10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2001
or
o	REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-13545

AMB Property Corporation

(Exact Name of Registrant as Specified in Its Charter)

Maryland	94-3281941
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
Pier 1, Bay 1, San Francisco, California	94111
(Address of Principal Executive Offices)	(Zip Code)

(415) 394-9000

(Registrant’s Telephone Number, Including Area Code)

     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  þ           No  o.

      As of November 2, 2001, there were 83,705,442 shares of the Registrant’s common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

PART I
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
PART II
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Revolving Credit Agreement Dated August 23, 2001

AMB PROPERTY CORPORATION

INDEX

		Page
PART I.  FINANCIAL INFORMATION
Item  1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2001, and December 31, 2000		2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000		3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000		4
	Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2001		5
	Notes to Condensed Consolidated Financial Statements		6
Item  2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item  7A.	Quantitative and Qualitative Disclosures About Market Risk		35
PART II.  OTHER INFORMATION
Item  1.	Legal Proceedings		36
Item  2.	Changes in Securities and Use of Proceeds		36
Item  3.	Defaults Upon Senior Securities		36
Item  4.	Submission of Matters to a Vote of Security Holders		36
Item  5.	Other Information		37
Item  6.	Exhibits and Reports on Form 8-K		49

1

PART I

Item 1.    Financial Statements

AMB PROPERTY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2001 and December 31, 2000

(Unaudited, dollars in thousands, except share amounts)

				September 30,			December 31,
				2001			2000
ASSETS
Investments in real estate:
	Land			$	988,699		$	833,325
	Buildings and improvements				3,226,073			2,915,537
	Construction in progress				219,075			277,735
			Total investments in properties		4,433,847			4,026,597
	Accumulated depreciation and amortization				(239,144	)		(177,467	)
		Net investments in properties			4,194,703			3,849,130
Investments in unconsolidated joint ventures					85,707			80,432
Properties held for divestiture, net					106,054			197,146
		Net investments in real estate			4,386,464			4,126,708
Cash and cash equivalents					243,427			20,358
Restricted cash					13,445			22,364
Mortgages receivable					92,232			115,969
Accounts receivable, net					68,811			69,874
Investments in affiliated companies					—			35,731
Investments in other companies					—			15,965
Other assets					27,245			18,657
			Total assets	$	4,831,624		$	4,425,626
LIABILITIES AND STOCKHOLDERS’ EQUITY
Debt:
	Secured debt			$	1,102,801		$	940,276
	Unsecured senior debt securities				780,000			680,000
	Alliance Fund II credit facility				125,000			—
	Unsecured credit facility				—			216,000
			Total debt		2,007,801			1,836,276
Dividends payable					42,905			6,775
Other liabilities					154,472			140,267
			Total liabilities		2,205,178			1,983,318
Commitments and contingencies (note 12)
Minority interests					859,058			674,378
Stockholders’ equity:
	Series A preferred stock, cumulative, redeemable, $0.01 par value, 100,000,000 shares authorized, 4,000,000 shares issued and outstanding, $100,000 liquidation preference				96,100			96,100
	Common stock, $0.01 par value, 500,000,000 shares authorized, 84,164,842 and 84,138,751 issued and outstanding				841			841
	Additional paid-in capital				1,635,202			1,638,655
	Retained earnings				35,245			36,066
	Accumulated other comprehensive income				—			(3,732	)
			Total stockholders’ equity		1,767,388			1,767,930
			Total liabilities and stockholders’ equity	$	4,831,624		$	4,425,626

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

AMB PROPERTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2001 and 2000

(Unaudited, dollars in thousands, except share and per share amounts)

				For the Three Months						For the Nine Months
				Ended September 30,						Ended September 30,
				2001			2000			2001			2000
REVENUES
	Rental revenues			$	146,089		$	118,493		$	421,425		$	337,356
	Equity in earnings of unconsolidated joint ventures				1,636			1,447			4,365			4,006
	Investment management income				2,340			940			8,022			2,160
	Interest and other income				5,392			491			12,505			1,651
			Total revenues		155,457			121,371			446,317			345,173
OPERATING EXPENSES
	Property operating expenses				17,970			13,400			51,016			36,463
	Real estate taxes				17,379			13,994			50,893			40,992
	Interest, including amortization				32,996			22,562			94,754			62,906
	Depreciation and amortization				38,961			23,312			93,138			65,135
	General and administrative				8,796			5,987			26,180			17,322
	Loss on investments in other companies				—			—			20,758			—
			Total operating expenses		116,102			79,255			336,739			222,818
		Income from operations before minority interests			39,355			42,116			109,578			122,355
Minority interests:
	Preferred units				(7,423	)		(6,206	)		(21,626	)		(17,778	)
	Minority interests				(10,556	)		(6,879	)		(26,324	)		(14,899	)
			Minority interests’ share of net income		(17,979	)		(13,085	)		(47,950	)		(32,677	)
		Net income before gains and extraordinary items			21,376			29,031			61,628			89,678
Gain from development held for sale					1,341			—			1,341			—
Gain from divestitures of real estate, net of minority interests					8,773			5,815			43,332			6,220
		Net income before extraordinary items			31,490			34,846			106,301			95,898
Extraordinary items					87			—			(351	)		—
		Net income			31,577			34,846			105,950			95,898
Series A preferred stock dividends					(2,125	)		(2,125	)		(6,375	)		(6,375	)
		Net income available to common stockholders		$	29,452		$	32,721		$	99,575		$	89,523
BASIC INCOME PER COMMON SHARE
	Before extraordinary items			$	0.35		$	0.39		$	1.18		$	1.07
	Extraordinary items				—			—			—			—
		Net income available to common stockholders		$	0.35		$	0.39		$	1.18		$	1.07
DILUTED INCOME PER COMMON SHARE
	Before extraordinary items			$	0.34		$	0.39		$	1.17		$	1.06
	Extraordinary items				—			—			—			—
		Net income available to common stockholders		$	0.34		$	0.39		$	1.17		$	1.06
WEIGHTED AVERAGE COMMON SHARES
	Basic				84,395,107			84,115,613			84,135,158			83,937,884
	Diluted				85,644,840			84,725,109			85,097,692			84,237,861

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AMB PROPERTY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2001 and 2000

(Unaudited, dollars in thousands)

