share information): Pro forma net loss $ (3,096) --------- --------- Pro forma net loss per share $ (0.38) --------- ---------
A summary of the Company's stock option activity under the 1997 Stock Option Plan, and related information for the year ended December 31, 1997 follows:
WEIGHTED AVERAGE STOCK EXERCISE OPTIONS PRICE OF GRANTED OPTIONS --------------------------- Outstanding-beginning of year - Granted 701,000 $ 20.80 Exercised - - Forfeited - - --------------------------- Outstanding-end of year 701,000 $ 20.80 --------------------------- --------------------------- Exercisable at end of year 30,000 $ 20.00 --------------------------- --------------------------- Weighted-average per share fair value of options granted during the year based upon the minimum value method $ 2.93 ----------- -----------
F-19 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED) 1997 STOCK OPTION PLAN (CONTINUED) Exercise prices for options outstanding as of December 31, 1997 range from $20.00 to $30.94. The weighted average contractual life of those options is 9.5 years. PRIOR STOCK OPTION PLAN Prior to the Offering, the Company had a ten-year incentive and nonqualified stock option plan (the "Prior Plan") for certain employees and non-employee directors of the Company. Under the Prior Plan, holders of options to purchase common stock of Holdings granted under stock option plans of Holdings ("Holdings Stock Options") were eligible, under certain circumstances (including the Offering), to receive substitute stock options of the Company in substitution for previously granted Holdings Stock Options. As such, in connection with the Offering, officers, directors and certain employees of the Company received substitute stock options to purchase 57,000 shares of common stock of the Company under the Prior Plan. Such substitute stock options were exercised in connection with the Offering at a nominal exercise price. No further stock options were issued under the Prior Plan. In connection with the issuance of the substitute stock options, the Company recognized $1,187,000 of stock compensation expense. The following table sets forth certain information regarding activity in Holdings Stock Options, including (i) the grant date of the Holdings Stock Options, (ii) the number of substitute stock options that were granted in connection with the Offering in substitution for the underlying Holdings Stock Options and (iii) the weighted average exercise price of substitute stock options for shares of the Company's common stock. F-20 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. STOCK OPTION PLANS AND STOCK GRANTS (CONTINUED) PRIOR STOCK OPTION PLAN (CONTINUED)
For the Year Ended December 31, ---------------------------------------------------------------------------------- 1997 1996 ---------------------------------------- ---------------------------------------- Weighted- Weighted- Grant Date Substitute Average Grant Date Substitute Average of Holdings Stock Exercise price of Holdings Stock Exercise price Stock Options of Substitute Stock Options of Substitute Options General (1) Options Options General (1) Options ----------- ----------- -------------- ----------- ----------- -------------- Outstanding - beginning of year 37,749 $ 0.54 78,935 $ 0.54 Granted 1/28/97 19,251 0.54 7/1/96 1,756 0.54 Exercised (57,000) (0.54) (42,942) 0.54 Forfeited - - - - ----------- -------------- ----------- -------------- Outstanding - end of year - - 37,749 $ 0.54 ----------- -------------- ----------- -------------- ----------- -------------- ----------- -------------- Exercisable at end of year - - 13,606 $ 0.54 ----------- -------------- ----------- -------------- ----------- -------------- ----------- -------------- Weighted-average fair value of options granted during the year based upon the minimum value method $ 0.93 $ 0.03 -------------- -------------- -------------- --------------
For the Year Ended December 31, ---------------------------------------- 1995 ---------------------------------------- Weighted- Grant Date Substitute Average of Holdings Stock Exercise price Stock Options of Substitute Options General (1) Options ------------ ----------- ------------- Outstanding - beginning of year 51,727 $ 0.54 Granted 12/31/95 27,208 0.54 Exercised - - Forfeited - - ----------- ------------- Outstanding - end of year 78,935 $ 0.54 ----------- ------------- ----------- ------------- Exercisable at end of year 35,384 $ 0.54 ----------- ------------- ----------- ------------- Weighted-average fair value of options granted during the year based upon the minimum value method $ 0.04 ------------- -------------
(1) The grant of substitute stock options was made in May 1997. No compensation expense was recorded with respect to Holdings Stock Options issued during the years ended December 31, 1996 and 1995 since they were issued with an exercise price equal to the then fair market value of the Holdings common stock. STOCK GRANTS In connection with the Offering, officers, directors and certain employees of the Company were granted on aggregate of 152,615 shares of common stock. As a result of the grants, the Company recorded stock compensation expense of $3,052,000. F-21 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. PURCHASE OF ACQUISITION LLC During January 1997, the Company assigned its rights to purchase three Life Science Facilities to an entity owned by affiliates of PaineWebber Incorporated ("PaineWebber"), the lead managing underwriter of the Offering (the "Acquisition LLC"). In January 1997, the Acquisition LLC acquired the three Life Science Facilities for $51,871,000 from unaffiliated sellers. In connection with the Offering, the Company acquired 100% of the membership interests in the Acquisition LLC from the PaineWebber affiliates. The Company's purchase price for the membership interests ($58,844,000) exceeded the cost incurred by the Acquisition LLC to acquire the properties ($51,871,000). The Company's acquisition of the membership interests in the Acquisition LLC has been recorded as a financing transaction, with the excess of the purchase price of such membership interests over the cost of the Acquisition LLC to acquire the properties ($6,973,000) being reflected as a financing cost in the accompanying consolidated statement of operations. 10. RELATED PARTY TRANSACTIONS During 1997, 1996 and 1995, the Company incurred $3,358,000, $1,708,000 and $369,000, respectively, for legal services provided by a firm of which a minority shareholder of Holdings is a member. During 1996, Holdings advanced to the Company $2,483,000 bearing interest at a rate of 10% per annum which was due on demand. For the year ended December 31, 1996, $162,000 of interest was accrued and $42,000 was paid on this advance. During 1997 in connection with the Offering, the Company repaid this advance plus accrued interest. F-22 Alexandria Real Estate Equities, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a summary of consolidated financial information on a quarterly basis for 1997 and 1996:
QUARTER --------------------------------------------------- FIRST SECOND THIRD FOURTH --------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 Revenues $ 7,161 $ 7,743 $ 9,677 $ 10,265 Net (loss) income $ (143) $(10,989) $ 4,126 $ 4,209 Net (loss) income per pro forma share (restated for the first and second quarters) -basic $ (0.04) $ (1.80) $ 0.36 $ 0.37 -diluted $ (0.04) $ (1.80) $ 0.36 $ 0.36 1996 Revenues $ 2,610 $ 3,163 $ 5,411 $ 6,489 Net income $ 319 $ 448 $ 691 $ 717 Net income per pro forma share (restated) $ 0.09 $ 0.12 $ 0.19 $ 0.20
12. SUBSEQUENT EVENTS (UNAUDITED) On various dates subsequent to December 31, 1997 (through March 27, 1998), the Company acquired 11 Life Science Facilities containing an aggregate of 927,000 rentable square feet for an aggregate purchase price of $109,875,000 and made a $6,000,000 loan secured by real estate related to one of these Life Science Facilities. Of these amounts, $103,000,000 was funded through draws on the Company's line of credit, $12,641,000 through the assumption of existing debt, and the remainder with working capital. F-23 Alexandria Real Estate Equities, Inc. and Subsidiaries Schedule III Consolidated Financial Statement Schedule of Rental Properties and Accumulated Depreciation December 31, 1997 (IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
COSTS INITIAL COSTS CAPITALIZED TOTAL COSTS ----------------------- SUBSEQUENT TO --------------------------------- SQUARE BUILDINGS AND ACQUISITION BUILDINGS AND PROPERTY NAME FOOTAGE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL - --------------------------------------------------------------------------------------------------------------------- 10933 N. Torrey Pines 108,133 $ 3,903 $ 5,960 $1,071 $ 3,903 $ 7,031 $ 10,934 11099 N. Torrey Pines 86,962 2,663 10,649 1,620 2,663 12,269 14,932 3535 General Atomics Court 76,084 2,651 18,046 152 2,651 18,198 20,849 3565 General Atomics Court 43,600 1,227 9,554 - 1,227 9,554 10,781 11025 Roselle Street 18,532 463 1,840 8 463 1,848 2,311 Fred Hutchinson 213,397 6,566 23,528 1,502 6,566 25,030 31,596 1311 Harbor Bay Parkway 30,000 775 1,917 134 775 2,051 2,826 1401 Harbor Bay Parkway 47,777 1,200 3,880 35 1,200 3,915 5,115 1431 Harbor Bay Parkway 70,000 1,800 9,731 87 1,800 9,818 11,618 1201 Harbor Bay Parkway 61,100 1,507 5,357 132 1,507 5,489 6,996 1413 Research Boulevard 105,000 2,317 9,611 322 2,317 9,933 12,250 300 Professional Drive 48,440 871 5,362 17 871 5,379 6,250 401 Professional Drive 62,739 1,129 6,940 20 1,129 6,960 8,089 25/35/45 West Watkins 138,938 3,281 14,416 50 3,281 14,466 17,747 1550 East Guide Drive 44,500 775 4,122 149 775 4,271 5,046 1330 Piccard Drive 131,511 2,800 11,533 196 2,800 11,729 14,529 14225 Newbrook Drive 248,186 4,800 27,639 356 4,800 27,995 32,795 708 Quince Orchard 49,225 1,267 3,031 487 1,267 3,518 4,785 940 Clopper Road 44,464 900 2,732 87 900 2,819 3,719 1401 Research Boulevard 48,800 1,533 4,391 104 1,533 4,495 6,028 1500 East Gude Drive 45,989 690 3,609 55 690 3,664 4,354 3 & 3 1/2 Taft Court 24,460 367 1,949 37 367 1,986 2,353 John Hopkins Court - 2,798 - 73 2,798 73 2,871 ---------------------------------------------------------------------------------- 1,747,837 $46,283 $185,797 $6,694 $46,283 $192,491 $238,774 ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ACCUMULATED YEAR PROPERTY NAME DEPRECIATION(1) ENCUMBRANCES BUILT - ------------------------------------------------------------------------------ 10933 N. Torrey Pines $ 908 $ - 1971/1994 11099 N. Torrey Pines 1,484 - 1986/1996 3535 General Atomics Court 1,910 11,868 1991 3565 General Atomics Court 969 6,182 1991 11025 Roselle Street 2 - 1993 Fred Hutchinson 1,031 21,267 1975/1997 1311 Harbor Bay Parkway 55 - 1984 1401 Harbor Bay Parkway 110 - 1986/1994 1431 Harbor Bay Parkway 271 8,500 1985/1994 1201 Harbor Bay Parkway 13 - 1983 1413 Research Boulevard 371 - 1967/1996 300 Professional Drive 182 - 1989 401 Professional Drive 240 - 1987 25/35/45 West Watkins 458 - 1989/1997 1550 East Guide Drive 68 - 1981 1330 Piccard Drive 179 - 1978 14225 Newbrook Drive 431 - 1992 708 Quince Orchard 34 - 1992 940 Clopper Road 28 - 1989 1401 Research Boulevard 42 - 1966 1500 East Gude Drive 12 - 1981 3 & 3 1/2 Taft Court 6 - 1981 John Hopkins Court - - ----------------------- $8,804 $47,817 ----------------------- -----------------------
(1) The depreciable life for buildings and improvements ranges from 30 to 40 years, 20 years for land improvements, and the term of the respective lease for tenant improvement. F-24 A summary of activity of consolidated rental properties and accumulated depreciation is as follows:
RENTAL PROPERTIES DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Balance at beginning of period $151,154 $ 56,254 $54,700 Improvements 3,566 1,578 1,554 Acquisition of land, building and improvements 84,054 93,322 - -------- -------- ------- Balance at end of period $238,774 $151,154 $56,254 -------- -------- ------- -------- -------- -------
ACCUMULATED DEPRECIATION DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Balance at beginning of period $4,194 $1,901 $ 333 Depreciation expense 4,610 2,293 1,568 ------ ------ ------ Balance at end of period $8,804 $4,194 $1,901 ------ ------ ------ ------ ------ ------
F-25 EX-10.1 2 EXHIBIT 10.1 - ------------------------------------------------------------------------------- AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation, and JOEL S. MARCUS, an individual - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE 1. POSITION AND DUTIES; LOCATION . . . . . . . . . . . . . . . . . . . . . . . . 1 2. TERM OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. . . . . . . . . . . . . . . . . . . 2 3.1 BASE SALARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (a) MINIMUM BASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (b) EARNED BASE SALARY. . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 INCREASES IN BASE SALARY . . . . . . . . . . . . . . . . . . . . . . . . 2 3.3 BONUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (a) MINIMUM BONUS . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 (b) DETERMINATION OF BONUS. . . . . . . . . . . . . . . . . . . . . . . .3 3.4 ADDITIONAL BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (a) OFFICER BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . 3 (b) VACATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (c) LIFE INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (d) DISABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 4 (e) REIMBURSEMENT FOR EXPENSES . . . . . . . . . . . . . . . . . . . . 4 (f) WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (g) SIGNING BONUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. TERMINATION OF THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 TERMINATION BY CORPORATION DEFINED . . . . . . . . . . . . . . . . . . . 5 (a) TERMINATION WITHOUT CAUSE . . . . . . . . . . . . . . . . . . . . . 5 (b) TERMINATION FOR CAUSE . . . . . . . . . . . . . . . . . . . . . . . 5 (c) TERMINATION BY REASON OF DEATH OR DISABILITY . . . . . . . . . . . 5 4.2 TERMINATION BY OFFICER DEFINED . . . . . . . . . . . . . . . . . . . . . 6 (a) TERMINATION OTHER THAN FOR GOOD REASON. . . . . . . . . . . . . . . 6 (b) TERMINATION FOR GOOD REASON . . . . . . . . . . . . . . . . . . . . 6 (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL . . . . . . . . . . . . . 6 4.3 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 8 (a) TERMINATION BY CORPORATION. . . . . . . . . . . . . . . . . . . . . 8 (i) TERMINATION WITHOUT CAUSE, DEATH OR i PERMANENT DISABILITY . . . . . . . . . . . . . . . . . . . . . 8 (ii) TERMINATION FOR CAUSE. . . . . . . . . . . . . . . . . . . . . 8 (b) TERMINATION BY OFFICER. . . . . . . . . . . . . . . . . . . . . . . 9 (i) TERMINATION OTHER THAN FOR GOOD REASON . . . . . . . . . . . . 9 (ii) TERMINATION FOR GOOD REASON. . . . . . . . . . . . . . . . . . 9 4.4 SEVERANCE PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (a) DEFINITION OF "SEVERANCE PAYMENT" . . . . . . . . . . . . . . . . . 9 (b) PAYMENT OF SEVERANCE PAYMENT. . . . . . . . . . . . . . . . . . . . 10 (c) OTHER SEVERANCE BENEFITS. . . . . . . . . . . . . . . . . . . . . . 10 (d) FULL SETTLEMENT OF ALL OBLIGATIONS. . . . . . . . . . . . . . . . . 10 (e) CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.5 GROSS-UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.6 OFFSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.1 PAYMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.2 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.3 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.4 ENTIRE AGREEMENT; MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . 13 6.5 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.6 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.7 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.8 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.9 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. . . . . . . . . . . . . . . . . . 15 6.11 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS . . . . . . . . . . . . . . . 15 6.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.13 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") originally made and entered into as of the fifth (5th) day of January, 1994, (the "Original Effective Date"), by and between Health Science Properties Holding Corp., a Maryland corporation (the "Parent") and Joel S. Marcus, an individual (the "Officer") is hereby amended and restated in its entirety effective as of March 28, 1997 (the "Effective Date") to read as follows: RECITAL WHEREAS, on November 3, 1994, Parent transferred to its then wholly-owned subsidiary Alexandria Real Estate Equities, Inc., a Maryland corporation (formerly, Health Science Properties, Inc.) (the "Corporation") substantially all of its property, assets and certain liabilities, including Parent's rights and obligations under this Agreement; WHEREAS, on July 30, 1996, this Agreement was amended pursuant to an agreement between the Corporation and Officer; WHEREAS, Corporation desires to continue to employ Officer as its Vice Chairman and Chief Operating Officer, and Officer is willing to continue to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend and restate this Agreement as follows: 1. POSITION AND DUTIES; LOCATION. During the Term (as defined in Paragraph 2 below) of this Agreement, Officer agrees to be employed by and to serve Corporation at its Vice Chairman and Chief Operating Officer; PROVIDED that effective as of January 1, 1998, Officer shall be employed by and serve the Corporation as its Vice Chairman and Chief Executive Officer. In addition, Officer agrees to serve in such additional capacity consistent with the Officer's current position as a senior executive officer as may be determined by the Board of Directors of the Corporation (the "Board"). Corporation agrees to employ and retain Officer in such capacities. Officer shall 1 devote such of his business time, energy, and skill to the affairs of Corporation as shall be necessary to perform the duties of such positions. Officer shall report to the Chairman and prior to January 1, 1998, the Chief Executive Officer and at all times during the Term (as defined in Paragraph 2 below) of this Agreement shall have powers and duties at least commensurate with his position as senior executive officer. Officer shall be based at the principal executive offices of Corporation in the Los Angeles, California metropolitan area, except for required travel on Corporation's business. 2. TERM OF EMPLOYMENT. The Term (the "Term") of this Agreement shall be for a period commencing on January 1, 1997 and ending on December 31, 2000 (the "Termination Date"), unless terminated earlier pursuant to this Agreement (the "Early Termination Date"). Commencing on December 31, 2000 and each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of this Agreement. References herein to the Term of this Agreement shall refer to both the initial Term and any such extended Term. 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. 3.1 BASE SALARY. During the Term of this Agreement Officer shall be entitled to the following base salary: (a) MINIMUM BASE. During the Term of this Agreement and subject to the terms and conditions set forth herein, Corporation agrees to pay to Officer an annual "Base Salary" of Two Hundred Thirty Five Thousand Dollars ($235,000), or such higher amount as may from time to time be determined by Corporation. Unless otherwise agreed in writing by Officer and Corporation, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Corporation in existence from time to time. (b) EARNED BASE SALARY. For purposes of any early termination of this Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer, together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 2 3.2 INCREASES IN BASE SALARY. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer shall be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of this Agreement) to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive year increase; PROVIDED, HOWEVER, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the "Consumer Price Index, Los Angeles, California, All Items," published by the U.S. Department of Labor (using January 1, 1994 as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Corporation hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 BONUS. During the Term of this Agreement Officer is eligible for the following bonus: (a) MINIMUM BONUS. Officer shall be eligible to receive a bonus for each fiscal year of Corporation (or portion thereof) during the Term of this Agreement, with the actual amount of any such bonus to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Officer's performance during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable within seventy-five (75) days after the end of Corporation's fiscal year to which such bonus relates. The Board shall, at an appropriate subsequent time, consider the establishment of an annual incentive compensation plan providing for the payment of a minimum annual bonus based upon the achievement of certain objective criteria for the benefit of Officer and other specified executive officers of Corporation. (b) DETERMINATION OF BONUS. With respect to the period commencing upon consummation of an initial public offering (the "IPO") of the Corporation's common stock, par value $.01 per share (the "Common Stock"), and ending on December 31, 1997, and with respect to each calendar year thereafter during the Term, the bonus payable pursuant to Subparagraph (a), if any, shall be based upon such factors as the Board (or a committee thereof) deems appropriate, which may include the enhancement of stockholder value based upon Funds From Operations (as defined in the White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts in March 1995) as determined in good faith by the 3 Board during such period, divided by the weighted average number of shares of Common Stock outstanding during such period. 3.4 ADDITIONAL BENEFITS. During the Term of this Agreement, Officer shall be entitled to the following additional benefits: (a) OFFICER BENEFITS. Officer shall be eligible to participate in such of Corporation's benefit and deferred compensation plans as are made available to executive officers of Corporation, including, without limitation, Corporation's stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Corporation, Officer's employment with the Corporation will be deemed to have commenced on the Original Effective Date of this Agreement. Until Corporation adopts a package of health and medical benefits, Corporation shall promptly reimburse Officer for payments made by Officer (i) with respect to the continuation of benefits provided by Officer's previous employer pursuant to Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) upon expiration of COBRA coverage to maintain substantially similar health and medical benefits coverage for Officer and his family. (b) VACATION. Officer shall be entitled to a minimum of five (5) weeks of vacation during each year during the Term of this Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; PROVIDED, that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) LIFE INSURANCE. During Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum three (3) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time to time designate, in the aggregate amount of One Million Dollars ($1,000,000). Such policy shall be owned by Officer or by a member of his immediate family. Corporation shall have no incidents of ownership therein. (d) DISABILITY INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect disability insurance similar to Officer's current disability insurance policy on Officer, payable to 4 Officer in an annual amount not less than sixty percent (60%) of Officer's then existing Base Salary (the "Disability Policy"). For purposes of this Agreement, "Permanent Disability" shall have the same meaning as is ascribed to such term in the Disability Policy (including the COBRA Disability Policy) covering Officer at the time of occurrence of such Permanent Disability. (e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement, Corporation shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to this Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to Corporation of vouchers or other statements itemizing such expenses in reasonable detail consistent with Corporation's policies. In addition, Officer shall be entitled to reimbursement for (i) dues and membership fees in professional organizations and/or industry associations in which Officer is currently a member or becomes a member, and (ii) appropriate industry seminars and mandatory continuing education. (f) WITHHOLDING. Compensation and benefits paid to Officer under this Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. (g) SIGNING BONUS. Upon the Effective Date of this Agreement, Corporation shall pay Officer a lump sum cash signing bonus equal to Fifteen Thousand Dollars ($15,000). 4. TERMINATION OF THIS AGREEMENT. 4.1 TERMINATION BY CORPORATION DEFINED. (a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Corporation other than termination for Cause (as defined in Paragraph 4.1(b) below). (b) TERMINATION FOR CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement for Cause immediately after written notice has been delivered to Officer, which notice shall specify the reason for and the effective date of such Termination (which date shall be the applicable Early Termination Date). For purposes of this Agreement, "Cause" shall mean the following: 5 (i) Officer's use of alcohol or narcotics which proximately results in the willful material breach or habitual willful neglect of Officer's duties under this Agreement; (ii) Officer's criminal conviction of fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony; (iii) Officer's willful Material Breach (as defined below) of this Agreement, if such willful Material Breach is not cured by Officer within thirty (30) days after Corporation's written notice thereof specifying the nature of such willful Material Breach. For purposes of this Paragraph 4.1(b), the term willful "Material Breach" shall mean the substantial and continual willful nonperformance of Officer's duties under this Agreement which the Board determines has resulted in material injury to Corporation. (c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement by reason of Officer's death or Permanent Disability. 4.2 TERMINATION BY OFFICER DEFINED. (a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate this Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Corporation thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) TERMINATION FOR GOOD REASON. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate this Agreement prior to the Termination Date in the event of the material breach of this Agreement by Corporation, if such breach is not cured by Corporation within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of this Agreement, termination of this Agreement by Officer in the event of Corporation's material breach of this 6 Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of this Agreement by Corporation, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation: (i) the assignment to Officer of any duties inconsistent with the position in Corporation that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a substantial change in the nature of the business operations of Corporation; (iii) a reduction by Corporation in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iv) the relocation of Corporation's principal executive offices to a location outside the Los Angeles metropolitan area (or, if different, the metropolitan area in which such offices are located immediately prior to the Change in Control), or Corporation's requiring Officer to be based anywhere other than the Corporation's principal executive offices except for required travel on Corporation's business to an extent substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (v) the failure by Corporation to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Corporation and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Corporation or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred 7 compensation program of Corporation, within seven (7) days of the date such compensation is due; (vi) the failure by Corporation to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Corporation to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vii) the failure by Corporation to continue to provide Officer with benefits substantially similar to those under any of Corporation's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Corporation which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Corporation to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Corporation in accordance with Corporation's normal vacation policy in effect at the time of the Change in Control; or (viii) the failure of Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 EFFECT OF TERMINATION. In the event that this Agreement is terminated by Corporation or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of this Agreement which 8 shall survive termination of this Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; PROVIDED, HOWEVER, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: 9 (a) TERMINATION BY CORPORATION. (i) TERMINATION WITHOUT CAUSE, DEATH OR PERMANENT DISABILITY. In the event that Corporation terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above or by reason of death or Permanent Disability pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement Or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) TERMINATION FOR CAUSE. In the event that Corporation terminates this Agreement for Cause pursuant to Paragraph 4.1(b) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (b) TERMINATION BY OFFICER. (i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that Officer terminates this Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) TERMINATION FOR GOOD REASON. In the event that Officer terminates this Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable 10 expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). 4.4 SEVERANCE PAYMENT. (a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of this Agreement not occurred ("Severance Period") and (ii) for each full year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"), but in no event shall Average Bonus be less than 50% of such Base Salary; PROVIDED, HOWEVER, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), Officer terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b) above, the term "Severance Payment" shall mean three (3) times the sum of the Base Salary then in effect and the average bonus; FURTHER, PROVIDED, HOWEVER, that in the event that (i) Officer's employment is terminated in connection with or following the Board's good faith determination that the possible long-run loss of Corporation may reasonably be expected to increase unreasonably if Corporation is not dissolved and (ii) such dissolution is effected in accordance with applicable law, the term "Severance Payment" shall mean the sum of the Base Salary then in effect and the Average Bonus, and the term "Severance Period" shall mean the one-year period immediately following Officer's date of termination of employment. (b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Corporation's employment for the Severance Period; PROVIDED, HOWEVER, that in the event of a Termination upon a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. 11 (c) OTHER SEVERANCE BENEFITS. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to full and immediate vesting of any awards granted to Officer under Corporation's stock option or incentive compensation plans, and continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Corporation shall arrange to provide Officer with substantially similar benefits. (d) FULL SETTLEMENT OF ALL OBLIGATIONS. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Corporation under this Agreement. (e) CHANGE IN CONTROL. For purposes of this Agreement, "Termination Upon a Change in Control" shall mean a termination of Officer's employment with Corporation following a "Change in Control" by Officer for Good Reason or by Corporation other than for Cause. A "Change in Control" shall be deemed to have occurred if, following Corporation's underwritten initial public offering: (i) Any person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Corporation or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corpo- 12 ration) whose appointment or election by the Board or nomination for election by the Corporation's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, at least seventy-five percent (75%) of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (iv) The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. 4.5 GROSS-UP. If any of the Total Payments (as hereinafter defined) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, Corporation shall pay to Officer, no later than the tenth (10th) day following the Early Termination date, an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after deduction of any Excise Tax on the Total Payments and any federal and state and local income tax upon the payment provided for by this Paragraph, shall be 13 equal to the excess of the Total Payments over the payment provided for by this Paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of this Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) Shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 4.6 OFFSET. Although Officer shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, the amount of any payment or benefit provided for in this Agreement, including without limitation welfare benefits, shall be reduced by any compensation earned by or provided to Officer as the result of employment by an employer other than Corporation prior to the expiration of the term of this Agreement; PROVIDED, HOWEVER, that this Paragraph 4.6 shall not apply in the event of a Termination upon a Change in Control. 5. NONCOMPETITION. 14 During the Term of this Agreement, including the period, if any, with respect to which Officer shall be entitled to Severance Payments, Officer shall not engage in any activity competitive with the business of Corporation. 6. MISCELLANEOUS. 6.1 PAYMENT OBLIGATIONS. Corporation's obligation to pay Officer the compensation and to make the arrangements provided herein shall be unconditional, and Officer shall have no obligation whatsoever to mitigate damages hereunder. If arbitration after a Change in Control shall be brought to enforce or interpret any provision contained herein, Corporation shall, to the extent permitted by applicable law and Corporation's Articles of Incorporation and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements incurred in such arbitration. 6.2 CONFIDENTIALITY. Officer agrees that all confidential and proprietary information relating to the business of Corporation shall be kept and treated as confidential both during and after the Term of this Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of this Agreement. 6.3 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Corporation. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 6.5 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) DAYS AFTER MAILING OR TWENTY-FOUR (24) HOURS AFTER TRANSMISSION OF A FACSIMILE TO THE RESPECTIVE PERSONS NAMED BELOW: 15 If to CORPORATION: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Pasadena, California 91101 Phone: (818) 578-6812 Facsimile: (818) 578-6966 If to Officer: Joel S. Marcus 3153 Abington Drive Beverly Hills, California 90210 Phone: (310) 274-8383 Any Party may change such Party's address for notices by notice duly given pursuant hereto. 6.6 HEADINGS. The Paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of this Agreement. 6.7 GOVERNING LAW. Other than with respect to Paragraph 6.13 below, this Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflict of laws. 6.8 ARBITRATION. Any dispute arising out of or relating to this Agreement that cannot be settled by good faith negotiation between the parties shall be submitted to ENDISPUTE for final and binding arbitration pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference, which arbitration shall be the exclusive remedy of the parties hereto. The resulting arbitration shall be deemed a final order of a court having jurisdiction over the subject matter, shall not be appealable, and shall be enforceable in any court of competent jurisdiction. Submission to arbitration, as provided in Exhibit A, shall not preclude the right of any party hereto involved in a dispute regarding this Agreement (each, a "Disputing Party" and collectively, the "Disputing Parties") to institute proceedings at law or in equity for injunctive or other relief pending the arbitration of a matter subject to arbitration pursuant to this Agreement. Any documentation and information submitted by any party in the arbitration proceeding shall be kept strictly confidential by the parties and the arbitrator. In addition to any other relief or award granted by the arbitrator to either Disputing Party, the arbitrator shall determine the extent to which each Disputing Party has prevailed as to the material issues raised in the arbitration, and, based upon such 16 determination, shall apportion to each Disputing Party its ratable share of (i) the Disputing Parties' reasonable attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the expense of the arbitrator, and (iii) all other expenses of the arbitration; PROVIDED, HOWEVER, that any dispute following a Change in Control shall be governed by the provisions of Paragraph 6.1 above. The arbitrator shall make such determination and apportionment whether or not the dispute proceeds to a final award. 6.9 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, all other provisions of this Agreement shall be deemed valid and enforceable to the extent possible. 6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; PROVIDED, HOWEVER, that except as herein expressly provided, this Agreement shall not be assignable either by Corporation (except to an affiliate of the Corporation, in which event Corporation shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 6.11 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5 and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this Agreement. 6.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 6.13 INDEMNIFICATION. In addition to any rights to indemnification to which Officer is entitled under the Corporation's Articles of Incorporation and By-Laws, Corporation shall indemnify Officer at all times during and after the Term of this Agreement to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland or any successor provision thereof and any other 17 applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CORPORATION: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ JERRY M. SUDARSKY --------------------------- Jerry M. Sudarsky Date: ------------------------- OFFICER: /s/ JOEL S. MARCUS -------------------------------- Joel S. Marcus Date: -------------------------- 19 EX-10.2 3 EXHIBIT 10.2 - ------------------------------------------------------------------------------- AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation, and ALAN D. GOLD, an individual - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- 1. POSITION AND DUTIES; LOCATION . . . . . . . . . . . . . . . . . . . . . . . . 1 2. TERM OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. . . . . . . . . . . . . . . . . . . 2 3.1 BASE SALARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (a) MINIMUM BASE . . . . . . . . . . . . . . . . . . . . . . . . 2 (b) EARNED BASE SALARY . . . . . . . . . . . . . . . . . . . . . 2 3.2 INCREASES IN BASE SALARY. . . . . . . . . . . . . . . . . . . . . . 2 3.3 BONUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (a) MINIMUM BONUS. . . . . . . . . . . . . . . . . . . . . . . . 3 (b) DETERMINATION OF BONUS . . . . . . . . . . . . . . . . . . . 3 3.4 ADDITIONAL BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 4 (a) OFFICER BENEFITS . . . . . . . . . . . . . . . . . . . . . . 4 (b) VACATION . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (c) LIFE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . 4 (d) DISABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . 4 (e) REIMBURSEMENT FOR EXPENSES . . . . . . . . . . . . . . . . . 5 (f) WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . . 5 4. TERMINATION OF THE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 TERMINATION BY CORPORATION DEFINED. . . . . . . . . . . . . . . . . 5 (a) TERMINATION WITHOUT CAUSE. . . . . . . . . . . . . . . . . . 5 (b) TERMINATION FOR CAUSE. . . . . . . . . . . . . . . . . . . . 5 (c) TERMINATION BY REASON OF DEATH OR DISABILITY . . . . . . . . 6 4.2 TERMINATION BY OFFICER DEFINED. . . . . . . . . . . . . . . . . . . 6 (a) TERMINATION OTHER THAN FOR GOOD REASON . . . . . . . . . . . 6 (b) TERMINATION FOR GOOD REASON. . . . . . . . . . . . . . . . . 6 (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. . . . . . . . . . 7 4.3 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 8 (a) TERMINATION BY CORPORATION . . . . . . . . . . . . . . . . . 9 (i) TERMINATION WITHOUT CAUSE. . . . . . . . . . . . . . 9 (ii) TERMINATION FOR CAUSE, DEATH OR PERMANENT DISABILITY . . . . . . . . . . . . . . . . 9 (b) TERMINATION BY OFFICER . . . . . . . . . . . . . . . . . . . 9 (i) TERMINATION OTHER THAN FOR GOOD REASON . . . . . . . 9 i (ii) TERMINATION FOR GOOD REASON . . . . . . . . . . . . 10 4.4 SEVERANCE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 10 (a) DEFINITION OF "SEVERANCE PAYMENT." . . . . . . . . . . . . . 10 (b) PAYMENT OF SEVERANCE PAYMENT . . . . . . . . . . . . . . . . 10 (c) OTHER SEVERANCE BENEFITS . . . . . . . . . . . . . . . . . . 11 (d) FULL SETTLEMENT OF ALL OBLIGATIONS . . . . . . . . . . . . . 11 (e) CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . 11 4.5 GROSS-UP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.6 OFFSET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.1 PAYMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . 14 6.2 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.3 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.4 ENTIRE AGREEMENT; MODIFICATIONS . . . . . . . . . . . . . . . . . . 14 6.5 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.6 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.7 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.8 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.9 SURVIVAL OF CORPORATION'S OBLIGATIONS . . . . . . . . . . . . . . . 16 6.10 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS . . . . . . . . . . . . 16 6.11 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.12 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 17
ii AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") originally made and entered into as of the fifth (5th) day of January, 1994, (the "Original Effective Date"), by and between Health Science Properties Holding Corp., a Maryland corporation (the "Parent") and Alan D. Gold, an individual (the "Officer") is hereby amended and restated in its entirety effective March 28, 1997 (the "Effective Date") to read as follows: RECITAL WHEREAS, on November 3, 1994 Parent transferred to its then wholly-owned subsidiary Alexandria Real Estate Equities, Inc., a Maryland corporation (formerly, Health Science Properties, Inc.) (the "Corporation") substantially all of its property, assets and certain liabilities, including Parent's rights and obligations under this Agreement; WHEREAS, on July 30, 1996, this Agreement was amended pursuant to an agreement between the Corporation and Officer; WHEREAS, Corporation desires to continue to employ Officer as its President and Treasurer, and Officer is willing to continue to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend and restate this Agreement as follows: 1. POSITION AND DUTIES; LOCATION. During the Term (as defined in Paragraph 2 below) of this Agreement Officer agrees to be employed by and to serve Corporation as its President and Treasurer or in such other capacity consistent with the Officer's current position as senior executive officer as may be determined by the Board of Directors of the Corporation (the "Board"). Corporation agrees to employ and retain officer in such 1 capacities. Officer shall devote such of his business time, energy, and skill to the affairs of Corporation as shall be necessary to perform the duties of such positions. Officer shall report to the Chief Operating Officer or such other officer as the Board shall direct, and at all times during the Term (as defined in Paragraph 2 below) of this Agreement shall have powers and duties at least commensurate with his position as a senior executive officer. Officer shall be based at the offices of Corporation in the San Diego, California metropolitan area, except for required travel on Corporation's business. 2. TERM OF EMPLOYMENT. The term (the "Term") of this Agreement shall be for a period commencing on January 1, 1997 and ending on December 31, 1998 (the "Termination Date"), unless terminated earlier pursuant to this Agreement (the "Early Termination Date"). Commencing on December 31, 1998 and on each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of this Agreement. References herein to the Term of this Agreement shall refer to both the initial Term and any such extended Term. 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. 3.1 BASE SALARY. During the Term of this Agreement, Officer shall be entitled to the following base salary: (a) MINIMUM BASE. During the Term of this Agreement and subject to the terms and conditions set forth herein, Corporation agrees to pay to Officer an annual "Base Salary" of One Hundred Ninety Thousand Dollars ($190,000), or such other higher amount as may from time to time be determined by Corporation. Unless otherwise agreed in writing by Officer and Corporation, and subject to Subparagraph (b) below, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Corporation in existence from time to time. (b) EARNED BASE SALARY. For purposes of any early termination of this Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer pursuant to this Paragraph 3.1, together with any 2 partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 3.2 INCREASES IN BASE SALARY. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Original Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer shall be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of this Agreement) to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive year increase; PROVIDED, HOWEVER, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the "Consumer Price Index, Los Angeles, California, All Items," published by the U.S. Department of Labor (using January 1, 1994 as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Corporation hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 BONUS. During the Term of this Agreement, the Officer is eligible for the following bonus: (a) MINIMUM BONUS. Officer shall be eligible to receive a bonus for each fiscal year of Corporation (or portion thereof) during the Term of this Agreement, with the actual amount of any such bonus to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Officer's performance during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable within seventy-five (75) days after the end of Corporation's fiscal year to which such bonus relates. The Board shall, at an appropriate subsequent time, consider for the benefit of the Officer and other specified officers of the Corporation the establishment of an annual incentive compensation plan providing for the payment of a minimum annual bonus based upon the achievement of certain objective criteria for the benefit of Officer and other specified executive officers of Corporation. (b) DETERMINATION OF BONUS. With respect to the period commencing upon consummation of an initial public offering (the "IPO") of the Corporation's common stock, par value $.01 per share (the "Common Stock"), and 3 ending on December 31, 1997, and with respect to each calendar year thereafter during the Term, the bonus payable pursuant to Subparagraph (a), if any, shall be based upon such factors as the Board (or a committee thereof) deems appropriate, which may include the enhancement of stockholder value based upon Funds From Operations (as defined in the White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts in March 1995) as determined in good faith by the Board during such period, divided by the weighted average number of shares of Common Stock outstanding during such period. 3.4 ADDITIONAL BENEFITS. During the term of this Agreement, Officer shall be entitled to the following additional benefits: (a) OFFICER BENEFITS. Officer shall be eligible to participate in such of Corporation's benefit and deferred compensation plans as are made available to executive officers of Corporation, including, without limitation, Corporation's stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Corporation, Officer's employment with the Corporation will be deemed to have commenced on the Original Effective Date of this Agreement. Until Corporation adopts a package of health and medical benefits, Corporation shall promptly reimburse Officer for payments made by Officer (i) with respect to the continuation of benefits provided by Officer's previous employer pursuant to Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) upon expiration of COBRA coverage to maintain substantially similar health and medical benefits coverage for Officer and his family, and (iii) if Officer is not covered by COBRA, to maintain reasonable health and medical benefits coverage for Officer and his family. (b) VACATION. During the Term of this Agreement, Officer shall be entitled to four (4) weeks of vacation during each year during the Term of this Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; PROVIDED that Officer may not accrue more than eight (8) weeks of unused vacation at any time. 4 (c) LIFE INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum three (3) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time to time designate, in the aggregate amount of One Million Dollars ($1,000,000). Such policy shall be owned by Officer or by a member of his immediate family. Corporation shall have no incidents of ownership therein. (d) DISABILITY INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect disability insurance similar to Officer's current disability insurance policy on Officer, payable to Officer in an annual amount not less than sixty percent (60%) of Officer's then existing Base Salary (the "Disability Policy"). For purposes of this Agreement, "Permanent Disability" shall have the same meaning as is ascribed to such terms in the Disability Policy (including the COBRA Disability Policy) covering Officer at the time of occurrence of such Permanent Disability. (e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement, Corporation shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to this Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to Corporation of vouchers or other statements itemizing such expenses in reasonable detail consistent with Corporation's policies. In addition, Officer shall be entitled to reimbursement for (i) dues and membership fees in professional organizations and/or industry associations in which Officer is currently a member or becomes a member, and (ii) appropriate industry seminars and mandatory continuing education. (f) WITHHOLDING. Compensation and benefits paid to Officer under this Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4. TERMINATION OF THIS AGREEMENT. 4.1 TERMINATION BY CORPORATION DEFINED. (a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any 5 termination by Corporation other than termination for Cause (as defined in Paragraph 4.1(b) below). (b) TERMINATION FOR CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement for Cause immediately after written notice has been delivered to Officer, which notice shall specify the reason for and the effective date of such Termination (which date shall be the applicable Early Termination Date). For purposes of this Agreement, "Cause" shall mean the following: (i) Officer's use of alcohol or narcotics which proximately results in the willful material breach or habitual willful neglect of Officer's duties under this Agreement; (ii) Officer's criminal conviction of fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony; (iii) Officer's willful Material Breach (as defined below) of this Agreement, if such willful Material Breach is not cured by Officer within thirty (30) days after Corporation's written notice thereof specifying the nature of such willful Material Breach. For purposes of this Paragraph 4.1(b), the term willful "Material Breach" shall mean the substantial and continual willful nonperformance of Officer's duties under this Agreement which the Board determines has resulted in material injury to Corporation. (c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement by reason of Officer's death or Permanent Disability. 