			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income			$	105,950		$	95,898
Adjustments:
	Depreciation and amortization			93,138			65,135
	Loss on investments in other companies			20,758			—
	Straight-line rents			(7,579	)		(7,158	)
	Amortization of debt premiums and financing costs			342			(5,530	)
	Minority interests’ share of net income			47,950			32,677
	Gain on divestitures of real estate			(44,673	)		(6,220	)
	Extraordinary items			351			—
	Equity in earnings of AMB Investment Management			43			2,162
	Equity in earnings of unconsolidated joint ventures			(4,365	)		(4,006	)
	Changes in other assets, net			25,827			(34,924	)
	Changes in other liabilities, net			14,205			23,612
		Net cash provided by operating activities		251,948			161,646
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash				8,919			57,838
Cash paid for property acquisitions				(283,449	)		(331,346	)
Additions to buildings, development costs, and other first generation Improvements				(143,272	)		(155,787	)
Additions to second generation building improvements and lease costs				(33,198	)		(25,828	)
Additions to interest in unconsolidated joint ventures				(4,965	)		(10,562	)
Distributions received from unconsolidated joint ventures				4,055			2,944
Net proceeds from divestitures of real estate				194,691			26,833
		Net cash used in investing activities		(257,219	)		(435,908	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock				2,087			1,741
Retirement of common stock				(22,062	)		—
Borrowings on unsecured credit facility				198,000			307,000
Borrowings on Alliance Fund I credit facility				—			25,000
Borrowings on Alliance Fund II credit facility				125,000			—
Borrowings on secured debt				232,723			57,646
Payments on unsecured credit facility				(414,000	)		(157,000	)
Payments on Alliance Fund I credit facility				—			(105,000	)
Payments on secured debt				(67,869	)		(14,599	)
Payment of financing fees				(4,385	)		(4,149	)
Net proceeds from issuance of unsecured senior debt securities				99,406			54,808
Net proceeds from issuance of preferred units				63,781			61,533
Contributions from co-investment partners				134,090			129,699
Dividends paid to common and preferred stockholders				(73,525	)		(68,427	)
Distributions to minority interests, including preferred units				(44,906	)		(28,498	)
		Net cash provided by financing activities		228,340			259,754
Net increase (decrease) in cash and cash equivalents				223,069			(14,508	)
Cash and cash equivalents at beginning of period				20,358			33,312
Cash and cash equivalents at end of period			$	243,427		$	18,804
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest			$	102,562		$	66,005
Non-cash transactions:
	Acquisitions of properties		$	283,449		$	407,889
	Assumption of debt			—			(76,543	)
		Net cash paid	$	283,449		$	331,346

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

AMB PROPERTY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2001

(Unaudited, dollars in thousands)

						Common Stock
																		Accumulated
			Series A			Number						Additional						Other
			Preferred			of						Paid-in			Retained			Comprehensive
			Stock			Shares			Amount			Capital			Earnings			Income			Total
Balance at December  31, 2000			$	96,100			84,138,751		$	841		$	1,638,655		$	36,066		$	(3,732	)	$	1,767,930
Comprehensive income:
	Net income			6,375			—			—			—			99,575			—
	Reversal of unrealized loss on securities			—			—			—			—			—			3,732
		Total comprehensive income																				109,682
Issuance of restricted stock				—			238,260			2			5,859			—			—			5,861
Exercise of stock options				—			98,534			1			2,086			—			—			2,087
Conversion of Operating Partnership units				—			621,997			6			14,981			—			—			14,987
Retirement of common stock				—			(932,700	)		(9	)		(22,053	)		—			—			(22,062	)
Deferred compensation				—			—			—			(5,861	)		—			—			(5,861	)
Deferred compensation amortization				—			—			—			1,928			—			—			1,928
Reallocation of limited partners’ interests in the Operating Partnership				—			—			—			(393	)		—			—			(393	)
Dividends				(6,375	)		—			—			—			(100,396	)		—			(106,771	)
Balance at September  30, 2001			$	96,100			84,164,842		$	841		$	1,635,202		$	35,245		$	—		$	1,767,388

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001

(Unaudited)

1.     Organization and Basis of Presentation

      AMB Property Corporation, a Maryland corporation (the “Company”), commenced operations as a fully integrated real estate company effective with the completion of its initial public offering on November 26, 1997. The Company elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, commencing with its taxable year ended December 31, 1997, and believes its current organization and method of operation will enable it to maintain its status as a real estate investment trust. The Company, through its controlling interest in its subsidiary, AMB Property, L.P., a Delaware limited partnership (the “Operating Partnership”), is engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial buildings in target markets nationwide. Unless the context otherwise requires, the “Company” means AMB Property Corporation, the Operating Partnership, and its other controlled subsidiaries.

      As of September 30, 2001, the Company owned an approximate 94.4% general partner interest in the Operating Partnership, excluding preferred units. The remaining 5.6% limited partner interest is owned by non-affiliated investors and certain current and former directors and officers of the Company. For local law purposes, certain properties are owned through limited partnerships and limited liability companies. The ownership of such properties through such entities does not materially affect the Company’s overall ownership interests in the properties. As the sole general partner of the Operating Partnership, the Company has full, exclusive, and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership. Net operating results of the Operating Partnership are allocated after preferred unit distributions based on the respective partners’ ownership interests.

      Through the Operating Partnership, the Company enters into co-investment joint ventures with institutional investors. These co-investment joint ventures provide the Company with an additional source of capital to fund certain acquisitions and development and renovation projects. As of September 30, 2001, the Company had investments in five co-investment joint ventures, which are consolidated for financial reporting purposes.

      AMB Investment Management, Inc., a Maryland corporation (“AMB Investment Management”), provides real estate investment services to clients on a fee basis. Headlands Realty Corporation, a Maryland corporation, conducts a variety of businesses that include incremental income programs, such as the Company’s CustomerAssist Program and development projects available for sale to third parties. On May 31, 2001, the Operating Partnership acquired 100% of the common stock of AMB Investment Management and Headlands Realty Corporation from current and former executive officers of the Company, a former executive officer of AMB Investment Management, and a director of Headlands Realty Corporation, thereby acquiring 100% of both entities’ capital stock. The Operating Partnership began consolidating its investments in AMB Investment Management and Headlands Realty Corporation on May 31, 2001. Prior to May 31, 2001, the Operating Partnership reflected its investment using the equity method. The impact of consolidating AMB Investment Management and Headlands Realty Corporation was not material.

      As of September 30, 2001, the Company owned 876 industrial buildings and seven retail centers, located in 26 markets throughout the United States. The Company’s strategy is to become a leading provider of High Throughput Distribution, or HTD, properties located near key passenger and cargo airports, highway systems and ports in major metropolitan areas, such as Atlanta, Chicago, Dallas/ Fort Worth, Northern New Jersey/ New York City, the San Francisco Bay Area, Southern California, Miami, and Seattle. As of September 30, 2001, the industrial buildings, principally warehouse distribution buildings, encompassed approximately 78.4 million rentable square feet and were 96.6% leased to over 2,867 tenants. As of September 30, 2001, the retail centers, principally grocer-anchored community shopping centers, encompassed approximately 1.3 million rentable square feet and were 87.6% leased to more than 157 tenants.

6

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of September 30, 2001, through AMB Investment Management, the Company also managed industrial buildings and retail centers, totaling approximately 3.3 million rentable square feet on behalf of various clients. In addition, the Company has invested in industrial buildings, totaling approximately 4.9 million rentable square feet, through unconsolidated joint ventures.

2.     Interim Financial Statements

      The condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the Unites States have been condensed or omitted.

      In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary for a fair presentation of the Company’s consolidated financial position and results of operations for the interim periods.