4.2 TERMINATION BY OFFICER DEFINED. (a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate this Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Corporation thirty (30) days prior to the effective date of 6 termination specified in such notice (which date shall be the applicable Early Termination Date). (b) TERMINATION FOR GOOD REASON. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate this Agreement prior to the Termination Date in the event of the material breach of this Agreement by Corporation, if such breach is not cured by Corporation within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of this Agreement, termination of this Agreement by Officer in the event of Corporation's material breach of this Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of this Agreement by Corporation, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation: (i) the assignment to Officer of any duties inconsistent with the position in Corporation that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (ii) a reduction by Corporation in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of Officer's offices to a location outside the San Diego metropolitan area (or, if different, the metropolitan area in which such offices are located immediately prior to the Change in Control), or Corporation's requiring Officer to travel on Corporation's business to an extent not substantially consistent with 7 Officer's business travel obligations immediately prior to the Change in Control; (iv) the failure by Corporation to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Corporation and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Corporation or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Corporation, within seven (7) days of the date such compensation is due; (v) the failure by Corporation to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Corporation to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (vi) the failure by Corporation to continue to provide Officer with benefits substantially similar to those under any of Corporation's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Corporation which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Corporation to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Corporation in accordance with Corporation's normal vacation policy in effect at the time of the Change in Control; or (vii) the failure of Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. 8 Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 EFFECT OF TERMINATION. In the event that this Agreement is terminated by Corporation or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of this Agreement which shall survive termination of this Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; PROVIDED, HOWEVER, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) TERMINATION BY CORPORATION. (i) TERMINATION WITHOUT CAUSE. In the event that Corporation terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) TERMINATION FOR CAUSE, DEATH OR PERMANENT DISABILITY. In the event that Corporation terminates this Agreement for Cause pursuant to Paragraph 4.1(b) above or by reason of Permanent Disability or death pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned 9 benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (b) TERMINATION BY OFFICER. (i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that Officer terminates this Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) TERMINATION FOR GOOD REASON. In the event that Officer terminates this Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). 4.4 SEVERANCE PAYMENT. (a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of this Agreement not occurred ("Severance Period") and (ii) for each full year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) ("Average Bonus"); PROVIDED, HOWEVER, that in the event that, following a Change in Control as defined in Paragraph 4.4(e) below, Officer terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b) above, the term "Severance Payment" shall mean three 10 (3) times the sum of the Base Salary then in effect and the Average Bonus; FURTHER PROVIDED, HOWEVER, that in the event that (i) Officer's employment is terminated in connection with or following the Board's good faith determination that the possible long-run loss of Corporation may reasonably be expected to increase unreasonably if Corporation is not dissolved and (ii) such dissolution is effected in accordance with applicable law, the term "Severance Payment" shall mean the Base Salary then in effect, and the term "Severance Period" shall mean the one-year period immediately following Officer's date of termination of employment. (b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Corporation's employment for the Severance Period; PROVIDED, HOWEVER, that in the event of a Termination upon a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) OTHER SEVERANCE BENEFITS. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to full and immediate vesting of any awards granted to Officer under Corporation's stock option or incentive compensation plans, and continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Corporation shall arrange to provide Officer with substantially similar benefits. (d) FULL SETTLEMENT OF ALL OBLIGATIONS. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Corporation under this Agreement. (e) CHANGE IN CONTROL. For purposes of this Agreement, "Termination Upon a Change in Control" shall mean a termination of Officer's employment with Corporation following a "Change in Control" by Officer for Good Reason or by Corporation Other Than for Cause. A "Change in Control" shall be deemed to have occurred if: 11 (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Corporation or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, at least seventy-five percent (75%) of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corpo- 12 ration (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (iv) The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. 4.5 GROSS-UP. If any of the Total Payments (as hereinafter defined) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), Corporation shall pay to Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after deduction of any Excise Tax on the Total Payments and any federal and state and local income tax upon the payment provided for by this Paragraph, shall be equal to the excess of the Total Payments over the payment provided for by this Paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of this Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall 13 be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 4.6 OFFSET. Although Officer shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, the amount of any payment or benefit provided for in this Agreement, including, without limitation, welfare benefits, shall be reduced by any compensation earned by or provided to Officer as the result of employment by an employer other than Corporation prior to the expiration of the Term of this Agreement; PROVIDED, HOWEVER, that this Paragraph 4.6 shall not apply in the event of a Termination Upon a Change in Control. 5. NONCOMPETITION. During the Term of this Agreement, including the period, if any, with respect to which Officer shall be entitled to Severance Payments, Officer shall not engage in any activity competitive with the business of Corporation. 6. MISCELLANEOUS. 6.1 PAYMENT OBLIGATIONS. Corporation's obligation to pay Officer the compensation and to make the arrangements provided herein shall be unconditional, and Officer shall have no obligation whatsoever to mitigate damages hereunder. If arbitration after a Change in Control shall be brought to enforce or interpret any provision contained herein, Corporation shall, to the extent permitted by applicable law and Corporation's Articles of Incorporation and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements incurred in such arbitration. 0 14 6.2 CONFIDENTIALITY. Officer agrees that all confidential and proprietary information relating to the business of Corporation shall be kept and treated as confidential both during and after the Term of this Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of this Agreement. 6.3 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Corporation. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 6.5 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Corporation: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Pasadena, California 91101 Phone: (818) 578-6812 Facsimile: (818) 578-6966 If to Officer: Alan D. Gold 18269 Sun Maiden Court San Diego, California 92127 Phone: (619) 487-3764 15 Any party may change such party's address for notices by notice duly given pursuant hereto. 6.6 HEADINGS. The Paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of this Agreement. 6.7 ARBITRATION. Any dispute arising out of or relating to this Agreement that cannot be settled by good faith negotiation between the parties shall be submitted to ENDISPUTE for final and binding arbitration pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference, which arbitration shall be the exclusive remedy of the parties hereto. The resulting arbitration shall be deemed a final order of a court having jurisdiction over the subject matter, shall not be appealable, and shall be enforceable in any court of competent jurisdiction. Submission to arbitration, as provided in Exhibit A, shall not preclude the right of any party hereto involved in a dispute regarding this Agreement (each, a "Disputing Party" and collectively, the "Disputing Parties") to institute proceedings at law or in equity for injunctive or other relief pending the arbitration of a matter subject to arbitration pursuant to this Agreement. Any documentation and information submitted by any party in the arbitration proceeding shall be kept strictly confidential by the parties and the arbitrator. In addition to any other relief or award granted by the arbitrator to either Disputing Party, the arbitrator shall determine the extent to which each Disputing Party has prevailed as to the material issues raised in the arbitration, and, based upon such determination, shall apportion to each Disputing Party its ratable share of (i) the Disputing Parties' reasonable attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the expense of the arbitrator, and (iii) all other expenses of the arbitration; PROVIDED, HOWEVER, that any dispute following a Change in Control shall be governed by the provisions of Paragraph 6.1 above. The arbitrator shall make such determination and apportionment whether or not the dispute proceeds to a final award. 6.8 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the lawfully permitted. 16 6.9 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; PROVIDED, HOWEVER, that except as herein expressly provided, this Agreement shall not be assignable either by Corporation (except to an affiliate of the Corporation, in which event Corporation shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 6.10 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5 and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this Agreement. 6.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 6.12 INDEMNIFICATION. In addition to any rights to indemnification to which Officer is entitled under the Corporation's Articles of Incorporation and By-Laws, Corporation shall indemnify Officer at all times during and after the Term of this Agreement to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. 17 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CORPORATION: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By:/s/ Joel S. Marcus ----------------------------------- Joel S. Marcus Chief Executive Officer OFFICER: /s/ Alan D. Gold -------------------------------------- Alan D. Gold Date: 8-12-97 --------------------------------- 18 EX-10.3 4 EXHIBIT 10.3 AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation, and GARY A. KREITZER, an individual AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") originally made and entered into as of the fifth (5th) day of January, 1994, (the "Original Effective Date"), by and between Health Science Properties Holding Corp., a Maryland corporation (the "Parent") and Gary A. Kreitzer, an individual (the "Officer") is hereby amended and restated in its entirety effective as of March 28, 1997 (the "Effective Date") to read as follows: RECITAL WHEREAS, on November 3, 1994, Parent transferred to its then wholly-owned subsidiary Alexandria Real Estate Equities, Inc., a Maryland corporation (formerly, Health Science Properties, Inc.) (the "Corporation") substantially all of its property, assets and certain liabilities, including Parent's rights and obligations under this Agreement; WHEREAS, on July 30, 1996, this Agreement was amended pursuant to an agreement between the Corporation and Officer; WHEREAS, Corporation desires to continue to employ Officer as its Senior Vice President and In-House Counsel, and Officer is willing to continue to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend and restate this Agreement as follows: 1. POSITION AND DUTIES; LOCATION. During the Term (as defined in Paragraph 2 below) of this Agreement, Officer agrees to be employed by and to serve Corporation as its Senior Vice President and In-House Counsel or in such other capacity consistent with the Officer's current position as a senior executive officer, as may be determined by the Board of Directors of the Corporation (the "Board"). Corporation agrees to employ and retain Officer in such capacities. Officer shall devote such of his business time, energy, and skill to the affairs of Corporation as shall be 1 necessary to perform the duties of such positions. Officer shall report to the President or such other officer as the Board shall direct, and at all times during the Term (as defined in Paragraph 2 below) of this Agreement shall have powers and duties at least commensurate with his position as a senior executive officer. Officer shall be based at the offices of Corporation in the San Diego, California metropolitan area, except for required travel on Corporation's business. 2. TERM OF EMPLOYMENT. The term (the "Term") of this Agreement shall be for a period commencing January 1, 1997 and ending on December 31, 1998 (the "Termination Date"), unless terminated earlier pursuant to this Agreement (the "Early Termination Date"). Commencing on December 31, 1998 and on each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of this Agreement. References herein to the Term of this Agreement shall refer to both the initial Term and any such extended Term. 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. 3.1 BASE SALARY. During the Term of this Agreement, Officer shall be entitled to the following base salary: (a) MINIMUM BASE. During the Term of this Agreement and subject to the terms and conditions set forth herein, Corporation agrees to pay to Officer an annual "Base Salary" of One Hundred Forty Thousand Dollars ($140,000) or such higher amount as may from time to time be determined by Corporation. Unless otherwise agreed to in writing by Officer and Corporation, and subject to Subparagraph (b) below, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Corporation in existence from time to time. (b) EARNED BASE SALARY. For purposes of any early termination of this Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 3.2 INCREASES IN BASE SALARY. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Original Effective Date during the Term by the 2 Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer shall be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of this Agreement) by an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive year increase; PROVIDED, HOWEVER, that, at a minimum, such increase shall be equal to the cumulative cost-of-living increment as reported in the "Consumer Price Index, Los Angeles, California, All Items," published by the U.S. Department of Labor (using January 1, 1994, as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Corporation hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 BONUS. Officer shall be eligible to receive a bonus for each fiscal year of Corporation (or portion thereof) during the Term of this Agreement, with the actual amount of any such bonus to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Officer's performance during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable within seventy-five (75) days after the end of Corporation's fiscal year to which such bonus relates. The Board shall, at an appropriate subsequent time, consider for the benefit of Officer and other specified executive officers of the Corporation the establishment of an annual incentive compensation plan providing for the payment of a minimum annual bonus based upon the achievement of certain objective criteria. 3.4 ADDITIONAL BENEFITS. During the Term of this Agreement, Officer shall be entitled to the following additional benefits: (a) OFFICER BENEFITS. Officer shall be eligible to participate in such of Corporation's benefit and deferred compensation plans as are made available to executive officers of Corporation, including, without limitation, Corporation's stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Corporation, Officer's employment with the Corporation will be deemed to have commenced on the Original Effective Date of this Agreement. Until Corporation adopts a package of health and medical benefits, Corporation shall promptly reimburse Officer for payments made by Officer (i) with respect to the continuation of benefits provided by Officer's previous employer pursuant to Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended (the 3 "Code"), (ii) upon expiration of COBRA coverage to maintain substantially similar health and medical benefits coverage for Officer and his family, and (iii) if Officer is not covered by COBRA, to maintain reasonable health and medical benefits coverage for Officer and his family. (b) VACATION. During the Term of this Agreement, Officer shall be entitled to four (4) weeks of vacation during each year during the Term of this Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; PROVIDED that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) LIFE INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum three (3) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time to time designate, in the aggregate amount of One Million Dollars ($1,000,000). Such policy shall be owned by Officer or by a member of his immediate family. Corporation shall have no incidents of ownership therein. (d) DISABILITY INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect disability insurance similar to Officer's current disability insurance policy on Officer, payable to Officer in an annual amount not less than sixty percent (60%) of Officer's then-existing Base Salary (the "Disability Policy"). For purposes of this Agreement, "Permanent Disability" shall have the same meaning as is ascribed to such terms in the Disability Policy (including the COBRA Disability Policy) covering Officer at the time of occurrence of such Permanent Disability. (e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement, Corporation shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to this Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to Corporation of vouchers or other statements itemizing such expenses in reasonable detail consistent with Corporation's policies. In addition, Officer shall be entitled to reimbursement for (i) dues and membership fees in professional organizations and/or industry associations in which Officer is currently a member or becomes a member, and (ii) appropriate industry seminars and mandatory continuing education. (f) WITHHOLDING. Compensation and benefits paid to Officer under this Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4 4. TERMINATION OF THE AGREEMENT. 4.1 TERMINATION BY CORPORATION DEFINED. (a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Corporation other than termination for Cause (as defined in Paragraph 4.1(b) below). (b) TERMINATION FOR CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement for Cause immediately after written notice has been delivered to Officer, which notice shall specify the reason for and the effective date of such Termination (which date shall be the applicable Early Termination Date). For purposes of this Agreement, "Cause" shall mean the following: (i) Officer's use of alcohol or narcotics which proximately results in the willful material breach or habitual willful neglect of Officer's duties under this Agreement; (ii) Officer's criminal conviction of fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony; (iii) Officer's willful Material Breach (as defined below) of this Agreement, if such willful Material Breach is not cured by Officer within thirty (30) days after Corporation's written notice thereof specifying the nature of such willful Material Breach. For purposes of this Paragraph 4.1(b), the term willful "Material Breach" shall mean the substantial and continual willful nonperformance of Officer's duties under this Agreement which the Board determines has resulted in material injury to Corporation. (c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement by reason of Officer's death or Permanent Disability. 5 4.2 TERMINATION BY OFFICER DEFINED. (a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate this Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Corporation thirty (30) days prior to the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) TERMINATION FOR GOOD REASON. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate this Agreement prior to the Termination Date in the event of the material breach of this Agreement by Corporation, if such breach is not cured by Corporation within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation, or, following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of this Agreement, termination of this Agreement by Officer in the event of Corporation's material breach of this Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of this Agreement by Corporation, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation: (a) the assignment to Officer of any duties inconsistent with the position in Corporation that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (b) a reduction by Corporation in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (c) the relocation of Officer's offices to a location outside the San Diego metropolitan area (or, if different, the metropolitan area in which such offices are located immediately prior to the Change in Control) or Corporation's requiring Officer to travel on Corporation's business to an extent not substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; 6 (d) the failure by Corporation to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Corporation and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Corporation or such person, or to pay Officer any portion of an installment of deferred compensation under any deferred compensation program of Corporation, within seven (7) days of the date such compensation is due; (e) the failure by Corporation to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Corporation to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (f) the failure by Corporation to continue to provide Officer with benefits substantially similar to those under any of Corporation's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Corporation which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Corporation to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Corporation in accordance with Corporation's normal vacation policy, in effect at the time of the Change in Control; or (g) the failure of Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 EFFECT OF TERMINATION. In the event that this Agreement is terminated by Corporation or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under this Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of this Agreement which shall survive termination of 7 this Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; PROVIDED, HOWEVER, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) TERMINATION BY CORPORATION. (i) TERMINATION WITHOUT CAUSE. In the event that Corporation terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) TERMINATION FOR CAUSE, DEATH OR PERMANENT DISABILITY. In the event that Corporation terminates this Agreement for Cause pursuant to Paragraph 4.1(b) above or by reason of Permanent Disability or death pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (b) TERMINATION BY OFFICER. (i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that Officer terminates this Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) TERMINATION FOR GOOD REASON. In the event that Officer terminates this Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer 8 has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). 4.4 SEVERANCE PAYMENT. (a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of this Agreement not occurred (the "Severance Period") and (ii) for each full year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) (the "Average Bonus"); PROVIDED, HOWEVER, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), Officer terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b) above, the term "Severance Payment" shall mean three (3) times the sum of the Base Salary then in effect and the Average Bonus; FURTHER, PROVIDED, HOWEVER, that in the event that (i) Officer's employment is terminated in connection with or following the Board's good faith determination that the possible long-run loss of Corporation may reasonably be expected to increase unreasonably if Corporation is not dissolved and (ii) such dissolution is effected in accordance with applicable law, the term "Severance Payment" shall mean the Base Salary then in effect, and the term "Severance Period" shall mean the one-year period immediately following Officer's date of termination of employment. (b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Corporation's employment for the Severance Period; PROVIDED, HOWEVER, that in the event of a Termination upon a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) OTHER SEVERANCE BENEFITS. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to full and 9 immediate vesting of any awards granted to Officer under Corporation's stock option or incentive compensation plans, and continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Corporation shall arrange to provide Officer with substantially similar benefits. (d) FULL SETTLEMENT OF ALL OBLIGATIONS. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Corporation under this Agreement. (e) CHANGE IN CONTROL. For purposes of this Agreement, "Termination Upon a Change in Control" shall mean a termination of Officer's employment with Corporation following a "Change in Control" by Officer for Good Reason or by Corporation Other Than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Corporation or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in 10 office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, at least seventy-five percent (75%) of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (iv) The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. 4.5 GROSS-UP. If any of the Total Payments (as hereinafter defined) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), Corporation shall pay to Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after deduction of any Excise Tax on the Total Payments and any federal and state and local income tax upon the payment provided for by this Paragraph, shall be equal to the excess of the Total Payments over the payment provided for by this Paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of this Agreement or of any other plan, arrangement or agreement with 11 Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 4.6 OFFSET. Although Officer shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, the amount of any payment or benefit provided for in this Agreement, including, without limitation, welfare benefits, shall be reduced by any compensation earned by or provided to Officer as the result of employment by an employer other than Corporation prior to the expiration of the Term of this Agreement; PROVIDED, HOWEVER, that this Paragraph 4.6 shall not apply in the event of a Termination Upon a Change in Control. 5. NONCOMPETITION. During the Term of this Agreement, including the period, if any, with respect to which Officer shall be entitled to Severance Payments, Officer shall not engage in any activity competitive with the business of Corporation. 6. MISCELLANEOUS. 6.1 PAYMENT OBLIGATIONS. Corporation's obligation to pay Officer the compensation and to make the arrangements provided herein shall be unconditional, and 12 Officer shall have no obligation whatsoever to mitigate damages hereunder. If arbitration after a Change in Control shall be brought to enforce or interpret any provision contained herein, Corporation shall, to the extent permitted by applicable law and Corporation's Articles of Incorporation and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements incurred in such arbitration. 6.2 CONFIDENTIALITY. Officer agrees that all confidential and proprietary information relating to the business of Corporation shall be kept and treated as confidential both during and after the Term of this Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of this Agreement. 6.3 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including, without limitation, any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Corporation. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 6.5 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first-class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Corporation: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Pasadena, California 91101 Phone: (818) 578-6812 Facsimile: (818) 578-6966 If to Officer: Gary A. Kreitzer 13 17511 Caminito Canasto San Diego, California 92127 Phone: (619) 485-9425 Any party may change such party's address for notices by notice duly given pursuant hereto. 6.6 HEADINGS. The Paragraph headings herein are intended for reference only and shall not by themselves determine the construction, or interpretation of this Agreement. 6.7 GOVERNING LAW. Other than with respect to Paragraph 6.13 below, this Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflict of laws. 6.8 ARBITRATION. Any dispute arising out of or relating to this Agreement that cannot be settled by good faith negotiation between the parties shall be submitted to ENDISPUTE for final and binding arbitration pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference, which arbitration shall be the exclusive remedy of the parties hereto. The resulting arbitration shall be deemed a final order of a court having jurisdiction over the subject matter, shall not be appealable, and shall be enforceable in any court of competent jurisdiction. Submission to arbitration, as provided in Exhibit A, shall not preclude the right of any party hereto involved in a dispute regarding this Agreement (each a "Disputing Party" and collectively, the "Disputing Parties") to institute proceedings at law or in equity for injunctive or other relief pending the arbitration of a matter subject to arbitration pursuant to this Agreement. Any documentation and information submitted by any party in the arbitration proceeding shall be kept strictly confidential by the parties and the arbitrator. In addition to any other relief or award granted by the arbitrator to either Disputing Party, the arbitrator shall determine the extent to which each Disputing Party has prevailed as to the material issues raised in the arbitration, and, based upon such determination, shall apportion to each Disputing Party its ratable share of (i) the Disputing Parties' reasonable attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the expense of the arbitrator, and (iii) all other expenses of the arbitration; PROVIDED, HOWEVER, that any dispute following a Change in Control shall be governed by the provisions of Paragraph 6.1 above. The arbitrator shall make such determination and apportionment whether or not the dispute proceeds to a final award. 6.9 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other 14 provisions of this Agreement shall be deemed valid and enforceable to the extent lawfully permitted. 15 6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of Corporation. In the event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; PROVIDED, HOWEVER, that except as herein expressly provided, this Agreement shall not be assignable either by Corporation (except to an affiliate of the Corporation, in which event Corporation shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 6.11 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5 and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this Agreement. 6.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 6.13 INDEMNIFICATION. In addition to any rights to indemnification to which Officer is entitled under the Corporation's Articles of Incorporation and By-Laws, Corporation shall indemnify Officer at all times during and after the Term of this Agreement to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CORPORATION: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ JOEL S. MARCUS ------------------------------------ Joel S. Marcus Chief Executive Officer Date: 6-2-97 ----------------------------------- OFFICER: /s/ GARY A. KREITZER ----------------------------------------- Gary A. Kreitzer Date: 7-22-97 ------------------------------------ 17 EX-10.4 5 EXHIBIT 10.4 - ------------------------------------------------------------------------------- AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT by and between ALEXANDRIA REAL ESTATE EQUITIES, INC. a Maryland corporation, and STEVEN A. STONE, an individual - ------------------------------------------------------------------------------- AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") originally made and entered into as of the fifth (5th) day of January, 1994, (the "Original Effective Date"), by and between Health Science Properties Holding Corp., a Maryland corporation (the "Parent") and Steven A. Stone, an individual (the "Officer") is hereby amended and restated in its entirety effective as of March 28, 1997 (the "Effective Date") to read as follows: RECITAL WHEREAS, on November 3, 1994, Parent transferred to its then wholly- owned subsidiary Alexandria Real Estate Equities, Inc., a Maryland corporation (formerly, Health Science Properties, Inc.) (the "Corporation") substantially all of its property, assets and certain liabilities, including Parent's rights and obligations under this Agreement; WHEREAS, on July 30, 1996, this Agreement was amended pursuant to an agreement between the Corporation and Officer; WHEREAS, Corporation desires to continue to employ Officer as its Vice President, and Officer is willing to continue to accept such employment by Corporation, on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend and restate this Agreement as follows: POSITION AND DUTIES; LOCATION. During the Term (as defined in Paragraph 2 below) of this Agreement, Officer agrees to be employed by and to serve Corporation as its Vice President or in such other capacity consistent with the Officer's current position as a senior executive officer as may be determined by the Board of Directors of the Corporation (the "Board"). Corporation agrees to employ and retain Officer in such capacities. Officer shall devote such of his business time, energy, and skill to the affairs of Corporation as shall be necessary to perform the duties of such positions. Officer shall report to the President or such other officer as the Board shall direct, and at all times during the Term (as defined in Paragraph 2 below) of this Agreement 1 shall have powers and duties at least commensurate with his position as a senior executive officer. Officer shall be based at the offices of Corporation in the San Diego, California metropolitan area, except for required travel on Corporation's business. 2. TERM OF EMPLOYMENT. The term (the "Term") of this Agreement shall be for a period commencing on January 1, 1997 and ending on December 31, 1998 (the "Termination Date"), unless terminated earlier pursuant to this Agreement (the "Early Termination Date"). Commencing on December 31, 1998 and on each subsequent anniversary thereof, the Term shall be automatically extended for one (1) additional year unless, no later than six (6) months before such date, either party shall have given written notice to the other that it does not wish to extend the Term of this Agreement. References herein to the Term of this Agreement shall refer to both the initial Term and any such extended Term. 3. COMPENSATION, BENEFITS AND REIMBURSEMENT. 3.1 BASE SALARY. During the Term of this Agreement, Officer shall be entitled to the following base salary: (a) MINIMUM BASE. During the Term of this Agreement and subject to the terms and conditions set forth herein, Corporation agrees to pay to Officer an annual "Base Salary" of One Hundred Five Thousand Dollars ($105,000), or such higher amount as may from time to time be determined by Corporation. Unless otherwise agreed in writing by Officer and Corporation, and subject to Subparagraph (b) below, the salary shall be payable in substantially equal semimonthly installments in accordance with the standard policies of Corporation inexistence from time to time. (b) EARNED BASE SALARY. For purposes of any early termination of this Agreement as provided in Paragraph 4 below, the term "Earned Base Salary" shall mean all semimonthly installments of the Base Salary which have become due and payable to Officer together with any partial monthly installment prorated on a daily basis up to and including the applicable Termination Date. 3.2 INCREASES IN BASE SALARY. Officer's Base Salary shall be reviewed no less frequently than on each anniversary of the Original Effective Date during the Term by the Board (or such committee as may be appointed by the Board for such purpose). The Base Salary payable to Officer shall be increased on each such anniversary date (and such other times as the Board or a committee of the Board may deem appropriate during the Term of this 2 Agreement) to an amount determined by the Board (or a committee of the Board). Each such new Base Salary shall become the base for each successive year increase; PROVIDED, HOWEVER, that such increase, at a minimum, shall be equal to the cumulative cost-of-living increment as reported in the "Consumer Price Index, Los Angeles, California, All Items," published by the U.S. Department of Labor (using January 1, 1994 as the base date for comparison). Any increase in Base Salary or other compensation shall in no way limit or reduce any other obligations of Corporation hereunder and, once established at an increased specified rate, Officer's Base Salary shall not be reduced unless Officer otherwise agrees in writing. 3.3 BONUS. Officer shall be eligible to receive a bonus for each fiscal year of Corporation (or portion thereof) during the Term of this Agreement, with the actual amount of any such bonus to be determined in the sole discretion of the Board (or a committee of the Board) based upon its evaluation of Officer's performance during such year and such other factors and conditions as the Board (or a committee of the Board) deems relevant. Any such bonus shall be payable within seventy-five (75) days after the end of Corporation's fiscal year to which such bonus relates. The Board shall, at an appropriate subsequent time, consider for the benefit of Officer and other specified executive officers of the Corporation the establishment of an annual incentive compensation plan providing for the payment of a minimum annual bonus based upon the achievement of certain objective criteria for the benefit of Officer and other specified executive officers of Corporation. 3.4 ADDITIONAL BENEFITS. During the Term of this Agreement, Officer shall be entitled to the following additional benefits: (a) OFFICER BENEFITS. Officer shall be eligible to participate in such of Corporation's benefit and deferred compensation plans as are made available to executive officers of Corporation, including, without limitation, Corporation's stock incentive plans, annual incentive compensation plans, profit sharing/pension plans, deferred compensation plans, annual physical examinations, dental, vision, sick pay, and medical plans, personal catastrophe and accidental death insurance plans, financial planning and automobile arrangements, retirement plans and supplementary executive retirement plans, if any. For purposes of establishing the length of service under any benefit plans or programs of Corporation, Officer's employment with the Corporation will be deemed to have commenced on the Original Effective Date of this Agreement. Until Corporation adopts a package of health and medical benefits, Corporation shall promptly reimburse Officer for payments made by Officer (i) with respect to the continuation of benefits provided by Officer's previous employer pursuant to Section 4980B ("COBRA") of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) upon expiration of COBRA coverage to maintain substantially similar health and medical benefits coverage for Officer and his family, and (iii) if Officer is not covered by 3 COBRA, to maintain reasonable health and medical benefits coverage for Officer and his family. (b) VACATION. During the Term of this Agreement, Officer shall be entitled to four (4) weeks of vacation during each year during the Term of this Agreement and any extensions thereof, prorated for partial years. Any accrued vacation not taken during any year may be carried forward to subsequent years; PROVIDED that Officer may not accrue more than eight (8) weeks of unused vacation at any time. (c) LIFE INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect term life insurance (a minimum three (3) year term certain policy) on the life of Officer, payable to such beneficiaries as Officer may from time-to-time designate, in the aggregate amount of One Million Dollars ($1,000,000). Such policy shall be owned by Officer or by a member of his immediate family. Corporation shall have no incidents of ownership therein. (d) DISABILITY INSURANCE. During the Term of this Agreement, Corporation shall, at its sole cost and expense, procure and keep in effect disability insurance similar to Officer's current disability insurance policy on Officer, payable to Officer in an annual amount not less than sixty percent (60%) of Officer's then existing Base Salary (the "Disability Policy"). For purposes of this Agreement,"Permanent Disability" shall have the same meaning as is ascribed to such terms in the Disability Policy (including the COBRA Disability Policy) covering Officer at the time of occurrence of such Permanent Disability. (e) REIMBURSEMENT FOR EXPENSES. During the Term of this Agreement, Corporation shall reimburse Officer for all reasonable out-of-pocket business and/or entertainment expenses incurred by Officer for the purpose of and in connection with the performance of his services pursuant to this Agreement. Officer shall be entitled to such reimbursement upon the presentation by Officer to Corporation of vouchers or other statements itemizing such expenses in reasonable detail consistent with Corporation's policies. In addition, Officer shall be entitled to reimbursement for (i) dues and membership fees in professional organizations and/or industry associations in which Officer is currently a member or becomes a member, and (ii) appropriate industry seminars and mandatory continuing education. (f) WITHHOLDING. Compensation and benefits paid to Officer under this Agreement shall be subject to applicable federal, state and local wage deductions and other deductions required by law. 4 4. TERMINATION OF THE AGREEMENT. 4.1 TERMINATION BY CORPORATION DEFINED. (a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, "Termination Without Cause" shall constitute any termination by Corporation other than termination for Cause (as defined in Paragraph 4.1(b) below). (b) TERMINATION FOR CAUSE. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement for Cause immediately after written notice has been delivered to Officer, which notice shall specify the reason for and the effective date of such Termination (which date shall be the applicable Early Termination Date). For purposes of this Agreement, "Cause" shall mean the following: (i) Officer's use of alcohol or narcotics which proximately results in the willful material breach or habitual willful neglect of Officer's duties under this Agreement; (ii) Officer's criminal conviction of fraud, embezzlement, misappropriation of assets, malicious mischief, or any felony; (iii) Officer's willful Material Breach (as defined below) of this Agreement, if such willful Material Breach is not cured by Officer within thirty (30) days after Corporation's written notice thereof specifying the nature of such willful Material Breach. For purposes of this Paragraph 4.1(b), the term willful "Material Breach" shall mean the substantial and continual willful nonperformance of Officer's duties under this Agreement which the Board determines has resulted in material injury to Corporation. (c) TERMINATION BY REASON OF DEATH OR DISABILITY. Subject to the provisions set forth in Paragraph 4.3 below, prior to the Termination Date, Corporation shall have the right to terminate this Agreement by reason of Officer's death or Permanent Disability. 4.2 TERMINATION BY OFFICER DEFINED. (a) TERMINATION OTHER THAN FOR GOOD REASON. Subject to the provisions set forth in Paragraph 4.3 below, Officer shall have the right to terminate this Agreement for any reason other than for Good Reason (as defined in Paragraph 4.2(b) below), at any time prior to the Termination Date, upon written notice delivered to Corporation thirty (30) days prior to 5 the effective date of termination specified in such notice (which date shall be the applicable Early Termination Date). (b) TERMINATION FOR GOOD REASON. Subject to the provisions of Paragraph 4.3 below, Officer shall have the right to terminate this Agreement prior to the Termination Date in the event of the material breach of this Agreement by Corporation, if such breach is not cured by Corporation within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation or following a Change in Control (as defined in Paragraph 4.4(e) below), under the circumstances set forth in Paragraph 4.2(c) below. For purposes of this Agreement, termination of this Agreement by Officer in the event of Corporation's material breach of this Agreement in accordance with the provisions of this Paragraph 4.2(b) shall be defined as termination by Officer for "Good Reason." (c) GOOD REASON FOLLOWING A CHANGE IN CONTROL. Following a Change in Control (as defined in Paragraph 4.4(e) below), "Good Reason" shall mean, without Officer's express written consent, a material breach of this Agreement by Corporation, including the occurrence of any of the following circumstances, which breach is not fully corrected within thirty (30) days after written notice thereof specifying the nature of such breach has been delivered to Corporation: (a) the assignment to Officer of any duties inconsistent with the position in Corporation that Officer held immediately prior to the Change in Control, or an adverse alteration in the nature or status of Officer's responsibilities from those in effect immediately prior to such change; (b) a reduction by Corporation in Officer's annual base salary as in effect on the date hereof or as the same may be increased from time-to-time; (c) the relocation of Officer's offices to a location outside the San Diego metropolitan area (or, if different, the metropolitan area in which such offices are located immediately prior to the Change in Control) or Corporation's requiring Officer to travel on Corporation's business to an extent not substantially consistent with Officer's business travel obligations immediately prior to the Change in Control; (d) the failure by Corporation to pay Officer any portion of his current compensation except pursuant to an across-the-board compensation deferral similarly affecting all officers of Corporation and all officers of any person whose actions resulted in a Change in Control or any person affiliated with Corporation or such person, or to pay Officer 6 any portion of an installment of deferred compensation under any deferred compensation program of Corporation, within seven (7) days of the date such compensation is due; (e) the failure by Corporation to continue in effect any compensation plan in which Officer participates immediately prior to the Change in Control which is material to Officer's total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Corporation to continue Officer's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of participation relative to other participants, as existed at the time of the Change in Control; (f) the failure by Corporation to continue to provide Officer with benefits substantially similar to those under any of Corporation's life insurance, medical, health and accident, or disability plans in which Officer was participating at the time of the Change in Control, the taking of any action by Corporation which would directly or indirectly materially reduce any of such benefits or deprive Officer of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by Corporation to provide Officer with the number of paid vacation days to which he is entitled on the basis of years of service with Corporation in accordance with Corporation's normal vacation policy in effect at the time of the Change in Control; or (g) the failure of Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement. Officer's right to terminate Officer's employment for Good Reason shall not be affected by Officer's incapacity due to physical or mental illness. Officer's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 4.3 EFFECT OF TERMINATION. In the event that this Agreement is terminated by Corporation or Officer prior to the Termination Date in accordance with the provisions of this Paragraph 4, the obligations and covenants of the parties under Paragraph 4 shall be of no further force and effect, except for the obligations of the parties set forth below in this Paragraph 4.3, and such other provisions of this Agreement which shall survive termination of this Agreement as provided in Paragraph 6.11 below. Except as otherwise specifically set forth, all amounts due upon termination shall be payable on the date such amounts would otherwise have been paid had the Agreement continued through its Term; PROVIDED, HOWEVER, that Deferred Amounts (as defined in Paragraph 4.3(a)(i) below) shall be payable within thirty 7 (30) days following the Early Termination Date. In the event of any such early termination in accordance with the provisions of this Paragraph 4.3, Officer shall be entitled to the following: (a) TERMINATION BY CORPORATION. (i) TERMINATION WITHOUT CAUSE. In the event that Corporation terminates this Agreement without Cause pursuant to Paragraph 4.1(a) above, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any compensation earned but deferred ("Deferred Amounts"); and (v) the Severance Payment (as defined in Paragraph 4.4 below). (ii) TERMINATION FOR CAUSE, DEATH OR PERMANENT DISABILITY. In the event that Corporation terminates this Agreement for Cause pursuant to Paragraph 4.1(b) above or by reason of Permanent Disability or death pursuant to Paragraph 4.1(c) above, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (b) TERMINATION BY OFFICER. (i) TERMINATION OTHER THAN FOR GOOD REASON. In the event that Officer terminates this Agreement other than for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iii) earned benefits and reimbursable expenses; and (iv) any Deferred Amounts. Officer shall not be entitled to any future annual bonus or Severance Payment. (ii) TERMINATION FOR GOOD REASON. In the event that Officer terminates this Agreement for Good Reason, Officer shall be entitled to (i) Earned Base Salary; (ii) earned benefits and reimbursable expenses; (iii) any earned bonus which Officer has been awarded pursuant to the terms of this Agreement or any other plan or arrangement as of the Early Termination Date, but which has not been received by Officer as of such date; (iv) any Deferred Amounts; and (v) the Severance Payment (as defined in Paragraph 4.4 below). 