      The interim results of the three and nine months ended September 30, 2001 and 2000, are not necessarily indicative of future results. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2000.

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

      Investments in other companies are accounted for on a cost basis and realized gains and losses are included in current earnings. For its investments in private companies, the Company periodically reviews its investments and management determines if the value of such investments have been permanently impaired. Permanent impairment losses for investments in public and private companies are included in current earnings. As of June 30, 2001, the Company recognized a realized loss on its investments in other companies totaling $20.8 million, including its investment in Webvan Group, Inc. The Company had previously recognized gains and losses on its investment in Webvan Group, Inc. as a component of other comprehensive income.

      In June and August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 143, Accounting for Asset Retirement Obligations, and 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under FASB Statement No. 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. FASB Statement No. 144 retains FASB Statement No. 121’s, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, fundamental provisions for the: (1) recognition and measurement of impairment of long-lived assets to be held and used; and (2) measurement of long-lived assets to be disposed of by sale. The Company does not believe that either FASB Statement No. 143 or No. 144 will have a material impact on its financial position or results of operations. FASB Statement No. 143 is effective for fiscal years beginning after June 15, 2002, and FASB Statement No. 144 is effective for fiscal years beginning after December 15, 2001.

7

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 141, Business Combinations, and 142, Goodwill and Other Intangible Assets. Under FASB Statement No. 141, business combinations initiated after June 30, 2001, must use the purchase method of accounting. The pooling of interest method of accounting is prohibited. Under FASB Statement No. 142, intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal right or are separable from the acquired entity and can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer’s intent to do so. The Company does not believe that either FASB Statement No. 141 or No. 142 will have a material impact on its financial position or results of operations. FASB Statement No. 141 was effective for business combinations initiated after July 1, 2001, and FASB Statement No. 142 is effective for fiscal years beginning after December 15, 2001.

      The Company adopted FASB Statement No. 133 on derivatives on January 1, 2001, and it did not impact its financial position or results of operations as the Company does not utilize derivative instruments in its operations. FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement, as amended, requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met.

3.     Real Estate Acquisition and Development Activity

      During the third quarter of 2001, the Company invested $118.1 million in operating properties, consisting of 16 industrial buildings aggregating approximately 1.7 million square feet, which included the investment of $41.3 million in seven industrial buildings aggregating approximately 0.7 million square feet through two of the Company’s co-investment joint ventures. Year to date, the Company has invested $283.4 million in operating properties, consisting of 42 industrial buildings aggregating approximately 4.5 million square feet, which included the investment of $126.1 million in 21 industrial buildings aggregating approximately 2.3 million square feet through three of the Company’s co-investment joint ventures.

      Year to date, the Company has contributed operating properties valued at $539.2 million, consisting of 111 industrial buildings aggregating approximately 10.8 million square feet, to three of its co-investment joint ventures. Year to date, the Company has recognized a gain of $19.4 million related to these contributions representing its partners’ share of the gain.

      The Company completed four development projects during the third quarter, which aggregated approximately 0.6 million square feet and had a total cost of $65.7 million. As of September 30, 2001, the Company had in its development pipeline: (1) 13 industrial projects, which will total approximately 3.8 million square feet and have an aggregate estimated investment of $204.6 million upon completion; (2) two retail projects, which will total approximately 0.2 million square feet and have an aggregate estimated investment of $34.6 million upon completion; and (3) three development projects available for sale, which will total approximately 0.8 million square feet and have an aggregate estimated investment of $81.0 million upon completion. As of September 30, 2001, the Company and its Development Alliance Partners have funded an aggregate of $221.2 million and will need to fund an estimated additional $99.0 million in order to complete current and planned projects.

8

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Property Divestitures and Properties Held for Divestiture

      During the quarter, the Company divested itself of ten industrial and two retail buildings, aggregating approximately 1.2 million square feet, for an aggregate price of $97.3 million, with a resulting net gain of $5.6 million, net of minority interests’ share. Year to date, the Company divested itself of 23 industrial and two retail buildings, aggregating approximately 3.1 million square feet, for an aggregate price of $190.4 million, with a resulting net gain of $23.9 million, net of minority interests’ share.

      The Company has decided to divest itself of four retail centers and one industrial property, which are not in its core markets or which do not meet its strategic objectives. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. During the third quarter of 2001, the Company recognized an impairment loss of $10.0 million on two of its retail assets held for sale. As of September 30, 2001, the net carrying value of the properties held for divestiture was $106.1 million.

      The following table summarizes the condensed results of operations of the properties held for divestiture (dollars in thousands):

Properties Held for Divestiture at September 30, 2001

		2001		2000
Three months ended September 30,
Income		$	1,920	$	1,503
Property operating expenses			913		497
Interest expense			302		632
Depreciation expense			411		374
	Net income	$	294	$	—

		2001		2000
Nine months ended September 30,
Income		$	6,089	$	4,227
Property operating expenses			2,540		1,381
Interest expense			1,013		1,548
Depreciation expense			1,036		1,030
	Net income	$	1,500	$	268

9

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.     Mortgages Receivable

      In September 2000, the Company sold a retail center located in Los Angeles, California. As of September 30, 2001, the Company carried an 8.75% mortgage note in the principal amount of $79.0 million on the retail center. The maturity date of the mortgage note, which was originally scheduled to mature on October 1, 2001, had been extended to October 15, 2001. As of November 13, 2001, the borrower was in default, however, the Company is negotiating an extension on the maturity date and to change certain terms of the note. The Company has a first lien against the retail center as collateral for the mortgage note and believes that the underlying value of retail center is equal to or greater than the fair value of the mortgage note.

      Through a wholly-owned subsidiary, the Company also holds a mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture. The note bears interest at 13.0% and matures in May 2026. As of September 30, 2001, the outstanding balance on the note was $13.2 million.

6.     Debt

      As of September 30, 2001 and December 31, 2000, debt consisted of the following (dollars in thousands):

			September 30,		December 31,
			2001		2000
Secured debt, varying interest rates from 4.0% to 10.4%
	due November 2001 to June 2023 (weighted average interest rate of 7.6% at September 30, 2001)		$	1,095,272	$	930,418
Unsecured senior debt securities (weighted average interest rate of 7.3%) due June 2005 to June 2018				780,000		680,000
Unsecured credit facility, variable interest at LIBOR plus 75 basis points due May 2003				—		216,000
Alliance Fund II credit facility, variable interest at LIBOR plus 87.5 basis points (weighted average interest rate of 3.5% at September 30, 2001) due August 2003				125,000		—
		Total before premiums		2,000,272		1,826,418
		Unamortized premiums		7,529		9,858
		Total consolidated debt	$	2,007,801	$	1,836,276

      Secured debt generally requires monthly principal and interest payments. The secured debt is secured by deeds of trust on certain properties. As of September 30, 2001, the total gross investment book value of those properties securing the debt was $1.7 billion. All of the secured debt bears interest at fixed rates, except for three loans with an aggregate principal amount of $35.9 million, which bear interest at variable rates (with a weighted average interest rate of 4.3% at September 30, 2001). The secured debt has various financial and non-financial covenants and some loans are cross-collateralized. As of September 30, 2001, we had 21 non-recourse secured loans, which are cross collateralized by 41 properties. As of September 30, 2001, we had $430.5 million (not including unamortized debt premium) outstanding on these loans. Management believes that the Company and the Operating Partnership were in compliance with these covenants at September 30, 2001.