8 4.4 SEVERANCE PAYMENT. (a) DEFINITION OF "SEVERANCE PAYMENT." For purposes of this Agreement, the term "Severance Payment" shall mean an amount equal to the sum of (i) the Base Salary otherwise payable to Officer during the remainder of the Term had such early termination of this Agreement not occurred (the "Severance Period") and (ii) for each full year remaining in the Severance Period, the average of the annual bonuses earned by Officer in the two (2) years immediately preceding the date of termination (or if there are less than two (2) years immediately preceding such date, an amount equal to the immediately preceding bonus earned) (the "Average Bonus"); PROVIDED, HOWEVER, that in the event that, following a Change in Control (as defined in Paragraph 4.4(e) below), Officer terminates this Agreement for Good Reason pursuant to Paragraph 4.2(b) above, the term "Severance Payment" shall mean three (3) times the sum of the Base Salary then in effect and the Average Bonus; FURTHER PROVIDED, HOWEVER, that in the event that (i) Officer's employment is terminated in connection with or following the Board's good faith determination that the possible long-run loss of Corporation may reasonably be expected to increase unreasonably if Corporation is not dissolved and (ii) such dissolution is effected in accordance with applicable law, the term "Severance Payment" shall mean the Base Salary then in effect, and the term "Severance Period" shall mean the one-year period immediately following Officer's date of termination of employment. (b) PAYMENT OF SEVERANCE PAYMENT. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, that portion of such Severance Payment that represents Base Salary shall be payable in monthly installments, and that portion of such Severance Payment that represents the Average Bonus shall be payable on the dates such amounts would have been paid had Officer continued in Corporation's employment for the Severance Period; PROVIDED, HOWEVER, that in the event of a Termination upon a Change in Control (as defined in Paragraph 4.4(e) below), the Severance Payment shall be payable in a lump sum within ten (10) days following such termination. (c) OTHER SEVERANCE BENEFITS. In the event that Officer is entitled to any Severance Payment pursuant to Paragraph 4.3 above, he shall also be entitled to full and immediate vesting of any awards granted to Officer under Corporation's stock option or incentive compensation plans, and continued participation throughout the Severance Period in all employee welfare and pension benefit plans, programs or arrangements. In the event Officer's participation in any such plan, program or arrangement is barred, Corporation shall arrange to provide Officer with substantially similar benefits. 9 (d) FULL SETTLEMENT OF ALL OBLIGATIONS. Officer hereby acknowledges and agrees that any Severance Payment paid to Officer hereunder shall be deemed to be in full and complete settlement of all obligations of Corporation under this Agreement. (e) CHANGE IN CONTROL. For purposes of this Agreement, "Termination Upon a Change in Control" shall mean a termination of Officer's employment with Corporation following a "Change in Control" by Officer for Good Reason or by Corporation Other Than for Cause. A "Change in Control" shall be deemed to have occurred if: (i) Any Person, as such term is used in section 3(a)(9) of the Securities Exchange Act of 1934 as amended from time to time (the "Exchange Act"), as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Corporation or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act, that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation) whose appointment or election by the Board or nomination for election by the Corporation's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Corporation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being con- 10 verted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any subsidiary of the Corporation, at least seventy-five percent (75%) of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its affiliates other than in connection with the acquisition by the Corporation or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities; or (iv) The stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. 4.5 GROSS-UP. If any of the Total Payments (as hereinafter defined) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), Corporation shall pay to Officer, no later than the tenth (10th) day following the Early Termination Date, an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after deduction of any Excise Tax on the Total Payments and any federal and state and local income tax upon the payment provided for by this Paragraph, shall be equal to the excess of the Total Payments over the payment provided for by this Paragraph. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all payments or benefits received or to be received by Officer in connection with a Change in Control or the termination of Officer's employment (whether payable pursuant to the terms of this Agreement or of any other plan, arrangement or agreement with Corporation, its successors, any person whose actions result in a Change in Control or any person affiliated (or which, as a result of the completion of the transactions causing a Change in Control, will become affiliated) with Corporation or such person within the meaning of Section 1504 of the Code (the "Total Payments")) shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by Corporation's independent auditors and reasonably acceptable to Officer, such payments or benefits (in whole or in part) do not constitute parachute payments, including by 11 reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(l) of the Code) shall be treated as subject to the Excise Tax, unless in the opinion of such tax counsel such excess parachute payments represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code, or are not otherwise subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Officer shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the residence of Officer on the Early Termination Date, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. 4.6 OFFSET. Although Officer shall not be required to mitigate damages under this Agreement by seeking other comparable employment or otherwise, the amount of any payment or benefit provided for in this Agreement, including without limitation welfare benefits, shall be reduced by any compensation earned by or provided to Officer as the result of employment by an employer other than Corporation prior to the expiration of the Term of this Agreement; PROVIDED, HOWEVER, that this Paragraph 4.6 shall not apply in the event of a Termination Upon a Change in Control. 5. NONCOMPETITION. During the Term of this Agreement, including the period, if any, with respect to which Officer shall be entitled to Severance Payments, Officer shall not engage in any activity competitive with the business of Corporation. 6. MISCELLANEOUS. 6.1 PAYMENT OBLIGATIONS. Corporation's obligation to pay Officer the compensation and to make the arrangements provided herein shall be unconditional, and Officer shall have no obligation whatsoever to mitigate damages hereunder. If arbitration after a Change in Control shall be brought to enforce or interpret any provision contained herein, Corporation shall, to the extent permitted by applicable law and Corporation's Articles of Incorporation and By-Laws, indemnify Officer for Officer's attorneys' fees and disbursements incurred in such arbitration. 12 6.2 CONFIDENTIALITY. Officer agrees that all confidential and proprietary information relating to the business of Corporation shall be kept and treated as confidential both during and after the term of this Agreement, except as may be permitted in writing by the Board or as such information is within the public domain or comes within the public domain without any breach of this Agreement. 6.3 WAIVER. The waiver of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of the same or other provision hereof. 6.4 ENTIRE AGREEMENT; MODIFICATIONS. Except as otherwise provided herein, this Agreement (together with the agreements and plans referred to herein) represents the entire understanding among the parties with respect to the subject matter hereof, and this Agreement supersedes any and all prior understandings, agreements, plans and negotiations, whether written or oral, with respect to the subject matter hereof, including without limitation any understandings, agreements or obligations respecting any past or future compensation, bonuses, reimbursements or other payments to Officer from Corporation. All modifications to the Agreement must be in writing and signed by the party against whom enforcement of such modification is sought. 6.5 NOTICES. All notices and other communications under this Agreement shall be in writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall be deemed to have been duly given three (3) days after mailing or twenty-four (24) hours after transmission of a facsimile to the respective persons named below: If to Corporation: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Pasadena, California 91101 Phone: (818) 578-6812 Facsimile: (818) 578-6966 If to Officer: Steven A. Stone 3536 Santa Flora Court Escondido, California 92029 Phone: (619) 432-0270
Any party may change such party's address for notices by notice duly given pursuant hereto. 13 6.6 HEADINGS. The Paragraph headings herein are intended for reference only and shall not by themselves determine the construction or interpretation of this Agreement. 6.7 GOVERNING LAW. Other than with respect to Paragraph 6.13 below, this Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to its principles of conflict of laws. 6.8 ARBITRATION. Any dispute arising out of or relating to this Agreement that cannot be settled by good faith negotiation between the parties shall be submitted to ENDISPUTE for final and binding arbitration pursuant to ENDISPUTE's Arbitration Rules incorporated herein by reference, which arbitration shall be the exclusive remedy of the parties hereto. The resulting arbitration shall be deemed a final order of a court having jurisdiction over the subject matter, shall not be appealable, and shall be enforceable in any court of competent jurisdiction. Submission to arbitration, as provided in Exhibit A, shall not preclude the right of any party hereto involved in a dispute regarding this Agreement (each a "Disputing Party" and collectively, the "Disputing Parties") to institute proceedings at law or in equity for injunctive or other relief pending the arbitration of a matter subject to arbitration pursuant to this Agreement. Any documentation and information submitted by any party in the arbitration proceeding shall be kept strictly confidential by the parties and the arbitrator. In addition to any other relief or award granted by the arbitrator to either Disputing Party, the arbitrator shall determine the extent to which each Disputing Party has prevailed as to the material issues raised in the arbitration, and, based upon such determination, shall apportion to each Disputing Party its ratable share of (i) the Disputing Parties' reasonable attorneys' fees and other costs reasonably incurred in the arbitration, (ii) the expense of the arbitrator, and (iii) all other expenses of the arbitration; PROVIDED, HOWEVER, that any dispute following a Change in Control shall be governed by the provisions of Paragraph 6.1 above. The arbitrator shall make such determination and apportionment whether or not the dispute proceeds to a final award. 6.9 SEVERABILITY. Should a court or other body of competent jurisdiction determine that any provision of this Agreement is excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, and all other provisions of this Agreement shall be deemed valid and enforceable to the lawfully permitted. 6.10 SURVIVAL OF CORPORATION'S OBLIGATIONS. Corporation's obligations hereunder shall not be terminated by reason of any liquidation, dissolution, bankruptcy, cessation of business, or similar event relating to Corporation. This Agreement shall not be terminated by any merger or consolidation or other reorganization of Corporation. In the 14 event any such merger, consolidation or reorganization shall be accomplished by transfer of stock or by transfer of assets or otherwise, the provisions of this Agreement shall be binding upon and inure to the benefit of the surviving or resulting corporation or person. This Agreement shall be binding upon and inure to the benefit of the executors, administrators, heirs, successors and assigns of the parties; PROVIDED, HOWEVER, that except as herein expressly provided, this Agreement shall not be assignable either by Corporation (except to an affiliate of the Corporation, in which event Corporation shall remain liable if the affiliate fails to meet any obligations to make payments or provide benefits or otherwise) or by Officer. 6.11 SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS. The rights and obligations of the parties hereto pursuant to Paragraphs 4.3, 4.4, 4.5, 4.6, 5 and 6.1, 6.2, 6.10, 6.11 and 6.13 hereof shall survive the termination of this Agreement. 6.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same Agreement. 6.13 INDEMNIFICATION. In addition to any rights to indemnification to which Officer is entitled under the Corporation's Articles of Incorporation and Bylaws, Corporation shall indemnify Officer at all times during and after the Term of this Agreement to the maximum extent permitted under Section 2-418 of the General Corporation Law of the State of Maryland or any successor provision thereof and any other applicable state law, and shall pay Officer's expenses in defending any civil or criminal action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding, to the maximum extent permitted under such applicable state laws. 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. CORPORATION: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Joel S. Marcus ----------------------------------- Joel S. Marcus Chief Executive Officer Date: 6-2-97 --------------------------------- OFFICER: /s/ Steven A. Stone -------------------------------------- Steven A. Stone Date: 7-22-97 --------------------------------- 16 EX-10.5 6 EXHIBIT 10.5 SECOND AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT AND GENERAL AND SPECIAL RELEASE This Second Amendment to the Executive Employment Agreement and General and Special Release (this "Second Amendment and Release") is entered into as of this 30th day of May, 1997, by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation (formerly known as Health Science Properties, Inc.) (the "Corporation"), and JERRY M. SUDARSKY, an individual (the "Officer") (collectively, the "Parties"). WHEREAS, Officer originally entered into that certain Executive Employment Agreement (the "Employment Agreement"), dated as of June 9, 1994, with Health Science Properties Holding Corporation (the "Parent"), and on November 3, 1994, Parent transferred to the Corporation substantially all of its property, assets and certain liabilities, including Parent's rights and obligations under the Employment Agreement; WHEREAS, on July 30, 1996, the Parties amended the Employment Agreement by execution of that certain First Amendment to the Employment Agreement Between Health Science Properties, Inc. And Jerry M. Sudarsky, pursuant to which the Corporation agreed to employ Officer as its Chairman of the Board of Directors (the "Chairman") and Chief Executive Officer until December 31, 2000; WHEREAS, on March 14, 1997, Officer resigned from the position of Chief Executive Officer of the Corporation and currently serves as full-time executive Chairman of the Corporation; and WHEREAS, upon consummation of an initial public offering by the Corporation of its common stock (the "IPO"), Officer desires to retire from employment with the Corporation and thereafter to serve as non-executive Chairman of the Corporation and perform the duties consistent with such position for the duration of his term as Chairman, which expires at the next annual election of officers. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 1. AMENDMENTS TO EMPLOYMENT AGREEMENT. a. OFFICER'S RETIREMENT; TERMINATION OF EMPLOYMENT AGREEMENT. Effective upon consummation of the IPO, Officer shall voluntarily retire from employment with the Corporation. Except as expressly provided herein, all of the Corporation's duties and obligations under the Employment Agreement shall terminate effective as of the date of Officer's retirement. Officer acknowledges and agrees that his voluntary retirement pursuant to this Second Amendment and Release is not, and shall not be treated as, a Termination for Good Reason pursuant to Section 4.2 of the Employment Agreement. b. RETIREMENT BENEFITS. Section 3.5(e) of the Employment Agreement is hereby amended in its entirety to read as follows: "(e) RETIREMENT BENEFIT. Commencing on the date of consummation of the IPO, the Company shall pay Officer an annual retirement benefit equal to One Hundred Fifty Thousand Dollars ($150,000) per year for a period of three (3) years, and, thereafter, shall pay Officer an annual retirement benefit equal to Ninety Thousand Dollars ($90,000) per year as provided herein; PROVIDED, HOWEVER, that commencing June 1 of the year following the year in which the retirement benefit is reduced to Ninety Thousand Dollars ($90,000) per year, the amount of the retirement benefit shall be increased by 2% per year on June 1 of each year thereafter. The benefit shall be payable monthly, beginning on the first day of the month following the month in which consummation of the IPO occurs and shall be payable in the form of a 100% joint and survivor annuity on the lives of Officer and Officer's spouse as of the date hereof, if then living; PROVIDED, HOWEVER that in the event of a Change in Control (as defined in Section 4.4(d) of this Employment Agreement), the Corporation shall secure the payment of such benefit through the purchase of an annuity contract that provides Officer with the benefit described in this Paragraph 3.5(e). In the event of Officer's death prior to the commencement of the retirement benefit under this Paragraph 3.5(e), Officer's spouse as of the date hereof, if then living, shall be entitled to receive, commencing on the first day of the month next following Officer's death, the retirement benefit, the Officer's spouse as of the date hereof, would have received had Officer retired and commenced receiving benefits immediately prior to his death. Amounts payable under this Paragraph 3.5(e) shall be offset by any amounts paid to Officer under any Disability Policy maintained by the Corporation." 2 c. SURVIVAL OF PROVISIONS. Notwithstanding the termination of the Employment Agreement pursuant to Section 1(a), above, the rights and obligations of the Parties with respect to Sections 3.5(e) (as amended in Section 1(b), above), 5, 6.1, 6.2, 6.3, 6.8, 6.10, 6.11, and 6.13 of the Employment Agreement shall survive the termination of that agreement. 2. STATUS AS CHAIRMAN OF THE BOARD OF DIRECTORS. The execution of this Second Amendment and Release shall not preclude Officer from serving as, and the Corporation hereby acknowledges that it intends to continue to retain Officer as, non-executive Chairman performing the duties consistent with such position at least for the remainder of his term as Chairman, which expires at the next annual election of officers. 3. RELEASE OF CLAIMS AND OTHER MATTERS. a. OFFICER'S GENERAL AND SPECIAL RELEASE. In consideration of the benefits provided to Officer pursuant to this Second Amendment and Release, Officer hereby forever releases and discharges the Corporation, its parent, subsidiary and affiliated corporations, and each of their respective present and former officers, directors, managers, agents, employees, and attorneys, and their successors and assigns (collectively, the "Released Parties") from any and all claims, charges, complaints, liens, demands, causes of action, obligations, damages and liabilities, KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, that Officer had, now has, or may hereafter claim to have against the Released Parties, arising out of or relating in any way to Officer's employment with or his separation from the Corporation, any and all alleged acts or omissions of any of the Released Parties, and any other claim relating to any of the Released Parties from the beginning of time through the effective date of Officer's resignation from the Corporation pursuant to Section 1(a), above. This release specifically extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the California Constitution, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Em- 3 ployee Retirement Income Security Act of 1974, as amended, the Age Discrimination in Employment Act of 1967, as amended, and the California Fair Employment and Housing Act. Notwithstanding the generality of the foregoing, nothing contained herein shall release any of the Released Parties from their obligations under this Second Amendment and Release. b. OFFICER'S WAIVER OF RIGHTS AFFORDED BY CALIFORNIA CIVIL CODE SECTION 1542. Officer expressly waives all rights afforded by Section 1542 of the Civil Code of the State of California ("Section 1542") with respect to the Released Parties. Section 1542 states as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release, Officer understands and agrees that this Second Amendment and Release is intended to include all claims, if any, that Officer may have which he does not now know or suspect to exist in his favor against the Released Parties and this Second Amendment and Release extinguishes those claims. 4. REVIEW AND REVOCATION PERIOD. Officer acknowledges that the Corporation has advised Officer that he may consult with an attorney of his choosing prior to signing this Second Amendment and Release and that Officer has twenty-one (21) days during which to consider the provisions of this Second Amendment and Release, although Officer may sign and return it sooner. Officer further acknowledges that he has been advised by the Corporation that he has the right to revoke this Second Amendment and Release for a period of seven (7) days after signing it and that this Second Amendment and Release shall not become effective or enforceable until such seven (7)-day revocation period has expired. Officer acknowledges and agrees that if he wishes to revoke this Agreement, he must do so in writing, and that such revocation must be signed by Officer and received by the Corporation no later than 5:00 p.m. Pacific Standard Time on the seventh (7th) day after Officer has signed this Second Amendment and Release. 4 5. VOLUNTARY AGREEMENT. Each Party to this Second Amendment and Release acknowledges and represents that he or it (a) has fully and carefully read this Second Amendment and Release prior to signing it,(b) has been, or has had the opportunity to be, advised by independent legal counsel of his or its own choice as to the legal effect and meaning of each of the terms and conditions of this Second Amendment and Release, and (c) is signing and entering into this Second Amendment and Release freely and voluntarily and without duress or undue pressure or influence of any kind or nature whatsoever and has not relied on any promises, representations or warranties regarding the subject matter hereof other than that which is set forth in this Second Amendment and Release. 6. BINDING EFFECT. This Second Amendment and Release shall be binding upon the Parties and their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of the Parties and their respective heirs, administrators, representatives, executors, successors and assigns. 7. GOVERNING LAW. This Second Amendment and Release shall be construed and enforced pursuant to the laws of the State of California applicable to contracts made and entirely to be performed therein. 8. COUNTERPARTS. This Second Amendment and Release may be executed in counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement. 9. ENTIRE AGREEMENT; MODIFICATION. This Second Amendment and Release, together with the Employment Agreement, constitute the entire understanding of the Parties and neither the Second Amendment and Release, nor the Employment Agreement, may be modified except in a writing signed by the Parties. Other than as set forth herein, this Second Amendment and Release supersedes all prior written and/or oral and all contemporaneous oral agreements, understandings and negotiations regarding the subject matter hereof. 5 IN WITNESS WHEREOF, the Parties hereto have executed this Second Amendment and Release on the day and year first above written. CORPORATION: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Joel S. Marcus --------------------------------------- Joel S. Marcus Chief Executive Officer OFFICER: /s/ Jerry M. Sudarsky --------------------------------------- Jerry M. Sudarsky EX-10.9 7 EXHIBIT 10.9 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of this 2nd day of June, 1997, by and among Alexandria Real Estate Equities, Inc., a Maryland corporation (the "Company"), and Health Science Properties Holding Corporation (together with its permitted assigns, the "Investor"). NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 DEFINITIONS. The following terms shall have the meanings ascribed to them below: "AFFILIATE," as applied to any Person, shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. "COMMISSION" shall mean the United States Securities and Exchange Commission. "COMMON STOCK" shall mean the common stock of the Company, par value $.01 per share, or any other class of Common Stock of the Company. "CONTROL," when used with respect to any Person, shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "CONTROLLING PERSON" shall mean each Person, if any, who controls such Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person. "DAMAGES" shall mean any loss, claim, damage, liability, reasonable attorneys' fee, cost or expense and costs and expenses of investigating and defending any such claim. "DEMAND REGISTRATION" shall mean a registration of Registrable Securities under the Securities Act pursuant to a request made under Section 2.1 hereof. "DEMANDING HOLDER" shall mean any Holder who has initiated a registration request in compliance with Section 2.1(a); PROVIDED, HOWEVER, that (i) "Demanding Holders" shall include each Holder who has requested to have included in a Demand Registration Registrable Securities pursuant to the notice provision of Section 2.1(a), and (ii) any action required or permitted to be taken under this Agreement by any Demanding Holders shall be taken by action of the holders of a majority of the Registrable Securities held by such Demanding Holders. "EFFECTIVE DATE" shall mean the date on which the Initial Public Offering is consummated. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. "HOLDER" shall mean the Investor in its capacity as holder of Registrable Securities and any Person who shall hereafter acquire from the Investor or another Holder. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 4.3 hereof. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 4.3 hereof. "INITIAL PUBLIC OFFERING" shall mean the initial Public Offering of Common Stock by the Company pursuant to a registration statement on Form S-11. "INSPECTORS" shall have the meaning set forth in Section 3.1(i) hereof. 2 "INVESTOR" shall have the meaning set forth in the preamble hereto. "NOTICES" shall have the meaning set forth in Section 5.7 hereof. "NASD" shall mean the National Association of Securities Dealers, Inc. "PERSON" shall mean an individual or a corporation, partnership, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PIGGY-BACK HOLDERS" shall have the meaning set forth in Section 2.2 hereof. "PIGGY-BACK REGISTRATION" shall have the meaning set forth in Section 2.2 hereof. "RECORDS" shall have the meaning set forth in Section 3.1(i) hereof. "REGISTRABLE SECURITY" shall mean each Share until it (i) has been effectively registered under the Securities Act and disposed of pursuant to an effective registration statement, (ii) is sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, including a sale pursuant to the provisions of Rule 144(k) or (iii) has been otherwise transferred and may be resold by the person receiving such certificate without registration under the Securities Act. "REQUISITE SHARE NUMBER" on any date shall mean a number of Registrable Securities representing not less than 10% of the issued and outstanding Registrable Securities held in the aggregate on such date by the Holders. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. "SELLING HOLDER" shall mean a Holder who sells or proposes to sell Registrable Securities pursuant to a registration statement under the Securities Act. "SHARES" shall mean the shares of Common Stock initially held by the Investor upon consummation of the Initial Public Offering, or any securities 3 received as a dividend thereon or with respect thereto (including, without limitation, by way of merger, consolidation, recapitalization or otherwise). "UNDERWRITER" shall mean a securities dealer who purchases any Registrable Securities as principal in a Public Offering and not as part of such dealer's market-making activities. ARTICLE II REGISTRATION RIGHTS Section 2.1 DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION BY THE HOLDERS. At any time and from time to time during the period commencing on the first anniversary of the Effective Date and ending on the second anniversary of the Effective Date, Holders owning, individually or in the aggregate, at least the Requisite Share Number may make a total of two written requests for a Demand Registration of not less than 10% of the Registrable Securities held by all Holders. Such request will specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof. The Company shall give written notice of any registration request by the Holders, which request complies with this Section 2.1(a), within 10 days after the receipt thereof, to each Holder who did not initially join in such request. Within 20 days after receipt of such notice, any such Holder may request in writing that Registrable Securities owned by it be included in such registration. Each such request shall specify the number of shares of Registrable Securities proposed to be sold and the intended method of disposition thereof. Subject to Section 2.3, the Company shall use its best efforts to effect the registration under the Securities Act of the Registrable Securities of each Holder that the Company has been so requested to register; PROVIDED, HOWEVER, that: (i) the Company shall not be obligated to file or cause to become effective any registration statement during any period in which any other registration statement (other than a registration statement on Form S-4 or S-8 or any substitute form that may be adopted by the Commission) pursuant to which shares of Common Stock are to be or were sold has been filed and not withdrawn or has been declared effective within the prior 180 days; and (ii) the Company may delay the filing of a registration statement for a period of not more than 90 days after the date of 4 receipt of a request in accordance with Section 2.1 if the Company reasonably determines that such a filing would adversely affect any proposed financing or acquisition by the Company and furnishes to the Demanding Holder a certificate signed by an executive officer of the Company to such effect. If the Company delays the filing of a Registration Statement, it shall promptly notify the Demanding Holders in writing when the events or circumstances permitting such postponement have ended. (b) EFFECTIVE REGISTRATION. A registration will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; PROVIDED, that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the acts or omissions of the Holders), such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 2.1 is requested to be a "shelf" registration and it does not remain effective until the earlier to occur of 180 days after the effective date thereof or the consummation of the distribution by the Selling Holders of the Registrable Securities included in such registration statement, then such registration statement shall not count as a Demand Registration that may be requested by the Demanding Holder(s) in question and the Company shall continue to be obligated to effect a registration pursuant to this Section 2.1. The Demanding Holders may withdraw all or any part of the Registrable Securities from a Demand Registration at any time (whether before or after the filing or effective date of such Demand Registration), and if all such Registrable Securities are withdrawn, to withdraw the demand related thereto. If at any time a registration statement is filed pursuant to a Demand Registration, and subsequently a sufficient number of Registrable Securities are withdrawn from a Demand Registration so that such registration statement does not cover at least the required amounts specified by Section 2.1(a), and an additional number of Registrable Securities is not so included, the Company may (or shall, if requested by the Demanding Holders) withdraw the registration statement; and such registra- 5 tion statement will not count as a Demand Registration and the Company shall continue to be obligated to effect a registration pursuant to this Section 2.1. (c) SELECTION OF UNDERWRITER. If the Demanding Holders so elect, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an underwritten public offering. The Demanding Holders shall select one or more nationally recognized firms of investment bankers to act as the bookrunning managing Underwriter or Underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; PROVIDED that such investment bankers and managers must be reasonably satisfactory to the Company. Section 2.2 PIGGY-BACK REGISTRATION. If at any time the Company proposes to file a registration statement under the Securities Act with respect to an offering of equity securities by the Company for its own account or for the account of any securityholders of any class of its equity securities (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission) or (ii) a registration statement filed in connection with an exchange offer or offering of securities solely to the Company's existing securityholders), including a registration statement relating to a Demand Registration, then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of shares of Registrable Securities as each such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"). The Company shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten public offering to permit the Registrable Securities requested by the Holders thereof to be included in a Piggy-Back Registration (the "Piggy-Back Holders") on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw. Subject to the provisions of Section 2.1, the Company may withdraw a Piggy-Back Registration at any time 6 prior to the time it becomes effective; PROVIDED that the Company shall reimburse the Piggy-Back Holders for all reasonable out-of-pocket expenses (including counsel fees and expenses) incurred prior to such withdrawal. No registration effected under this Section 2.2, and no failure to effect a registration under this Section 2.2, shall relieve the Company of its obligations pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2 and to complete the sale of Shares in connection therewith shall relieve the Company of any other obligation under this Agreement (including, without limitation, the Company's obligations under Sections 3.2 and 4.1). Section 2.3 REDUCTION OF OFFERING. (a) DEMAND REGISTRATION. The Company may include in a Demand Registration shares of Common Stock for the account of the Company and Registrable Securities for the account of the Piggy-Back Holders and shares of Common Stock for the account of other holders thereof exercising contractual piggy-back rights, on the same terms and conditions as the Registrable Securities to be included therein for the account of the Demanding Holders; PROVIDED, HOWEVER, that (i) if the managing Underwriter or Underwriters of any underwritten public offering described in Section 2.1 have informed the Company in writing that it is their opinion that the total number of shares which the Demanding Holders, the Company, any Piggy-Back Holders and any such other holders intend to include in such offering is such as to materially and adversely affect the success of such offering, then (x) the number of shares to be offered for the account of the Company (if any) shall be reduced (to zero, if necessary) and (y) thereafter, if necessary, the number of shares to be offered for the account of such Piggy-Back Holders and such other holders shall be reduced (to zero, if necessary), in the case of this clause (y) PRO RATA in proportion to the respective number of shares requested to be registered to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing Underwriters; and if the number of shares to be offered for the account of each such Person has been reduced to zero, and the number of Shares requested to be registered by the Demanding Holders exceeds the number of shares recommended by such managing Underwriters, then the number of Shares to be offered for the account of the Demanding Holders shall be reduced PRO RATA in proportion to the respective number of Shares requested to be registered by the Demanding Holders and (ii) if the offering is not underwritten, no other party (other than Piggy-Back Holders), including the Company, shall be permitted to offer securities under any such 7 Demand Registration unless a majority of the Shares held by the Demanding Holder or Holders consent to the inclusion of such shares therein. (b) PIGGY-BACK REGISTRATION. Notwithstanding anything contained herein, if the managing Underwriter or Underwriters of any public offering described in Section 2.2 have informed, in writing, the Piggy-Back Holders that it is their opinion that the total number of shares that the Company and Holders of Registrable Securities and any other Persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of shares to be offered for the account of the Piggy-Back Holders and all such other Persons (other than the Company) participating in such registration shall be reduced (to zero, if necessary) or limited PRO RATA in proportion to the respective number of shares requested to be registered to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing Underwriters; PROVIDED, HOWEVER, that (i) if such offering is effected for the account of Demanding Holders pursuant to Section 2.1, then the number of shares to be offered for the account of each Person shall be reduced in accordance with Section 2.3(a), and (ii) if such offering is effected for the account of any other securityholder of the Company pursuant to the demand registration rights of such securityholder, then the number of shares to be offered for the account of each Person shall be reduced in accordance with the instrument granting such demand registration rights, if any, and, in the absence of such instrument (x) the number of shares to be offered for the account of the Company, if any, shall be reduced (to zero, if necessary) and (y) thereafter, if necessary, the number of shares to be offered for the account of the Piggy-Back Holders and any other Persons that have requested to include shares in such registration (but not such securityholders who have exercised their demand registration rights) shall be reduced (to zero, if necessary), in the case of this clause (y) PRO RATA in proportion to the respective number of shares requested to be registered, to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing Underwriters. ARTICLE III REGISTRATION PROCEDURES 8 Section 3.1 FILINGS: INFORMATION. Whenever the Company is required to effect or cause the registration of Registrable Securities pursuant to Section 2.1, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the Commission a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective as provided herein. (b) The Company will as expeditiously as possible prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement continuously effective (subject to the penultimate paragraph of this Section 3.1) during the period with respect to the disposition of all securities covered by such registration statement as provided herein (but not before the expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by each Selling Holder thereof set forth in such registration statement. (c) The Company will, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Selling Holder, counsel representing such Selling Holders, and each Underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, together with exhibits thereto if so requested, which documents will be subject to review and comment by the foregoing within five days after delivery, and thereafter furnish to such Selling Holder, counsel and Underwriter, if any, for their review and comment such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto if so requested), the prospectus included in such registration statement (including each preliminary prospectus) and such other 9 documents or information as such Selling Holder, counsel or Underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder. (d) After the filing of the registration statement, the Company will promptly notify each Selling Holder of Registrable Securities covered by such registration statement (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event that makes any statement made in such registration statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in a registration statement, prospectus or documents incorporated therein by reference so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a registration statement would be necessary. (e) The Company will use its best efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Selling Holder reasonably (in light of such Selling Holder's intended plan of distribution) requests, and (ii) cause such Registrable Securities to be registered with or approved by such other govern-mental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Selling Holder 11 to consummate the disposition of the Registrable Securities owned by such Selling Holder; PROVIDED that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (f) The Company will take all reasonable actions required to prevent the entry, or obtain the withdrawal, of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any Registrable Securities for sale in any jurisdiction, at the earliest moment. (g) Upon the occurrence of any event contemplated by paragraph 3.1(d)(v) or 3.1(d)(vi) above, the Company will (i) prepare a supplement or post-effective amendment to such registration statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus 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 light of the circumstances under which they were made, not misleading, and (ii) promptly make available to each Selling Holder any such supplement or amendment. (h) The Company will enter into customary agreements (including, if applicable, an underwriting agreement in customary form and reasonably satisfactory to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities (the Selling Holders may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such Underwriters also be made to and for the benefit of such Selling Holders). (i) The Company will make available to each Selling Holder (and their counsel) and each Underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available for inspection by any Selling Holder, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Selling Holder or Underwriter (collectively, the "Inspectors"), all financial and other 11 records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company determines, in good faith, are confidential, and of which determination the Company so notifies the Inspectors, shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the disclosure or release of such Records is requested or required pursuant to oral questions, interrogatories, requests for information or documents or a subpoena or other order from a court of competent jurisdiction or other process; PROVIDED that prior to any disclosure or release pursuant to clause (ii), the Inspectors shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waive such Inspectors' obligation not to disclose such Records; and, PROVIDED FURTHER, that if, failing the entry of a protective order or the waiver by the Company permitting the disclosure or release of such Records, the Inspectors, upon advice of counsel, are compelled to disclose such Records, the Inspectors may disclose only that portion of the Records that counsel has advised them that they are compelled to disclose. Each Selling Holder agrees that information obtained by it solely as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such information is made generally available to the public. (j) The Company will furnish to each Selling Holder and to each Underwriter, if any, a signed counterpart, addressed to such Selling Holder or Underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the Selling Holders or the managing Underwriter therefor reasonably requests. (k) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 12 (l) The Company will use its best efforts (i) to cause any class of Registrable Securities to be listed on a national securities exchange (if such shares are not already so listed) and on each additional national securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities. (m) In connection with an underwritten public offering, the Company will participate, to the extent reasonably requested by the managing Underwriter for the offering or the Selling Holders, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows"; PROVIDED that the Company shall not be obligated so to participate in more than one such offering in any 12-month period. The Company may require each Selling Holder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities by such Selling Holder as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the NASD. The Company may exclude from such registration any Holder who fails to provide such information. Each Selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 3.1(d)(iii), (iv), (v) and (vi) hereof, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.1(g) hereof, and, if so directed by the Company, such Selling Holder will deliver to the Company all copies, other than permanent file copies, then in such Selling Holder's possession of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective as provided herein by the number of days during the period from and including the date of the giving of notice pursuant to Section 3.1(d)(iii), (iv), (v) or (vi) hereof to the date when the Company shall make available to the 13 Selling Holders a prospectus supplemented or amended to conform with the requirements of Section 3.1(g) hereof. In connection with any registration of Registrable Securities pursuant to Section 2.2, the Company will take the actions contemplated by paragraphs (c), (d), (e), (g), (i), (j), (k) and (l) above. Section 3.2 REGISTRATION EXPENSES. In connection with a Demand Registration pursuant to Section 2.1 hereof, and any registration statement filed pursuant to Section 2.2 hereof, the Company shall pay the following registration expenses incurred in connection with the registration hereunder (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) printing expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties) and all fees and expenses incident to the performance of or compliance with this Agreement by the Company, (v) the fees and expenses incurred in connection with the listing of the Registrable Securities, (vi) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested pursuant to Section 3.1(j) hereof), (vii) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, and (viii) reasonable fees and expenses of one firm of counsel for the Holders (together with necessary local counsel fees and expenses), which counsel shall be chosen by the Demanding Holders or, if none, by the Holders of a majority of the Registrable Securities being included in such Registration Statement. The Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities. ARTICLE IV INDEMNIFICATION AND CONTRIBUTION Section 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Selling Holder, its partners, officers, direc- 14 tors, employees, agents, and Controlling Persons from and against any and all Damages, joint or several, and any action in respect thereof to which such Selling Holder, its partners, officers, directors, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities or any preliminary prospectus, or arises out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon information furnished to the Company by a Selling Holder or Underwriter expressly for use therein, and shall reimburse each Selling Holder, its partners, officers, directors, employees and agents, and each such Controlling Person for any legal and other expenses reasonably incurred by that Selling Holder, its partners, officers, directors, employees and agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings; PROVIDED, that the Company shall not be liable to any Selling Holder to the extent that (a) any such Damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) such Selling Holder failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by such Selling Holder to the Person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or such omission; or (b) any such Damages arise out of or are based upon an untrue statement or omission in any prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such prospectus, and (y) having previously been furnished by or on behalf of the Company with copies of such prospectus as so amended or supplemented, such Selling Holder thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Security to the Person asserting the claim from which such Damages arise. Section 4.2 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each Selling Holder agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors, employees and agents and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person, to the same extent as the foregoing indemnity from the Company to such Selling Holder, but 15 only with reference to information related to such Selling Holder or its plan of distribution, as furnished by such Selling Holder or on such Selling Holder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus. In case any action or proceeding shall be brought against the Company or its officers, directors, employees or agents or any such controlling Person or its partners, officers, directors, employees or agents, in respect of which indemnity may be sought against such Selling Holder, such Selling Holder shall have the rights and duties given to the Company, and the Company or its officers, directors, employees or agents, controlling Person, or its partners, officers, directors, employees or agents, shall have the rights and duties given to such Selling Holder, under Section 4.1. Each Selling Holder also agrees to indemnify and hold harmless each other Selling Holder and any Underwriters of the Registrable Securities, and their respective officers and directors and each Person who controls each such other Selling Holder or Underwriter on substantially the same basis as that of the indemnification of the Company provided in this Section 4.2. The Company shall be entitled to receive indemnities from Underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above, with respect to information so furnished by such Persons specifically for inclusion in any prospectus or registration statement. In no event shall the liability of any Selling Holder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Selling Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Section 4.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by any Person in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action, PROVIDED that the failure to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability except to the extent of any material prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to 16 the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; PROVIDED that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Indemnifying Party and such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties, or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. Section 4.4 CONTRIBUTION. If the indemnification provided for in this Article IV is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Selling Holders on the one hand and the Underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Holders on the one hand and the Underwriters on the other from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative 17 benefits but also the relative fault of the Company and the Selling Holders on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations, and (ii) as between the Company on the one hand and each Selling Holder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each Selling Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Holders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Selling Holders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and the Selling Holders on the one hand and of the Underwriters on the other 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 and the Selling Holders or by the Underwriters. The relative fault of the Company on the one hand and of each Selling Holder on the other 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 such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 4.4 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 in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable 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 18 such untrue or alleged untrue statement or omission or alleged omission, and no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public (less underwriting discounts and commissions) exceeds the amount of any damages which such Selling Holder 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 Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each Selling Holder's obligation to contribute pursuant to this Section 4.4 is several and not joint. The indemnity, contribution and expense reimbursement obligations contained in this Article IV are in addition to any liability any Indemnifying Party may otherwise have to an Indemnified Party or otherwise. The provisions of this Article IV shall survive, notwithstanding any transfer of the Registrable Securities by any Holder or any termination of this Agreement. ARTICLE V MISCELLANEOUS Section 5.1 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights; PROVIDED, that (i) no Selling Holder shall be required to make any representations or warranties except those which relate solely to such Holder and its intended method of distribution, and (ii) the liability of each such Holder to any Underwriter under such underwriting agreement will be limited to liability arising from misstatements or omissions regarding such Holder and its intended method of distribution and any such liability shall not exceed an amount equal to the amount of net proceeds such Holder derives from such registration; PROVIDED, HOWEVER, that in an offering by the Company in which any Holder requests to be included in a Piggy-Back Registration, the Company shall use its best efforts to arrange the terms of the 19 offering such that the provisions set forth in clauses (i) and (ii) of this Section 5.1 are true; PROVIDED FURTHER, that if the Company fails in its best efforts to so arrange the terms, the Holder may withdraw all or any part of its Registrable Securities from the Piggy-Back Registration and the Company shall reimburse such Holder for all reasonable out-of-pocket expenses (including counsel fees and expenses) incurred prior to such withdrawal. Section 5.2 RULE 144. The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act and that it will take such further action as any Holder may reason-ably request, all to the extent required from time to time to enable Holders to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. Section 5.3 AMENDMENT AND MODIFICATION. Any provision of this Agreement may be waived, PROVIDED that such waiver is set forth in a writing executed by the party against whom the enforcement of such waiver is sought. This Agreement may not be amended, modified or supplemented other than by a written instrument signed by (a) the Company and (b) a majority of the Holders of Registrable Securities. No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement. Section 5.4 SUCCESSORS AND ASSIGNS: ENTIRE AGREEMENT. (a) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and executors, administrators and heirs. (b) This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them. 20 Section 5.5 SEVERABILITY. In the event that any provision of this Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless that provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. Section 5.6 NOTICES. All notices, demands, requests, consents or approvals (collectively, "Notices") required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally delivered or delivered by a reputable overnight courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or such other address as such party shall have specified most recently by written notice. Notice shall be deemed given or delivered on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile. Notice otherwise sent as provided herein shall be deemed given or delivered on the next business day following delivery of such notice to a reputable overnight courier service. To the Company: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Suite 700 Pasadena, California 91101 Attn: Joel S. Marcus Fax: (818) 578-0770 with a copy (which shall not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue 34th Floor Los Angeles, California 90071 Attn: Michael A. Woronoff, Esq. Fax: (213) 687-5600. To the Investor: 21 To the address specified on the signature page of this Agreement. To any other Holder: To the address specified in the notice provided to the Company upon such Person becoming a Holder. Section 5.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal law of the State of California, without giving effect to principles of conflicts of law. Section 5.8 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect. Section 5.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall constitute one and the same instrument. Section 5.10 FURTHER ASSURANCES. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. Section 5.11 TERMINATION. Unless sooner terminated in accordance with its terms or as otherwise herein provided, this Agreement shall terminate upon the earlier to occur of (i) the mutual agreement by the parties hereto, (ii) with respect to any Holder, such Holder ceasing to own any Registrable Securities or (iii) the fifth anniversary of the Effective Date. Section 5.12 REMEDIES. In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damage, for breach of any such provision will be inadequate compen- 22 sation for any loss and that any defense or objection in any action for specific performance or injunctive relief that a remedy at law would be adequate is waived. Section 5.14 PRONOUNS. Whenever the context may require, any pronouns used herein shall be deemed also to include the corresponding neuter, masculine or feminine forms. 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ALEXANDRIA REAL ESTATE EQUITIES, INC. By: /s/ Joel S. Marcus ----------------------------------- Name: Joel S. Marcus Title: Chief Executive Officer HEALTH SCIENCE PROPERTIES HOLDING CORPORATION 251 South Lake Avenue Suite 700 Pasadena, California 91101 By: /s/ Jerry M. Sudarsky ----------------------------------- Name: Jerry M. Sudarsky Title: Chairman 24 EX-10.13 8 EXHIBIT 10.13 ALEXANDRIA REAL ESTATE EQUITIES, INC. 1997 STOCK AWARD AND INCENTIVE PLAN ALEXANDRIA REAL ESTATE EQUITIES, INC. 1997 STOCK AWARD AND INCENTIVE PLAN 1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION. The purpose of the Alexandria Real Estate Equities, Inc. 1997 Stock Award and Incentive Plan (the "Plan") is to afford an incentive to selected officers, employees and independent contractors (including non-employee directors) of Alexandria Real Estate Equities, Inc. (the "Company"), or any Subsidiary or Affiliate that now exists or hereafter is organized or acquired, to acquire a proprietary interest in the Company, to continue as employees or independent contractors (including non-employee directors), as the case may be, to increase their efforts on behalf of the Company and to promote the success of the Company's business. Pursuant to Section 6 of the Plan, there may be granted Options (including "incentive stock options" and "nonqualified stock options"), Stock Appreciation Rights, Restricted Stock, and Other Stock-Based Awards or Other Cash-Based Awards. The Plan also provides the authority to make loans to purchase shares of Stock. From and after the consummation of the Initial Public Offering, the Plan is designed to comply with the requirements of Regulation G (12 C.F.R. Section 207) regarding the purchase of shares on margin, the requirements for "performance-based compensation" under Section 162(m) of the Code and the conditions for exemption from short-swing profit recovery rules under Rule 16b-3 of the Exchange Act, and shall be interpreted in a manner consistent with the requirements thereof. 2. DEFINITIONS. 2.1 For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means any entity if, at the time of granting of an Award or a Loan, (i) the Company, directly or indirectly, owns at least 20% of the combined voting power of all classes of stock of such entity or at least 20% of the ownership interests in such entity or (ii) such entity, directly or indirectly, owns at least 20% of the combined voting power of all classes of stock of the Company. (b) "Award" means any Option, SAR, Restricted Stock, or Other Stock-Based Award or Other Cash-Based Award granted under the Plan. (c) "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (d) "Beneficiary" means the person, persons, trust or trusts that have been designated by a Grantee in his or her most recent written beneficiary designation filed with the Company to receive the benefits specified under the Plan upon his or her death, or, if there is no designated Beneficiary or surviving designated Beneficiary, then the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits. (e) "Board" means the Board of Directors of the Company. (f) "Change of Control" shall mean the occurrence of any of the following events: (i) Any Person (as such term is used in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (E) a person or group as used in Rule 13d-1(b) under the Exchange Act) that is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals 2 who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) There is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least seventy-five percent (75%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least seventy-five (75%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 3 (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (h) "Committee" means the Board or the committee designated or established by the Board to administer the Plan from and after the consummation of the Initial Public Offering, the composition of which shall at all times satisfy the provisions of Rule 16b-3. With respect to the period prior to consummation of the Initial Public Offering, references to the "Committee" shall be deemed to refer to the Board or to the Compensation Committee of the Board. (i) "Company" means Alexandria Real Estate Equities, Inc., a corporation organized under the laws of the State of Maryland, or any successor corporation. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (k) "Fair Market Value" means, with respect to Stock or other property, the fair market value of such Stock or other property determined by such methods or procedures as shall be established from time to time by the Committee. Unless otherwise determined by the Committee in good faith, the per share Fair Market Value of Stock as of a particular date shall mean (i) the closing sales price per share of Stock on the national securities exchange on which the Stock is principally traded for the last preceding date on which there was a sale of such Stock on such exchange, or (ii) if the shares of Stock are then traded in an over-the-counter market, the average of the closing bid and ask prices for the shares of Stock in such over-the-counter market for the last preceding date on which there was a sale of such Stock in such market, or (iii) if the shares of Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (l) "Grantee" means a person who, as an employee or independent contractor of the Company, a Subsidiary or an Affiliate, has been granted an Award or Loan under the Plan. (m) "Initial Public Offering" shall mean the initial public offering of shares of Stock of the Company, as more fully described in the 4 Registration Statement on Form S-11 filed with the Securities and Exchange Commission on March 18, 1997, as such Registration Statement may be amended from time to time. (n) "Incentive Stock Option" or "ISO" means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code. (o) "Loan" means the proceeds from the Company borrowed by a Plan participant under Section 8 of the Plan. (p) "Non-Employee Director" means any director who is not an employee of the Company or any of its subsidiaries or affiliates. For purposes of this Plan, such non-employee director shall be treated as an independent contractor. (q) "Nonqualified Stock Option" or "NQSO" means any Option that is designated as a nonqualified stock option. (r) "Option" means a right, granted to a Grantee under Section 6.2, to purchase shares of Stock. An Option may be either an ISO or an NQSO; PROVIDED THAT ISOs may be granted only to employees of the Company or of a Subsidiary. (s) "Other Cash-Based Award" means cash awarded to a Grantee under Section 6.6, including cash awarded as a bonus or upon the attainment of specified performance objectives or otherwise as permitted under the Plan. (t) "Other Stock-Based Award" means a right or other interest granted to a Grantee under Section 6.6 that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, including, but not limited to (1) unrestricted Stock awarded as a bonus or upon the attainment of specified performance objectives or otherwise as permitted under the Plan and (2) a right granted to a Grantee to acquire Stock from the Company for cash and/or a promissory note containing terms and conditions prescribed by the Committee. 5 (u) "Plan" means this Alexandria Real Estate Equities, Inc. 1997 Stock Award and Incentive Plan, as amended from time to time. (v) "Restricted Stock" means an Award of shares of Stock to a Grantee under Section 6.4 that may be subject to certain restrictions and to a risk of forfeiture. (w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, including any successor to such Rule. (x) "Securities Act" means the Securities Act of 1933, as amended from time to time, and as now or hereafter construed, interpreted and applied by the regulations, rulings and cases. (y) "Stock" means shares of the common stock, par value $.01 per share, of the Company. (z) "Stock Appreciation Right" or "SAR" means the right, granted to a Grantee under Section 6.3, to be paid an amount measured by the appreciation in the Fair Market Value of Stock from the date of grant to the date of exercise of the right, with payment to be made in cash, Stock, or property as specified in the Award or determined by the Committee. (aa) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of an Award, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 3. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan including, without limitation, the 6 authority to grant Awards and make Loans; to determine the persons to whom and the time or times at which Awards shall be granted and Loans shall be made; to determine the type and number of Awards to be granted and the amount of any Loan, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Award or Loan; and to determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged, or surrendered; to make adjustments in the terms and conditions of, and the criteria and performance objectives (if any) included in, Awards and Loans in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or Affiliate or the financial statements of the Company or any Subsidiary or Affiliate, or in response to changes in applicable laws, regulations, or accounting principles; to designate Affiliates; to construe and interpret the Plan and any Award or Loan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Award Agreements and any promissory note or agreement related to any Loan (which need not be identical for each Grantee); and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may appoint a chairperson and a secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including the Company, and any Subsidiary, Affiliate or Grantee (or any person claiming any rights under the Plan from or through any Grantee) and any stockholder. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted or Loan made hereunder. 4. ELIGIBILITY. 7 Subject to the provisions set forth below, Awards and Loans may be granted to selected employees, officers and independent contractors (including Non-Employee Directors) of the Company and its present or future Subsidiaries and Affiliates, in the discretion of the Committee; PROVIDED THAT ISOs may be granted only to employees of the Company or of a Subsidiary. In determining the persons to whom Awards and Loans shall be granted and the type (including the number of shares to be covered) of any Award or the amount of any Loan, the Committee shall take into account such factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan. 5. STOCK SUBJECT TO THE PLAN. The maximum number of shares of Stock reserved for the grant of Awards under the Plan shall be 900,000, subject to adjustment as provided herein. No more than 100% of the total shares available for grant may be awarded to a single individual in a single year. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares subject to an Award are forfeited, cancelled, exchanged or surrendered, or if an Award otherwise terminates or expires without a distribution of shares to the Grantee, the shares of stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan; PROVIDED THAT, in the case of forfeiture, cancellation, exchange or surrender of shares of Restricted Stock with respect to which dividends have been paid or accrued, the number of shares with respect to such Awards shall not be available for Awards hereunder unless, in the case of shares with respect to which dividends were accrued but unpaid, such dividends are also forfeited, cancelled, exchanged or surrendered. Upon the exercise of any Award granted in tandem with any other Awards or awards, such related Awards or awards shall be cancelled to the extent of the number of shares of Stock as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall no longer be available for Awards under the Plan. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, 8 then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (a) the number and kind of shares of Stock which may thereafter be issued in connection with Awards, (b) the number and kind of shares of Stock issued or issuable in respect of outstanding Awards, and (c) the exercise price, grant price, or purchase price relating to any Award; PROVIDED THAT, with respect to ISOs, such adjustment shall be made in accordance with Section 424(h) of the Code. 6. SPECIFIC TERMS OF AWARDS. 6.1 GENERAL. The term of each Award shall be for such period as may be determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or a Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may be made in such forms as the Committee shall determine at the date of grant or thereafter, including, without limitation, cash, Stock, or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The Committee may make rules relating to installment or deferred payments with respect to Awards, including the rate of interest to be credited with respect to such payments. In addition to the foregoing, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine . 6.2 OPTIONS. The Committee is authorized to grant Options to Grantees on the following terms and conditions: (a) TYPE OF AWARD. The Award Agreement evidencing the grant of an Option under the Plan shall designate the Option as an ISO or an NQSO. (b) EXERCISE PRICE. The exercise price per share of Stock purchasable under an Option shall be determined by the Committee; PROVIDED THAT, in the case of an ISO, such exercise price shall be not less than the Fair Market Value of a share on the date of grant of such Option, and in no event shall the exercise price for the purchase of shares be less than par value. The exercise price for Stock subject to an Option may be paid in cash or subject to the approval of the Committee, by an exchange of Stock previously owned by the Grantee, or a combination of both, in an amount having a combined value equal to such exercise 9 price. Subject to the approval of the Committee, a Grantee may pay all or a portion of the aggregate exercise price by having shares of Stock with a Fair Market Value on the date of exercise equal to the aggregate exercise price withheld by the Company or sold by a broker-dealer under circumstances meeting the requirements of 12 C.F.R. Section 220 or any successor thereof. (c) TERM AND EXERCISABILITY OF OPTIONS. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. Options shall be exercisable over the exercise period (which shall not exceed ten years from the date of grant), at such times and upon such conditions as the Committee may determine, as reflected in the Award Agreement; PROVIDED THAT, the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. An Option may be exercised to the extent of any or all full shares of Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or its designated agent. (d) TERMINATION OF EMPLOYMENT, ETC. An Option may not be exercised unless the Grantee is then in the employ of, or then maintains an independent contractor relationship with, the Company or a Subsidiary or an Affiliate (or a company or a parent or Subsidiary company of such company issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies); PROVIDED THAT ISOs may be granted only to employees of the Company or of a Subsidiary, and may not be exercised unless the Grantee has remained continuously so employed, or has continuously maintained such relationship, since the date of grant of the Option; PROVIDED THAT, the Award Agreement may contain provisions extending the exercisability of Options, in the event of specified terminations, to a date not later than the expiration date of such Option. (e) OTHER PROVISIONS. Options may be subject to such other conditions including, but not limited to, restrictions on transferability of the shares acquired upon exercise of such Options, as the Committee may prescribe in its discretion or as may be required by applicable law, including but not limited to the requirements respecting ISOs set forth in Section 422 of the Code. 6.3 SARs. The Committee is authorized to grant SARs to Grantees on the following terms and conditions: 10 (a) IN GENERAL. Unless the Committee determines otherwise, (i) an SAR granted in tandem with an NQSO may be granted at the time of grant of the related NQSO or at any time thereafter or (ii) an SAR granted in tandem with an ISO may only be granted at the time of grant of the related ISO. An SAR granted in tandem with an Option shall be exercisable only to the extent the underlying Option is exercisable. (b) SARs. An SAR shall confer on the Grantee a right to receive an amount with respect to each share subject thereto, upon exercise thereof, equal to the excess of (i) the Fair Market Value of one share of Stock on the date of exercise over (ii) the grant price of the SAR (which in the case of an SAR granted in tandem with an Option shall be equal to the exercise price of one share of Stock underlying the Option, and which in the case of any other SAR shall be such price as the Committee may determine). 6.4 RESTRICTED STOCK. The Committee is authorized to grant Restricted Stock to Grantees on the following terms and conditions: (a) ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such restrictions on transferability and other restrictions, if any, as the Committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee may determine. Such restrictions may include factors relating to the increase in the value of the Stock or to individual or Company performance such as the attainment of certain specified individual or Company-wide performance goals or earnings per share. Except to the extent restricted under the Award Agreement relating to the Restricted Stock, a Grantee granted Restricted Stock shall have all of the rights of a stockholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends thereon. (b) FORFEITURE. Upon termination of employment with or service to the Company and any Subsidiary, or upon termination of the independent contractor relationship, as the case may be, during the applicable restriction period, Restricted Stock and any accrued but unpaid dividends that are at that time subject to restrictions shall be forfeited; PROVIDED THAT, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations 11 resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock. (c) CERTIFICATES FOR STOCK. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate. (d) DIVIDENDS. Dividends paid on Restricted Stock shall either be paid at the dividend payment date, or be deferred for payment to such date as determined by the Committee, in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends. Stock distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed. 6.5 STOCK AWARDS IN LIEU OF CASH AWARDS. The Committee is authorized to grant Stock to Grantees as a bonus, or to grant other Awards, in lieu of Company commitments to pay cash under other plans or compensatory arrangements. Stock or Awards granted hereunder shall have such other terms as shall be determined by the Committee. 6.6 OTHER STOCK-BASED OR CASH-BASED AWARDS. The Committee is authorized to grant to Grantees Other Stock-Based Awards or Other Cash-Based Awards alone or in addition to any other Award under the Plan, as deemed by the Committee to be consistent with the purposes of the Plan. Such Awards may be granted with value and payment contingent upon performance of the Company or any other factors designated by the Committee, or valued by reference to the performance of specified Subsidiaries or Affiliates. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter; PROVIDED, THAT performance objectives for each year shall be established by the Committee not later than the latest date permissible under Section 162(m) of the Code. Such performance objectives may be expressed in terms of one or more financial or other objective goals. Financial goals may be expressed, for example, in terms of earnings per share, stock price, 12 return on equity, net earnings growth, net earnings, related return ratios, cash flow, earnings before interest, taxes, depreciation and amortization (EBITDA), return on assets or total stockholder return. Other objective goals may include the attainment of various productivity and long-term growth objectives. Any criteria may be measured in absolute terms or as compared to another corporation or corporations. To the extent applicable, any such performance objective shall be determined (a) in accordance with the Company's audited financial statements and generally accepted accounting principles and reported upon by the Company's independent accountants or (b) so that a third party having knowledge of the relevant facts could determine whether such performance objective is met. Performance objectives shall include a threshold level of performance below which no Award payment shall be made, levels of performance above which specified percentages of target Awards shall be paid, and a maximum level of performance above which no additional Award shall be paid. Performance objectives established by the Committee may be (but need not be) different from year-to-year and different performance objectives may be applicable to different Grantees. 7. CHANGE OF CONTROL PROVISIONS. The following provisions shall apply in the event of a Change of Control, unless otherwise determined by the Committee or the Board in writing at or after grant (including under any individual agreement), but prior to the occurrence of such Change of Control: 7.1 any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested; 7.2 the restrictions, deferral limitations, payment conditions, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any performance conditions imposed with respect to Awards shall be deemed to be fully achieved; and 7.3 any indebtedness incurred pursuant to Section 8 of this Plan shall be forgiven and the collateral pledged in connection with any such Loan shall be released. 8. LOAN PROVISIONS. Subject to the provisions of the Plan and all applicable federal and state laws, rules and regulations (including the requirements of Regulation G (12 C.F.R. Section 207)), the Committee shall 13 have the authority to make Loans to Grantees (on such terms and conditions as the Committee shall determine), to enable such Grantees to purchase shares in connection with the Initial Public Offering or otherwise in connection with the realization of Awards under the Plan. Loans shall be evidenced by a promissory note or other agreement, signed by the borrower, which shall contain provisions for repayment and such other terms and conditions as the Committee shall determine. 9. GENERAL PROVISIONS. 9.1 EFFECTIVE DATE; APPROVAL BY STOCKHOLDERS. The Plan shall take effect upon its adoption by the Board (the "Effective Date"), but the Plan (and any grants of Awards made prior to the stockholder approval mentioned herein), shall be subject to the approval of the holder(s) of a majority of the issued and outstanding shares of voting securities of the Company entitled to vote, which approval must occur within twelve (12) months of the date the Plan is adopted by the Board. In the absence of such approval, such Awards shall be null and void. Notwithstanding the foregoing, the effectiveness of the Plan is conditioned upon the consummation of the Initial Public Offering, and shall be of no force and effect if the Initial Public Offering is not consummated. 9.2 NONTRANSFERABILITY. Awards shall not be transferable by a Grantee except by will or the laws of descent and distribution or, if then permitted under Rule 16b-3, pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, and shall be exercisable during the lifetime of a Grantee only by such Grantee or his guardian or legal representative. 9.3 NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan or in any Award or Loan granted or any Award Agreement, promissory note or other agreement entered into pursuant hereto shall confer upon any Grantee the right to continue in the employ of or to continue as an independent contractor of the Company, any Subsidiary or any Affiliate, or to be entitled to any remuneration or benefits not set forth in the Plan or such Award Agreement, promissory note, or other agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate such Grantee's employment or independent contractor relationship. 9.4 TAXES. The Company or any Subsidiary or Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any other payment to a 14 Grantee, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority includes the authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Grantee's tax obligations. 9.5 AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; PROVIDED THAT, if the Committee determines that stockholder approval of an amendment is necessary and desirable in order for the Plan to comply or continue to comply with any applicable law, such amendment shall not be effective unless the same shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights of any Grantee, without such Grantee's consent, under any Award or Loan theretofore granted under the Plan. 9.6 NO RIGHTS TO AWARDS OR LOANS; NO STOCKHOLDER RIGHTS. No Grantee shall have any claim to be granted any Award or Loan under the Plan, and there is no obligation for uniformity of treatment of Grantees. Except as provided specifically herein, a Grantee or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by the Award until the date of the issuance of a stock certificate to him for such shares. 9.7 UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Grantee pursuant to an Award, nothing contained in the Plan or any Award shall give any such Grantee any rights that are greater than those of a general creditor of the Company. 9.8 NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 9.9 REGULATIONS AND OTHER APPROVALS. 15 (a) The obligation of the Company to sell or deliver Stock with respect to any Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (b) Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Stock, no such Award shall be granted or payment made or Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (c) In the event that the disposition of Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Stock shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Grantee receiving Stock pursuant to the Plan, as a condition precedent to receipt of such Stock, to represent to the Company in writing that the Stock acquired by such Grantee is acquired for investment only and not with a view to distribution. 9.10 GOVERNING LAW. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Maryland without giving effect to the conflict of laws principles thereof. 16 ALEXANDRIA REAL ESTATE EQUITIES, INC. 1997 STOCK AWARD AND INCENTIVE PLAN
Section Page - ------- ---- 1. Purpose; Types of Awards; Construction. . . . . . . . . . . . . . . . . . . 1 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5. Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 8 6. Specific Terms of Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 9 7. Change of Control Provisions. . . . . . . . . . . . . . . . . . . . . . . . 13 8. Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
i EX-10.17 9 EXHIBIT 10.17 REVOLVING LOAN AGREEMENT Dated as of June 2, 1997 among ALEXANDRIA REAL ESTATE EQUITIES, INC. ARE - QRS CORP. ARE ACQUISITIONS, LLC THE BANKS HEREIN NAMED and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent TABLE OF CONTENTS
PAGE Article 1 DEFINITIONS AND ACCOUNTING TERMS................................ 1 1.1 Defined Terms................................................... 1 1.2 Use of Defined Terms............................................ 31 1.3 Accounting Terms................................................ 31 1.4 Rounding........................................................ 32 1.5 Exhibits and Schedules.......................................... 32 1.6 References to "Borrowers and their Subsidiaries"................ 32 1.7 Miscellaneous Terms............................................. 32 Article 2 LOANS........................................................... 33 2.1 Committed Loans-General......................................... 33 2.2 Alternate Base Rate Loans....................................... 35 2.3 Eurodollar Rate Loans........................................... 35 2.4 Competitive Advances............................................ 35 2.5 Voluntary Reduction of Commitments.............................. 39 2.6 Automatic Reduction of Commitments.............................. 39 2.7 Optional Termination of Commitments............................. 40 2.8 Managing Agent's Right to Assume Funds Available for Advances... 40 2.9 Extension of Revolver Termination Date.......................... 40 2.10 Term Loan Conversion............................................ 42 2.11 Unencumbered Asset Pool......................................... 42 2.12 Representative of Borrowers..................................... 43 Article 3 PAYMENTS AND FEES............................................... 44 3.1 Principal and Interest.......................................... 44 3.2 Arrangement Fee................................................. 46 3.3 Line B Commitment Activation Fee................................ 46 3.4 Commitment Fee.................................................. 46 3.5 Agency Fee...................................................... 46 3.6 Extension Fees.................................................. 46 -i- 3.7 Increased Commitment Costs...................................... 47 3.8 Eurodollar Costs and Related Matters............................ 47 3.9 Late Payments................................................... 51 3.10 Computation of Interest and Fees................................ 52 3.11 Non-Banking Days................................................ 52 3.12 Manner and Treatment of Payments................................ 52 3.13 Funding Sources................................................. 53 3.14 Failure to Charge Not Subsequent Waiver......................... 54 3.15 Managing Agent's Right to Assume Payments Will be Made by Borrowers....................................................... 54 3.16 Fee Determination Detail........................................ 54 3.17 Survivability................................................... 54 Article 4 REPRESENTATIONS AND WARRANTIES.................................. 55 4.1 Existence and Qualification; Power; Compliance With Laws........ 55 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations.......................................... 55 4.3 No Governmental Approvals Required.............................. 56 4.4 Subsidiaries.................................................... 56 4.5 Financial Statements............................................ 56 4.6 No Other Liabilities; No Material Adverse Changes............... 57 4.7 Title to Property............................................... 57 4.8 Intangible Assets............................................... 57 4.9 Public Utility Holding Company Act.............................. 57 4.10 Litigation...................................................... 57 4.11 Binding Obligations............................................. 58 4.12 No Default...................................................... 58 4.13 ERISA........................................................... 58 4.14 Regulations G and U; Investment Company Act..................... 59 4.15 Disclosure...................................................... 59 4.16 Tax Liability................................................... 59 4.17 Hazardous Materials............................................. 59 4.18 Initial Pool Properties......................................... 60 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)................................................... 61 -ii- 5.1 Payment of Taxes and Other Potential Liens...................... 61 5.2 Preservation of Existence....................................... 61 5.3 Maintenance of Properties....................................... 61 5.4 Maintenance of Insurance........................................ 61 5.5 Compliance With Laws............................................ 62 5.6 Inspection Rights............................................... 62 5.7 Keeping of Records and Books of Account......................... 62 5.8 Compliance With Agreements...................................... 62 5.9 Use of Proceeds................................................. 62 5.10 Hazardous Materials Laws........................................ 62 5.11 Unencumbered Asset Pool......................................... 63 5.12 REIT Status..................................................... 63 5.13 Additional Borrowers............................................ 63 Article 6 NEGATIVE COVENANTS.............................................. 64 6.1 Mergers......................................................... 64 6.2 ERISA........................................................... 64 6.3 Change in Nature of Business.................................... 64 6.4 Transactions with Affiliates.................................... 64 6.5 Leverage Ratio.................................................. 64 6.6 Interest Coverage............................................... 65 6.7 Fixed Charge Coverage........................................... 65 6.8 Distributions................................................... 65 6.9 Market Net Worth................................................ 65 6.10 Undeveloped Property............................................ 65 6.11 Unencumbered Revenue-Producing Property......................... 65 6.12 Secured Recourse Debt........................................... 65 6.13 Other Unsecured Debt............................................ 65 6.14 Investments in Certain Persons.................................. 66 6.15 Negative Pledges................................................ 66 Article 7 INFORMATION AND REPORTING REQUIREMENTS.......................... 67 7.1 Financial and Business Information.............................. 67 7.2 Compliance Certificates......................................... 70 -iii- Article 8 CONDITIONS...................................................... 71 8.1 Initial Advances................................................ 71 8.2 Any Advance..................................................... 73 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT............ 74 9.1 Events of Default............................................... 74 9.2 Remedies Upon Event of Default.................................. 76 Article 10 THE MANAGING AGENT.............................................. 79 10.1 Appointment and Authorization................................... 79 10.2 Managing Agent and Affiliates................................... 79 10.3 Proportionate Interest in any Collateral........................ 79 10.4 Banks' Credit Decisions......................................... 80 10.5 Action by Managing Agent........................................ 80 10.6 Liability of Managing Agent..................................... 81 10.7 Indemnification................................................. 82 10.8 Successor Managing Agent........................................ 83 10.9 No Obligations of Borrowers..................................... 84 Article 11 MISCELLANEOUS................................................... 85 11.1 Cumulative Remedies; No Waiver.................................. 85 11.2 Amendments; Consents............................................ 85 11.3 Costs, Expenses and Taxes....................................... 86 11.4 Nature of Banks' Obligations.................................... 87 11.5 Survival of Representations and Warranties...................... 87 11.6 Notices......................................................... 87 11.7 Execution of Loan Documents..................................... 88 11.8 Binding Effect; Assignment...................................... 88 11.9 Right of Setoff................................................. 91 11.10 Sharing of Setoffs.............................................. 91 11.11 Indemnity by Borrowers.......................................... 92 -iv- 11.12 Nonliability of the Banks....................................... 93 11.13 No Third Parties Benefited...................................... 94 11.14 Confidentiality................................................. 94 11.15 Further Assurances.............................................. 95 11.16 Integration..................................................... 95 11.17 Governing Law................................................... 95 11.18 Severability of Provisions...................................... 95 11.19 Headings........................................................ 96 11.20 Time of the Essence............................................. 96 11.21 Foreign Banks and Participants.................................. 96 11.22 Hazardous Material Indemnity.................................... 97 11.23 Joint and Several............................................... 97 11.24 Removal of a Bank............................................... 98 11.25 Waiver of Right to Trial by Jury................................ 98 11.26 Purported Oral Amendments....................................... 99
-v-
EXHIBITS - -------- A - Commitments Assignment and Acceptance B - Competitive Advance Note C - Competitive Bid D - Competitive Bid Request E - Compliance Certificate F - Joinder Agreement G - Line A Note H - Line B Note I-1 - Opinion of Counsel I-2 - Opinion of Counsel I-3 - Opinion of Counsel J - Pricing Certificate K - Request for Loan L - Joint Borrower Provisions SCHEDULES - --------- 1.1 Bank Commitments 4.4 Subsidiaries 4.7 Existing Liens, Negative Pledges and Rights of Others 4.10 Material Litigation 4.17 Hazardous Materials Matters 4.18 Initial Pool Properties
-vii- REVOLVING LOAN AGREEMENT Dated as of June 2, 1997 This REVOLVING LOAN AGREEMENT ("Agreement") is entered into by and among Alexandria Real Estate Equities, Inc., a Maryland corporation ("Parent"), ARE-QRS Corp., a Maryland corporation ("QRS"), ARE Acquisitions, LLC, a Delaware limited liability company ("ARE"), each other Wholly-Owned Subsidiary of Parent which may hereafter become a party to this Agreement as a borrower pursuant to Section 5.13 (collectively, with Parent, QRS and ARE, the "Borrowers", all on a joint and several basis), each bank whose name is set forth on the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8 (collectively, the "Banks" and individually, a "Bank"), and Bank of America National Trust and Savings Association, as Managing Agent. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: Article 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings set forth below: "ACTIVATED LINE B COMMITMENT" means, as of any date of determination, the portion of the Line B Commitment which has been activated pursuant to Section 2.1(b) as of that date. "ADJUSTED EBITDA" means, with respect to any fiscal period, the SUM OF (a) the Net Income of Parent for that period, PLUS (b) any non-operating non-recurring loss reflected in such Net Income, MINUS (c) any non-operating non-recurring gain reflected in such Net Income, PLUS (d) Interest Expense of Parent for that period, PLUS (e) the aggregate amount of federal and state taxes on or measured by income of Parent for that period (whether or not payable during that period), PLUS (f) depreciation, amortization and all other non-cash -1- expenses (INCLUDING non-cash officer compensation) of Parent for that period, in each case as determined in accordance with Generally Accepted Accounting Principles, and ADJUSTED BY SUBTRACTING therefrom a property expenditure reserve equal to 22% of the rental revenues of Parent for that period that arise from or are related to Revenue-Producing Property of Parent. "ADJUSTED NOI" means, with respect to any Revenue-Producing Property and with respect to any fiscal period, the SUM OF (a) the net income of that Revenue-Producing Property for that period, PLUS (b) Interest Expense of that Revenue-Producing Property for that period, PLUS (c) the aggregate amount of federal and state taxes on or measured by income of that Revenue-Producing Property for that period (whether or not payable during that period), PLUS (d) depreciation, amortization and all other non-cash expenses of that Revenue-Producing Property for that period, in each case as determined in accordance with Generally Accepted Accounting Principles, and ADJUSTED BY SUBTRACTING therefrom a property expenditure reserve equal to 22% of the rental revenues of that Revenue-Producing Property for that period. "ADJUSTED TOTAL LIABILITIES" means, as of any date of determination, without duplication, the SUM OF (a) Total Liabilities as of that date, PLUS (b) an amount equal to 50% of the face amount of all undrawn letters of credit for which Parent or any of its Wholly-Owned Subsidiaries is the account party outstanding on that date, PLUS (c) the aggregate Indebtedness covered by all Guaranty Obligations of Parent and its Wholly-Owned Subsidiaries outstanding on that date, PLUS (d) the aggregate Indebtedness of all partnerships in which Parent or any Wholly-Owned Subsidiary is a general partner on that date, PLUS (e) the Parent's Proportional Share of the Indebtedness of any Related Venture. "ADVANCE" means any advance made or to be made by any Bank to Borrowers as provided in ARTICLE 2, and INCLUDES each Alternate Base Rate Advance and Eurodollar Rate Advance. "AFFILIATE" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (and the correlative terms, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or -2- policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); PROVIDED that, in any event, any Person that owns, directly or indirectly, 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation that has more than 100 record holders of such securities, or 10% or more of the partnership or other ownership interests of any other Person that has more than 100 record holders of such interests, will be deemed to be an Affiliate of such corporation, partnership or other Person. "AGREEMENT" means this Revolving Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended. "ALTERNATE BASE RATE" means, as of any date of determination, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the HIGHER OF (a) the Reference Rate in effect on such date and (b) the Federal Funds Rate in effect on such date plus 2 of 1% (50 basis points). "ALTERNATE BASE RATE ADVANCE" means an Advance made hereunder and specified to be an Alternate Base Rate Advance in accordance with ARTICLE 2. "ALTERNATE BASE RATE LOAN" means a Loan made hereunder and specified to be an Alternate Base Rate Loan in accordance with ARTICLE 2. "AMORTIZATION AMOUNT" means, if the Term Loan Conversion has occurred, the result obtained by DIVIDING (a) the aggregate principal balance outstanding under the Line A Notes and the Line B Notes on the Conversion Date by (b) seven (7). "AMORTIZATION DATE" means, if the Term Loan Conversion has occurred, (a) the date that is six (6) months after the Conversion Date and (b) every three (3) months thereafter through and including the Maturity Date. "ANNUALIZED ADJUSTED EBITDA" means, for any fiscal period, (a) Adjusted EBITDA of Parent for that fiscal period PLUS (b) with respect to any such fiscal period in which any Revenue-Producing Property (herein the "New Property") has not been owned and operated by Parent or one of its -3- Subsidiaries for at least four (4) full Fiscal Quarters, such amount as is necessary to reflect the annualization of Adjusted EBITDA attributable to the New Property using the following conventions: (i) if the New Property has been owned and operated by Parent or its Subsidiary for at least one (1) Fiscal Quarter, the Adjusted NOI of the New Property shall be multiplied by the appropriate factor so as to result in annualized Adjusted NOI for the full four (4) Fiscal Quarters and (ii) if the New Property has not been owned and operated by Parent or its Subsidiary for at least one (1) Fiscal Quarter, the Adjusted NOI of the New Property for the four (4) Fiscal Quarters shall be deemed to be the Adjusted NOI for such period reflected in a pro-forma income statement for the New Property prepared by Parent in good faith using reasonable assumptions consistent with all facts known to Parent. "ANNUALIZED ADJUSTED NOI" means, with respect to any Revenue-Producing Property and for any fiscal period, (a) Adjusted NOI of that Revenue-Producing Property PLUS (b) with respect to any such fiscal period in which any Revenue-Producing Property (herein, the "New Property") has not been owned and operated by Parent or one of its Subsidiaries for at least four (4) full Fiscal Quarters, such amount as is necessary to reflect the annualization of Adjusted NOI attributable to the New Property using the following conventions: (i) if the New Property has been owned and operated by Parent or its Subsidiary for at least one (1) Fiscal Quarter, the Adjusted NOI of the New Property shall be multiplied by the appropriate factor so as to result in annualized Adjusted NOI for the full four (4) Fiscal Quarters and (ii) if the New Property has not been owned and operated by Parent or its Subsidiary for at least one (i) Fiscal Quarter, the Adjusted NOI of the New Property for the four (4) Fiscal Quarters shall be deemed to be the Adjusted NOI for such period reflected in a pro-forma income statement for the New Property prepared by Parent in good faith using reasonable assumptions consistent with all facts known to Parent. "APPLICABLE ALTERNATE BASE RATE MARGIN" means, for each Pricing Period, the interest rate margin set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for that Pricing Period: -4-
APPLICABLE PRICING LEVEL MARGIN ------------- ------ I 0 II 0 III 0 IV 0 V 25
"APPLICABLE COMMITMENT FEE RATE" means, for each Pricing Period, the rate set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for that Pricing Period:
APPLICABLE PRICING LEVEL COMMITMENT FEE ------------- -------------- I 17.50 II 17.50 III 25.00 IV 25.00 V 25.00
"APPLICABLE EURODOLLAR RATE MARGIN" means, for each Pricing Period, the interest rate margin set forth below (expressed in basis points per annum) opposite the Applicable Pricing Level for that Pricing Period:
APPLICABLE PRICING LEVEL MARGIN ------------- ------ I 110.00 II 120.00 III 130.00 IV 140.00 V 150.00