      Interest on the senior debt securities is payable semi-annually. The 2015 notes are putable and callable in June 2005. The senior debt securities are subject to various financial and non-financial covenants. Management believes that the Company was in compliance with these covenants at September 30, 2001.

10

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In August 2000, the Operating Partnership commenced a medium-term note program for the possible issuance of up to $400.0 million in principal amount of medium-term notes, which will be guaranteed by the Company. In September 2001, the Operating Partnership issued and sold $25.0 million of the notes under this program to Lehman Brothers Inc., as principal. The Company guaranteed the notes, which mature on September 6, 2011, and bear interest at 6.75%. The Operating Partnership used the net proceeds of $24.8 million for general corporate purposes, to partially repay indebtedness, and to acquire and develop additional properties. In March 2001, the Operating Partnership issued and sold $50.0 million of the notes under this program to First Union Securities, Inc., as principal. The Company guaranteed the notes, which mature on March 7, 2011, and bear interest at 7.00%. The Operating Partnership used the net proceeds of $49.7 million for general corporate purposes, to partially repay indebtedness, and to acquire and develop additional properties. In January 2001, the Operating Partnership issued and sold $25.0 million of the notes under this program to A.G. Edwards & Sons, Inc., as principal. The Company guaranteed the notes, which mature on January 30, 2006, and bear interest at 6.90%. The Operating Partnership used the net proceeds of $24.9 million for general corporate purposes, to partially repay indebtedness, and to acquire and develop additional properties. The notes have various financial and non-financial covenants. Management believes that the Company and the Operating Partnership were in compliance with these covenants at September 30, 2001.

      In May 2000, the Operating Partnership entered into a $500.0 million unsecured revolving credit agreement. The Company is a guarantor of the Operating Partnership’s obligations under the credit facility. The credit facility matures in May 2003, has a one-year extension option, and is subject to a 15 basis point annual facility fee, which is based on the Company’s credit rating. The credit facility has various financial and non-financial covenants. Management believes that the Company and the Operating Partnership were in compliance with these covenants at September 30, 2001. The Operating Partnership has the ability to increase available borrowings to $700.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase their commitments. Monthly debt service payments on the credit facility are interest only. The total amount available under the credit facility fluctuates based upon the borrowing base, as defined in the agreement governing the credit facility. At September 30, 2001, the remaining amount available under the credit facility was $500.0 million (excluding the additional $200.0 million of potential additional capacity).

      In July 2001, AMB Institutional Alliance Fund II, L.P. (“Alliance Fund II”) obtained a $150.0 million secured credit facility from Bank of America N.A. Borrowings currently bear interest at LIBOR plus 87.5 basis points, which includes the facility fee. As of September 30, 2001, the outstanding balance was $125.0 million and the remaining amount available was $25.0 million. The secured debt facility has various financial and non-financial covenants. Management believes that the Company and the Operating Partnership were in compliance with these covenants at September 30, 2001.

      Capitalized interest related to construction projects for the three months ended September 30, 2001 and 2000, was $3.6 million and $4.3 million, respectively, and for the nine months ended September 30, 2001 and 2000, was $10.8 million and $11.5 million, respectively.

      During the nine months ended September 30, 2001, the Operating Partnership retired $53.9 million of secured debt prior to maturity. The Operating Partnership recognized a net extraordinary loss of $0.4 million related to the early debt retirement.

11

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The scheduled maturities of the Company’s total debt, excluding unamortized debt premiums, as of September 30, 2001, were (dollars in thousands):

					Unsecured
			Joint		Senior
	Secured		Venture		Debt		Credit
	Debt		Debt		Securities		Facilities		Total
2001	$	2,996	$	9,014	$	—	$	—	$	12,010
2002		28,194		51,937		—		—		80,131
2003		76,296		12,005		—		125,000		213,301
2004		65,285		25,791		—		—		91,076
2005		63,027		40,019		250,000		—		353,046
2006		94,966		72,166		25,000		—		192,132
2007		30,198		23,470		55,000		—		108,668
2008		33,604		145,108		175,000		—		353,712
2009		5,176		29,812		—		—		34,988
2010		52,780		69,205		75,000		—		196,985
2011		1,311		135,820		75,000		—		212,131
Thereafter		3,307		23,785		125,000		—		152,092
	$	457,140	$	638,132	$	780,000	$	125,000	$	2,000,272

7.     Minority Interests

      Minority interests in the Company represent the limited partnership interests in the Operating Partnership and interests held by certain third parties in several real estate joint ventures, aggregating approximately 27.0 million square feet, which are consolidated for financial reporting purposes. Such investments are consolidated because: (1) the Company owns a majority interest; or (2) the Company exercises significant control over major operating decisions such as approval of budgets, selection of property managers, and changes in financing.

      The Operating Partnership, together with one of the Company’s other affiliates, owned, as of September 30, 2001, approximately 21% of the partnership interests in AMB Institutional Alliance Fund I, L.P. (“Alliance Fund I”). The Alliance Fund I is a co-investment partnership between the Operating Partnership and AMB Institutional Alliance REIT I, Inc. (“Alliance REIT I”), which includes 15 institutional investors as stockholders, and is engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial buildings in target markets nationwide. As of September 30, 2001, the Alliance Fund I had received equity contributions from third party investors totaling $169.0 million, which, when combined with anticipated debt financings and the Company’s investment, creates a total planned capitalization of $410.0 million. The Operating Partnership is the managing general partner of the Alliance Fund I.

      On February 14, 2001, the Company formed a partnership, AMB Partners II, L.P. (“Partners II”), with the City and County of San Francisco Employees’ Retirement System (“CCSFERS”) to acquire, manage, develop, and redevelop distribution facilities nationwide. As of September 30, 2001, Partners II had received an equity contribution from CCSFERS of $50.0 million, which, when combined with anticipated debt financings and the Company’s investment, creates a total planned capitalization of $250.0 million. The Operating Partnership is the managing general partner of Partners II and owned, as of September 30, 2001, approximately 50% of Partners II.

12

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On March 26, 2001, the Company formed a joint venture, AMB-SGP, L.P. (“AMB-SGP”), with a subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation (“GIC”), to own and operate, through a private real estate investment trust, distribution facilities nationwide. As of September 30, 2001, AMB-SGP had received an equity contribution from GIC of $75.0 million, which, when combined with anticipated debt financings and the Company’s investment in properties, creates a total planned capitalization of $335.0 million. The Operating Partnership is the managing general partner of AMB-SGP and owned, as of September 30, 2001, approximately 50.3% of AMB-SGP.

      On June 28, 2001, the Company formed AMB Institutional Alliance Fund II, L.P. (“Alliance Fund II”). The Operating Partnership owns, as of September 30, 2001, approximately 20% of the partnership interests in the Alliance Fund II. The Alliance Fund II is a co-investment partnership between the Operating Partnership and AMB Institutional Alliance REIT II, Inc. (“Alliance REIT II”). The Alliance REIT II included 12 institutional investors as stockholders as of September 30, 2001, and 14 institutional investors as stockholders as of its final closing on October 9, 2001. The Alliance Fund II is engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial buildings in target markets nationwide. As of September 30, 2001, the Alliance Fund II had received equity commitments from third party investors totaling $181.8 million, which, when combined with anticipated debt financings and the Company’s investment, created a total planned capitalization of $456.1 million. Subsequently, on October 9, 2001, the Alliance Fund II received additional equity commitments of $13.6 million at its final closing. Therefore, as of October 9, 2001, the Alliance Fund II had received total equity commitments from third party investors of $195.4 million, which, when combined with anticipated debt financings and the Company’s investment, creates a total planned capitalization of $488.6 million. The Operating Partnership is the managing general partner of the Alliance Fund II.

      The following table distinguishes the minority interest liability and the minority interests’ share of net income (dollars in thousands):

				Share of Net Income
		Liability
				For the Three		For the Nine
		As of		Months Ended		Months Ended
		September 30,		September 30,		September 30,
		2001		2001		2001
Joint Venture Partners		$	377,519	$	8,756	$	20,166
Limited Partners in the Operating Partnership			99,705		1,800		6,158
Series B preferred units (liquidation preference of $65,000)			62,319		1,402		4,206
Series C preferred units (liquidation preference of $110,000)			105,844		2,406		7,218
Series D preferred units (liquidation preference of $79,767)			77,687		1,545		4,635
Series E preferred units (liquidation preference of $11,022)			10,788		214		642
Series F preferred units (liquidation preference of $19,872)			19,597		395		1,185
Series G preferred units (liquidation preference of $1,000)			954		20		60
Series H preferred units (liquidation preference of $42,000)			40,915		853		2,559
Series I preferred units (liquidation preference of $25,500)			24,821		510		1,043
Series J preferred units (liquidation preference of $40,000)			38,909		78		78
	Total	$	859,058	$	17,979	$	47,950

13

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.     Investments in Unconsolidated Joint Ventures

      The Company has non-controlling limited partnership interests in three separate unconsolidated joint ventures; the Company accounts for the joint ventures using the equity method of accounting. The Company has a 56.1% interest in a joint venture, which owns an aggregate of 36 industrial buildings totaling approximately 4.0 million square feet. The Company also has a 50% interest in each of two other operating and development alliance joint ventures. For the three months ended September 30, 2001 and 2000, the Company’s share of net operating income in the unconsolidated joint ventures was $2.7 million and $2.2 million, respectively, and for the nine months ended September 30, 2001 and 2000, the Company’s share of net operating income in the unconsolidated joint ventures was $7.8 million and $6.3 million, respectively. As of September 30, 2001, the Company’s share of the unconsolidated joint ventures’ debt was $32.7 million, with a weighted average interest rate of 5.7% and a weighted average maturity of 4.6 years.

9.     Stockholders’ Equity

      On September 21, 2001, the Operating Partnership issued and sold 800,000 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in a private placement. Distributions are cumulative from the date of issuance and payable quarterly in arrears. The Series J Preferred Units are redeemable by the Operating Partnership on or after September 21, 2006, subject to certain conditions, for cash at a redemption price equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if any, to the redemption date. The Series J Preferred Units are exchangeable, at specified times and subject to certain conditions, on a one-for-one basis, for shares of the Company’s Series J Preferred Stock. The Operating Partnership used the net proceeds of $38.9 million for general corporate purposes, which may include the partial repayment of indebtedness or the acquisition or development of additional properties.

      On March 21, 2001, AMB Property II, L.P., one of the Company’s subsidiaries, issued and sold 510,000 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in a private placement. Distributions are cumulative from the date of issuance and payable quarterly in arrears at a rate per unit equal to $4.00 per annum. The Series I Preferred Units are redeemable by AMB Property II, L.P. on or after March 21, 2006, subject to certain conditions, for cash at a redemption price equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if any, to the redemption date. The Series I Preferred Units are exchangeable, at specified times and subject to certain conditions, on a one-for-one basis, for shares of the Company’s Series I Preferred Stock. AMB Property II, L.P. used the net proceeds of $24.9 million to repay advances from the Operating Partnership and to make a loan to the Operating Partnership. The Operating Partnership used the funds to partially repay borrowings under its unsecured credit facility and for general corporate purposes. The loan bears interest at 8.0% per annum and is payable on demand.

      During the third quarter of 2001, the Company redeemed 218,092 and 23,700 common limited partnership units of the Operating Partnership for cash and shares of its common stock, respectively. During the first quarter of 2001, the Company redeemed 598,297 common limited partnership units of the Operating Partnership for shares of its common stock.

      The Company’s board of directors approved a stock repurchase program in 1999 for the repurchase of up to $100.0 million worth of common stock. During the quarter ended September 30, 2001, the Company repurchased 907,700 shares of its common stock at an average purchase price of $23.68 per share under this program. During the quarter ended June 30, 2001, the Company repurchased 25,000 shares of its common stock at a purchase price of $22.80 per share under this program. Through September 30, 2001, the Company has repurchased 2,376,300 shares of its common stock at an average purchase price of $20.77 per share. The Company’s stock repurchase program expires in December 2001.

14

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s board of directors declared a regular cash dividend for the quarter ending September 30, 2001, of $0.395 per share of common stock and the Operating Partnership declared a regular cash distribution for the quarter ending September 30, 2001, of $0.395 per common unit. The dividends and distributions were payable on October 15, 2001, to stockholders and unitholders of record on October 4, 2001. The Series A, B, C, E, F, G, and J preferred stock and unit dividends and distributions were also payable on October 15, 2001, to stockholders and unitholders of record on October 4, 2001. The Series D, H, and I preferred unit distributions were payable on September 25, 2001, to unitholders of record on September 15, 2001. The following table sets forth the dividend payments and distributions for the three and nine months ended September 30, 2001 and 2000:

		For the Three		For the Nine
		Months Ended		Months Ended
		September 30,		September 30,
Security	Paying Entity	2001	2000	2001	2000
Common stock	Company	$0.395	$0.370	$1.185	$1.110
Operating Partnership units	Operating Partnership	$0.395	$0.370	$1.185	$1.110
Series A preferred stock	Company	$0.531	$0.531	$1.594	$1.594
Series A preferred units	Operating Partnership	$0.531	$0.531	$1.594	$1.594
Series B preferred units	Operating Partnership	$1.078	$1.078	$3.234	$3.234
Series C preferred units	AMB Property II, L.P.	$1.094	$1.094	$3.281	$3.281
Series D preferred units	AMB Property II, L.P.	$0.969	$0.969	$2.906	$2.906
Series E preferred units	AMB Property II, L.P.	$0.969	$0.969	$2.906	$2.906
Series F preferred units	AMB Property II, L.P.	$0.994	$0.994	$2.952	$2.097
Series G preferred units	AMB Property II, L.P.	$0.994	$0.357	$2.982	$0.357
Series H preferred units	AMB Property II, L.P.	$1.016	$0.282	$3.048	$0.282
Series I preferred units	AMB Property II, L.P.	$1.000	n/a	$2.044	n/a
Series J preferred units	Operating Partnership	$0.097	n/a	$0.097	n/a

10.     Income Per Share

      The Company’s only dilutive securities outstanding for the three and nine months ended September 30, 2001 and 2000, were stock options and restricted stock granted under its stock incentive plan. The effect on income per share was to increase weighted average shares outstanding. Such dilution was computed using the treasury stock method.