-5- "APPLICABLE PRICING LEVEL" means (a) for any date on which Parent holds a Credit Rating of BBB (or its equivalent) or better, Pricing Level I, (b) for any date on which Parent holds a Credit Rating of BBB- (or its equivalent), Pricing Level II and (c) for any date during a Pricing Period on which Parent does not hold a Credit Rating of BBB- (or its equivalent) or better, the pricing level set forth below opposite the Leverage Ratio as of the last day of the Fiscal Quarter most recently ended prior to the commencement of that Pricing Period:
PRICING LEVEL LEVERAGE RATIO ------------- -------------- III Less than .35 to 1.00 IV Equal to or greater than .35 to 1.00 but less than .45 to 1.00 V Greater than .45 to 1.00;
PROVIDED that (a) the Applicable Pricing Level for the initial Pricing Period shall (UNLESS Pricing Level I or Pricing Level II is then in effect) be Pricing Level III, (b) in the event that Borrowers do not deliver a Pricing Certificate with respect to any Pricing Period prior to the commencement of such Pricing Period, then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level for that Pricing Period shall be Pricing Level V and (c) if any Pricing Certificate is subsequently determined to be in error, then the resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Pricing Period. "BANK" means each bank whose name is set forth in the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8. "BANKING DAY" means any Monday, Tuesday, Wednesday, Thursday or Friday, OTHER THAN a day on which banks are authorized or required to be closed in California or New York. "BORROWING BASE" means, as of any date of determination, the LESSER OF (a) the Net Leverage Base on that date or (b) the Net Mortgage Amount on that date. "BORROWERS" means, collectively, (a) Parent, (b) QRS, (c) ARE and -6- (d) any other Wholly-Owned Subsidiary of Parent that hereafter executes a Joinder Agreement pursuant to Section 5.13. Borrowers are jointly and severally obligated with respect to the Obligations. "CAPITAL LEASE OBLIGATIONS" means all monetary obligations of a Person under any leasing or similar arrangement which, in accordance with Generally Accepted Accounting Principles, is classified as a capital lease. "CAPITALIZATION RATE" means (a) during the period from the Closing Date through June 30, 1998, ten percent (10%) and (b) during each twelve (12) month period thereafter, the capitalization rate determined by Arthur Andersen & Co. (or other independent expert mutually acceptable to Parent and the Managing Agent) as of the beginning of each such period to be the prevailing capitalization rate used by sophisticated real estate industry professionals to value properties comparable to those in the Unencumbered Asset Pool for comparable purposes; PROVIDED that if the capitalization rate is for any reason not so determined as of the beginning of any such period, then the capitalization rate in effect for the prior period shall remain in effect. "CASH" means, when used in connection with any Person, all monetary and non-monetary items owned by that Person that are treated as cash in accordance with Generally Accepted Accounting Principles, consistently applied. "CASH INCOME TAXES" means, with respect to any fiscal period, taxes on or measured by the income of Borrowers that are paid or currently payable in Cash by Borrowers during that fiscal period. "CASH INTEREST EXPENSE" means Interest Expense that is paid or currently payable in Cash. "CERTIFICATE" means a certificate signed by a Senior Officer or Responsible Official (as applicable) of the Person providing the certificate. "CHANGE IN CONTROL" means (a) any transaction or series of related transactions in which any Unrelated Person or two or more Unrelated Persons acting in concert acquire beneficial ownership (within the meaning of -7- Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 40% or more of the outstanding Common Stock, (b) Parent consolidates with or merges into another Person or conveys, transfers or leases its properties and assets substantially as an entirety to any Person or any Person consolidates with or merges into Parent, in either event pursuant to a transaction in which the outstanding Common Stock is changed into or exchanged for cash, securities or other property, with the effect that any Unrelated Person becomes the beneficial owner, directly or indirectly, of 40% or more of Common Stock or that the Persons who were the holders of Common Stock immediately prior to the transaction hold less than 60% of the common stock of the surviving corporation after the transaction, (c) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the board of directors of Parent (together with any new or replacement directors whose election by the board of directors, or whose nomination for election, was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for reelection was previously so approved) cease for any reason to constitute a majority of the directors then in office or (d) a "change in control" as defined in any document governing Indebtedness of Parent in excess of $25,000,000 which gives the holders of such Indebtedness the right to accelerate or otherwise require payment of such Indebtedness prior to the maturity date thereof. For purposes of the foregoing, the term "UNRELATED PERSON" means any Person OTHER THAN (i) a Subsidiary of Parent, (ii) an employee stock ownership plan or other employee benefit plan covering the employees of Parent and its Subsidiaries or (iii) any Person that held Common Stock on the day prior to the effective date of Parent's registration statement under the Securities Act of 1933 covering the initial public offering of Common Stock. "CLOSING DATE" means the time and Banking Day on which the conditions set forth in Section 8.1 are satisfied or waived. The Managing Agent shall notify Borrowers and the Banks of the date that is the Closing Date. "CODE" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. "COMMITMENTS" means the Line A Commitment and the Line B Commitment. -8- "COMMITMENTS ASSIGNMENT AND ACCEPTANCE" means a commitment assignment and acceptance substantially in the form of EXHIBIT A. "COMMITTED ADVANCE" means an Advance made to Borrowers by any Bank in accordance with its Pro Rata Share of the Commitments pursuant to Section 2.1. "COMMITTED LOANS" means Loans that are comprised of Committed Advances. "COMMON STOCK" means the common stock of Parent or its successor. "COMPETITIVE ADVANCE" means an Advance made to Borrowers by any Bank not determined by that Bank's Pro Rata Share of the Commitments pursuant to Section 2.4. "COMPETITIVE ADVANCE NOTE" means the promissory note made by Borrowers in favor of a Bank to evidence the Competitive Advances made by that Bank, substantially in the form of EXHIBIT B, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "COMPETITIVE BID" means (a) a written bid to provide a Competitive Advance substantially in the form of EXHIBIT C, signed by a Responsible Official of a Bank and properly completed to provide all information required to be included therein or (b) at the election of any Bank, a telephonic bid by that Bank to provide a Competitive Advance which, if so made, shall be made by a Responsible Official of that Bank and deemed to have been made incorporating the substance of EXHIBIT C, and shall promptly be confirmed by a written Competitive Bid. "COMPETITIVE BID REQUEST" means (a) a written request submitted by Borrowers to the Managing Agent to provide a Competitive Bid, substantially in the form of EXHIBIT D, signed by a Responsible Official of Borrowers and properly completed to provide all information required to be included therein or (b) at the election of Borrowers, a telephonic request by Borrowers to the -9- Managing Agent to provide a Competitive Bid which, if so made, shall be made by a Responsible Official of Borrowers and deemed to have been made incorporating the substance of EXHIBIT D, and shall promptly be confirmed by a written Competitive Bid Request. "COMPLIANCE CERTIFICATE" means a certificate in the form of EXHIBIT E, properly completed and signed by a Senior Officer of Borrowers. "CONSENT CRITERIA" means, as of any date of determination, that as of that date EITHER (a) Parent holds a Credit Rating of BBB- (or its equivalent) or better or (b) as of the last day of the Fiscal Quarter then most recently-ended, the RATIO OF (i) Adjusted NOI of the Revenue-Producing Properties in the Unencumbered Asset Pool (INCLUDING any Qualified Investment Pool Property (herein, the "New Property") proposed to be added to the Unencumbered Asset Pool; PROVIDED, however, in the case of any such New Property that within the preceding sixty (60) day period has been purchased by a Borrower from a Person that is now a tenant occupying 100% of such New Property, that Adjusted NOI for such New Property shall be the Adjusted NOI for the first year of such lease as reflected in a pro-forma income statement for this New Property prepared by Parent in good faith using reasonable assumptions consistent with all facts known to Parent) for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters to (ii) the SUM OF (A) Interest Charges for such fiscal period PLUS (B) all scheduled principal payments on Indebtedness of Parent (INCLUDING the principal portion of rent under Capital Lease Obligations) made during such fiscal period, OTHER THAN payments made at the maturity date of such Indebtedness, was 3.50 to 1.00 or greater. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any outstanding security issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its Property is bound. "CONTROLLED ENTITY" means a Person (a) that is a Subsidiary of Parent, (b) that is a general partnership or a limited partnership in which a Wholly-Owned Subsidiary is the sole managing general partner and such managing general partner has the sole power to (i) sell all or substantially all of the assets of such Person, (ii) incur Indebtedness in the name of such Person, -10- (iii) grant a Lien on all or any portion of the assets of such Person and (iv) otherwise generally manage the business and assets of such Person or (c) that is a limited liability company for which a Wholly-Owned Subsidiary is the sole manager and such manager has the sole power to do the acts described in subclauses (i) through (iv) of clause (b) above. "CONVERSION DATE" means the Maturity Date in effect immediately prior to the date upon which the Term Loan Conversion is effected. "CREDIT RATING" means, as of any date of determination, the credit rating (or its equivalent) then assigned to Parent's long-term senior unsecured debt by at least two (2) Rating Agencies; PROVIDED that any credit rating so assigned by a Rating Agency shall be deemed for this purpose to include all lower credit ratings of such Rating Agency. For purposes of the foregoing, "RATING AGENCIES" means (a) Standard & Poor's Rating Group (a division of McGraw Hill, Inc.) ("S&P") and its successors, (b) Moody's Investor Services, Inc. ("Moody's") and its successors and (c) Duff and Phelps Credit Rating Co., Inc. ("Duff") and its successors. A credit rating of BBB- from S&P is equivalent to a credit rating of Baa3 from Moody's and BBB- from Duff, and vice versa. A credit rating of BBB from S&P is equivalent to a credit rating of Baa2 from Moody's and BBB from Duff, and vice versa. "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States of America, as amended from time to time, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "DEFAULT" means any event that, with the giving of any applicable notice or passage of time specified in Section 9.1, or both, would be an Event of Default. "DEFAULT RATE" means the interest rate prescribed in Section 3.9. "DESIGNATED DEPOSIT ACCOUNT" means a deposit account to be maintained by Borrowers with Bank of America National Trust and Savings Association or one of its Affiliates, as from time to time designated by Borrowers by written -11- notification to the Managing Agent. "DESIGNATED EURODOLLAR MARKET" means, with respect to any Eurodollar Rate Loan, the London Eurodollar Market. "DISQUALIFIED STOCK" means any capital stock, warrants, options or other rights to acquire capital stock (but excluding any debt security which is convertible, or exchangeable, for capital stock), which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date. "DISTRIBUTION" means, with respect to any shares of capital stock or any warrant or option to purchase an equity security or other equity security issued by a Person, (i) the retirement, redemption, purchase or other acquisition for Cash or for Property by such Person of any such security, (ii) the declaration or (without duplication) payment by such Person of any dividend in Cash or in Property on or with respect to any such security, (iii) any Investment by such Person in the holder of 5% or more of any such security if a purpose of such Investment is to avoid characterization of the transaction as a Distribution and (iv) any other payment in Cash or Property by such Person constituting a distribution under applicable Laws with respect to such security. "DOLLARS" or "$" means United States dollars. "DOMESTIC REFERENCE BANK" means Bank of America National Trust and Savings Association or such other Bank as may be appointed by the Managing Agent with the approval of Parent (which shall not be unreasonably withheld). "ELIGIBLE ASSIGNEE" means (a) another Bank, (b) with respect to any Bank, any Affiliate of that Bank, (c) any commercial bank having a combined capital and surplus of $100,000,000 or more, (d) any (i) savings bank, savings and loan association or similar financial institution or (ii) insurance company engaged in the business of writing insurance which, in either case (A) has a net worth of $200,000,000 or more, (B) is engaged in the business of lending -12- money and extending credit under credit facilities substantially similar to those extended under this Agreement and (C) is operationally and procedurally able to meet the obligations of a Bank hereunder to the same degree as a commercial bank and (e) any other financial institution (INCLUDING a mutual fund or other fund) having total assets of $250,000,000 or more which meets the requirements set forth in subclauses (B) and (C) of clause (d) above; PROVIDED that each Eligible Assignee must either (a) be organized under the Laws of the United States of America, any State thereof or the District of Columbia or (b) be organized under the Laws of the Cayman Islands or any country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, and (i) act hereunder through a branch, agency or funding office located in the United States of America and (ii) be exempt from withholding of tax on interest and deliver the documents related thereto pursuant to Section 11.21. "EMPLOYEE PLAN" means any (a) employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) any plan (as defined in Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code, (c) any entity the underlying assets of which include plan assets (as defined in 29 C.F.R. Section 2510.3-101 or otherwise under ERISA) by reason of a plan's investment in such entity (INCLUDING an insurance company general account), or (d) a governmental plan (as defined in Section 3(32) of ERISA or Section 414(d) of the Code) organized in a jurisdiction within the United States of America having prohibitions on transactions with such governmental plan substantially similar to those contained in Section 406 of ERISA or Section 4975 of the Code. "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as amended or replaced and as in effect from time to time. "ERISA AFFILIATE" means each Person (whether or not incorporated) which is required to be aggregated with Parent pursuant to Section 414 of the Code. "EURODOLLAR BANKING DAY" means any Banking Day on which dealings in Dollar deposits are conducted by and among banks in the Designated Eurodollar -13- Market. "EURODOLLAR LENDING OFFICE" means, as to each Bank, its office or branch so designated by written notice to Borrowers and the Managing Agent as its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a Bank, its Eurodollar Lending Office shall be its office at its address for purposes of notices hereunder. "EURODOLLAR MARKET" means a regular established market located outside the United States of America by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. "EURODOLLAR OBLIGATIONS" means eurocurrency liabilities, as defined in Regulation D or any comparable regulation of any Governmental Agency having jurisdiction over any Bank. "EURODOLLAR PERIOD" means, as to each Eurodollar Rate Loan, the period commencing on the date specified by Borrowers pursuant to Section 2.1(c) and ending 1, 2, 3 or 6 months (or, with the written consent of all of the Banks, any other period) thereafter, as specified by Borrowers in the applicable Request for Loan; PROVIDED that: (a) The first day of any Eurodollar Period shall be a Eurodollar Banking Day; (b) Any Eurodollar Period that would otherwise end on a day that is not a Eurodollar Banking Day shall be extended to the next succeeding Eurodollar Banking Day unless such Eurodollar Banking Day falls in another calendar month, in which case such Eurodollar Period shall end on the next preceding Eurodollar Banking Day; (c) Borrowers may not specify a Eurodollar Period that extends beyond the next Amortization Date unless the aggregate principal amount of the Eurodollar Loans having a Eurodollar Period ending after such Amortization Date does not exceed the Commitments (after giving effect to any reduction thereto scheduled to be made on such Amortization Date pursuant to Section 2.6); and -14- (d) No Eurodollar Period shall extend beyond the Maturity Date. "EURODOLLAR RATE" means, with respect to any Eurodollar Rate Loan, the average of the interest rates per annum (rounded upward, if necessary, to the next 1/100 of 1%) at which deposits in Dollars are offered by the Eurodollar Reference Banks to prime banks in the Designated Eurodollar Market at or about 11:00 a.m. local time in the Designated Eurodollar Market, two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period in an aggregate amount approximately equal to the amount of the Advance made by the Eurodollar Reference Bank with respect to such Eurodollar Rate Loan and for a period of time comparable to the number of days in the applicable Eurodollar Period. "EURODOLLAR RATE ADVANCE" means an Advance made hereunder and specified to be a Eurodollar Rate Advance in accordance with ARTICLE 2. "EURODOLLAR RATE LOAN" means a Loan made hereunder and specified to be a Eurodollar Rate Loan in accordance with ARTICLE 2. "EURODOLLAR REFERENCE BANK" means Bank of America National Trust and Savings Association or such other Bank as may be appointed by the Managing Agent with the approval of Parent (which shall not be unreasonably withheld). "EVENT OF DEFAULT" shall have the meaning provided in Section 9.1. "FEDERAL FUNDS RATE" means, as of any date of determination, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such date opposite the caption "Federal Funds (Effective)". If for any relevant date such rate is not yet published in H.15(519), the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. -15- Quotation") for such date under the caption "Federal Funds Effective Rate". If on any relevant date the appropriate rate for such date is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by the Managing Agent. For purposes of this Agreement, any change in the Alternate Base Rate due to a change in the Federal Funds Rate shall be effective as of the opening of business on the effective date of such change. "FISCAL QUARTER" means the fiscal quarter of Borrowers ending on each March 31, June 30, September 30 and December 31. "FISCAL YEAR" means the fiscal year of Borrowers ending on each December 31. "FIXED CHARGE COVERAGE" means, as of the last day of each Fiscal Quarter, the RATIO of (a) Adjusted EBITDA for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters TO (b) the SUM of (i) Interest Charges for such fiscal period PLUS (ii) all scheduled principal payments on Indebtedness of Parent (INCLUDING the principal portion of rent under Capital Lease Obligations) made during such fiscal period, OTHER THAN payments made at the maturity date of such Indebtedness PLUS (iii) all dividends on preferred stock of Parent made during such fiscal period. "FUNDS FROM OPERATIONS" means, with respect to any fiscal period, (a) the Net Income of Parent for that period, PLUS (b) any loss resulting from the restructuring of Indebtedness, sale of Property or other non-operating non-recurring cause during that period, MINUS (c) any gain resulting from the restructuring of Indebtedness, sale of Property or other non-operating non-recurring cause during that period, PLUS (d) depreciation and amortization of Revenue-Producing Properties (INCLUDING with respect to trade fixtures and tenant improvements which are a part thereof and capitalized leasing expenses, such as leasing commissions and tenant improvement allowances), and ADJUSTED to take into account (i) the results of operations of any unconsolidated Related Ventures calculated on the same basis and (ii) any unusual and non-recurring expense which otherwise would materially distort a comparative evaluation of -16- Funds From Operation for different fiscal periods. Funds From Operations shall be determined in accordance with the March 1995 White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts, as in effect on the Closing Date. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means, as of any date of determination, accounting principles (a) set forth as generally accepted in then currently effective Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, (b) set forth as generally accepted in then currently effective Statements of the Financial Accounting Standards Board or (c) that are then approved by such other entity as may be approved by a significant segment of the accounting profession in the United States of America. The term "CONSISTENTLY APPLIED," as used in connection therewith, means that the accounting principles applied are consistent in all material respects with those applied at prior dates or for prior periods. "GOVERNMENTAL AGENCY" means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body or (c) any court or administrative tribunal of competent jurisdiction. "GROSS ASSET VALUE" means, as of the last day of each Fiscal Quarter, the SUM OF (a) Cash held by Parent and its Subsidiaries as of that date PLUS (b) the value obtained by DIVIDING (i) Annualized Adjusted EBITDA for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters BY (ii) the then effective Capitalization Rate. "GUARANTY OBLIGATION" means, as to any Person, any (a) guarantee by that Person of Indebtedness of, or other obligation performable by, any other Person or (b) assurance given by that Person to an obligee of any other Person with respect to the performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, INCLUDING any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the -17- solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; PROVIDED, HOWEVER, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation in respect of Indebtedness shall be deemed to be an amount equal to the stated or determinable amount of the related Indebtedness (unless the Guaranty Obligation is limited by its terms to a lesser amount, in which case to the extent of such amount) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. The amount of any other Guaranty Obligation shall be deemed to be zero unless and until the amount thereof has been (or in accordance with Financial Accounting Standards Board Statement No. 5 should be) quantified and reflected or disclosed in the consolidated financial statements (or notes thereto) of Borrowers. "HAZARDOUS MATERIALS" means substances defined as "hazardous substances" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or as "hazardous", "toxic" or "pollutant" substances or as "solid waste" pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or as "friable asbestos" pursuant to the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. or any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "HAZARDOUS MATERIALS LAWS" means all Laws governing the treatment, transportation or disposal of Hazardous Materials applicable to any of the Real Property. "INDEBTEDNESS" means, as to any Person (without duplication), (a) indebtedness of such Person for borrowed money or for the deferred purchase price of Property (EXCLUDING trade and other accounts payable in the ordinary course of business in accordance with ordinary trade terms), INCLUDING any Guaranty Obligation for any such indebtedness, (b) indebtedness of such Person of the nature described in clause (a) that is non-recourse to the credit of -18- such Person but is secured by assets of such Person, to the extent of the fair market value of such assets as determined in good faith by such Person, (c) Capital Lease Obligations of such Person, (d) indebtedness of such Person arising under bankers' acceptance facilities or under facilities for the discount of accounts receivable of such Person, (e) any direct or contingent obligations of such Person under letters of credit issued for the account of such Person and (f) any net obligations of such Person under Swap Agreements. "INITIAL POOL PROPERTIES" means the eleven (11) Revenue-Producing Properties described in SCHEDULE 4.18. "INTANGIBLE ASSETS" means assets that are considered intangible assets under Generally Accepted Accounting Principles, INCLUDING customer lists, goodwill, copyrights, trade names, trademarks and patents. "INTEREST CHARGES" means, as of the last day of any fiscal period, the SUM OF (a) Cash Interest Expense of Parent PLUS (b) all interest currently payable by Parent in Cash incurred during that fiscal period which is capitalized under Generally Accepted Accounting Principles PLUS (c) the Parent's Proportional Share of the Cash Interest Expense and capitalized interest payable in Cash of Related Ventures during that fiscal period. "INTEREST COVERAGE" means, as of the last day of each Fiscal Quarter, the RATIO OF (a) Adjusted EBITDA for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters TO (b) Interest Charges for that fiscal period. "INTEREST EXPENSE" means, with respect to any Person and as of the last day of any fiscal period, the SUM OF (a) all interest, fees, charges and related expenses paid or payable (without duplication) for that fiscal period by that Person to a lender in connection with borrowed money (INCLUDING any obligations for fees, charges and related expenses payable to the issuer of any letter of credit) or the deferred purchase price of assets that are considered "interest expense" under Generally Accepted Accounting Principles PLUS (b) the portion of rent paid or payable (without duplication) for that fiscal period by that Person under Capital Lease Obligations that should be treated as interest in accordance with Financial Accounting Standards Board Statement No. 13. -19- "INTEREST PERIOD" means, with respect to any Eurodollar Rate Loan, the related Eurodollar Period. "INVESTMENT" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of any other Person or by means of a loan, advance creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person, INCLUDING any partnership and joint venture interests of such Person. The amount of any Investment shall be the amount actually invested (MINUS any return of capital with respect to such Investment which has actually been received in Cash or has been converted into Cash), without adjustment for subsequent increases or decreases in the value of such Investment. "JOINDER AGREEMENT" means the joinder agreement with respect to this Agreement to be executed and delivered pursuant to Section 5.13 by any additional Borrower in the form of EXHIBIT F, either as originally executed or as it may from time to time be supplemented, modified, amended, extended or supplanted. "LAWS" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. "LEVERAGE RATIO" means, as of the last day of each Fiscal Quarter, the RATIO OF (a) Adjusted Total Liabilities as of that date TO (b) Gross Asset Value as of that date. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of Law or otherwise, affecting any Property, INCLUDING any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of any financing statement (OTHER THAN a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the Uniform Commercial Code or comparable Law of any jurisdiction with respect to any -20- Property. "LINE A COMMITMENT" means, subject to Sections 2.5 and 2.6, $100,000,000. The respective Pro Rata Shares of the Banks with respect to the Line A Commitment are set forth in SCHEDULE 1.1. "LINE A NOTE" means any of the promissory notes made by Borrowers to a Bank evidencing Advances under that Bank's Pro Rata Share of the Line A Commitment, substantially in the form of EXHIBIT G, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "LINE A LOAN" means any Loan made under the Line A Commitment. "LINE B COMMITMENT" means, subject to Sections 2.5 and 2.6, $50,000,000. No credit is available under the Line B Commitment unless and until activated pursuant to Section 2.1(b). The respective Pro Rata Shares of the Banks with respect to the Line B Commitment are set forth in SCHEDULE 1.1. "LINE B LOAN" means a Loan made under the Line B Commitment. "LINE B NOTE" means any of the promissory notes made by Borrowers to a Bank evidencing Advances under that Bank's Pro Rata Share of the Line B Commitment, substantially in the form of EXHIBIT H, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "LOAN" means the aggregate of the Advances made at any one time by the Banks pursuant to Section 2.1. "LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, and any other agreements of any type or nature hereafter executed and delivered by Borrowers to the Managing Agent or to any Bank in any way relating to or in furtherance of this Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. -21- "MANAGING AGENT" means Bank of America National Trust and Savings Association, when acting in its capacity as the Managing Agent under any of the Loan Documents, or any successor Managing Agent. "MANAGING AGENT'S OFFICE" means the Managing Agent's address as set forth on the signature pages of this Agreement, or such other address as the Managing Agent hereafter may designate by written notice to Borrowers and the Banks. "MARGIN STOCK" means "margin stock" as such term is defined in Regulation G or U. "MARKET NET WORTH" means, as of the last day of each Fiscal Quarter, the amount by which (a) Gross Asset Value on that date exceeds (b) Total Liabilities on that date. "MATERIAL ADVERSE EFFECT" means any set of circumstances or events which (a) has had or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document (OTHER THAN as a result of any action or inaction of the Managing Agent or any Bank), (b) has been or could reasonably be expected to be material and adverse to the business or condition (financial or otherwise) of Borrowers or (c) has materially impaired or could reasonably be expected to materially impair the ability of Borrowers to perform the Obligations. "MATURITY DATE" means (a) May 31, 2000, (b) if the Revolver Termination Date has then been extended pursuant to Section 2.9, such extended Revolver Termination Date or (c) if the Term Loan Conversion has then been effected pursuant to Section 2.10, the date that is two (2) years subsequent to the Conversion Date. "MAXIMUM COMPETITIVE ADVANCE" means, with respect to any Competitive Bid made by a Bank, the amount set forth therein as the maximum Competitive Advance which that Bank is willing to make in response to the related Competitive Bid Request. "MONTHLY PAYMENT DATE" means the first day of each calendar month. -22- "MORTGAGE AMOUNT" means, as of the last day of each Fiscal Quarter, the principal amount of a twenty-five (25) year mortgage loan that would bear interest at a rate equal to the SUM OF the Treasury Base Rate plus 2% (200 basis points), that would fully amortize in equal consecutive monthly installments of principal and interest over the term thereof and that is Supportable by the Annualized Adjusted NOI of the Revenue-Producing Properties in the Unencumbered Asset Pool for that Fiscal Quarter and the three immediately preceding Fiscal Quarters. For purposes of the foregoing, "TREASURY BASE RATE" means the yield (adjusted to constant maturity and expressed as a rate per annum) of the United States Treasury Security then maturing in seven (7) years or, if there is more than one such United States Treasury Security, the average of such yields, or if there is no such United States Treasury Security, the yield determined by interpolation of the yields of the United States Treasury Securities maturing on the nearest earlier and later dates, in all cases adjusted to constant maturity and expressed as a rate per annum, as reported at the close of business on the last day of the Fiscal Quarter by the Bloomberg Financial Market Information Service (or other nationally-recognized on-line trading screen which reports current trading in United States Treasury Securities) or, if no such trading screen is available, as reported in the most recent Federal Reserve Board Statistical Release and "SUPPORTABLE" means that such Annualized Adjusted NOI is 200% (the "SUPPORT MULTIPLE") of the aggregate annual monthly payments under such a mortgage loan. "MULTIEMPLOYER PLAN" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA to which Borrowers or any of their ERISA Affiliates contribute or are obligated to contribute. "NEGATIVE PLEDGE" means a Contractual Obligation that contains a covenant binding on Borrowers that prohibits Liens on any of their Property, OTHER THAN (a) any such covenant contained in a Contractual Obligation granting or relating to a particular Lien which affects only the Property that is the subject of such Lien and (b) any such covenant that does not apply to Liens securing the Obligations. "NET INCOME" means, with respect to any Person and with respect to any fiscal period, the net income of that Person for that period, determined in -23- accordance with Generally Accepted Accounting Principles, consistently applied. "NET LEVERAGE BASE" means, as of any date of determination, (a) an amount equal to 50% of the Unencumbered Asset Pool Value as of the most recently-ended Fiscal Quarter MINUS (b) any Other Unsecured Debt on that date. "NET MORTGAGE AMOUNT" means, as of any date of determination, (a) the Mortgage Amount applicable to the Unencumbered Asset Pool as of the most recently-ended Fiscal Quarter MINUS (b) any Other Unsecured Debt on that date. "NON-RECOURSE DEBT" means Indebtedness of Parent or any of its Subsidiaries for which the liability of Parent or such Subsidiary (EXCEPT with respect to fraud, Hazardous Materials Laws liability and other customary exceptions) either is contractually limited to collateral securing such Indebtedness or is so limited by operation of Law. "NOTES" means the Line A Notes, the Line B Notes and the Competitive Advance Notes. "OBLIGATIONS" means all present and future obligations of every kind or nature of Borrowers at any time and from time to time owed to the Managing Agent or the Banks or any one or more of them, under any one or more of the Loan Documents, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, INCLUDING obligations of performance as well as obligations of payment, and INCLUDING interest that accrues after the commencement of any proceeding under any Debtor Relief Law by or against Borrowers. "OPINIONS OF COUNSEL" means the favorable written legal opinions of (a) Gary A. Kreitzer, general counsel of Borrowers, (b) Ballard Spahr Andrews & Ingersoll, special Maryland counsel to Borrowers and (c) Skadden, Arps, Slate, Meagher & Flom, LLP, special counsel to Borrowers, substantially in the form of EXHIBITS I-1 AND I-2 , respectively, together with copies of all factual certificates and legal opinions delivered to such counsel in connection with such opinion upon which such counsel has relied. -24- "OTHER UNSECURED DEBT" means Indebtedness of any of Borrowers (OTHER THAN Indebtedness under this Agreement) that is not secured by a Lien on any Property of any of Borrowers. "PARENT'S PROPORTIONAL SHARE" means, with respect to any Related Venture, the percentage of the direct and indirect equity ownership interest of Parent in the Related Venture. "PARTY" means any Person other than the Managing Agent and the Banks, which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereof established under ERISA. "PENSION PLAN" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), OTHER THAN a Multiemployer Plan, which is subject to Title IV of ERISA and is maintained by Borrowers or to which Borrowers contribute or have an obligation to contribute. "PERMITTED ENCUMBRANCES" means: (a) Inchoate Liens incident to construction on or maintenance of Property; or Liens incident to construction on or maintenance of Property now or hereafter filed of record for which adequate reserves have been set aside (or deposits made pursuant to applicable Law) and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, PROVIDED that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture; (b) Liens for taxes and assessments on Property which are not yet past due; or Liens for taxes and assessments on Property for which adequate reserves have been set aside and are being contested in good faith by appropriate proceedings and have not proceeded to judgment, PROVIDED that, by reason of nonpayment of the obligations secured by such Liens, no such Property is subject to a material impending risk of loss or forfeiture; -25- (c) defects and irregularities in title to any Property which in the aggregate do not materially impair the fair market value or use of the Property for the purposes for which it is or may reasonably be expected to be held; (d) easements, exceptions, reservations, or other agreements for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting Property which in the aggregate do not materially burden or impair the fair market value or use of such Property for the purposes for which it is or may reasonably be expected to be held; (e) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of Property in or adjacent to a shopping center or similar project affecting Property which in the aggregate do not materially burden or impair the fair market value or use of such Property for the purposes for which it is or may reasonably be expected to be held; (f) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, the use of any Property; (g) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, any right, power, franchise, grant, license, or permit; (h) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of Property; (i) statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith, -26- PROVIDED that, if delinquent, adequate reserves have been set aside with respect thereto and, by reason of nonpayment, no Property is subject to a material impending risk of loss or forfeiture; (j) covenants, conditions, and restrictions affecting the use of Property which in the aggregate do not materially impair the fair market value or use of the Property for the purposes for which it is or may reasonably be expected to be held; (k) rights of tenants under leases and rental agreements covering Property entered into in the ordinary course of business of the Person owning such Property; (l) Liens consisting of pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable; (m) Liens consisting of pledges or deposits of Property to secure performance in connection with operating leases made in the ordinary course of business, PROVIDED the aggregate value of all such pledges and deposits in connection with any such lease does not at any time exceed 20% of the annual fixed rentals payable under such lease; (n) Liens consisting of deposits of Property to secure bids made with respect to, or performance of, contracts (OTHER THAN contracts creating or evidencing an extension of credit to the depositor); (o) Liens consisting of any right of offset, or statutory bankers' lien, on bank deposit accounts maintained in the ordinary course of business so long as such bank deposit accounts are not established or maintained for the purpose of providing such right of offset or bankers' lien; (p) Liens consisting of deposits of Property to secure statutory obligations of Borrowers; -27- (q) Liens consisting of deposits of Property to secure (or in lieu of) surety, appeal or customs bonds; (r) Liens created by or resulting from any litigation or legal proceeding in the ordinary course of business which is currently being contested in good faith by appropriate proceedings, PROVIDED that, adequate reserves have been set aside and no material Property is subject to a material impending risk of loss or forfeiture; and (s) other non-consensual Liens incurred in the ordinary course of business but not in connection with the incurrence of any Indebtedness, which do not in the aggregate, when taken together with all other Liens, materially impair the fair market value or use of the Property for the purposes for which it is or may reasonably be expected to be held. "PERMITTED RIGHT OF OTHERS" means a Right of Others consisting of (a) an interest (OTHER THAN a legal or equitable co-ownership interest, an option or right to acquire a legal or equitable co-ownership interest and any interest of a ground lessor under a ground lease), that does not materially impair the fair market value or use of Property for the purposes for which it is or may reasonably be expected to be held, (b) an option or right to acquire a Lien that would be a Permitted Encumbrance, (c) the subordination of a lease or sublease in favor of a financing entity and (d) a license, or similar right, of or to Intangible Assets granted in the ordinary course of business. "PERSON" means any individual or entity, INCLUDING a trustee, corporation, limited liability company, general partnership, limited partnership, joint stock company, trust, estate, unincorporated organization, business association, firm, joint venture, Governmental Agency, or other entity. "PRICING CERTIFICATE" means a certificate in the form of EXHIBIT J, properly completed and signed by a Senior Officer of Borrowers. "PRICING PERIOD" means (a) the period commencing on the Closing Date and ending on September 1, 1997, (b) the period commencing on each September 2, and ending on the next following December 1, (c) the period -28- commencing on each December 2 and ending on the next following March 1, (d) the period commencing on each March 2 and ending on the next following June 1, and (e) the period commencing on each June 2 and ending on the next following September 1. "PRIOR CREDIT AGREEMENT" means that certain Unsecured Line of Credit Loan Agreement dated as of January 24, 1997 between Parent (then known as "Health Science Properties, Inc.") and Bank of America National Trust Savings Association. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "PRO RATA SHARE" means, with respect to each Bank, the percentage of the Commitments set forth opposite the name of that Bank on SCHEDULE 1.1, as such percentage may be increased or decreased pursuant to a Commitments Assignment and Acceptance executed in accordance with Section 11.8. "QUALIFIED UNENCUMBERED ASSET POOL PROPERTY" means a Revenue-Producing Property that (a) is wholly owned in fee simple absolute by Parent or any other Borrower that is a Wholly-Owned Subsidiary, (b) is a Stabilized Revenue-Producing Property and (c) is Unencumbered. "QUARTERLY PAYMENT DATE" means each July 1, October 1, January 1 and April 1. "REAL PROPERTY" means, as of any date of determination, all real property then or theretofore owned, leased or occupied by any of Borrowers. "REFERENCE RATE" means the rate of interest publicly announced from time to time by the Domestic Reference Bank in San Francisco, California (or other headquarters city of the Domestic Reference Bank), as its "reference rate." It is a rate set by the Domestic Reference Bank based upon various factors including the Domestic Reference Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the Reference Rate announced by the Domestic Reference -29- Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "REGULATION D" means Regulation D, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulation in substance substituted therefor. "REGULATIONS G AND U" means Regulations G and U, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulations in substance substituted therefor. "RELATED VENTURE" means a corporation, limited liability company, partnership or other Person that owns one or more Revenue-Producing Properties and which is not a Wholly-Owned Subsidiary. "REQUEST FOR LOAN" means a written request for a Loan substantially in the form of EXHIBIT K, signed by a Responsible Official of any of Borrowers, on behalf of Borrowers, and properly completed to provide all information required to be included therein. "REQUIREMENT OF LAW" means, as to any Person, the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any Law, or judgment, award, decree, writ or determination of a Governmental Agency, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "REQUISITE BANKS" means (a) as of any date of determination if the Commitments are then in effect, Banks having in the aggregate 66-2/3% or more of the Commitments then in effect and (b) as of any date of determination if the Commitments have then been suspended or terminated and there is then any Indebtedness evidenced by the Notes, Banks holding Notes evidencing in the aggregate 66-2/3% or more of the aggregate Indebtedness then evidenced by the Notes. "RESPONSIBLE OFFICIAL" means (a) when used with reference to a Person other than an individual, any corporate officer of such Person, general partner of such Person, corporate officer of a corporate general partner of such Person, or -30- corporate officer of a corporate general partner of a partnership that is a general partner of such Person, or any other responsible official thereof duly acting on behalf thereof, and (b) when used with reference to a Person who is an individual, such Person. The Banks shall be entitled to conclusively rely upon any document or certificate that is signed or executed by a Responsible Official of Parent or any of its Subsidiaries as having been authorized by all necessary corporate, partnership and/or other action on the part of Parent or such Subsidiary. "REVENUE-PRODUCING PROPERTY" means an identifiable real estate property, such as an office building, laboratory, factory, warehouse or other facility (INCLUDING the underlying real property and all appurtenant real property rights) which produces revenue to Parent or a Subsidiary of Parent. "REVENUE-PRODUCING PROPERTY VALUE" means, as of the last day of each Fiscal Quarter, the value obtained by DIVIDING (a) the Annualized Adjusted NOI of all Revenue-Producing Properties for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters BY (b) the then effective Capitalization Rate. "REVOLVER TERMINATION DATE" means (a) May 31, 2000, (b) if the Revolver Termination Date has then been extended pursuant to Section 2.9, such extended Revolver Termination Date or (c) if the Term Loan Conversion has then been effected pursuant to Section 2.10, the Conversion Date. "RIGHT OF OTHERS" means, as to any Property in which a Person has an interest, any legal or equitable right, title or other interest (other than a Lien) held by any other Person in that Property, and any option or right held by any other Person to acquire any such right, title or other interest in that Property, INCLUDING any option or right to acquire a Lien; PROVIDED, however, that (a) no covenant restricting the use or disposition of Property of such Person contained in any Contractual Obligation of such Person and (b) no provision contained in a contract creating a right of payment or performance in favor of a Person that conditions, limits, restricts, diminishes, transfers or terminates such right shall be deemed to constitute a Right of Others. "SECURED RECOURSE DEBT" means Indebtedness of Parent or any of its -31- Subsidiaries (INCLUDING Indebtedness of a Related Venture which is the subject of a Guaranty Obligation of Parent or a Subsidiary of Parent or, if such Person is a partnership, of which Parent or a Subsidiary of Parent is a general partner) that (a) is secured by a Lien on Revenue-Producing Property and (b) for which the liability of Parent or its Subsidiary is not contractually limited. "SENIOR OFFICER" means (a) the chief executive officer, (b) the president, (c) any executive vice president, (d) any senior vice president, (e) the chief financial officer, (f) the treasurer or (g) any assistant treasurer, in each case of any of the Borrowers. "SPECIAL EURODOLLAR CIRCUMSTANCE" means the application or adoption after the Closing Date of any Law or interpretation, or any change therein or thereof, or any change in the interpretation or administration thereof by any Governmental Agency, central bank or comparable authority charged with the interpretation or administration thereof, or compliance by any Bank or its Eurodollar Lending Office with any request or directive (whether or not having the force of Law) of any such Governmental Agency, central bank or comparable authority. "STABILIZED REVENUE-PRODUCING PROPERTY" means a Revenue-Producing Property (a) that has been at least 85% (measured by rentable square feet) leased to Persons that are not an Affiliate of Parent for at least three (3) consecutive months and (b) that met the requirements of clause (a) at the time it became a part of the Unencumbered Asset Pool but subsequently failed to meet such requirements, BUT ONLY (i) so long as Borrowers are making reasonable efforts to cause such requirements to be met and (ii) for a period not exceeding six (6) months from the date upon which such requirements were first not met; PROVIDED, however, that the aggregate rentable square feet of all Revenue-Producing Properties which qualify as Stabilized Revenue-Producing Properties under this clause (B) may not at any time exceed 15% of the aggregate rentable square feet of all Revenue-Producing Properties that are in the Unencumbered Asset Pool. "STOCKHOLDERS' EQUITY" means, as of any date of determination and with respect to any Person, the consolidated stockholders' equity of the Person as of that date determined in accordance with Generally Accepted Accounting -32- Principles; PROVIDED that there shall be excluded from Stockholders' Equity any amount attributable to Disqualified Stock. "SUBSIDIARY" means, as of any date of determination and with respect to any Person, any corporation, limited liability company or partnership (whether or not, in any case, characterized as such or as a "joint venture"), whether now existing or hereafter organized or acquired: (a) in the case of a corporation or limited liability company, of which a majority of the securities having ordinary voting power for the election of directors or other governing body (other than securities having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person and/or one or more Subsidiaries of such Person, or (b) in the case of a partnership, of which a majority of the partnership or other ownership interests are at the time beneficially owned by such Person and/or one or more of its Subsidiaries. "SWAP AGREEMENT" means a written agreement between Borrowers and one or more financial institutions providing for "swap", "cap", "collar" or other interest rate protection with respect to any Indebtedness. "TANGIBLE NET WORTH" means, as of any date of determination, the Stockholders' Equity of Parent on that date MINUS the Intangible Assets of Parent and its Subsidiaries on that date. "TERM LOAN CONVERSION" means the conversion of all then outstanding Committed Loans to a term loan pursuant to Section 2.10. "TO THE BEST KNOWLEDGE OF" means, when modifying a representation, warranty or other statement of any Person, that the fact or situation described therein is known by the Person (or, in the case of a Person other than a natural Person, known by a Responsible Official of that Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) would have been known by the Person (or, in the case of a Person other than a natural Person, would have been known by a Responsible Official of that Person). "TOTAL LIABILITIES" means, as of any date of determination, the total -33- liabilities that are or should be reflected on a consolidated balance sheet of Parent and its Subsidiaries prepared in accordance with Generally Accepted Accounting Principles as of that date. "TYPE", when used with respect to any Loan or Advance, means the designation of whether such Loan or Advance is an Alternate Base Rate Loan or Advance, or a Eurodollar Rate Loan or Advance. "UNDEVELOPED PROPERTY" means all real property owned by Parent or a Subsidiary of Parent that is not (a) a Stabilized Revenue-Producing Property or (b) used exclusively for office purposes by Parent or a Subsidiary of Parent. "UNENCUMBERED" means, with respect to any Revenue-Producing Property, that such Revenue-Producing Property (a) is not subject to any Lien OTHER THAN Permitted Encumbrances, (b) is not subject to any Negative Pledge and (c) is not held by a Person any of whose equity interests are subject to a Lien or Negative Pledge in favor of any creditor of Parent or any of its Subsidiaries. "UNENCUMBERED ASSET POOL" means, as of any date of determination, (a) the Initial Pool Properties, PLUS (b) each other Qualified Unencumbered Asset Pool Property which has been added to the Unencumbered Asset Pool pursuant to Section 2.11 as of such date, MINUS (c) any Revenue-Producing Property which has been removed from the Unencumbered Asset Pool pursuant to Section 2.11 as of such date. "UNENCUMBERED ASSET POOL VALUE" means, as of the last day of each Fiscal Quarter, the value obtained by DIVIDING (a) the Annualized Adjusted NOI of the Revenue-Producing Properties in the Unencumbered Asset Pool for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters BY (b) the then effective Capitalization Rate. "WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of Parent, 100% of the capital stock or other equity interest of which is owned, directly or indirectly, by Parent, EXCEPT for director's qualifying shares required by applicable Laws. 1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall -34- refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. 