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2001		2000		2001		2000
WEIGHTED AVERAGE COMMON SHARES
	Basic		84,395,107		84,115,613		84,135,158		83,937,884
	Stock options and restricted stock		1,249,733		609,496		962,534		299,977
	Diluted		85,644,840		84,725,109		85,097,692		84,237,861

15

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     Segment Information

      The Company operates industrial and retail properties nationwide and manages its business both by property type and by market. Industrial properties consist primarily of warehouse distribution facilities suitable for single or multiple tenants and are typically comprised of multiple buildings that are leased to tenants engaged in various types of businesses. As of September 30, 2001, the Company operated industrial properties in eight hub and gateway markets in addition to 18 other markets nationwide. As of September 30, 2001, the Company operated retail properties in Miami, Atlanta, Chicago, the San Francisco Bay Area, Boston, and Baltimore. The Company has so few retail properties that it does not separately report its retail operations by market. Retail properties are generally leased to one or more anchor tenants, such as grocery and drug stores, and various retail businesses. The accounting policies of the segments are the same as those described in the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2000. The Company evaluates performance based upon property net operating income of the combined properties in each segment. The Company’s geographic markets for industrial properties are managed separately because each market requires different operating, pricing, and leasing strategies.

      During the first quarter of 2001, the Company split its industrial segment into geographic hub and gateway markets and other markets. Within the hub and gateway market categorization, the Company operates in eight major U.S. markets. The other industrial markets category captures all of the Company’s other smaller markets nationwide. The 2000 rental revenue and net operating income disclosure below has been restated to reflect this change. Summary information for the reportable segments is as follows (dollars in thousands):

				Rental Revenues(1)				Property NOI(1)(2)
				For the Three Months				For the Three Months
				Ended September 30,				Ended September 30,
				2001		2000		2001		2000
Industrial Hub & Gateway Markets:
	Atlanta			$	7,218	$	6,036	$	5,775	$	4,979
	Chicago				10,416		9,191		7,492		6,323
	Dallas/Ft. Worth				8,369		6,775		5,328		4,792
	No. New Jersey/New York				10,846		9,790		7,367		7,614
	San Francisco Bay Area				28,033		20,107		23,374		16,389
	Southern California				16,201		9,585		12,693		7,846
	Miami				7,877		4,802		6,108		3,623
	Seattle				6,679		5,832		5,201		4,784
		Total hub & gateway markets			95,639		72,118		73,338		56,350
Total other industrial markets					40,108		37,451		29,343		28,166
Total retail markets					6,229		7,109		3,946		4,768
			Total properties	$	141,976	$	116,678	$	106,627	$	89,284

(1)	Excludes straight-line rents of $4.1 million and $1.8 million for the three months ended September 30, 2001 and 2000, respectively.
(2)	Property net operating income is defined as rental revenue, including reimbursements and excluding straight-line rents, less property level operating expenses, excluding depreciation, amortization, general and administrative expenses, and interest expense.

16

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				Rental Revenues(1)				Property NOI(1)(2)
				For the Nine Months				For the Nine Months				Total Gross Investment(3)
				Ended September 30,				Ended September 30,
												September 30,		December 31,
				2001		2000		2001		2000		2001		2000
Industrial Hub & Gateway Markets:
	Atlanta			$	21,207	$	17,112	$	17,031	$	14,103	$	265,456	$	225,352
	Chicago				30,333		28,657		20,800		19,867		337,203		303,489
	Dallas/ Ft. Worth				24,600		19,392		16,042		13,892		237,917		240,933
	No. New Jersey/ New York				33,379		23,869		23,628		18,550		402,694		382,285
	San Francisco Bay Area				77,993		56,756		65,668		46,550		769,979		641,137
	Southern California				46,514		26,747		37,248		21,775		618,744		552,055
	Miami				24,696		13,832		18,541		10,481		297,161		281,710
	Seattle				19,615		16,525		15,292		13,555		211,634		203,786
		Total hub & gateway markets			278,337		202,890		214,250		158,773		3,140,788		2,830,747
Total other industrial markets					116,484		105,968		85,099		79,158		1,237,897		1,045,455
Total retail markets					19,025		21,340		12,588		14,812		55,162		150,395
			Total properties	$	413,846	$	330,198	$	311,937	$	252,743	$	4,433,847	$	4,026,597

(1)	Excludes straight-line rents of $7.6 million and $7.2 million for the nine months ended September 30, 2001 and 2000, respectively.
(2)	Property net operating income is defined as rental revenue, including reimbursements and excluding straight-line rents, less property level operating expenses, excluding depreciation, amortization, general and administrative expenses, and interest expense.
(3)	Excludes net properties held for divestiture of $106.1 million, which is comprised of $18.9 million in industrial and $87.2  million in retail properties, as of September 30, 2001, and $197.1 million, which is comprised of $158.7 million in industrial and $38.4 million in retail properties, as of December 31, 2000.

17

AMB PROPERTY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company uses property net operating income as an operating performance measure. The following table reconciles total reportable segment revenue and property net operating income to rental revenues and income from operations (dollars in thousands):

			For the Three Months						For the Nine Months
			Ended September 30,						Ended September 30,
			2001			2000			2001			2000
Rental Revenues
Total rental revenues for reportable segments			$	141,976		$	116,678		$	413,846		$	330,198
Straight-line rents				4,113			1,815			7,579			7,158
		Total rental revenues	$	146,089		$	118,493		$	421,425		$	337,356
Income from Operations
Property net operating income for reportable segments			$	106,627		$	89,284		$	311,937		$	252,743
Straight-line rents				4,113			1,815			7,579			7,158
Equity in earnings of unconsolidated joint ventures				1,636			1,447			4,365			4,006
Investment management income				2,340			940			8,022			2,160
Other income				5,392			491			12,505			1,651
Less:
	Interest, including amortization			(32,996	)		(22,562	)		(94,754	)		(62,906	)
	Depreciation and amortization			(38,961	)		(23,312	)		(93,138	)		(65,135	)
	General, administrative, and other			(8,796	)		(5,987	)		(26,180	)		(17,322	)
	Loss on investments in other companies			—			—			(20,758	)		—
		Income from operations	$	39,355		$	42,116		$	109,578		$	122,355

12.     Commitments and Contingencies

      Litigation. In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.

      Environmental Matters. The Company monitors its properties for the presence of hazardous or toxic substances. The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, assets, or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability would have an adverse effect on the Company’s results of operations and cash flow.

      General Uninsured Losses. The Company carries property and rental loss, liability, flood, and environmental insurance. The Company believes that the policy terms and conditions, limits, and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage, and industry practice. In addition, certain of the Company’s properties are located in areas that are subject to earthquake activity; therefore, the Company has obtained limited earthquake insurance on those properties. There are, however, certain types of extraordinary losses that may be either uninsurable or not economically insurable. Should an uninsured loss occur, the Company could lose its investment in, and anticipated profits and cash flows from, a property.

18

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

      You should read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with the Notes to Condensed Consolidated Financial Statements. Statements contained in this discussion that are not historical facts may be forward-looking statements. Such statements relate to our future performance and plans, results of operations, capital expenditures, acquisitions, and operating improvements and costs. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans, or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely upon them as predictions of future events. There is no assurance that the events or circumstances reflected in forward-looking statements will occur or be achieved. Forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and we may not be able to realize them.

      The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

•  defaults or non-renewal of leases by tenants;

•  increased interest rates and operating costs;

•  our failure to obtain necessary outside financing;

•  difficulties in identifying properties to acquire and in effecting acquisitions;

•  our failure to successfully integrate acquired properties and operations;

•  our failure to divest of properties that we have contracted to sell or to timely reinvest proceeds from any such divestitures;

•  risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits, and public opposition to these activities);

•  our failure to qualify and maintain our status as a real estate investment trust under the Internal Revenue Code of 1986;

•  environmental uncertainties;

•  risks related to natural disasters;

•  financial market fluctuations;

•  changes in real estate and zoning laws; and

•  increases in real property tax rates.

      Our success also depends upon economic trends generally, including interest rates, income tax laws, governmental regulation, legislation, population changes, and those other risk factors discussed in the section entitled “Business Risks” in this report. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak as of the date of this report or as of the dates indicated in the statements.

      Unless the context otherwise requires, the terms “we,” “us,” and “our” refer to AMB Property Corporation and the other controlled subsidiaries, and the references to AMB Property Corporation include AMB Property, L.P. and the other controlled subsidiaries. The following marks are our registered trademarks: AMB®; Customer Alliance Partners®; Customer Alliance Program®; Development Alliance Partners®; Development Alliance Program®; High Throughput Distribution®; Institutional Alliance Partners®; Institutional Alliance Program®; Management Alliance Partners®; Management Alliance Program®; UPREIT Alliance Partners®; and UPREIT Alliance Program®. The following marks are our unregistered trademarks: Broker Alliance Partners^TM; Broker Alliance Program^TM; HTD^TM; Strategic Alliance Partners^TM; and Strategic Alliance Programs^TM.

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THE COMPANY

      AMB Property Corporation, a Maryland corporation, is one of the leading owners and operators of industrial real estate nationwide. Our investment strategy is to become a leading provider of High Throughput Distribution, or HTD, properties located near key passenger and cargo airports, highway systems and ports in major metropolitan areas, such as Atlanta, Chicago, Dallas/ Fort Worth, Northern New Jersey/ New York City, the San Francisco Bay Area, Southern California, Miami, and Seattle. Within each of our markets, we focus our investments in in-fill submarkets. In-fill sub-markets are characterized by supply constraints on the availability of land for competing projects. High Throughput Distribution facilities are designed to serve the high-speed, high-value freight handling needs of today’s supply chain, as opposed to functioning as long-term storage facilities. We believe that the rapid growth of the airfreight business, the outsourcing of supply chain management to third party logistics companies and e-commerce are indicative of the changes that are occurring in the supply chain and the manner in which goods are distributed. In addition, we believe that inventory levels as a percentage of final sales are falling and that goods are moving more rapidly through the supply chain. As a result, we intend to focus our investment activities primarily on industrial properties that we believe will benefit from these changes.

      As of September 30, 2001, we owned and operated 876 industrial buildings and seven retail centers, totaling approximately 79.7 million rentable square feet, located in 26 markets nationwide. As of September 30, 2001, our industrial and retail properties were 96.6% and 87.6% leased, respectively. As of September 30, 2001, through our subsidiary, AMB Investment Management, we also managed industrial buildings and retail centers, totaling approximately 3.3 million rentable square feet on behalf of various clients. In addition, we have invested in industrial buildings, totaling approximately 4.9 million rentable square feet, through unconsolidated joint ventures.

      As of September 30, 2001, we had four retail centers and one industrial property, which were held for divestiture. In addition, during the quarter, we disposed of ten industrial buildings and two retail properties, aggregating approximately 1.2 million rentable square feet, for an aggregate price of $97.3 million. Year to date, we have disposed of 23 industrial buildings and two retail buildings, aggregating approximately 3.1 million rentable square feet, for an aggregate price of $190.4 million. Over the next few years, we intend to dispose of non-strategic assets and redeploy the resulting capital into High Throughput Distribution properties that better fit our current investment focus.

      Through our subsidiary, AMB Property, L.P., a Delaware limited partnership, we are engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial properties in target markets nationwide. We refer to AMB Property, L.P. as the operating partnership. As of September 30, 2001, we owned an approximate 94.4% general partnership interest in the operating partnership, excluding preferred units. As the sole general partner of the operating partnership, we have the full, exclusive, and complete responsibility and discretion in the day-to-day management and control of the operating partnership.

      Through the operating partnership, we enter into co-investment joint ventures with institutional investors. These co-investment joint ventures provide us with an additional source of capital to fund certain acquisitions, development projects, and renovation projects. As of September 30, 2001, we had investments in five co-investment joint ventures, which are consolidated for financial reporting purposes.

      The operating partnership is the managing general partner of AMB Institutional Alliance Fund I, L.P. and, together with one of our other affiliates, owns, as of September 30, 2001, approximately 21% of the partnership interests in the Alliance Fund I. The Alliance Fund I is a co-investment partnership between us and AMB Institutional Alliance REIT I, Inc., a limited partner of the Alliance Fund I, which includes 15 institutional investors as stockholders and is engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial buildings in target markets nationwide. As of September 30, 2001, the Alliance Fund I had received equity contributions from third party investors totaling $169.0 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $410.0 million. The operating partnership is the managing general partner of the Alliance Fund I.

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      On February 14, 2001, we formed AMB Partners II, L.P. with the City and County of San Francisco Employees’ Retirement System to acquire, develop, and redevelop distribution facilities nationwide. As of September 30, 2001, AMB Partners II had received an equity contribution from third party investors of $50.0 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $250.0 million. The operating partnership is the managing general partner of AMB Partners II, L.P. and owned, as of September 30, 2001, 50% of AMB Partners II, L.P.