1.3 ACCOUNTING TERMS. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, Generally Accepted Accounting Principles applied on a consistent basis, EXCEPT as otherwise specifically prescribed herein. In the event that Generally Accepted Accounting Principles change during the term of this Agreement such that the covenants contained in Sections 6.5 through 6.14, inclusive, would then be calculated in a different manner or with different components, (a) Borrowers and the Banks agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Borrowers' financial condition to substantially the same criteria as were effective prior to such change in Generally Accepted Accounting Principles and (b) Borrowers shall be deemed to be in compliance with the covenants contained in the aforesaid Sections if and to the extent that Borrowers would have been in compliance therewith under Generally Accepted Accounting Principles as in effect immediately prior to such change, but shall have the obligation to deliver each of the materials described in ARTICLE 7 to the Managing Agent and the Banks, on the dates therein specified, with financial data presented in a manner which conforms with Generally Accepted Accounting Principles as in effect immediately prior to such change. 1.4 ROUNDING. Any financial ratios required to be maintained by Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.5 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.6 REFERENCES TO "BORROWERS AND THEIR SUBSIDIARIES". Any reference herein to "Borrowers and their Subsidiaries" or the like shall refer solely to Borrowers during such times, if any, as Borrowers shall have no Subsidiaries. -35- 1.7 MISCELLANEOUS TERMS. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. -36- Article 2 LOANS 2.1 COMMITTED LOANS-GENERAL. (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Revolver Termination Date, each Bank shall, pro rata according to that Bank's Pro Rata Share of the then applicable Line A Commitment, make Advances to Borrowers under the Line A Commitment in such amounts as Borrowers may request that do not result in (i) the aggregate principal amount outstanding under the Line A Notes to exceed the Line A Commitment or (ii) the aggregate principal amount outstanding under the Notes to exceed the LESSER OF (A) the SUM OF the Line A Commitment PLUS the Activated Line B Commitment or (B) the Borrowing Base. Subject to the limitations set forth herein, Borrowers may borrow, repay and reborrow under the Line A Commitment without premium or penalty. (b) Borrowers may at any time activate all or a portion (in amounts that are an integral multiple of $1,000,000 and not less than $10,0000,000) of the Line B Commitment upon written notice to that effect to the Managing Agent accompanied by payment of the activation fee then due and payable pursuant to Section 3.3; PROVIDED that (i) no Event of Default then exists and (ii) no more than five (5) such activations may be made. Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Revolver Termination Date, each Bank shall, pro rata according to that Bank's Pro Rata Share of the then applicable Line B Commitment, make Advances to Borrowers under the Activated Line B Commitment in such amounts as Borrowers may request that do not result in (i) the aggregate principal amount outstanding under the Line B Notes to exceed the Activated Line B Commitment or (ii) the aggregate principal amount outstanding under the Notes to exceed the LESSER OF (A) the SUM OF the Line A Commitment PLUS the Activated Line B Commitment or (B) the Borrowing Base. Subject to the limitations set forth herein, Borrowers may borrow, repay and reborrow under the Activated Line B Commitment without premium or penalty. -37- (c) Subject to the next sentence, each Loan shall be made pursuant to a Request for Loan which shall specify the requested (i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan, and (iv) in the case of a Eurodollar Rate Loan, the Interest Period for such Loan. Unless the Managing Agent has notified, in its sole and absolute discretion, Borrowers to the contrary, a Loan may be requested by telephone by a Responsible Official of Borrowers, in which case Borrowers shall confirm such request by promptly delivering a Request for Loan in person or by telecopier conforming to the preceding sentence to the Managing Agent. Managing Agent shall incur no liability whatsoever hereunder in acting upon any telephonic request for Loan purportedly made by a Responsible Official of Borrowers, and Borrowers hereby agree to indemnify the Managing Agent from any loss, cost, expense or liability as a result of so acting. (d) Promptly following receipt of a Request for Loan, the Managing Agent shall notify each Bank by telephone or telecopier (and if by telephone, promptly confirmed by telecopier) of the date and type of the Loan, the applicable Interest Period, and that Bank's Pro Rata Share of the Loan. Not later than 10:00 a.m., California time, on the date specified for any Loan (which must be a Banking Day), each Bank shall make its Pro Rata Share of the Loan in immediately available funds available to the Managing Agent at the Managing Agent's Office. Upon satisfaction or waiver of the applicable conditions set forth in ARTICLE 8, all Advances shall be credited on that date in immediately available funds to the Designated Deposit Account. (e) Unless the Requisite Banks otherwise consent, each Alternate Base Rate Loan shall be not less than $2,000,000, each Eurodollar Rate Loan shall be not less than $5,000,000 and all Loans shall be in an integral multiple of $1,000,000. (f) The Advances made by each Bank under the Line A Commitment shall be evidenced by that Bank's Line A Note. The Advances made by each Bank under the Line B Commitment shall be evidenced by that Bank's Line B Note. (g) A Request for Loan shall be irrevocable upon the -38- Managing Agent's first notification thereof. (h) If no Request for Loan (or telephonic request for Loan referred to in the second sentence of Section 2.1(C), if applicable) has been made within the requisite notice periods set forth in Section 2.2 or 2.3 prior to the end of the Interest Period for any Eurodollar Rate Loan, then on the last day of such Interest Period, such Eurodollar Rate Loan shall be automatically converted into an Alternate Base Rate Loan in the same amount. 2.2 ALTERNATE BASE RATE LOANS. Each request by Borrowers for an Alternate Base Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for loan referred to in the second sentence of Section 2.1(C), if applicable) received by the Managing Agent, at the Managing Agent's Office, not later than 11:00 a.m. California time, on the date (which must be a Banking Day) prior to the date of the requested Alternate Base Rate Loan. All Loans shall constitute Alternate Base Rate Loans unless properly designated as a Eurodollar Rate Loan pursuant to Section 2.3. 2.3 EURODOLLAR RATE LOANS. (a) Each request by Borrowers for a Eurodollar Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for Loan referred to in the second sentence of Section 2.1(C), if applicable) received by the Managing Agent, at the Managing Agent's Office, not later than 9:00 a.m., California time, at least three (3) Eurodollar Banking Days before the first day of the applicable Eurodollar Period. (b) On the date which is two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period, the Managing Agent shall confirm its determination of the applicable Eurodollar Rate (which determination shall be conclusive in the absence of manifest error) and promptly shall give notice of the same to Borrowers and the Banks by telephone or telecopier (and if by telephone, promptly confirmed by telecopier). (c) Unless the Managing Agent and the Requisite Banks otherwise consent, no more than ten (10) Eurodollar Rate Loans shall be outstanding at any one time. -39- (d) No Eurodollar Rate Loan may be requested during the continuation of a Default or Event of Default. (e) Nothing contained herein shall require any Bank to fund any Eurodollar Rate Advance in the Designated Eurodollar Market. 2.4 COMPETITIVE ADVANCES. (a) Subject to the terms and conditions hereof, at any time and from time to time from the Closing Date through the Revolver Termination Date, each Bank may in its sole and absolute discretion make Competitive Advances to Borrower in such principal amounts as Borrowers may request pursuant to a Competitive Bid Request that do not result in (i) the aggregate principal amount outstanding under the Competitive Advance Notes being in excess of the GREATER OF (A) $35,000,000 or (B) an amount equal to 33 1/3% of the SUM OF the Line A Commitment PLUS the Activated Line B Commitment or (ii) the aggregate principal amount outstanding under the Notes to exceed the LESSER OF (A) the SUM OF the Line A Commitment PLUS the Activated Line B Commitment or (B) the Borrowing Base. (b) Borrowers shall request Competitive Advances by submitting a Competitive Bid Request to the Managing Agent, which Competitive Bid Request shall specify the relevant date, amount and maturity for the proposed Competitive Advance and shall state whether a Competitive Bid is requested on the basis of a fixed interest rate (an "Absolute Rate Bid") or on the basis of a margin over the Eurodollar Rate (a "Eurodollar Margin Bid") and which shall be accompanied by payment of a nonrefundable $2500 competitive bid request fee for the account of the Managing Agent. Any Competitive Bid Request made by telephone shall promptly be confirmed by the delivery to the Managing Agent in person or by telecopier of a written Competitive Bid Request. The Managing Agent shall incur no liability whatsoever hereunder in acting upon any telephonic Competitive Bid Request purportedly made by a Responsible Official of Borrowers, which hereby agrees to indemnify the Managing Agent from any loss, cost, expense or liability as a result of so acting. The Competitive Bid Request must be received by the Managing Agent not later than 9:15 a.m. California time on a Banking Day that is at least one (1) Banking Day prior to the date of the proposed Competitive -40- Advance if an Absolute Rate Bid is requested; if a Eurodollar Margin Bid is requested, it must be received by the Administrative Agent at least five (5) Banking Days prior to the date of the proposed Competitive Advance. (c) Unless the Managing Agent otherwise agrees, in its sole and absolute discretion, no Competitive Bid Request shall be made by Borrowers if Borrowers have within the current calendar month submitted five (5) or more Competitive Bid Requests. (d) Each Competitive Bid Request must be made for a Competitive Advance of at least $10,000,000 and shall be in an integral multiple of $1,000,000. (e) No Competitive Bid Request shall be made for a Competitive Advance with a maturity of less than 7 days or more than 180 days, or with a maturity date subsequent to the Maturity Date. (f) The Managing Agent shall, promptly after receipt of a Competitive Bid Request, notify the Banks thereof by telephone and provide the Banks a copy thereof by telecopier. Any Bank may, by written notice to the Managing Agent, advise the Managing Agent that it elects not to be so notified of Competitive Bid Requests, in which case the Managing Agent shall not notify such Bank of the Competitive Bid Request. (g) Each Bank receiving a Competitive Bid Request may, in its sole and absolute discretion, make or not make a Competitive Bid responsive to the Competitive Bid Request. Each Competitive Bid shall be submitted to the Managing Agent not later than 7:30 a.m. (or, in the case of the Domestic Reference Bank, not later than 7:15 a.m.) California time, in the case of a Eurodollar Margin Bid, on the date which is four (4) Banking Days prior to the requested Competitive Advance and, in the case of an Absolute Rate Bid, on the date of the requested Competitive Advance. Any Competitive Bid received by the Managing Agent after 7:30 a.m. (or 7:15 a.m. in the case of the Domestic Reference Bank) on such date shall be disregarded for purposes of this Agreement. Any Competitive Bid made by telephone shall promptly be confirmed by the delivery to the Managing Agent in person or by telecopier of a written Competitive Bid. The Managing Agent shall incur no liability whatsoever hereunder in acting upon any telephonic Competitive Bid -41- purportedly made by a Responsible Official of a Bank, each of which hereby agrees to indemnify the Managing Agent from any loss, cost, expense or liability as a result of so acting with respect to that Bank. (h) Each Competitive Bid shall specify the fixed interest rate or the margin over the Eurodollar Rate, as applicable, for the offered Maximum Competitive Advance set forth in the Competitive Bid. The Maximum Competitive Advance offered by a Bank in a Competitive Bid may be less than the Competitive Advance requested by Borrower in the Competitive Bid Request, but shall be an integral multiple of $1,000,000. Any Competitive Bid which offers an interest rate OTHER THAN a fixed interest rate or a margin over the Eurodollar Rate, is in a form other than set forth in EXHIBIT C or which otherwise contains any term, condition or provision not contained in the Competitive Bid Request shall be disregarded for purposes of this Agreement. A Competitive Bid once submitted to the Managing Agent shall be irrevocable until 8:30 a.m. California time, in the case of a Eurodollar Margin Bid, on the date which is three (3) Banking Days prior to the requested Competitive Advance and, in the case of an Absolute Rate Bid, on the date of the proposed Competitive Advance set forth in the related Competitive Bid Request, and shall expire by its terms at such time unless accepted by Borrower prior thereto. (i) Promptly after 7:30 a.m. California time, in the case of a Eurodollar Margin Bid, on the date which is four (4) Banking Days prior to the date of the proposed Competitive Advance and, in the case of an Absolute Rate Bid, on the date of the proposed Competitive Advance, the Managing Agent shall notify Borrowers of the names of the Banks providing Competitive Bids to the Managing Agent at or before 7:30 a.m. on that date (or 7:15 a.m. in the case of the Domestic Reference Bank) and the Maximum Competitive Advance and fixed interest rate or margin over the Eurodollar Rate set forth by each such Bank in its Competitive Bid. The Managing Agent shall promptly confirm such notification in writing delivered in person or by telecopier to Borrower. (j) Borrowers may, in their sole and absolute discretion, reject any or all of the Competitive Bids. If Borrowers accept any Competitive Bid, the following shall apply: (i) Borrowers must accept all Absolute Rate Bids at all lower fixed interest rates before accepting any portion of an Absolute Rate Bid at a higher fixed interest rate, (ii) Borrowers must accept all Eurodollar Margin Bids at all lower margins over the Eurodollar Rate before accepting any -42- portion of a Eurodollar Margin Bid at a higher margin over the Eurodollar Rate, (iii) if two or more Banks have submitted a Competitive Bid at the same fixed interest rate or margin, then Borrowers must accept either all of such Competitive Bids or accept such Competitive Bids in the same proportion as the Maximum Competitive Advance of each Bank bears to the aggregate Maximum Competitive Advances of all such Banks, and (iv) Borrowers may not accept Competitive Bids for an aggregate amount in excess of the requested Competitive Advance set forth in the Competitive Bid Request. Acceptance by Borrowers of a Eurodollar Margin Rate Bid must be made prior to 8:30 a.m. on the date which is three (3) Banking Days prior to the requested Competitive Advance and acceptance by Borrower of an Absolute Rate Bid must be made prior to 8:30 a.m. on the date of the requested Competitive Advance. Acceptance of a Competitive Bid by Borrowers shall be accomplished by notification thereof to the Managing Agent and shall be irrevocable upon such notification. The Managing Agent shall promptly notify each of the Banks whose Competitive Bid has been accepted by Borrowers by telephone, which notification shall promptly be confirmed in writing delivered in person or by telecopier to such Banks. Any Competitive Bid not accepted by Borrowers by 8:30 a.m., in the case of a Eurodollar Margin Bid, on the date which is three (3) Banking Days prior to the proposed Competitive Advance or, in the case of an Absolute Rate Bid, on the date of the proposed Competitive Bid, shall be deemed rejected. (k) In the case of a Eurodollar Margin Bid, the Managing Agent shall determine the Eurodollar Rate on the date which is two (2) Eurodollar Banking Days prior to the date of the proposed Competitive Advance, and shall promptly thereafter notify Borrowers and the Banks whose Eurodollar Margin Bids were accepted by Borrowers of such Eurodollar Rate. (l) A Bank whose Competitive Bid has been accepted by Borrowers shall make the Competitive Advance in accordance with the Competitive Bid Request and with its Competitive Bid, subject to the applicable conditions set forth in this Agreement, by making funds immediately available to the Managing Agent at the Managing Agent's Office in the amount of such Competitive Advance not later than 12:00 noon, California time, on the date set forth in the Competitive Bid Request. The Managing Agent shall then promptly credit the Competitive Advance in immediately available funds to the -43- Designated Deposit Account. (m) The Managing Agent shall notify Borrowers and the Banks promptly after any Competitive Advance is made of the amounts and maturity of such Competitive Advances and the identity of the Banks making such Competitive Advances. (n) The Competitive Advances made by a Bank shall be evidenced by that Bank's Competitive Advance Note. (o) No Competitive Advance may be prepaid without the prior written consent of the affected Bank. 2.5 VOLUNTARY REDUCTION OF COMMITMENTS. Borrowers shall have the right, at any time and from time to time, without penalty or charge, upon at least three (3) Banking Days' prior written notice by a Responsible Official of Borrowers to the Managing Agent, voluntarily to reduce, permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 but not less than $5,000,000, or to terminate, all or a portion of the then undisbursed portion of the Commitments. The Managing Agent shall promptly notify the Banks of any reduction or termination of the Commitments under this Section. 2.6 AUTOMATIC REDUCTION OF COMMITMENTS. On each Amortization Date, the Commitments shall automatically be reduced by the applicable Amortization Amount. 2.7 OPTIONAL TERMINATION OF COMMITMENTS. Following the occurrence of a Change in Control, the Requisite Banks may in their sole and absolute discretion elect, during the thirty (30) day period immediately subsequent to the LATER OF (a) such occurrence or (b) the EARLIER of (i) receipt of Borrowers' written notice to the Managing Agent of such occurrence or (ii) if no such notice has been received by the Managing Agent, the date upon which the Managing Agent has actual knowledge thereof, to terminate the Commitments, in which case the Commitments shall be terminated effective on the date which is thirty (30) days subsequent to written notice from the Managing Agent to Borrowers thereof. -44- 2.8 MANAGING AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR ADVANCES. Unless the Managing Agent shall have been notified by any Bank no later than 10:00 a.m. on the Banking Day of the proposed funding by the Managing Agent of any Loan that such Bank does not intend to make available to the Managing Agent such Bank's portion of the total amount of such Loan, the Managing Agent may assume that such Bank has made such amount available to the Managing Agent on the date of the Loan and the Managing Agent may, in reliance upon such assumption, make available to Borrowers a corresponding amount. If the Managing Agent has made funds available to Borrowers based on such assumption and such corresponding amount is not in fact made available to the Managing Agent by such Bank, the Managing Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Managing Agent's demand therefor, the Managing Agent promptly shall notify Borrowers and Borrowers shall pay such corresponding amount to the Managing Agent. The Managing Agent also shall be entitled to recover from such Bank interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Managing Agent to Borrowers to the date such corresponding amount is recovered by the Managing Agent, at a rate per annum equal to the daily Federal Funds Rate. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its share of the Commitments or to prejudice any rights which the Managing Agent or Borrowers may have against any Bank as a result of any default by such Bank hereunder. 2.9 EXTENSION OF REVOLVER TERMINATION DATE. (a) The Revolver Termination Date may be extended for one-year periods at the request of Borrowers and with the written consent of all of the Banks (which may be withheld in the sole and absolute discretion of each Bank) pursuant to this Section. Not earlier than June 1, 1998 nor later than July 1, 1998, or in the corresponding period in each subsequent year, and provided that Borrowers are then in compliance with Section 7.1, Borrowers may deliver to the Managing Agent and the Banks a written request for a one year extension of the Revolver Termination Date together with a Certificate of a Responsible Official signed by a Senior Officer on behalf of Borrowers stating that the representations and warranties contained in ARTICLE 4 (OTHER THAN (i) representations and warranties which expressly speak as of a particular date -45- or are no longer true and correct as a result of a change which is not a violation of this Agreement and (ii) as otherwise disclosed by Borrowers and approved in writing by the Requisite Banks are true and correct on and as of the date of such Certificate). Each Bank shall, on or prior to the date that is sixty (60) days after receipt of such written request, notify in writing the Managing Agent whether (in its sole and absolute discretion) it consents to such request and the Managing Agent shall, after receiving the notifications from all of the Banks or the expiration of such period, whichever is earlier, notify Borrowers and the Banks of the results thereof. If all of the Banks have consented, then the Revolver Termination Date shall be automatically extended for one year upon payment by Borrowers to the Managing Agent of the extension fee pursuant to Section 3.6. (b) If Banks holding 80% or more of the Commitments (the "Approving Banks") consent to the request for extension, but one or more Banks (the "Disapproving Banks") notifies the Managing Agent that it will not consent to the request for extension (or fails to notify the Managing Agent in writing of its consent to the extension by the date that is sixty (60) days after receipt of such written request), Borrowers may at their option reduce the Commitments by an amount equal to the amount thereof held by the Disapproving Banks, adjust the Pro-Rata Shares (but not the amount) of the reduced Commitments of the Approving Banks to correspond with the reduced Commitments and, subject to the further written consent of all the Approving Banks, the Revolver Termination Date shall automatically be extended for one year upon payment by Borrowers to the Managing Agent of the extension fee pursuant to Section 3.6. (c) If Banks holding 80% or more of the Commitments do not consent to the request for extension, Borrowers may, within the thirty (30) day period following expiration of the aforesaid sixty (60) day period, cause the Disapproving Banks to assign their Pro-Rata Shares of the Commitments to an Eligible Assignee acceptable to Borrowers and the Managing Agent pursuant to Section 11.25. Upon completion of such assignments, the request for extension shall be renewed and, subject to the written consent of all of the Banks (INCLUDING the new Banks), the Revolver Termination Date shall automatically be extended for one year upon payment by Borrowers to the Managing Agent of the extension fee pursuant to Section 3.6. -46- 2.10 TERM LOAN CONVERSION. Borrowers may at any time elect to convert the credit facility under this Agreement to a term loan by delivery of a written notice to that effect to the Managing Agent and payment of the extension fee payable pursuant to Section 3.6. The Line A Notes and the Line A Notes will continue to evidence the outstanding Indebtedness incurred under the Line A Commitment and the Line B Commitment subsequent to such conversion. The term loan so elected shall commence on the Conversion Date and shall be payable in Amortization Amounts on each Amortization Date. 2.11 UNENCUMBERED ASSET POOL. Borrowers may at any time add a Qualified Unencumbered Asset Pool Property to the Unencumbered Asset Pool pursuant to this Section 2.11, which process shall be initiated by delivery by Borrowers to the Managing Agent (which the Managing Agent shall promptly distribute to the Banks) of a complete description of the Qualified Unencumbered Asset Pool Property, at least two (2) years of operating income statements related thereto (to the extent available), a description of all tenants and leases with respect thereto, a current written report prepared by a qualified independent expert with respect to Hazardous Materials related thereto and other written materials reasonably requested by any Bank. Thereafter: (a) If at that date either of the Consent Criteria is satisfied, the Qualified Unencumbered Asset Pool Property so described shall thereupon become part of the Unencumbered Asset Pool; or (b) If at that date neither of the Consent Criteria is satisfied, the Qualified Unencumbered Asset Pool Property so described shall become part of the Unencumbered Asset Pool on the tenth (10th) day after the date the aforesaid descriptive materials are delivered to the Managing Agent UNLESS on or before such day Banks holding 51% or more of the Commitments have notified Borrowers and the Managing Agent in writing that they object to the addition of such Qualified Unencumbered Asset Pool Property to the Unencumbered Asset Pool, which notifications shall state the reason or reasons for such objection. Borrowers may remove a Revenue-Producing Property from the Unencumbered Asset Pool by delivery to the Managing Agent (for distribution to the Banks) of a written -47- notice to that effect, accompanied by a Certificate of a Senior Officer of Borrowers setting forth the revised Borrowing Base as of the most recently-ended Fiscal Quarter resulting from such removal, which removal shall be effective on the tenth (10th) day after the date of such notice. 2.12 REPRESENTATIVE OF BORROWERS. Each of Borrowers hereby appoints Parent as its agent, attorney-in-fact and representative for the purpose of making Requests for Loans, Competitive Bid Requests, acceptance of Competitive Bids, payment and prepayment of Loans and Competitive Advances, the giving and receipt of notices by and to Borrowers under this Agreement and all other purposes incidental to any of the foregoing. Each of Borrowers agrees that any action taken by Parent as the agent, attorney-in-fact and representative of such Borrower shall be binding on such Borrowers to the same extent as if directly taken by such Borrower. -48- Article 3 PAYMENTS AND FEES 3.1 PRINCIPAL AND INTEREST. (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Advance from the date thereof until payment in full is made and shall accrue and be payable at the rates set forth or provided for herein before and after Default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law, with interest on overdue interest at the Default Rate to the fullest extent permitted by applicable Laws. (b) Interest accrued on each Alternate Base Rate Loan shall be due and payable on each Monthly Payment Date. EXCEPT as otherwise provided in Section 3.9, the unpaid principal amount of any Alternate Base Rate Loan shall bear interest at a fluctuating rate per annum equal to the Alternate Base Rate PLUS the Applicable Alternate Base Rate Margin. Each change in the interest rate under this Section 3.1(b) due to a change in the Alternate Base Rate shall take effect simultaneously with the corresponding change in the Alternate Base Rate. (c) Interest accrued on each Eurodollar Rate Loan shall be due and payable on each Monthly Payment Date. EXCEPT as otherwise provided in Section 3.9, the unpaid principal amount of any Eurodollar Rate Loan shall bear interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar Rate Loan PLUS the Applicable Eurodollar Rate Margin. (d) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be payable as follows: (i) the amount, if any, by which (A) the principal Indebtedness evidenced by the Line A Notes at any time exceeds the then applicable Line A Commitment or (B) the principal Indebtedness evidenced by the Line B Notes at any time exceeds the then applicable Line B Commitment, shall in each case be payable immediately; -49- (ii) the amount, if any, by which the principal Indebtedness evidenced by the Notes at any time exceeds the SUM OF the Line A Commitment PLUS the Activated Line B Commitment shall be payable immediately; (iii) the amount, if any, by which the principal Indebtedness evidenced by the Notes at any time exceeds the Borrowing Base shall (A) if the Net Leverage Amount is then the determinative component of the Borrowing Base, be payable immediately and (B) if the Net Mortgage Amount is then the determinative component of the Borrowing Base, be payable as follows: (aa) immediately, in an amount equal to the excess of such Indebtedness over the Net Mortgage Amount assuming that the related Mortgage Amount was calculated with a Support Multiple (as such term is used in the definition of Mortgage Amount) of 180%, rather than 200%; (bb) concurrently with the determination of the Net Mortgage Amount for the next following Fiscal Quarter, in an amount equal to the excess of such Indebtedness over the Net Mortgage Amount assuming that the related Mortgage Amount was calculated with a Support Multiple of 190%, rather than 200%; and (cc) concurrently with the determination of the Net Mortgage Amount for the next following Fiscal Quarter, in an amount equal to the excess of such Indebtedness over the Net Mortgage Amount; (iv) the principal Indebtedness evidenced by each Competitive Advance Note shall be payable on the maturity date of each Competitive Advance in the amount of such Competitive Advance; and -50- (v) the principal Indebtedness evidenced by the Notes shall in any event be payable on the Maturity Date. (e) The Notes may, at any time and from time to time, voluntarily be paid or prepaid in whole or in part without premium or penalty, EXCEPT that with respect to any voluntary prepayment under this Section, (i) any partial prepayment shall be not less than $2,000,000, (ii) the Managing Agent shall have received written notice of any prepayment by 9:00 a.m. California time on the date of prepayment (which must be a Banking Day) in the case of an Alternate Base Rate Loan, and, in the case of a Eurodollar Rate Loan, three (3) Banking Days before the date of prepayment, which notice shall identify the date and amount of the prepayment and the Loan(s) being prepaid, (iii) each prepayment of principal on any Eurodollar Rate Loan shall be accompanied by payment of interest accrued to the date of payment on the amount of principal paid, (iv) any payment or prepayment of all or any part of any Eurodollar Rate Loan on a day other than the last day of the applicable Interest Period shall be subject to Section 3.8(e) and (v) upon any partial prepayment of a Eurodollar Rate Loan that reduces it below $5,000,000, the remaining portion thereof shall automatically convert to an Alternate Base Rate Loan. 3.2 ARRANGEMENT FEE. On the Closing Date, Borrowers shall pay to the Managing Agent the balance of the arrangement fee as heretofore agreed upon by letter agreement between Borrowers and the Managing Agent. The arrangement fee paid to the Managing Agent is solely for its own account and is nonrefundable. 3.3 LINE B COMMITMENT ACTIVATION FEE. On each activation of all or a portion of the Line B Commitment, Borrowers shall pay to the Managing Agent, for the respective accounts of the Banks pro rata according to their Pro Rata Share of the Commitments, an activation fee of .25% (25 basis points) TIMES the amount of the Line B Commitment then so activated. 3.4 COMMITMENT FEE. From the Closing Date through the Revolver Termination Date, Borrowers shall pay to the Managing Agent, for the ratable accounts of the Banks pro rata according to their Pro Rata Share of the Commitments, a commitment fee equal to the daily Applicable Commitment Fee Rate per annum TIMES the average daily amount by which the Line A Commitment plus the Activated Line B Commitment exceed the aggregate daily principal Indebtedness evidenced by the -51- Line A Notes and the Line B Notes. The commitment fee shall be payable quarterly in arrears on each Quarterly Payment Date and on the Revolver Termination Date. 3.5 AGENCY FEE. Borrowers shall pay to the Managing Agent an agency fee in such amounts and at such times as heretofore agreed upon by letter agreement between Borrowers and the Managing Agent. The agency fee paid to the Managing Agent is solely for its own account and is nonrefundable. 3.6 EXTENSION FEES. Borrowers shall pay to the Managing Agent, for the respective accounts of the Banks pro rata according to their Pro Rata Share of the Commitments, an extension fee of .125% (12.5 basis points) TIMES the Line A Commitment and the Activated Line B Commitment concurrently with (a) each extension of the Revolver Termination Date pursuant to Section 2.9 and (b) its election to effect the Term Loan Conversion pursuant to Section 2.10. 3.7 INCREASED COMMITMENT COSTS. If any Bank shall determine in good faith that the introduction after the Closing Date of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Agency charged with the interpretation or administration thereof, or compliance by such Bank (or its Eurodollar Lending Office) or any corporation controlling such Bank, with any request, guideline or directive regarding capital adequacy (whether or not having the force of Law) of any such central bank or other authority not imposed as a result of such Bank's or such corporation's failure to comply with any other Laws, affects or would affect the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines in good faith that the amount of such capital is increased, or the rate of return on capital is reduced, as a consequence of its obligations under this Agreement, then, within ten (10) Banking Days after demand of such Bank, Borrowers shall pay to such Bank, from time to time as specified in good faith by such Bank, additional amounts sufficient to compensate such Bank in light of such circumstances, to the extent reasonably allocable to such obligations under this Agreement, PROVIDED that Borrowers shall not be obligated to pay any such amount which arose prior to the date which is ninety (90) days preceding the date of such demand or is attributable to periods prior to the date which is ninety (90) days preceding the date of such demand. Each Bank's determination of such amounts shall -52- be conclusive in the absence of manifest error. 3.8 EURODOLLAR COSTS AND RELATED MATTERS. (a) In the event that any Governmental Agency imposes on any Bank any reserve or comparable requirement (INCLUDING any emergency, supplemental or other reserve) with respect to the Eurodollar Obligations of that Bank, Borrowers shall pay that Bank within five (5) Banking Days after demand all amounts necessary to compensate such Bank (determined as though such Bank's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market) in respect of the imposition of such reserve requirements (PROVIDED, that Borrowers shall not be obligated to pay any such amount which arose prior to the date which is ninety (90) days preceding the date of such demand or is attributable to periods prior to the date which is ninety (90) days preceding the date of such demand). The Bank's determination of such amount shall be conclusive in the absence of manifest error. (b) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance: (1) shall subject any Bank or its Eurodollar Lending Office to any tax, duty or other charge or cost with respect to any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances, or shall change the basis of taxation of payments to any Bank attributable to the principal of or interest on any Eurodollar Rate Advance or any other amounts due under this Agreement in respect of any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances (PROVIDED, that Borrowers shall not be obligated to pay any such amount which arose prior to the date which is ninety (90) days preceding the date of such demand or is attributable to periods prior to the date which is ninety (90) days preceding the date of such demand), EXCLUDING (i) taxes imposed on or measured in whole or in part by its overall net income by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any -53- jurisdiction (or political subdivision thereof) in which it is "doing business" and (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws; (2) shall impose, modify or deem applicable any reserve not applicable or deemed applicable on the date hereof (INCLUDING any reserve imposed by the Board of Governors of the Federal Reserve System, special deposit, capital or similar requirements against assets of, deposits with or for the account of, or credit extended by, any Bank or its Eurodollar Lending Office); or (3) shall impose on any Bank or its Eurodollar Lending Office or the Designated Eurodollar Market any other condition affecting any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans, its obligation to make Eurodollar Rate Advances or this Agreement, or shall otherwise affect any of the same; and the result of any of the foregoing, as determined in good faith by such Bank, increases the cost to such Bank or its Eurodollar Lending Office of making or maintaining any Eurodollar Rate Advance or in respect of any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances or reduces the amount of any sum received or receivable by such Bank or its Eurodollar Lending Office with respect to any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances (assuming such Bank's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market), then, within five (5) Banking Days after demand by such Bank (with a copy to the Managing Agent), Borrowers shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction (determined as though such Bank's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market). A statement of any Bank claiming compensation under this subsection shall be conclusive in the absence of manifest error. -54- (c) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall, in the good faith opinion of any Bank, make it unlawful or impossible for such Bank or its Eurodollar Lending Office to make, maintain or fund its portion of any Eurodollar Rate Loan, or materially restrict the authority of such Bank to purchase or sell, or to take deposits of, Dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the Eurodollar Rate, and such Bank shall so notify the Managing Agent, then such Bank's obligation to make Eurodollar Rate Advances shall be suspended for the duration of such illegality or impossibility and the Managing Agent forthwith shall give notice thereof to the other Banks and Borrowers. Upon receipt of such notice, the outstanding principal amount of such Bank's Eurodollar Rate Advances, together with accrued interest thereon, automatically shall be converted to Alternate Base Rate Advances on either (1) the last day of the Eurodollar Period(s) applicable to such Eurodollar Rate Advances if such Bank may lawfully continue to maintain and fund such Eurodollar Rate Advances to such day(s) or (2) immediately if such Bank may not lawfully continue to fund and maintain such Eurodollar Rate Advances to such day(s), PROVIDED that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.8(e). Each Bank agrees to endeavor promptly to notify Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will cause that Bank to notify the Managing Agent under this Section, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Bank, otherwise be materially disadvantageous to such Bank. In the event that any Bank is unable, for the reasons set forth above, to make, maintain or fund its portion of any Eurodollar Rate Loan, such Bank shall fund such amount as an Alternate Base Rate Advance for the same period of time, and such amount shall be treated in all respects as an Alternate Base Rate Advance. Any Bank whose obligation to make Eurodollar Rate Advances has been suspended under this Section shall promptly notify the Managing Agent and Borrowers of the cessation of the Special Eurodollar Circumstance which gave rise to such suspension. (d) If, with respect to any proposed Eurodollar Rate Loan: (1) the Managing Agent reasonably determines that, by -55- reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Banks, deposits in Dollars (in the applicable amounts) are not being offered to any Bank in the Designated Eurodollar Market for the applicable Eurodollar Period; or (2) the Requisite Banks advise the Managing Agent that the Eurodollar Rate as determined by the Managing Agent (i) does not represent the effective pricing to such Banks for deposits in Dollars in the Designated Eurodollar Market in the relevant amount for the applicable Eurodollar Period, or (ii) will not adequately and fairly reflect the cost to such Banks of making the applicable Eurodollar Rate Advances; then the Managing Agent forthwith shall give notice thereof to Borrowers and the Banks, whereupon until the Managing Agent notifies Borrowers that the circumstances giving rise to such suspension no longer exist, the obligation of the Banks to make any future Eurodollar Rate Advances shall be suspended. (e) Upon payment or prepayment of any Eurodollar Rate Advance (OTHER THAN as the result of a conversion required under Section 3.8(c) on a day other than the last day in the applicable Eurodollar Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrowers (for a reason other than the breach by a Bank of its obligation pursuant to Sections 2.1(a) or 2.1(b) to make an Advance) to borrow on the date or in the amount specified for a Eurodollar Rate Loan in any Request for Loan, Borrowers shall pay to the appropriate Bank within ten (10) Banking Days after demand a prepayment fee or failure to borrow fee, as the case may be (determined as though 100% of the Eurodollar Rate Advance had been funded in the Designated Eurodollar Market) equal to the SUM of: (1) $250; PLUS (2) the amount, if any, by which (i) the additional interest would have accrued on the amount prepaid or not borrowed at the Eurodollar Rate PLUS the Applicable Eurodollar Rate Margin if that amount had remained or been outstanding through the last day of the applicable Interest Period EXCEEDS (ii) the interest that the Bank could -56- recover by placing such amount on deposit in the Designated Eurodollar Market for a period beginning on the date of the prepayment or failure to borrow and ending on the last day of the applicable Interest Period (or, if no deposit rate quotation is available for such period, for the most comparable period for which a deposit rate quotation may be obtained); PLUS (3) all out-of-pocket expenses incurred by the Bank reasonably attributable to such payment, prepayment or failure to borrow. Each Bank's determination of the amount of any prepayment fee payable under this Section shall be conclusive in the absence of manifest error. (f) Each Bank agrees to endeavor promptly to notify Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Bank to compensation pursuant to clause (a) or clause (b) of this Section 3.8, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the good faith judgment of such Bank, otherwise be materially disadvantageous to such Bank. Any request for compensation by a Bank under this Section 3.8 shall set forth the basis upon which it has been determined that such an amount is due from Borrowers, a calculation of the amount due, and a certification that the corresponding costs have been incurred by the Bank. 3.9 LATE PAYMENTS. If any installment of principal or interest or any fee or cost or other amount payable under any Loan Document to the Managing Agent or any Bank is not paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the SUM OF the Alternate Base Rate PLUS the Applicable Alternate Base Rate Margin PLUS 2%, to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (INCLUDING, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by applicable Laws. 3.10 COMPUTATION OF INTEREST AND FEES. Computation of interest and fees under this Agreement shall be calculated on the basis of a year of 360 days and the -57- actual number of days elapsed. Interest shall accrue on each Loan for the day on which the Loan is made; interest shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Any Loan that is repaid on the same day on which it is made shall bear interest for one day. Notwithstanding anything in this Agreement to the contrary, interest in excess of the maximum amount permitted by applicable Laws shall not accrue or be payable hereunder or under the Notes, and any amount paid as interest hereunder or under the Notes which would otherwise be in excess of such maximum permitted amount shall instead be treated as a payment of principal. 3.11 NON-BANKING DAYS. If any payment to be made by Borrowers or any other Party under any Loan Document shall come due on a day other than a Banking Day, payment shall instead be considered due on the next succeeding Banking Day and the extension of time shall be reflected in computing interest and fees. 3.12 MANNER AND TREATMENT OF PAYMENTS. (a) Each payment hereunder (EXCEPT payments pursuant to Sections 3.7, 3.8, 11.3, 11.11 and 11.22) or on the Notes or under any other Loan Document shall be made to the Managing Agent at the Managing Agent's Office for the account of each of the Banks or the Managing Agent, as the case may be, in immediately available funds not later than 11:00 a.m. California time, on the day of payment (which must be a Banking Day). All payments received after such time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. The amount of all payments received by the Managing Agent for the account of each Bank shall be immediately paid by the Managing Agent to the applicable Bank in immediately available funds and, if such payment was received by the Managing Agent by 11:00 a.m., California time, on a Banking Day and not so made available to the account of a Bank on that Banking Day, the Managing Agent shall reimburse that Bank for the cost to such Bank of funding the amount of such payment at the Federal Funds Rate. All payments shall be made in lawful money of the United States of America. (b) Each payment or prepayment on account of any Loan shall be applied pro rata according to the outstanding Advances made by each Bank comprising such Loan. (c) Each Bank shall use its best efforts to keep a record (in -58- writing or by an electronic data entry system) of Advances made by it and payments received by it with respect to each of its Notes and, subject to Section 10.6(g), such record shall, as against Borrowers, be presumptive evidence of the amounts owing. Notwithstanding the foregoing sentence, the failure by any Bank to keep such a record shall not affect Borrowers' obligation to pay the Obligations. (d) Each payment of any amount payable by Borrowers or any other Party under this Agreement or any other Loan Document shall be made free and clear of, and without reduction by reason of, any taxes, assessments or other charges imposed by any Governmental Agency, central bank or comparable authority, EXCLUDING (i) taxes imposed on or measured in whole or in part by its overall net income by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" and (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws (all such non-excluded taxes, assessments or other charges being hereinafter referred to as "Taxes"). To the extent that Borrowers are obligated by applicable Laws to make any deduction or withholding on account of Taxes from any amount payable to any Bank under this Agreement, Borrowers shall (i) make such deduction or withholding and pay the same to the relevant Governmental Agency and (ii) pay such additional amount to that Bank as is necessary to result in that Bank's receiving a net after-Tax amount equal to the amount to which that Bank would have been entitled under this Agreement absent such deduction or withholding. If and when receipt of such payment results in an excess payment or credit to that Bank on account of such Taxes, that Bank shall promptly refund such excess to Borrowers. 3.13 FUNDING SOURCES. Nothing in this Agreement shall be deemed to obligate any Bank to obtain the funds for any Loan or Advance in any particular place or manner or to constitute a representation by any Bank that it has obtained or will obtain the funds for any Loan or Advance in any particular place or manner. 3.14 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by the -59- Managing Agent or any Bank not to require payment of any interest (INCLUDING interest arising under Section 3.9), fee, cost or other amount payable under any Loan Document, or to calculate any amount payable by a particular method, on any occasion shall in no way limit or be deemed a waiver of the Managing Agent's or such Bank's right to require full payment of any interest (INCLUDING interest arising under Section 3.9), fee, cost or other amount payable under any Loan Document, or to calculate an amount payable by another method that is not inconsistent with this Agreement, on any other or subsequent occasion. 3.15 MANAGING AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE MADE BY BORROWERS. Unless the Managing Agent shall have been notified by Borrowers prior to the date on which any payment to be made by Borrowers hereunder is due that Borrowers do not intend to remit such payment, the Managing Agent may, in its discretion, assume that Borrowers have remitted such payment when so due and the Managing Agent may, in its discretion and in reliance upon such assumption, make available to each Bank on such payment date an amount equal to such Bank's share of such assumed payment. If Borrowers have not in fact remitted such payment to the Managing Agent, each Bank shall forthwith on demand repay to the Managing Agent the amount of such assumed payment made available to such Bank, together with interest thereon in respect of each day from and including the date such amount was made available by the Managing Agent to such Bank to the date such amount is repaid to the Managing Agent at the Federal Funds Rate. 3.16 FEE DETERMINATION DETAIL. The Managing Agent, and any Bank, shall provide reasonable detail to Borrowers regarding the manner in which the amount of any payment to the Managing Agent and the Banks, or that Bank, under ARTICLE 3 has been determined, concurrently with demand for such payment. 3.17 SURVIVABILITY. All of Borrowers' obligations under Sections 3.7 and 3.8 shall survive for the ninety (90) day period following the date on which the Commitments are terminated and all Loans hereunder are fully paid, and Borrowers shall remain obligated thereunder for all claims under such Sections made by any Bank to Borrowers prior to the expiration of such period. -60- Article 4 REPRESENTATIONS AND WARRANTIES Borrowers represent and warrant to the Banks that: 4.1 EXISTENCE AND QUALIFICATION; POWER; COMPLIANCE WITH LAWS. Parent is a corporation duly formed, validly existing and in good standing under the Laws of Maryland and each other Borrower is a corporation or limited liability company duly formed, validly existing and in good standing under the Laws of its state of formation. Each of Borrowers is duly qualified or registered to transact business and is in good standing in each other jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, EXCEPT where the failure so to qualify or register and to be in good standing would not constitute a Material Adverse Effect. Each of Borrowers has all requisite power and authority to conduct its business, to own and lease its Properties and to execute and deliver each Loan Document to which it is a Party and to perform its Obligations. All outstanding shares of capital stock of Parent are duly authorized, validly issued, fully paid and non-assessable, and no holder thereof has any enforceable right of rescission under any applicable state or federal securities Laws. Each of Borrowers is in compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registrations and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, EXCEPT where the failure so to comply, obtain authorizations, etc., file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. Parent is a "real estate investment trust" within the meaning of Section 856 of the Code. 4.2 AUTHORITY; COMPLIANCE WITH OTHER AGREEMENTS AND INSTRUMENTS AND GOVERNMENT REGULATIONS. The execution, delivery and performance by each of Borrowers of the Loan Documents to which it is a Party have been duly authorized by all necessary corporate action, and do not and will not: (a) Require any consent or approval not heretofore obtained of any partner, director, stockholder, security holder or creditor of Borrowers; -61- (b) Violate or conflict with any provision of Borrowers' charter, articles of incorporation or bylaws, as applicable; (c) Result in or require the creation or imposition of any Lien or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by Borrowers; (d) Violate any Requirement of Law applicable to Borrowers; (e) Result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which Borrowers are a party or by which Borrowers or any of their Property is bound or affected; and none of Borrowers is in violation of, or default under, any Requirement of Law or Contractual Obligation, or any indenture, loan or credit agreement described in Section 4.2(e), in any respect that constitutes a Material Adverse Effect. 4.3 NO GOVERNMENTAL APPROVALS REQUIRED. EXCEPT as previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Agency is or will be required to authorize or permit under applicable Laws the execution, delivery and performance by any of Borrowers of the Loan Documents to which it is a Party. 4.4 SUBSIDIARIES. SCHEDULE 4.4 hereto correctly sets forth the names, form of legal entity, number of shares of capital stock (or other applicable unit of equity interest) issued and outstanding, and the record owner thereof and jurisdictions of organization of all Subsidiaries of Parent. Unless otherwise indicated in SCHEDULE 4.4, all of the outstanding shares of capital stock, or all of the units of equity interest, as the case may be, of each such Subsidiary are owned of record and beneficially by Parent, there are no outstanding options, warrants or other rights to purchase capital stock of any such Subsidiary, and all such shares or equity interests so owned are duly authorized, validly issued, fully paid and non-assessable, and were issued in compliance with all applicable state and federal securities and other Laws, and are free and clear of all Liens and Rights of Others, EXCEPT for Permitted Encumbrances and Permitted Rights of Others. -62- 4.5 FINANCIAL STATEMENTS. Borrowers have furnished to the Banks (a) the audited consolidated financial statements of Parent and its Subsidiaries for the Fiscal Year ended December 31, 1996 and (b) the unaudited consolidated balance sheet and statement of operations of Parent and its Subsidiaries for the Fiscal Quarter ended March 31, 1997. The financial statements described in clause (a) fairly present in all material respects the financial condition, results of operations and changes in financial position, and the balance sheet and statement of operations described in clause (b) fairly present the financial condition and results of operations of Parent and its Subsidiaries as of such dates and for such periods in conformity with Generally Accepted Accounting Principles consistently applied. 4.6 NO OTHER LIABILITIES; NO MATERIAL ADVERSE CHANGES. Borrowers do not have any material liability or material contingent liability required under Generally Accepted Accounting Principles to be reflected or disclosed, and not reflected or disclosed, in the balance sheet described in Section 4.5(b), OTHER THAN liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements. As of the Closing Date, no circumstance or event has occurred that constitutes a Material Adverse Effect since March 31, 1997. As of any date subsequent to the Closing Date, no circumstance or event has occurred that constitutes a Material Adverse Effect since the Closing Date. 4.7 TITLE TO PROPERTY. Borrowers have valid title to the Property (OTHER THAN assets which are the subject of a Capital Lease Obligation) reflected in the balance sheet described in Section 4.5(b), OTHER THAN items of Property or exceptions to title which are in each case immaterial to Borrowers and Property subsequently sold or disposed of in the ordinary course of business. Such Property is free and clear of all Liens and Rights of Others, OTHER THAN Liens or Rights of Others described in SCHEDULE 4.7 and Permitted Encumbrances and Permitted Rights of Others. 4.8 INTANGIBLE ASSETS. Borrowers own, or possess the right to use to the extent necessary in their respective businesses, all material trademarks, trade names, copyrights, patents, patent rights, computer software, licenses and other Intangible Assets that are used in the conduct of their businesses as now operated, and no such Intangible Asset, to the best knowledge of Borrowers, conflicts with the valid trademark, trade name, copyright, patent, patent right or Intangible Asset of any other Person to the extent that such conflict constitutes a Material Adverse Effect. -63- 4.9 PUBLIC UTILITY HOLDING COMPANY ACT. None of Borrowers is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.10 LITIGATION. EXCEPT for (a) any matter fully covered as to subject matter and amount (subject to applicable deductibles and retentions) by insurance for which the insurance carrier has not asserted lack of subject matter coverage or reserved its right to do so, (b) any matter, or series of related matters, involving a claim against Parent or any of its Subsidiaries of less than $1,000,000, (c) matters of an administrative nature not involving a claim or charge against Parent or any of its Subsidiaries and (d) matters set forth in SCHEDULE 4.10, there are no actions, suits, proceedings or investigations pending as to which Parent or any of its Subsidiaries have been served or have received notice or, to the best knowledge of Borrowers, threatened against or affecting Parent or any of its Subsidiaries or any Property of any of them before any Governmental Agency. 4.11 BINDING OBLIGATIONS. Each of the Loan Documents to which Borrowers are a Party will, when executed and delivered by Borrowers, constitute the legal, valid and binding obligation of Borrowers, enforceable against Borrowers in accordance with its terms, EXCEPT as enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.12 NO DEFAULT. No event has occurred and is continuing that is a Default or Event of Default. 4.13 ERISA. (a) With respect to each Pension Plan: (i) such Pension Plan complies in all material respects with ERISA and any other applicable Laws to the extent that noncompliance could reasonably be expected to have a Material Adverse Effect; (ii) such Pension Plan has not incurred any -64- "accumulated funding deficiency" (as defined in Section 302 of ERISA) that could reasonably be expected to have a Material Adverse Effect; (iii) no "reportable event" (as defined in Section 4043 of ERISA, but EXCLUDING such events as to which the PBGC has by regulation waived the requirement therein contained that it be notified within thirty days of the occurrence of such event) has occurred that could reasonably be expected to have a Material Adverse Effect; and (iv) none of Parent nor any of its Subsidiaries has engaged in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code) that could reasonably be expected to have a Material Adverse Effect. (b) None of Parent nor any of its Subsidiaries has incurred or expects to incur any withdrawal liability to any Multiemployer Plan that could reasonably be expected to have a Material Adverse Effect. 4.14 REGULATIONS G AND U; INVESTMENT COMPANY ACT. No part of the proceeds of any Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any Margin Stock in violation of Regulations G and U. Neither Parent nor any of its Subsidiaries is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 4.15 DISCLOSURE. No written statement made by a Senior Officer to the Managing Agent or any Bank in connection with this Agreement, or in connection with any Loan, as of the date thereof contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. 4.16 TAX LIABILITY. Parent and its Subsidiaries have filed all tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by Parent or any of its Subsidiaries, EXCEPT (a) such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained and (b) immaterial taxes so long as no material Property of Parent or any of its Subsidiaries -65- is at impending risk of being seized, levied upon or forfeited. 4.17 HAZARDOUS MATERIALS. Except as described in SCHEDULE 4.17, as of the Closing Date (a) none of Borrowers at any time has disposed of, discharged, released or threatened the release of any Hazardous Materials on, from or under the Real Property in violation of any Hazardous Materials Law that would individually or in the aggregate constitute a Material Adverse Effect, (b) to the best knowledge of Borrowers, no condition exists that violates any Hazardous Material Law affecting any Real Property except for such violations that would not individually or in the aggregate constitute a Material Adverse Effect, (c) no Real Property or any portion thereof is or has been utilized by Borrowers as a site for the manufacture of any Hazardous Materials and (d) to the extent that any Hazardous Materials are used, generated or stored by Borrowers on any Real Property, or transported to or from such Real Property by Borrowers, such use, generation, storage and transportation are in compliance with all Hazardous Materials Laws except for such non-compliance that would not constitute a Material Adverse Effect or be materially adverse to the interests of the Banks. 4.18 INITIAL POOL PROPERTIES. The Initial Pool Properties described on SCHEDULE 4.18 are, as of the Closing Date, Qualified Unencumbered Asset Pool Properties and comprise the initial Unencumbered Asset Pool. -66- Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) So long as any Advance remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitments remains in force, Borrowers shall, unless the Managing Agent (with the written approval of the Requisite Banks) otherwise consents: 5.1 PAYMENT OF TAXES AND OTHER POTENTIAL LIENS. Pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon any of them, upon their respective Property or any part thereof and upon their respective income or profits or any part thereof, EXCEPT that Borrowers shall not be required to pay or cause to be paid (a) any tax, assessment, charge or levy that is not yet past due, or is being contested in good faith by appropriate proceedings so long as the relevant entity has established and maintains adequate reserves for the payment of the same or (b) any immaterial tax so long as no material Property of Borrowers is at impending risk of being seized, levied upon or forfeited. 5.2 PRESERVATION OF EXISTENCE. Preserve and maintain their respective existences in the jurisdiction of their formation and all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Agency that are necessary for the transaction of their respective business and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties EXCEPT (a) as otherwise permitted by this Agreement and (b) where the failure to so qualify or remain qualified would not constitute a Material Adverse Effect. 5.3 MAINTENANCE OF PROPERTIES. Maintain, preserve and protect all of their respective Properties in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of their respective Properties, EXCEPT that the failure to maintain, preserve and protect a particular item of Property that is at the end of its useful life or that is not of significant value, either intrinsically or to the operations of Borrowers, shall not constitute a violation of this covenant. -67- 5.4 MAINTENANCE OF INSURANCE. Maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which Borrowers operate. 5.5 COMPLIANCE WITH LAWS. Comply with all Requirements of Law noncompliance with which constitutes a Material Adverse Effect, EXCEPT that Borrowers need not comply with a Requirement of Law then being contested by any of them in good faith by appropriate proceedings. 5.6 INSPECTION RIGHTS. Upon reasonable notice, at any time during regular business hours and as often as reasonably requested (but not so as to materially interfere with the business of Parent or any of its Subsidiaries) permit the Managing Agent or any Bank, or any authorized employee, agent or representative thereof, to examine, audit and make copies and abstracts from the records and books of account of, and to visit and inspect the Properties (subject to the rights of any tenants) of, Parent and its Subsidiaries and to discuss the affairs, finances and accounts of Parent and its Subsidiaries with any of their officers, key employees or accountants. 5.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate records and books of account reflecting all financial transactions in conformity with Generally Accepted Accounting Principles, consistently applied, and in material conformity with all applicable requirements of any Governmental Agency having regulatory jurisdiction over Borrowers. 5.8 COMPLIANCE WITH AGREEMENTS. Promptly and fully comply with all Contractual Obligations to which any one or more of them is a party, EXCEPT for any such Contractual Obligations (a) the performance of which would cause a Default or (b) then being contested by any of them in good faith by appropriate proceedings or if the failure to comply with such agreements, indentures, leases or instruments does not constitute a Material Adverse Effect. 5.9 USE OF PROCEEDS. Use the proceeds of all Loans for working capital and general corporate purposes of Borrowers, INCLUDING the acquisition and/or improvement of Revenue-Producing Properties and Undeveloped Properties. -68- 5.10 HAZARDOUS MATERIALS LAWS. Keep and maintain all Real Property and each portion thereof in compliance in all material respects with all applicable Hazardous Materials Laws and promptly notify the Managing Agent in writing (attaching a copy of any pertinent written material) of (a) any and all material enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing by a Governmental Agency pursuant to any applicable Hazardous Materials Laws, (b) any and all material claims made or threatened in writing by any Person against Borrowers relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials and (c) discovery by any Senior Officer of any of Borrowers of any material occurrence or condition on any real Property adjoining or in the vicinity of such Real Property that could reasonably be expected to cause such Real Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such Real Property under any applicable Hazardous Materials Laws. 5.11 UNENCUMBERED ASSET POOL. Cause each Revenue-Producing Property in the Unencumbered Asset Pool to remain a Qualified Unencumbered Asset Pool Property so long as it is in the Unencumbered Asset Pool; PROVIDED that nothing herein shall preclude the removal of any Revenue-Producing Property from the Unencumbered Asset Pool pursuant to Section 2.11. 5.12 REIT STATUS. Maintain the status of Parent as a "real estate investment trust" under Section 856 of the Code and comply with the dividend and other requirements applicable under Section 857(a) of the Code. 5.13 ADDITIONAL BORROWERS. Cause each Wholly-Owned Subsidiary of Parent which is not then a Borrower and which holds a Revenue-Producing Property that is or will become part of the Unencumbered Asset Pool to execute and deliver the Joinder Agreement concurrently with the addition of such Revenue-Producing Property to the Unencumbered Asset Pool. -69- Article 6 NEGATIVE COVENANTS So long as any Advance remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitments remains in force, Borrowers shall not, unless the Managing Agent (with the written approval of the Requisite Banks or, if required by Section 11.2, of all of the Banks) otherwise consents: 6.1 MERGERS. Merge or consolidate with or into any Person, EXCEPT a merger or consolidation where Parent is the surviving corporation that does not result in a Change in Control. 6.2 ERISA. (a) At any time, permit any Pension Plan to: (i) engage in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code) which could reasonably be expected to result in a Material Adverse Effect, (ii) fail to comply with ERISA which could reasonably be expected to result in a Material Adverse Effect, (iii) incur any material "accumulated funding deficiency" (as defined in Section 302 of ERISA) which could reasonably be expected to result in a Material Adverse Effect or (iv) terminate in any manner which could reasonably be expected to result in a Material Adverse Effect, or (b) withdraw, completely or partially, from any Multiemployer Plan if to do so could reasonably be expected to result in a Material Adverse Effect. 6.3 CHANGE IN NATURE OF BUSINESS. Make any material change in the nature of the business of Borrowers. 6.4 TRANSACTIONS WITH AFFILIATES. Enter into any transaction of any kind with any Affiliate of Borrowers OTHER THAN (a) salary, bonus, employee stock option, relocation assistance and other compensation arrangements with directors or officers in the ordinary course of business, (b) transactions that are fully disclosed to the board of directors of Parent and expressly authorized by a resolution of the board of directors of Parent which is approved by a majority of the directors not having an interest in the transaction, (c) transactions expressly permitted by this Agreement, (d) transactions between one Borrower and another Borrower and (e) transactions on overall terms at least as favorable to Borrowers as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power. -70- 6.5 LEVERAGE RATIO. Permit the Leverage Ratio, as of the last day of any Fiscal Quarter, to be greater than .50 to 1.00. 6.6 INTEREST COVERAGE. Permit Interest Coverage, as of the last day of any Fiscal Quarter, to be less than 2.50 to 1.00. 6.7 FIXED CHARGE COVERAGE. Permit Fixed Charge Coverage, as of the last day of any Fiscal Quarter, to be less than 2.00 to 1.00. 6.8 DISTRIBUTIONS. Make any Distribution (a) with respect to any Fiscal Quarter or Fiscal Year in excess of an amount equal to 95% of Funds From Operations of Parent and its Subsidiaries for that Fiscal Quarter or Fiscal Year or (b) during the continuance of an Event of Default, in excess of the minimum amount necessary to comply with Section 857(a) of the Code. 6.9 MARKET NET WORTH. Permit Market Net Worth, as of the last day of any Fiscal Quarter, to be less than $135,000,000. 6.10 UNDEVELOPED PROPERTY. Permit the aggregate amount expended by Parent or any of its Subsidiaries for the acquisition and/or improvement and/or leasing of Undeveloped Property (INCLUDING the acquisition cost of land acquired after the Closing Date, all entitlement, zoning, design, construction, leasing and all other "hard" and "soft" costs related to Undeveloped Property, but EXCLUDING amounts expended for Undeveloped Properties that have subsequently become Stabilized Revenue-Producing Properties) to exceed an amount equal to 20% of Revenue-Producing Property Value as of the most recently-ended Fiscal Quarter. 6.11 UNENCUMBERED REVENUE-PRODUCING PROPERTY. Permit the Revenue-Producing Property Value of all Revenue-Producing Property that is Unencumbered to be less than an amount equal to 50% of the Revenue-Producing Property Value of all Revenue-Producing Property as of the most recently-ended Fiscal Quarter. 6.12 SECURED RECOURSE DEBT. Permit Secured Recourse Debt to exceed an amount equal to 15% of Revenue-Producing Property Value as of the most recently-ended Fiscal Quarter. -71- 6.13 OTHER UNSECURED DEBT. Permit Other Unsecured Debt to exceed an amount equal to 10% of Unencumbered Asset Pool Value as of the most recently-ended Fiscal Quarter prior to the incurrence thereof. 6.14 INVESTMENTS IN CERTAIN PERSONS. Make any Investment in any Person that is not a Controlled Entity (OTHER THAN an Investment by a Subsidiary of Parent in Parent) if, giving effect thereto, the aggregate of all Investments made by Parent and its Subsidiaries in all such Persons would exceed an amount equal to 15% of Tangible Net Worth as of the most recently-ended Fiscal Quarter. 6.15 NEGATIVE PLEDGES. Grant to any Person a Negative Pledge on any Property of Parent and its Subsidiaries that, as of the LATER OF the Closing Date or the date of its acquisition, is not subject to a Lien (OTHER THAN Permitted Encumbrances). -72- Article 7 INFORMATION AND REPORTING REQUIREMENTS 7.1 FINANCIAL AND BUSINESS INFORMATION. So long as any Advance remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitments remains in force, Borrowers shall, unless the Managing Agent (with the written approval of the Requisite Banks) otherwise consents, at Borrowers' sole expense, deliver to the Managing Agent for distribution by it to the Banks, a sufficient number of copies for all of the Banks of the following: (a) As soon as practicable, and in any event within 60 days after the end of each Fiscal Quarter (OTHER THAN the fourth Fiscal Quarter in any Fiscal Year), the consolidated balance sheet of Parent and its Subsidiaries as at the end of such Fiscal Quarter and the consolidated statements of operations and cash flows for such Fiscal Quarter, and the portion of the Fiscal Year ended with such Fiscal Quarter, all in reasonable detail. Such financial statements shall be certified by a Senior Officer of Parent as fairly presenting the financial condition, results of operations and cash flows of Parent and its Subsidiaries in accordance with Generally Accepted Accounting Principles (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year-end accruals and audit adjustments; (b) As soon as practicable, and in any event within 60 days after the end of each Fiscal Quarter, a Pricing Certificate setting forth a calculation of the Leverage Ratio as of the last day of such Fiscal Quarter, and providing reasonable detail as to the calculation thereof, which calculations in the case of the fourth Fiscal Quarter in any Fiscal Year shall be based on the preliminary unaudited financial statements of Parent and its Subsidiaries for such Fiscal Quarter, and as soon as practicable thereafter, in the event of any material variance in the actual calculation of the Leverage Ratio from such preliminary calculation, a revised Pricing Certificate setting forth the actual calculation thereof; (c) As soon as practicable, and in any event within 60 days after the end of each Fiscal Quarter, statements of operating income for such Fiscal Quarter and Fiscal Year to date for each of the Revenue-Producing -73- Properties in the Unencumbered Asset Pool, each in reasonable detail; (d) As soon as practicable, and in any event within 60 days after the end of each Fiscal Quarter, supplemental disclosure information setting forth the effect on Net Income reflected in the financial statements for such Fiscal Quarter and Fiscal Year to date of any difference between the rents payable by tenants during the periods covered by such financial statements and the "straight line" rents payable over the terms of their respective leases, in reasonable detail; (e) As soon as practicable, and in any event within 120 days after the end of each Fiscal Year, the consolidated balance sheet of Parent and its Subsidiaries as at the end of such Fiscal Year and the consolidated statements of operations, stockholders' equity and cash flows, in each case of Parent and its Subsidiaries for such Fiscal Year, all in reasonable detail. Such financial statements shall be prepared in accordance with Generally Accepted Accounting Principles, consistently applied, and shall be accompanied by a report of Ernst & Young LLP or other independent public accountants of recognized standing selected by Parent and reasonably satisfactory to the Requisite Banks, which report shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any other qualification or exception determined by the Requisite Banks in their good faith business judgment to be adverse to the interests of the Banks; (f) As soon as practicable, and in any event before the commencement of each Fiscal Year, a budget and projection by Fiscal Quarter for that Fiscal Year and by Fiscal Year for the next two succeeding Fiscal Years, INCLUDING for the first such Fiscal Year, projected consolidated balance sheets, statements of operations and statements of cash flow and, for the second and third such Fiscal Years, projected consolidated condensed balance sheets and statements of operations and cash flows, of Parent and its Subsidiaries, all in reasonable detail; (g) Promptly after request by the Managing Agent or any Bank, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of -74- directors) of Parent by independent accountants in connection with the accounts or books of Parent or any of its Subsidiaries, or any audit of any of them; (h) Promptly after the same are available, and in any event within five (5) Banking Days after filing with the Securities and Exchange Commission, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Parent, and copies of all annual, regular, periodic and special reports and registration statements which Parent may file or be required to file with the Securities and Exchange Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and not otherwise required to be delivered to the Banks pursuant to other provisions of this Section 8.1; (i) Promptly after request by the Managing Agent or any Bank, copies of any other report or other document that was filed by Borrowers with any Governmental Agency; (j) Promptly upon a Senior Officer becoming aware, and in any event within five (5) Banking Days after becoming aware, of the occurrence of any (i) "reportable event" (as such term is defined in Section 4043 of ERISA, but EXCLUDING such events as to which the PBGC has by regulation waived the requirement therein contained that it be notified within thirty days of the occurrence of such event) or (ii) non-exempt "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) involving any Pension Plan or any trust created thereunder, telephonic notice specifying the nature thereof, and, no more than two (2) Banking Days after such telephonic notice, written notice again specifying the nature thereof and specifying what action Borrowers are taking or propose to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto; (k) As soon as practicable, and in any event within two (2) Banking Days after a Senior Officer becomes aware of the existence of any condition or event which constitutes a Default or Event of Default, telephonic notice specifying the nature and period of existence thereof, and, no more than two (2) Banking Days after such telephonic notice, written notice again specifying the nature and period of existence thereof and specifying what -75- action Borrowers are taking or propose to take with respect thereto; (l) Promptly upon a Senior Officer becoming aware that (i) any Person has commenced a legal proceeding with respect to a claim against Borrowers that is $1,000,000 or more in excess of the amount thereof that is fully covered by insurance, (ii) any creditor under a credit agreement involving Indebtedness of $1,000,000 or more or any lessor under a lease involving aggregate rent of $1,000,000 or more has asserted a default thereunder on the part of Borrowers or, (iii) any Person has commenced a legal proceeding with respect to a claim against Borrowers under a contract that is not a credit agreement or material lease in excess of $1,000,000 or which otherwise may reasonably be expected to result in a Material Adverse Effect, a written notice describing the pertinent facts relating thereto and what action Borrowers are taking or propose to take with respect thereto; (m) Promptly upon a Senior Officer becoming aware of a change in the credit rating given by a Rating Agency to Parent's long-term senior unsecured debt, written notice of such change; and (n) Such other data and information as from time to time may be reasonably requested by the Managing Agent, any Bank (through the Managing Agent) or the Requisite Banks. 7.2 COMPLIANCE CERTIFICATES. So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitments remains outstanding, Borrowers shall, at Borrowers' sole expense, deliver to the Managing Agent for distribution by it to the Banks concurrently with the financial statements required pursuant to Sections 7.1(a) and 7.1(e), Compliance Certificates signed by a Senior Officer. -76- Article 8 CONDITIONS 8.1 INITIAL ADVANCES. The obligation of each Bank to make the initial Advance to be made by it is subject to the following conditions precedent, each of which shall be satisfied prior to the making of the initial Advances (unless all of the Banks, in their sole and absolute discretion, shall agree otherwise): (a) The Managing Agent shall have received all of the following, each of which shall be originals unless otherwise specified, each properly executed by a Responsible Official of each party thereto, each dated as of the Closing Date and each in form and substance satisfactory to the Managing Agent and its legal counsel (unless otherwise specified or, in the case of the date of any of the following, unless the Managing Agent otherwise agrees or directs): (1) at least one (1) executed counterpart of this Agreement, together with arrangements satisfactory to the Managing Agent for additional executed counterparts, sufficient in number for distribution to the Banks and Borrowers; (2) Line A Notes executed by Borrowers in favor of each Bank, each in a principal amount equal to that Bank's Pro Rata Share of the Line A Commitment; (3) Line B Notes executed by Borrowers in favor of each Bank, each in a principal amount equal to that Bank's Pro Rata Share of the Line B Commitment; (4) Competitive Advance Notes executed by Borrowers in favor of each Bank, each in the principal amount of $50,000,000; (5) with respect to each of Borrowers, such documentation as the Managing Agent may require to establish the due organization, valid existence and good standing of each of Borrowers, its qualification to engage in business in each material jurisdiction in which -77- it is engaged in business or required to be so qualified, its authority to execute, deliver and perform the Loan Documents to which it is a Party, the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, INCLUDING certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing and/or qualification to engage in business, tax clearance certificates, certificates of corporate resolutions, incumbency certificates, Certificates of Responsible Officials, and the like; (6) the Opinions of Counsel; (7) a Certificate of a Senior Officer of Parent stating that Parent has received Cash of not less than $120,000,000 from the issuance and sale of Common Stock subsequent to March 31, 1997; (8) a Certificate of a Senior Officer of each of the Borrowers certifying that the conditions specified in Sections 8.1(f) and 8.1(g) have been satisfied; and (9) such other assurances, certificates, documents, consents or opinions as the Managing Agent or the Requisite Banks reasonably may require. (b) The arrangement fee payable pursuant to Section 3.2 shall have been paid. (c) Any agency fees payable on the Closing Date pursuant to Section 3.5 shall have been paid. (d) All Indebtedness outstanding under the Prior Credit Agreement shall have been (or shall concurrently be) paid and the same shall have been (or shall concurrently be) terminated. (e) The reasonable costs and expenses of the Managing Agent in connection with the preparation of the Loan Documents payable pursuant to Section 11.3, and invoiced to Borrowers prior to the Closing Date, shall have -78- been paid. (f) The representations and warranties of Borrowers contained in ARTICLE 4 shall be true and correct in all material respects. (g) Borrowers and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and giving effect to the initial Advance no Default or Event of Default shall have occurred and be continuing. (h) All legal matters relating to the Loan Documents shall be satisfactory to Sheppard, Mullin, Richter & Hampton LLP, special counsel to the Managing Agent. (i) The Closing Date shall have occurred on or before July 31, 1997. 8.2 ANY ADVANCE. The obligation of each Bank to make any Advance is subject to the following conditions precedent (unless the Requisite Banks, in their sole and absolute discretion, shall agree otherwise): (a) EXCEPT (i) for representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is permitted by this Agreement or (ii) as disclosed by Borrowers and approved in writing by the Requisite Banks, the representations and warranties contained in ARTICLE 4 (OTHER THAN Sections 4.4, 4.6 (first sentence), 4.10 and 4.18) shall be true and correct in all material respects on and as of the date of the Advance as though made on that date; (b) other than matters described in SCHEDULE 4.10 or not required as of the Closing Date to be therein described, there shall not be then pending or threatened any action, suit, proceeding or investigation against or affecting Parent or any of its Subsidiaries or any Property of any of them before any Governmental Agency that constitutes a Material Adverse Effect; (c) the Managing Agent shall have timely received a Request for Loan in compliance with ARTICLE 2 (or telephonic or other request for Loan -79- referred to in the second sentence of Section 2.1(c), if applicable), in compliance with ARTICLE 2; and (d) the Managing Agent shall have received, in form and substance satisfactory to the Managing Agent, such other assurances, certificates, documents or consents related to the foregoing as the Managing Agent or Requisite Banks reasonably may require. -80- Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 9.1 EVENTS OF DEFAULT. The existence or occurrence of any one or more of the following events, whatever the reason therefor and under any circumstances whatsoever, shall constitute an Event of Default: (a) Borrowers fail to pay any principal on any of the Notes, or any portion thereof, on the date when due; or (b) Borrowers fail to pay any interest on any of the Notes, or any fees under Sections 3.4 or 3.5, or any portion thereof, within five (5) Banking Days after the date when due; or fail to pay any other fee or amount payable to the Banks under any Loan Document, or any portion thereof, within five (5) Banking Days after demand therefor; or (c) Borrowers fail to comply with any of the covenants contained in ARTICLE 6; or (d) Borrowers fail to comply with Section 7.1(k) in any respect that is materially adverse to the interests of the Banks; or (e) Any Borrower or any other Party fails to perform or observe any other covenant or agreement (not specified in clause (a), (b), (c) or (d) above) contained in any Loan Document on its part to be performed or observed within thirty (30) Banking Days after the giving of notice by the Managing Agent on behalf of the Requisite Banks of such Default or, if such Default is not reasonably susceptible of cure within such period, within such longer period as is reasonably necessary to effect a cure so long as such Borrower or such Party continues to diligently pursue cure of such Default but not in any event in excess of sixty (60) Banking Days; or (f) Any representation or warranty of Borrowers made in any Loan Document, or in any certificate or other writing delivered by Borrowers or such Guarantor pursuant to any Loan Document, proves to have been incorrect when made or reaffirmed in any respect that is materially adverse to the -81- interests of the Banks; or (g) Borrowers (i) fail to pay the principal, or any principal installment, of any present or future Indebtedness (OTHER THAN Non-Recourse Debt) of $5,000,000 or more, or any guaranty of present or future Indebtedness (OTHER THAN Non-Recourse Debt) of $5,000,000 or more, on its part to be paid, when due (or within any stated grace period), whether at the stated maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event of default to occur, in connection with any present or future Indebtedness (OTHER THAN Non-Recourse Debt) of $5,000,000 or more, or of any guaranty of present or future Indebtedness (OTHER THAN Non-Recourse Debt) of $5,000,000 or more, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare such Indebtedness due before the date on which it otherwise would become due or the right to require Borrowers to redeem or purchase, or offer to redeem or purchase, all or any portion of such Indebtedness (PROVIDED, that for the purpose of this clause (g), the principal amount of Indebtedness consisting of a Swap Agreement shall be the amount which is then payable by the counterparty to close out the Swap Agreement); or (h) Any Loan Document, at any time after its execution and delivery and for any reason OTHER THAN the agreement or action (or omission to act) of the Managing Agent or the Banks or satisfaction in full of all the Obligations ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect which is materially adverse to the interests of the Banks; or any Party thereto denies in writing that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind same; or (i) A final judgment against any of Borrowers is entered for the payment of money in excess of $1,000,000 (not covered by insurance or for which an insurer has reserved its rights) and, absent procurement of a stay of execution, such judgment remains unsatisfied for thirty (30) calendar days after the date of entry of judgment, or in any event later than five (5) days prior to the date of any proposed sale thereunder; or any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of -82- the Property of any such Person and is not released, vacated or fully bonded within thirty (30) calendar days after its issue or levy; or (j) Any of Borrowers institutes or consents to the institution of any proceeding under a Debtor Relief Law relating to it or to all or any material part of its Property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its Property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its Property is instituted without the consent of that Person and continues undismissed or unstayed for sixty (60) calendar days; or (k) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or (l) Any Pension Plan maintained by Borrowers is determined to have a material "accumulated funding deficiency" as that term is defined in Section 302 of ERISA in excess of an amount equal to 5% of the combined total assets of Borrowers as of the most-recently ended Fiscal Quarter. 9.2 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights or remedies of the Managing Agent or the Banks provided for elsewhere in this Agreement, or the other Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence, and during the continuance, of any Event of Default OTHER THAN an Event of Default described in Section 9.1(j): (1) the Commitments to make Advances and all other obligations of the Managing Agent or the Banks and all rights of Borrowers and any other Parties under the Loan Documents shall be -83- suspended without notice to or demand upon Borrowers, which are expressly waived by Borrowers, EXCEPT that all of the Banks or the Requisite Banks (as the case may be, in accordance with Section 11.2) may waive an Event of Default or, without waiving, determine, upon terms and conditions satisfactory to the Banks or Requisite Banks, as the case may be, to reinstate the Commitments and such other obligations and rights and make further Advances, which waiver or determination shall apply equally to, and shall be binding upon, all the Banks; and (2) the Requisite Banks may request the Managing Agent to, and the Managing Agent thereupon shall, terminate the Commitments and/or declare all or any part of the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrowers. (b) Upon the occurrence of any Event of Default described in Section 9.1(j): (1) the Commitments to make Advances and all other obligations of the Managing Agent or the Banks and all rights of Borrowers and any other Parties under the Loan Documents shall terminate without notice to or demand upon Borrowers, which are expressly waived by Borrowers, EXCEPT that all of the Banks may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to all the Banks, to reinstate the Commitments and such other obligations and rights and make further Advances, which determination shall apply equally to, and shall be binding upon, all the Banks; and (2) the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrowers. -84- (c) Upon the occurrence of any Event of Default, the Banks and the Managing Agent, or any of them, without notice to (EXCEPT as expressly provided for in any Loan Document) or demand upon Borrowers, which are expressly waived by Borrowers (EXCEPT as to notices expressly provided for in any Loan Document), may proceed (but only with the consent of the Requisite Banks) to protect, exercise and enforce their rights and remedies under the Loan Documents against Borrowers and any other Party and such other rights and remedies as are provided by Law or equity. (d) The order and manner in which the Banks' rights and remedies are to be exercised shall be determined by the Requisite Banks in their sole discretion, and all payments received by the Managing Agent and the Banks, or any of them, shall be applied first to the costs and expenses (including reasonable attorneys' fees and disbursements and the reasonably allocated costs of attorneys employed by the Managing Agent or by any Bank) of the Managing Agent and of the Banks, and thereafter paid pro rata to the Banks in the same proportions that the aggregate Obligations owed to each Bank under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Banks, without priority or preference among the Banks. Regardless of how each Bank may treat payments for the purpose of its own accounting, for the purpose of computing Borrowers' Obligations hereunder and under the Notes, payments shall be applied FIRST, to the costs and expenses of the Managing Agent and the Banks, as set forth above, SECOND, to the payment of accrued and unpaid interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and THIRD, to the payment of all other amounts (including principal and fees) then owing to the Managing Agent or the Banks under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of the Banks hereunder or thereunder or at Law or in equity. -85- Article 10 THE MANAGING AGENT 10.1 APPOINTMENT AND AUTHORIZATION. Subject to Section 10.8, each Bank hereby irrevocably appoints and authorizes the Managing Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Managing Agent by the terms thereof or are reasonably incidental, as determined by the Managing Agent, thereto. This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Loans and does not constitute appointment of the Managing Agent as trustee for any Bank or as representative of any Bank for any other purpose and, EXCEPT as specifically set forth in the Loan Documents to the contrary, the Managing Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 MANAGING AGENT AND AFFILIATES. Bank of America National Trust and Savings Association (and each successor Managing Agent) has the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Managing Agent, and the term "Bank" or "Banks" includes Bank of America National Trust and Savings Association in its individual capacity. Bank of America National Trust and Savings Association (and each successor Managing Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrowers, any Subsidiary thereof, or any Affiliate of Borrowers or any Subsidiary thereof, as if it were not the Managing Agent and without any duty to account therefor to the Banks. Bank of America National Trust and Savings Association (and each successor Managing Agent) need not account to any other Bank for any monies received by it for reimbursement of its costs and expenses as Managing Agent hereunder, or for any monies received by it in its capacity as a Bank hereunder. The Managing Agent shall not be deemed to hold a fiduciary relationship with any Bank and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Managing Agent. 10.3 PROPORTIONATE INTEREST IN ANY COLLATERAL. The Managing Agent, on behalf of all the Banks, shall hold in accordance with the Loan Documents all items of any collateral or interests therein received or held by the Managing Agent. Subject to the Managing Agent's and the Banks' rights to reimbursement for their costs and -86- expenses hereunder (INCLUDING reasonable attorneys' fees and disbursements and other professional services and the reasonably allocated costs of attorneys employed by the Managing Agent or a Bank) and subject to the application of payments in accordance with Section 9.2(d), each Bank shall have an interest in the Banks' interest in such collateral or interests therein in the same proportions that the aggregate Obligations owed such Bank under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Banks, without priority or preference among the Banks. 10.4 BANKS' CREDIT DECISIONS. Each Bank agrees that it has, independently and without reliance upon the Managing Agent, any other Bank or the directors, officers, agents, employees or attorneys of the Managing Agent or of any other Bank, and instead in reliance upon information supplied to it by or on behalf of Borrowers and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Bank also agrees that it shall, independently and without reliance upon the Managing Agent, any other Bank or the directors, officers, agents, employees or attorneys of the Managing Agent or of any other Bank, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents. 10.5 ACTION BY MANAGING AGENT. (a) Absent actual knowledge of the Managing Agent of the existence of a Default, the Managing Agent may assume that no Default has occurred and is continuing, unless the Managing Agent (or the Bank that is then the Managing Agent) has received notice from Borrowers stating the nature of the Default or has received notice from a Bank stating the nature of the Default and that such Bank considers the Default to have occurred and to be continuing. (b) The Managing Agent has only those obligations under the Loan Documents as are expressly set forth therein. (c) EXCEPT for any obligation expressly set forth in the Loan Documents and as long as the Managing Agent may assume that no Event of Default has occurred and is continuing, the Managing Agent may, but shall not be required to, exercise its discretion to act or not act, EXCEPT that the Managing Agent shall be required to act or not act upon the instructions of the Requisite -87- Banks (or of all the Banks, to the extent required by Section 11.2) and those instructions shall be binding upon the Managing Agent and all the Banks, PROVIDED that the Managing Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Managing Agent, in substantial risk of liability to the Managing Agent. (d) If the Managing Agent has received a notice specified in clause (a), the Managing Agent shall immediately give notice thereof to the Banks and shall act or not act upon the instructions of the Requisite Banks (or of all the Banks, to the extent required by Section 11.2), PROVIDED that the Managing Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Managing Agent, in substantial risk of liability to the Managing Agent, and EXCEPT that if the Requisite Banks (or all the Banks, if required under Section 11.2) fail, for five (5) Banking Days after the receipt of notice from the Managing Agent, to instruct the Managing Agent, then the Managing Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Banks. (e) The Managing Agent shall have no liability to any Bank for acting, or not acting, as instructed by the Requisite Banks (or all the Banks, if required under Section 11.2), notwithstanding any other provision hereof. 10.6 LIABILITY OF MANAGING AGENT. Neither the Managing Agent nor any of its directors, officers, agents, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, EXCEPT for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Managing Agent and its directors, officers, agents, employees and attorneys: (a) May treat the payee of any Note as the holder thereof until the Managing Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Managing Agent, signed by the payee, and may treat each Bank as the owner of that Bank's interest in the Obligations for all purposes of this Agreement until the Managing Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Managing Agent, -88- signed by that Bank; (b) May consult with legal counsel (INCLUDING in-house legal counsel), accountants (INCLUDING in-house accountants) and other professionals or experts selected by it, or with legal counsel, accountants or other professionals or experts for Borrowers and/or their Subsidiaries or the Banks, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts; (c) Shall not be responsible to any Bank for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents; (d) EXCEPT to the extent expressly set forth in the Loan Documents, shall have no duty to ask or inquire as to the performance or observance by Borrowers or its Subsidiaries of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or any Property, books or records of Borrowers or their Subsidiaries; (e) Will not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any collateral; (f) Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing believed in good faith by it to be genuine and signed or sent by the proper party or parties; and (g) Will not incur any liability for any arithmetical error in computing any amount paid or payable by the Borrowers or any Subsidiary or Affiliate thereof or paid or payable to or received or receivable from any Bank under any Loan Document, INCLUDING, without limitation, principal, interest, commitment fees, Advances and other amounts; PROVIDED that, promptly upon discovery of such an error in computation, the Managing Agent, the Banks and -89- (to the extent applicable) Borrowers and/or their Subsidiaries or Affiliates shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. 10.7 INDEMNIFICATION. Each Bank shall, ratably in accordance with its Pro Rata Share of the Commitments (if the Commitments are then in effect) or in accordance with its proportion of the aggregate Indebtedness then evidenced by the Notes (if the Commitments have then been terminated), indemnify and hold the Managing Agent and its directors, officers, agents, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (INCLUDING reasonable attorneys' fees and disbursements and allocated costs of attorneys employed by the Managing Agent) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of Borrowers to pay the Indebtedness represented by the Notes) or any action taken or not taken by it as Managing Agent thereunder, EXCEPT such as result from its own gross negligence or willful misconduct. Without limitation on the foregoing, each Bank shall reimburse the Managing Agent upon demand for that Bank's Pro Rata Share of any out-of-pocket cost or expense incurred by the Managing Agent in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (INCLUDING a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that any Borrower or any other Party is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. Nothing in this Section 10.7 shall entitle the Managing Agent or any indemnitee referred to above to recover any amount from the Banks if and to the extent that such amount has theretofore been recovered from Borrowers or any of their Subsidiaries. To the extent that the Managing Agent or any indemnitee referred to above is later reimbursed such amount by Borrowers or any of its Subsidiaries, it shall return the amounts paid to it by the Banks in respect of such amount. 10.8 SUCCESSOR MANAGING AGENT. The Managing Agent may, and at the request of the Requisite Banks shall, resign as Managing Agent upon reasonable notice to the Banks and Borrowers effective upon acceptance of appointment by a successor Managing Agent. If the Managing Agent shall resign as Managing Agent under this Agreement, the Requisite Banks shall appoint from among the Banks a successor Managing Agent for the Banks, which successor Managing Agent shall be approved by -90- Borrowers (and such approval shall not be unreasonably withheld or delayed). If no successor Managing Agent is appointed prior to the effective date of the resignation of the Managing Agent, the Managing Agent may appoint, after consulting with the Banks and the Borrowers, a successor Managing Agent from among the Banks. Upon the acceptance of its appointment as successor Managing Agent hereunder, such successor Managing Agent shall succeed to all the rights, powers and duties of the retiring Managing Agent and the term "Managing Agent" shall mean such successor Managing Agent and the retiring Managing Agent's appointment, powers and duties as Managing Agent shall be terminated. After any retiring Managing Agent's resignation hereunder as Managing Agent, the provisions of this ARTICLE 10, and Sections 11.3, 11.11 and 11.22, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Managing Agent under this Agreement. Notwithstanding the foregoing, if (a) the Managing Agent has not been paid its agency fees under Section 3.5 or has not been reimbursed for any expense reimbursable to it under Section 11.3, in either case for a period of at least one (1) year and (b) no successor Managing Agent has accepted appointment as Managing Agent by the date which is thirty (30) days following a retiring Managing Agent's notice of resignation, the retiring Managing Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Managing Agent hereunder until such time, if any, as the Requisite Banks appoint a successor Managing Agent as provided for above. 10.9 NO OBLIGATIONS OF BORROWERS. Nothing contained in this Article 10 shall be deemed to impose upon Borrowers any obligation in respect of the due and punctual performance by the Managing Agent of its obligations to the Banks under any provision of this Agreement, and Borrowers shall have no liability to the Managing Agent or any of the Banks in respect of any failure by the Managing Agent or any Bank to perform any of its obligations to the Managing Agent or the Banks under this Agreement. Without limiting the generality of the foregoing, where any provision of this Agreement relating to the payment of any amounts due and owing under the Loan Documents provides that such payments shall be made by Borrowers to the Managing Agent for the account of the Banks, Borrowers' obligations to the Banks in respect of such payments shall be deemed to be satisfied upon the making of such payments to the Managing Agent in the manner provided by this Agreement. -91- Article 11 MISCELLANEOUS 11.1 CUMULATIVE REMEDIES; NO WAIVER. The rights, powers, privileges and remedies of the Managing Agent and the Banks provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, privilege or remedy provided by Law or equity. No failure or delay on the part of the Managing Agent or any Bank in exercising any right, power, privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, privilege or remedy preclude any other or further exercise of the same or any other right, power, privilege or remedy. The terms and conditions of ARTICLE 8 hereof are inserted for the sole benefit of the Managing Agent and the Banks; the same may be waived in whole or in part, with or without terms or conditions, in respect of any Loan without prejudicing the Managing Agent's or the Banks' rights to assert them in whole or in part in respect of any other Loan. 11.2 AMENDMENTS; CONSENTS. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by Borrowers or any other Party therefrom, may in any event be effective unless in writing signed by the Requisite Banks (and, in the case of any amendment, modification or supplement of or to any Loan Document to which any of Borrowers is a Party, signed by each such Party, and, in the case of any amendment, modification or supplement to ARTICLE 10, signed by the Managing Agent), and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Banks, no amendment, modification, supplement, termination, waiver or consent may be effective: (a) To amend or modify the principal of, or the amount of principal, principal prepayments or the rate of interest payable on, any Note, or the amount of the Commitments or the Pro Rata Share of any Bank or the amount of any commitment fee payable to any Bank, or any other fee or amount payable to any Bank under the Loan Documents or to waive an Event of Default consisting of the failure of Borrowers to pay when due principal, interest or any fee; -92- (b) To postpone any date fixed for any payment of principal of, prepayment of principal of or any installment of interest on, any Note or any installment of any fee, or to extend the term of the Commitments; (c) To amend the provisions of the definition of "REQUISITE BANKS" or "MATURITY DATE"; or (d) To amend or waive ARTICLE 8 or this Section 11.2; or (e) To amend any provision of this Agreement that expressly requires the consent or approval of all the Banks. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 shall apply equally to, and shall be binding upon, all the Banks and the Managing Agent. 11.3 COSTS, EXPENSES AND TAXES. Borrowers shall pay within five (5) Banking Days after demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Managing Agent in connection with the negotiation, preparation, syndication, execution and delivery of the Loan Documents (subject to the ceiling contained in a letter agreement between Parent and the Managing Agent) and any amendment thereto or waiver thereof. Borrowers shall also pay on demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Managing Agent and the Banks in connection with the refinancing, restructuring, reorganization (INCLUDING a bankruptcy reorganization) and enforcement or attempted enforcement of the Loan Documents, and any matter related thereto. The foregoing costs and expenses shall include filing fees, recording fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any legal counsel (INCLUDING reasonably allocated costs of legal counsel employed by the Managing Agent or any Bank), independent public accountants and other outside experts retained by the Managing Agent or any Bank, whether or not such costs and expenses are incurred or suffered by the Managing Agent or any Bank in connection with or during the course of any bankruptcy or insolvency proceedings of any of Borrowers or any Subsidiary thereof. Borrowers shall pay any and all documentary and other taxes, EXCLUDING (i) taxes imposed on or measured in whole or in part by its overall net income imposed on it by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office -93- or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" or (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws, and all costs, expenses, fees and charges payable or determined to be payable in connection with the filing or recording of this Agreement, any other Loan Document or any other instrument or writing to be delivered hereunder or thereunder, or in connection with any transaction pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify on the terms set forth in 11.11 the Managing Agent and the Banks from and against any and all loss, liability or legal or other expense with respect to or resulting from any delay in paying or failure to pay any such tax, cost, expense, fee or charge or that any of them may suffer or incur by reason of the failure of any Party to perform any of its Obligations. Any amount payable to the Managing Agent or any Bank under this Section 11.3 shall bear interest from the fifth Banking Day following the date of demand for payment at the Default Rate. 11.4 NATURE OF BANKS' OBLIGATIONS. The obligations of the Banks hereunder are several and not joint or joint and several. Nothing contained in this Agreement or any other Loan Document and no action taken by the Managing Agent or the Banks or any of them pursuant hereto or thereto may, or may be deemed to, make the Banks a partnership, an association, a joint venture or other entity, either among themselves or with the Borrowers or any Affiliate of any of Borrowers. A default by any Bank will not increase the Pro Rata Share of the Commitments attributable to any other Bank. Any Bank not in default may, if it desires, assume in such proportion as the nondefaulting Banks agree the obligations of any Bank in default, but is not obligated to do so. The Managing Agent agrees that it will use its best efforts either to induce the other Banks to assume the obligations of a Bank in default or to obtain another Bank, reasonably satisfactory to Borrowers, to replace such a Bank in default. 11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or in any other Loan Document, or in any certificate or other writing delivered by or on behalf of any one or more of the Parties to any Loan Document, will survive the making of the Loans hereunder and the execution and delivery of the Notes, and have been or will be relied upon by the Managing Agent and each Bank, notwithstanding any investigation made by the Managing Agent or any -94- Bank or on their behalf. 11.6 NOTICES. EXCEPT as otherwise expressly provided in the Loan Documents, all notices, requests, demands, directions and other communications provided for hereunder or under any other Loan Document must be in writing and must be mailed, telegraphed, telecopied, dispatched by commercial courier or delivered to the appropriate party at the address set forth on the signature pages of this Agreement or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section. EXCEPT as otherwise expressly provided in any Loan Document, if any notice, request, demand, direction or other communication required or permitted by any Loan Document is given by mail it will be effective on the earlier of receipt or the fourth Banking Day after deposit in the United States mail with first class or airmail postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by telecopier, when sent; if dispatched by commercial courier, on the scheduled delivery date; or if given by personal delivery, when delivered. 11.7 EXECUTION OF LOAN DOCUMENTS. Unless the Managing Agent otherwise specifies with respect to any Loan Document, (a) this Agreement and any other Loan Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, when taken together will be deemed to be but one and the same instrument and (b) execution of any such counterpart may be evidenced by a telecopier transmission of the signature of such party. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 11.8 BINDING EFFECT; ASSIGNMENT. (a) This Agreement and the other Loan Documents to which Borrowers are a Party will be binding upon and inure to the benefit of Borrowers, the Managing Agent, each of the Banks, and their respective successors and assigns, EXCEPT that Borrowers may not assign their rights hereunder or thereunder or any interest herein or therein without the prior -95- written consent of all the Banks. Each Bank represents that it is not acquiring its Note with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (subject to any requirement that disposition of such Note must be within the control of such Bank). Any Bank may at any time pledge its Note or any other instrument evidencing its rights as a Bank under this Agreement to a Federal Reserve Bank, but no such pledge shall release that Bank from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Bank hereunder absent foreclosure of such pledge. (b) From time to time following the Closing Date, each Bank may assign to one or more Eligible Assignees all or any portion of its Pro Rata Share of the Commitments; PROVIDED that (i) such Eligible Assignee, if not then a Bank or an Affiliate of the assigning Bank, shall be approved by the Managing Agent and (if no Event of Default then exists) Borrowers (neither of which approvals shall be unreasonably withheld or delayed), (ii) such assignment shall be evidenced by a Commitments Assignment and Acceptance, a copy of which shall be furnished to the Managing Agent as hereinbelow provided, (iii) EXCEPT in the case of an assignment to an Affiliate of the assigning Bank, to another Bank or of the entire remaining Commitments of the assigning Bank, the assignment shall not assign a Pro Rata Share of the Commitments that is equivalent to less than $10,000,000, (iv) the assignment shall assign the same Pro Rata Share of the Line A Commitment and the Line B Commitment and (v) the effective date of any such assignment shall be as specified in the Commitments Assignment and Acceptance, but not earlier than the date which is five (5) Banking Days after the date the Managing Agent has received the Commitments Assignment and Acceptance. Upon the effective date of such Commitments Assignment and Acceptance, the Eligible Assignee named therein shall be a Bank for all purposes of this Agreement, with the Pro Rata Share of the Commitments therein set forth and, to the extent of such Pro Rata Share, the assigning Bank shall be released from its further obligations under this Agreement. Borrowers agree that they shall execute and deliver (against delivery by the assigning Bank to Borrowers of its Note) to such assignee Bank, Notes evidencing that assignee Bank's Pro Rata Share of the Commitments, and to the assigning Bank, Notes evidencing the remaining balance Pro Rata Share retained by the assigning Bank. (c) By executing and delivering a Commitments Assignment -96- and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share of the Commitments being assigned thereby free and clear of any adverse claim, the assigning Bank has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Bank has made no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers or the performance by Borrowers of the Obligations; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Commitments Assignment and Acceptance; (iv) it will, independently and without reliance upon the Managing Agent or any Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes the Managing Agent to take such action and to exercise such powers under this Agreement as are delegated to the Managing Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (d) The Managing Agent shall maintain at the Managing Agent's Office a copy of each Commitments Assignment and Acceptance delivered to it and a register (the "Register") of the names and address of each of the Banks and the Pro Rata Share of the Commitments held by each Bank, giving effect to each Commitments Assignment and Acceptance. The Register shall be available during normal business hours for inspection by Borrowers or any Bank upon reasonable prior notice to the Managing Agent. After receipt of a completed Commitments Assignment and Acceptance executed by any Bank and an Eligible Assignee, and receipt of an assignment fee of $2,500 from such Bank or Eligible Assignee, the Managing Agent shall, promptly following the effective date thereof, provide to Borrowers and the Banks a revised SCHEDULE 1.1 giving effect thereto. Borrowers, the Managing Agent and the Banks shall deem and treat the Persons listed as Banks in the Register as the -97- holders and owners of the Pro Rata Share of the Commitments listed therein for all purposes hereof, and no assignment or transfer of any such Pro Rata Share of the Commitments shall be effective, in each case unless and until a Commitments Assignment and Acceptance effecting the assignment or transfer thereof shall have been accepted by the Managing Agent and recorded in the Register as provided above. Prior to such recordation, all amounts owed with respect to the applicable Pro Rata Share of the Commitments shall be owed to the Bank listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Bank shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Pro Rata Share of the Commitments. (e) Each Bank may from time to time grant participations to one or more banks or other financial institutions (INCLUDING another Bank but EXCLUDING an Employee Plan) in a portion of its Pro Rata Share of the Commitments; PROVIDED, HOWEVER, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Bank hereunder for any purpose EXCEPT, if the participation agreement so provides, for the purposes of Sections 3.7, 3.8, 11.11 and 11.22 but only to the extent that the cost of such benefits to Borrowers does not exceed the cost which Borrowers would have incurred in respect of such Bank absent the participation, (iv) Borrowers, the Managing Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, (v) the participation interest shall be expressed as a percentage of the granting Bank's Pro Rata Share of the Commitments as it then exists and shall not restrict an increase in the Commitments, or in the granting Bank's Pro Rata Share of the Commitments, so long as the amount of the participation interest is not affected thereby and (vi) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents OTHER THAN those which (A) extend any Amortization Date, the Maturity Date or any other date upon which any payment of money is due to the Banks, or (B) reduce the rate of interest on the Notes, any fee or any other monetary amount payable to the Banks or (C) reduce the amount of any installment of principal due under -98- the Notes. 11.9 RIGHT OF SETOFF. If an Event of Default has occurred and is continuing, the Managing Agent or any Bank (but in each case only with the consent of the Requisite Banks) may exercise its rights under Article 9 of the Uniform Commercial Code and other applicable Laws and, to the extent permitted by applicable Laws, apply any funds in any deposit account maintained with it by Borrowers and/or any Property of Borrowers in its possession against the Obligations. 11.10 SHARING OF SETOFFS. Each Bank severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against Borrowers, or otherwise, receives payment of the Obligations held by it that is ratably more than any other Bank, through any means, receives in payment of the Obligations held by that Bank, then, subject to applicable Laws: (a) the Bank exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from each of the other Banks a participation in the Obligations held by the other Banks and shall pay to the other Banks a purchase price in an amount so that the share of the Obligations held by each Bank after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all of the Banks share any payment obtained in respect of the Obligations ratably in accordance with each Bank's share of the Obligations immediately prior to, and without taking into account, the payment; PROVIDED that, if all or any portion of a disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank by Borrowers or any Person claiming through or succeeding to the rights of Borrowers, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Bank that purchases a participation in the Obligations pursuant to this Section 11.10 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Bank were the original owner of the Obligations purchased. Borrowers expressly consent to the foregoing arrangements and agree that any Bank holding a participation in an Obligation so purchased pursuant to this Section 11.10 may exercise any and all rights of -99- setoff, banker's lien or counterclaim with respect to the participation as fully as if the Bank were the original owner of the Obligation purchased. 11.11 INDEMNITY BY BORROWERS. Borrowers agree to indemnify, save and hold harmless the Managing Agent and each Bank and their respective directors, officers, agents, attorneys and employees (collectively the "INDEMNITEES") from and against: (a) any and all claims, demands, actions or causes of action (EXCEPT a claim, demand, action, or cause of action for any amount excluded from the definition of "Taxes" in Section 3.12(d)) if the claim, demand, action or cause of action arises out of or relates to any act or omission (or alleged act or omission) of Borrowers, their Affiliates or any of their officers, directors or stockholders relating to the Commitments, the use or contemplated use of proceeds of any Loan, or the relationship of Borrowers and the Banks under this Agreement; (b) any administrative or investigative proceeding by any Governmental Agency arising out of or related to a claim, demand, action or cause of action described in clause (a) above; and (c) any and all liabilities, losses, costs or expenses (INCLUDING reasonable attorneys' fees and the reasonably allocated costs of attorneys employed by any Indemnitee and disbursements of such attorneys and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action or cause of action; PROVIDED that no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. If any claim, demand, action or cause of action is asserted against any Indemnitee, such Indemnitee shall promptly notify Borrowers, but the failure to so promptly notify Borrowers shall not affect Borrowers' obligations under this Section unless such failure materially prejudices Borrowers' right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. Such Indemnitee may (and shall, if requested by Borrowers in writing) contest the validity, applicability and amount of such claim, demand, action or cause of action and shall permit Borrowers to participate in such contest. Any Indemnitee that proposes to settle or compromise any claim or proceeding for which Borrowers may be liable for payment of indemnity hereunder shall give Borrowers written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain Borrowers' prior consent (which shall not be unreasonably withheld or delayed). In connection with any claim, demand, action or cause of action covered by this Section 11.11 against more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel (which may be a law firm engaged by the Indemnitees or attorneys employed by an -100- Indemnitee or a combination of the foregoing) selected by the Indemnitees and reasonably acceptable to Borrowers; PROVIDED, that if such legal counsel determines in good faith that representing all such Indemnitees would or could result in a conflict of interest under Laws or ethical principles applicable to such legal counsel or that a defense or counterclaim is available to an Indemnitee that is not available to all such Indemnitees, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each affected Indemnitee shall be entitled to separate representation by legal counsel selected by that Indemnitee and reasonably acceptable to Borrowers, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees; and FURTHER PROVIDED that the Managing Agent (as an Indemnitee) shall at all times be entitled to representation by separate legal counsel (which may be a law firm or attorneys employed by the Managing Agent or a combination of the foregoing). Any obligation or liability of Borrowers to any Indemnitee under this Section 11.11 shall survive the expiration or termination of this Agreement and the repayment of all Loans and the payment and performance of all other Obligations owed to the Banks. 11.12 NONLIABILITY OF THE BANKS. Borrowers acknowledge and agree that: (a) Any inspections of any Property of Borrowers made by or through the Managing Agent or the Banks are for purposes of administration of the Loan only and Borrowers are not entitled to rely upon the same (whether or not such inspections are at the expense of Borrowers); (b) By accepting or approving anything required to be observed, performed, fulfilled or given to the Managing Agent or the Banks pursuant to the Loan Documents, neither the Managing Agent nor the Banks shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by the Managing Agent or the Banks; (c) The relationship between Borrowers and the Managing Agent and the Banks is, and shall at all times remain, solely that of borrowers and lenders; neither the Managing Agent nor the Banks shall under any -101- circumstance be construed to be partners or joint venturers of Borrowers or their Affiliates; neither the Managing Agent nor the Banks shall under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrowers or their Affiliates, or to owe any fiduciary duty to Borrowers or their Affiliates; neither the Managing Agent nor the Banks undertake or assume any responsibility or duty to Borrowers or their Affiliates to select, review, inspect, supervise, pass judgment upon or inform Borrowers or their Affiliates of any matter in connection with their Property or the operations of Borrowers or their Affiliates; Borrowers and their Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by the Managing Agent or the Banks in connection with such matters is solely for the protection of the Managing Agent and the Banks and neither Borrowers nor any other Person is entitled to rely thereon; and (d) The Managing Agent and the Banks shall not be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to Property caused by the actions, inaction or negligence of Borrowers and/or its Affiliates and Borrowers hereby indemnify and hold the Managing Agent and the Banks harmless on the terms set forth in Section 11.11 from any such loss, damage, liability or claim. 11.13 NO THIRD PARTIES BENEFITED. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrowers, the Managing Agent and the Banks in connection with the Loans, and is made for the sole benefit of Borrowers, the Managing Agent and the Banks, and the Managing Agent's and the Banks' successors and assigns. EXCEPT as provided in Sections 11.8 and 11.11, no other Person shall have any rights of any nature hereunder or by reason hereof. 11.14 CONFIDENTIALITY. Each Bank agrees to hold any confidential information that it may receive from Borrowers pursuant to this Agreement in confidence, EXCEPT for disclosure: (a) to other Banks; (b) to legal counsel and accountants for Borrowers or any Bank; (c) to other professional advisors to Borrowers or any Bank, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.14; (d) to regulatory officials having jurisdiction over that Bank; (e) as required by Law or legal process, -102- provided that each Bank agrees to notify Borrowers of any such disclosures unless prohibited by applicable Laws, or in connection with any legal proceeding to which that Bank and any of Borrowers are adverse parties; and (f) to another financial institution in connection with a disposition or proposed disposition to that financial institution of all or part of that Bank's interests hereunder or a participation interest in its Notes, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.14. For purposes of the foregoing, "confidential information" shall mean any information respecting Parent or its Subsidiaries reasonably considered by Borrowers to be confidential, OTHER THAN (i) information previously filed with any Governmental Agency and available to the public, (ii) information previously published in any public medium from a source other than, directly or indirectly, that Bank, and (iii) information previously disclosed by Borrowers to any Person not associated with Borrowers which does not owe a professional duty of confidentiality to Borrowers or which has not executed an appropriate confidentiality agreement with Borrowers. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Managing Agent or the Banks to Borrowers. 11.15 FURTHER ASSURANCES. Borrowers shall, at their expense and without expense to the Banks or the Managing Agent, do, execute and deliver such further acts and documents as the Requisite Banks or the Managing Agent from time to time reasonably require for the assuring and confirming unto the Banks or the Managing Agent of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 11.16 INTEGRATION. This Agreement, together with the other Loan Documents and the letter agreements referred to in Sections 3.2, 3.5 and 11.3, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; PROVIDED that the inclusion of supplemental rights or remedies in favor of the Managing Agent or the Banks in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. -103- 11.17 GOVERNING LAW. EXCEPT to the extent otherwise provided therein, each Loan Document shall be governed by, and construed and enforced in accordance with, the Laws of California applicable to contracts made and performed in California. 11.18 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid as to any party or in any jurisdiction shall, as to that party or jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions or the operation, enforceability or validity of that provision as to any other party or in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.19 HEADINGS. Article and Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 11.20 TIME OF THE ESSENCE. Time is of the essence of the Loan Documents. 11.21 FOREIGN BANKS AND PARTICIPANTS. Each Bank that is incorporated or otherwise organized under the Laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia shall deliver to Borrowers (with a copy to the Managing Agent), on or before the Closing Date (or on or before accepting an assignment or receiving a participation interest herein pursuant to Section 11.8, if applicable) two duly completed copies, signed by a Responsible Official, of either Form 1001 (relating to such Bank and entitling it to a complete exemption from withholding on all payments to be made to such Bank by Borrowers pursuant to this Agreement) or Form 4224 (relating to all payments to be made to such Bank by the Borrowers pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence (INCLUDING, if reasonably necessary, Form W-9) satisfactory to Borrowers and the Managing Agent that no withholding under the federal income tax laws is required with respect to such Bank. Thereafter and from time to time, each such Bank shall (a) promptly submit to Borrowers (with a copy to the Managing Agent), such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to Borrowers and the Managing Agent of any available exemption from, United States withholding -104- taxes in respect of all payments to be made to such Bank by Borrowers pursuant to this Agreement and (b) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Bank, and as may be reasonably necessary (including the re-designation of its Eurodollar Lending Office, if any) to avoid any requirement of applicable Laws that Borrowers make any deduction or withholding for taxes from amounts payable to such Bank. In the event that Borrowers or the Managing Agent become aware that a participation has been granted pursuant to Section 11.8(e) to a financial institution that is incorporated or otherwise organized under the Laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia, then, upon request made by Borrowers or the Managing Agent to the Bank which granted such participation, such Bank shall cause such participant financial institution to deliver the same documents and information to Borrowers and the Managing Agent as would be required under this Section if such financial institution were a Bank. 11.22 HAZARDOUS MATERIAL INDEMNITY. Each of Borrowers hereby agrees to indemnify, hold harmless and defend (by counsel reasonably satisfactory to the Managing Agent) the Managing Agent and each of the Banks and their respective directors, officers, employees, agents, successors and assigns from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including but not limited to reasonable attorneys' fees and the reasonably allocated costs of attorneys employed by the Managing Agent or any Bank, and expenses to the extent that the defense of any such action has not been assumed by Borrowers), arising directly or indirectly out of (i) the presence on, in, under or about any Real Property of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under or from any Real Property and (ii) any activity carried on or undertaken on or off any Real Property by Borrowers or any of its predecessors in title, whether prior to or during the term of this Agreement, and whether by Borrowers or any predecessor in title or any employees, agents, contractors or subcontractors of Borrowers or any predecessor in title, or any third persons at any time occupying or present on any Real Property, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials at any time located or present on, in, under or about any Real Property. The foregoing indemnity shall further apply to any residual contamination on, in, under or about any Real Property, or affecting any natural resources, and to any contamination of any Property or natural -105- resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable Laws, but the foregoing indemnity shall not apply to Hazardous Materials on any Real Property, the presence of which is caused by the Managing Agent or the Banks. Borrowers hereby acknowledge and agree that, notwithstanding any other provision of this Agreement or any of the other Loan Documents to the contrary, the obligations of Borrowers under this Section (and under Sections 4.18 and 5.10) shall be unlimited corporate obligations of Borrowers and shall NOT be secured by any Lien on any Real Property. Any obligation or liability of Borrowers to any Indemnitee under this Section 11.22 shall survive the expiration or termination of this Agreement and the repayment of all Loans and the payment and performance of all other Obligations owed to the Banks. 11.23 JOINT AND SEVERAL. Each of Borrowers shall be obligated for all of the Obligations on a joint and several basis, notwithstanding which of Borrowers may have directly received the proceeds of any particular Loan. Each of Borrowers acknowledges and agrees that, for purposes of the Loan Documents, Borrowers constitute a single integrated financial enterprise and that each receives a benefit from the availability of credit under this Agreement to all of Borrowers. Each of Borrowers waive all defenses arising under the Laws of suretyship, to the extent such Laws are applicable, in connection with its joint and several obligations under this Agreement. Without limiting the foregoing, each of Borrowers agrees to the Joint Borrower Provisions set forth in EXHIBIT L, incorporated by this reference. 11.24 REMOVAL OF A BANK. As provided in Sections 2.9, 3.7 and 3.8, Borrowers shall have the right to remove a Bank as a party to this Agreement if such Bank refuses (under certain circumstances) to consent to an extension of the Revolver Termination Date made pursuant to Section 2.9 or if such Bank is paid a material amount by Borrowers pursuant to Section 3.7 or Section 3.8. Upon notice from Borrowers, such Bank shall execute and deliver a Commitment Assignment and Acceptance covering that Bank's Pro Rata Share of the Commitments in favor of such Eligible Assignee as Borrowers may designate, subject to payment in full by such Eligible Assignee of all principal, interest and fees owing to such Bank through the date of assignment. In addition (but only if Borrowers' right to remove the Bank arises under Section 2.9(b)), Borrowers may reduce the Commitments pursuant to Section 2.7 (and, for this purpose, the numerical requirements of such Section shall not apply) by an amount equal to that Bank's Pro Rata Share of the Commitments, pay to such Bank all principal, interest and fees owing to such Bank and release such Bank from its Pro -106- Rata Share of the Commitments. 11.25 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. -107- 11.26 PURPORTED ORAL AMENDMENTS. BORROWERS EXPRESSLY ACKNOWLEDGE THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. BORROWERS AGREE THAT THEY WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE MANAGING AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ALEXANDRIA REAL ESTATE EQUITIES, INC. By: /s/ Joel S. Marcus --------------------------------- Joel S. Marcus Chief Executive Officer ARE-QRS, INC. [sic] By: /s/ Joel S. Marcus --------------------------------- Its: Chief Executive Officer ---------------------------- -108- ARE ACQUISITIONS, LLC By: ARE-QRS Corp., its Managing Member By: /s/ Joel S. Marcus --------------------------------- Its: Chief Executive Officer ---------------------------- Address for all the foregoing: Alexandria Real Estate Equities, Inc. 251 South Lake Avenue Pasadena, California 91101 Attn: Joel S. Marcus Chief Executive Officer Telecopier: (818) 578-0770 Telephone: (818) 578-0777 -109- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By: /s/ William Rothman --------------------------------- William Rothman Regional Vice President Address: Bank of America National Trust and Savings Association CRESG 555 South Flower Street, 6th Floor Los Angeles, California 90071 Attn: William Rothman Telecopier: (213) 228-5389 Telephone: (213) 228-4153 -110- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Carol Settles --------------------------------- Carol Settles Vice President Address: Bank of America National Trust and Savings Association, 555 South Flower Street, 6th Floor Los Angeles, California 90071 Attn: Carol Settles Telecopier: (213) 228-5389 Telephone: (213) 228-5286 -111- EX-10.18 10 EXHIBIT 10.18 AMENDMENT NO. 1 TO REVOLVING LOAN AGREEMENT This Amendment No. 1 to Revolving Loan Agreement (this "Amendment") is entered into with reference to the Revolving Loan Agreement dated as of June 2, 1997, (the "Loan Agreement") among Alexandria Real Estate Equities, Inc., ARE-QRS Corp. and ARE Acquisitions, LLC (collectively, "Borrowers"), the Banks party thereto, and Bank of America National Trust and Savings Association, as Managing Agent (the "Loan Agreement). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. Borrowers and the Managing Agent, acting with the consent of all of the Banks pursuant to Section 11.2 of the Loan Agreement, agree as follows: 1. AMENDMENT TO SECTION 1.1 REVISED DEFINITION. Section 1.1 of the Loan Agreement is amended by adding the following clause at the end of the definition of "Eligible Assignee" therein contained: "; and PROVIDED THAT, notwithstanding the foregoing, Cedars Bank shall in any event be an Eligible Assignee." 2. AMENDMENT TO SECTION 1.1 -- NEW DEFINITION. Section 1.1 of the Loan Agreement is amended by adding the following new defined term at the appropriate alphabetical place: "CO-AGENTS" means BankBoston, N.A. and such other Co-Agents as may from time to time be appointed by the Managing Agent with the approval of Borrower. The Co-Agents shall have no rights, duties or responsibilities under the Loan Documents beyond those of a Bank." 3. AMENDMENT TO SECTION 2.4. Section 2.4 of the Loan Agreement is amended by (a) adding the following phrase at the end of Section 2.4(o) thereof: ", EXCEPT as required pursuant to Section 3.1(d)." and (b) adding a new clause (p) at the end thereof to read as follows: "(p) Notwithstanding any provision in this Section 2.4 or Section 3.1(e) to the contrary, the following provisions shall apply -1- at all times when Parent does not hold a Credit Rating of BBB- (or its equivalent) or better: (i) Borrowers may not request Competitive Bids if, giving effect thereto, the aggregate principal amount outstanding under the Competitive Advance Notes would exceed 50% of the aggregate principal amount outstanding under the Notes; (ii) EXCEPT as required pursuant to Section 3.1(d), Borrowers may not prepay any principal amount outstanding under the Line A Notes or the Line B Notes if, giving effect thereto, the aggregate principal amount outstanding under the Competitive Advance Notes would exceed 50% of the aggregate principal amount outstanding under the Notes; and (iii) No Bank may make a Competitive Bid with a Maximum Competitive Advance in an amount which, when added to the aggregate outstanding Competitive Advances made by that Bank, would exceed $25,000,000. This clause (p) shall not apply during any period when Parent holds a Credit Rating of BBB- (or its equivalent) or better." 4. AMENDMENT TO SECTION 3.1. Section 3.1 of the Loan Agreement is amended by adding the following phrase (a) at the end of Section 3.1(d)(ii) thereof and (b) after the word "follows" in the sixth line of Section 3.1(d)(iii) thereof: ", which prepayment shall be applied first to the Line A Notes, second to the Line B Notes and third pro-rata to the Competitive Advance Notes" 5. WAIVER OF SECTION 11.8 (b) (III). Section 11.8(b)(iii) of the Loan Agreement is hereby waived to the extent required to permit the assignment by Bank of America, N.T. & S.A. of a Pro Rata Share of the Commitments equivalent to $3,000,000 to Cedars Bank; PROVIDED that such Section shall continue to apply to any future assignment by any Bank (INCLUDING Bank of America, N.T. & S.A. and Cedars Bank) to any other Person. -2- 6. CONDITIONS PRECEDENT. The effectiveness of this Amendment shall be conditioned upon the receipt by the Managing Agent of all of the following, each properly executed by a Responsible Official of each party thereto and dated as of the date hereof: (a) Counterparts of this Amendment executed by all parties hereto; and (b) Written consent of all of the Banks as required under Section 11.2 of the Loan Agreement in the form of Exhibit A to this Amendment. 7. REPRESENTATION AND WARRANTY. Borrowers represent and warrant to the Managing Agent and the Banks that no Default or Event of Default has occurred and remains continuing. 8. CONFIRMATION. In all other respects, the terms of the Loan Agreement and the other Loan Documents are hereby confirmed. -3- IN WITNESS WHEREOF, Borrowers and the Managing Agent have executed this Amendment as of September 9, 1997 by their duly authorized representatives. ALEXANDRIA REAL ESTATE EQUITIES, INC. ARE-QRS CORP. ARE ACQUISITIONS, LLC By: /s/ Joel S. Marcus ---------------------------------- Joel S. Marcus Chief Executive Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By /s/ William Rothman ---------------------------------- William Rothman Regional Vice President -4- Exhibit A to Amendment CONSENT OF BANK Reference is hereby made to that certain Revolving Loan Agreement dated as of June 2, 1997, (the "Loan Agreement") among Alexandria Real Estate Equities, Inc., ARE-QRS Corp. and ARE Acquisitions, LLC (collectively, "Borrowers"), the Banks party thereto, and Bank of America National Trust and Savings Association, as Managing Agent (the "Loan Agreement). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. The undersigned Bank hereby consents to the execution and delivery of Amendment No. 1 to Revolving Loan Agreement by the Managing Agent on its behalf, substantially in the form of a draft dated on or about September 3, 1997 presented to the undersigned Bank. Date: September ___, 1997 ------------------------------------- [Name of Institution] By ---------------------------------- ------------------------------------- [Printed Name and Title] EX-10.19 11 EXHIBIT 10.19 AMENDMENT NO. 2 TO REVOLVING LOAN AGREEMENT This Amendment No. 2 to Revolving Loan Agreement (this "Amendment") is entered into with reference to the Revolving Loan Agreement dated as of June 2, 1997, (as heretofore amended, the "Loan Agreement") among Alexandria Real Estate Equities, Inc., ARE-QRS Corp. and ARE Acquisitions, LLC (collectively, "Borrowers"), the Banks party thereto, and Bank of America National Trust and Savings Association, as Managing Agent (the "Loan Agreement). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. Borrowers and the Managing Agent, acting with the consent of the Requisite Banks pursuant to Section 11.2 of the Loan Agreement, agree as follows: 1. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is amended by adding the following proviso at the end of the definition of "Adjusted EBITDA": "; PROVIDED, that Adjusted EBITDA for the Interim Calculation Period shall be calculated, as of any date of determination, by multiplying Adjusted EBITDA for the period commencing on July 1, 1997 through the last day of the then most-recently ended Fiscal Quarter by the appropriate factor so as to result in annualized Adjusted EBITDA for such period." 2. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by adding the following proviso at the end of the definition of "Adjusted NOI": "; PROVIDED, that Adjusted NOI for the Interim Calculation Period shall be calculated, as of any date of determination, by multiplying Adjusted NOI for the period commencing on July 1, 1997 through the last day of the then most-recently ended Fiscal Quarter by the appropriate factor so as to result in annualized Adjusted NOI for such period." -1- 3. SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by SUBSTITUTING the phrase "for the fiscal period consisting of the applicable Calculation Period" for the phrase "for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters" in each of the following definitions: "Fixed Charge Coverage" "Interest Coverage" "Gross Asset Value" "Revenue-Producing Property Value" "Unencumbered Asset Pool Value" 4. SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by SUBSTITUTING the phrase "for the applicable Calculation Period" for the phrase "for that Fiscal Quarter and the three immediately preceding Fiscal Quarters" in the definition of "Mortgage Amount." 5. SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by SUBSTITUTING the following for the definition of "Consent Criteria": "CONSENT CRITERIA" means, as of any date of determination, that as of that date EITHER (a) Parent holds a Credit Rating of BBB- (or its equivalent) or better or (b) as of the last day of the Fiscal Quarter then most recently-ended, the RATIO OF (i) Adjusted NOI of all Revenue-Producing Properties (PROVIDED, however, in the case of any Revenue-Producing Property (a "New Property") that within the preceding sixty (60) day period has been purchased by a Borrower from a Person that is now a tenant occupying 100% of such New Property, that Adjusted NOI for such New Property shall be the Adjusted NOI for the first year of such lease as reflected in a pro-forma income statement for this New Property prepared by Parent in good faith using reasonable assumptions consistent with all facts known to Parent) for the fiscal period consisting of the appropriate Calculation Period to (ii) the sum of (A) Interest Charges for such fiscal period PLUS (B) all scheduled principal payments on Indebtedness of Parent (INCLUDING the principal portion of rent under Capital Lease Obligations) -2- made during such fiscal period, other than payments made at the maturity date of such Indebtedness, was 3.50 to 1.00 or greater. 6. SECTION 1.1. Section 1.1 of the Loan Agreement is further amended by adding the following new definitions at the appropriate alphabetical places: "CALCULATION PERIOD" means (a) with respect to the last day of each Fiscal Quarter ending before June 30, 1998, the related Interim Calculation Period and (b) with respect to the last day of each Fiscal Quarter ending on or after June 30, 1998, the period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters. "INTERIM CALCULATION PERIOD" means, with respect to the last day of each Fiscal Quarter ending before June 30, 1998, the period commencing on July 1, 1997 and ending on such last day of the Fiscal Quarter. 7. COMPLIANCE CERTIFICATE . Exhibit E to the Loan Agreement is amended to read as set forth in Attachment I to this Amendment. 8. PRIOR COMPLIANCE CERTIFICATES. The Banks recognize that the Compliance Certificates submitted by Borrower for the Fiscal Quarters ended June 30, 1997 and September 30, 1997 utilized a different annualization calculation method for Fixed Charge Coverage and Interest Coverage from that which is implemented by this Amendment, and agree that such Compliance Certificates were and are acceptable to the Banks to evidence Borrower's compliance with the Loan Agreement as of the dates thereof. 9. CONDITIONS PRECEDENT. The effectiveness of this Amendment shall be conditioned upon the receipt by the Managing Agent of all of the following, each properly executed by a Responsible Official of each party thereto and dated as of the date hereof: (a) Counterparts of this Amendment executed by all parties hereto; and -3- (b) Written consent of the Requisite Banks as required under Section 11.2 of the Loan Agreement in the form of Exhibit A to this Amendment. 10. REPRESENTATION AND WARRANTY. Borrowers represent and warrant to the Managing Agent and the Banks that no Default or Event of Default has occurred and remains continuing. 11. CONFIRMATION. In all other respects, the terms of the Loan Agreement and the other Loan Documents are hereby confirmed. IN WITNESS WHEREOF, Borrowers and the Managing Agent have executed this Amendment as of January 28, 1998 by their duly authorized representatives. ALEXANDRIA REAL ESTATE EQUITIES, INC. ARE-QRS CORP. ARE ACQUISITIONS, LLC By: /s/ Joel S. Marcus --------------------------------- Joel S. Marcus Chief Executive Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By /s/ William Rothman --------------------------------- William Rothman Regional Vice President -4- Exhibit A to Amendment CONSENT OF BANK Reference is hereby made to that certain Revolving Loan Agreement dated as of June 2, 1997 (as heretofore amended, the "Loan Agreement") among Alexandria Real Estate Equities, Inc., ARE-QRS Corp. and ARE Acquisitions, LLC (collectively, "Borrowers"), the Banks party thereto, and Bank of America National Trust and Savings Association, as Managing Agent (the "Loan Agreement). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. The undersigned Bank hereby consents to the execution and delivery of Amendment No. 2 to Revolving Loan Agreement by the Managing Agent on its behalf, substantially in the form of a draft dated on or about January __, 1998 presented to the undersigned Bank. Date: January __, 1998 ----------------------------------- [Name of Institution] By: --------------------------------- --------------------------------- [Printed Name and Title] EX-21.1 12 EXHIBIT 21.1 EXHIBIT 21.1 Subsidiaries of Alexandria Real Estate Equities, Inc.* As of March 27, 1998 ARE-QRS Corp. ARE-GP Holdings QRS Corp. ARE-3535/3565 General Atomics Court, LLC ARE-10933 North Torrey Pines, LLC ARE-11099 North Torrey Pines, LLC Alexandria Real Estate Equities, L.P. ARE Acquisitions, LLC ARE-1431 Harbor Bay, LLC ARE-John Hopkins Court, LLC ARE-708 Quince Orchard, LLC ARE-940 Clopper Road, LLC ARE-1201 Harbor Bay, LLC ARE-1401 Research Boulevard, LLC ARE-1500 East Gude, LLC AREE-Holdings, L.P. ARE-100/800/801 Capitola, LLC ARE-215 College, LLC ARE-4757 Nexus Centre, LLC ARE-819/863 Mitten Road, LLC ARE-Nexus Centre II, LLC ARE-3000/3018 Western, LLC ARE-8000/9000/10000 Virginia Manor, LLC ARE-10150 Old Columbia, LLC ARE-11025 Roselle Street, LLC ARE-Metropolitan Grove I, LLC ARE-6166 Nancy Ridge, LLC ARE-79/96 Charlestown Navy Yard, LLC ARE-5100/5110 Campus Drive, L.P. ARE-702 Electronic Drive, L.P. *All of the Subsidiaries were organized in Delaware, other than ARE-QRS Corp., which was organized in Maryland. EX-23.1 13 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement dated August 22, 1997 (Form S-8 No. 333-34223) pertaining to the 1997 Stock Award and Incentive Plan of Alexandria Real Estate Equities, Inc. of our report dated January 30, 1998, with respect to the consolidated balance sheets of Alexandria Real Estate Equities, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1997, 1996 and 1995, and the consolidated financial statement Schedule III, rental properties and accumulated depreciation, which are included in the Form 10-K of Alexandria Real Estate Equities, Inc. for the year ended December 31, 1997. /s/ ERNST & YOUNG LLP ----------------------- Los Angeles, California March 26, 1998 EX-27.1 14 EXHIBIT 27.1 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (IDENTIFY SPECIFIC FINANCIAL STATEMENTS HERE) THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE THE COMPANY 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,060,000 0 3,630,000 0 0 0 238,774,000 8,804,000 248,454,000 10,720,000 70,817,000 0 0 114,000 166,803,000 248,454,000 0 34,846,000 0 8,766,000 28,877,000 0 7,043,000 (2,797,000) 0 (2,797,000) 0 0 0 (2,797,000) (0.35) (0.35)
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