      On March 26, 2001, we formed a joint venture, AMB-SGP, L.P., with a subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation, to own and operate, through a private real estate investment trust, distribution facilities nationwide. As of September 30, 2001, AMB-SGP, L.P. had received an equity contribution from GIC of $75.0 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $335.0 million. The operating partnership is the managing general partner of AMB-SGP, L.P. and owned, as of September 30, 2001, approximately 50.3% of AMB-SGP, L.P.

      On June 28, 2001, we formed AMB Institutional Alliance Fund II, L.P. The operating partnership is the managing general partner and owned, as of September 30, 2001, approximately 20% of the partnership interests in the Alliance Fund II. The Alliance Fund II is a co-investment partnership between us and AMB Institutional Alliance REIT II, Inc., a limited partner of the Alliance Fund II, which includes 12 institutional investors as stockholders as of September 30, 2001. The Alliance Fund II is engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial buildings in target markets nationwide. As of September 30, 2001, the Alliance Fund II had received equity commitments from third party investors totaling $181.8 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $456.1 million. Subsequently, on October 9, 2001, the Alliance Fund II received additional equity commitments of $13.6 million at its final closing. Therefore, as of October 9, 2001, the Alliance Fund II had received total equity commitments from third party investors of $195.4 million, which, when combined with anticipated debt financings and the Company’s investment, creates a total planned capitalization of $488.6 million.

      We are self-administered and self-managed and expect that we have qualified and will continue to qualify as a real estate investment trust for federal income tax purposes beginning with the year ending December 31, 1997. As a self-administered and self-managed real estate investment trust, our own employees perform our administrative and management functions, rather than our relying on an outside manager for these services. The principal executive office of AMB Property Corporation and the operating partnership is located at Pier 1, Bay 1, San Francisco, CA 94111, and our telephone number is (415) 394-9000. We also maintain a regional office in Boston, Massachusetts.

Acquisition and Development Activity

      During the quarter, we invested $118.1 million in operating properties, consisting of 16 industrial buildings aggregating approximately 1.7 million square feet, including the investment of $41.3 million in seven industrial buildings, aggregating approximately 0.7 million square feet, for two of our co-investment joint ventures. Year to date, we have invested $283.4 million in operating properties, consisting of 42 industrial buildings aggregating approximately 4.5 million square feet, including the investment of $126.1 million in 17 industrial buildings, aggregating approximately 2.3 million square feet, for three of our co-investment joint ventures.

      Year to date, we also have contributed $539.2 million in operating properties, consisting of 111 industrial buildings aggregating approximately 10.8 million square feet, to three of our co-investment joint ventures. Year to date, we have recognized gains of $19.4 million on the contributions.

      We also completed three industrial projects and one retail development project during the third quarter, which aggregated approximately 0.6 million square feet and had a total cost of $65.7 million. As of September 30, 2001, we had in our development pipeline: (1) 13 industrial projects, which will total approximately 3.8 million square feet and have a total estimated investment of $204.6 million upon completion; (2) two retail projects, which will total approximately 0.2 million square feet and have a total

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estimated investment of $34.6 million upon completion; and (3) three development projects available for sale, which will total approximately 0.8 million square feet and have an aggregate estimated investment of $81.0 million upon completion. As of September 30, 2001, we and our Development Alliance Partners have funded an aggregate of $221.2 million and will need to fund an estimated additional $99.0 million in order to complete projects currently under construction.

Operating Strategy

      We are a full-service real estate company with in-house expertise in acquisitions, development and redevelopment, asset management and leasing, finance and accounting, and market research. We have long-standing relationships with many real estate management and development firms across the country, our Strategic Alliance Partners.

      We believe that real estate is fundamentally a local business and that the most effective way for us to operate is by forging alliances with service providers in every market. We believe that these collaborations allow us to: (1) leverage our national presence with the local market expertise of brokers, developers, and property managers; (2) improve the operating efficiency and flexibility of our national portfolio; (3) strengthen customer satisfaction and retention; and (4) provide a continuous pipeline of growth.

      We believe that our partners give us local market expertise and flexibility allowing us to focus on our core competencies: developing and refining our strategic approach to real estate investment and management and raising private capital to finance growth and enhance returns to stockholders.

Growth Strategies

Growth Through Operations

      We seek to generate internal growth through rent increases on existing space and renewal on re-tenanted space. We do this by maintaining a high occupancy rate at our properties and by controlling expenses by capitalizing on the economies of owning, operating, and growing a large national portfolio. As of September 30, 2001, our industrial properties and retail centers were 96.6% leased and 87.6% leased, respectively. Year to date, we have increased average industrial base rental rates (on a cash basis) by 27.8% from the expiring rent for that space, on leases entered into or renewed during the period. This amount excludes expense reimbursements, rental abatements, and percentage rents. Year to date, we also have increased same-store net operating income by 7.2% on our industrial properties.

Growth Through Acquisitions and Capital Redeployment

      We believe that our significant acquisition experience, our alliance-based operating strategy, and our extensive network of property acquisition sources will continue to provide opportunities for external growth. We believe that our relationships with third party local property management firms through our Management Alliance Program also will create acquisition opportunities, as such managers market properties on behalf of sellers. Our operating structure also enables us to acquire properties through our UPREIT Alliance Program in exchange for limited partnership units in the operating partnership, thereby enhancing our attractiveness to owners and developers seeking to transfer properties on a tax-deferred basis. In addition to acquisitions, we seek to redeploy capital from non-strategic assets into properties that better fit our current investment focus.

      We are generally in various stages of negotiations for a number of acquisitions and dispositions, which may include acquisitions and dispositions of individual properties, acquisitions of large multi-property portfolios, and acquisitions of other real estate companies. There can be no assurance that we will consummate any of these transactions. Such transactions, if we consummate them, may be material individually or in the aggregate. Sources of capital for acquisitions may include undistributed cash flow from operations, borrowings under the operating partnership’s unsecured credit facility, other forms of secured or unsecured debt financing, issuances of debt or equity securities by us or the operating partnership (including issuances of units in the operating partnership or its subsidiaries), proceeds from divestitures of properties, and assumption of debt related to the acquired properties.

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Growth Through Development

      We believe that renovation and expansion of value-added properties and development of well-located, high-quality industrial properties should continue to provide us with attractive opportunities for increased cash flow and a higher rate of return than we may obtain from the purchase of fully leased, renovated properties. Value-added properties are typically characterized as properties with available space or near-term leasing exposure, undeveloped land acquired in connection with another property that provides an opportunity for development, or properties that are well located but require redevelopment or renovation. Value-added properties require significant management attention or capital investment to maximize their return. We have developed the in-house expertise to create value through acquiring and managing value-added properties and believe that our national market presence and expertise will enable us to continue to generate and capitalize on these opportunities. Through our Development Alliance Program, we have established strategic alliances with national and regional developers to enhance our development capabilities.

      The multidisciplinary backgrounds of our employees provide us with the skills and experience to capitalize on strategic renovation, expansion, and development opportunities. Several of our officers have extensive experience in real estate development, both with us and with national development firms. We generally pursue development projects in joint ventures with local developers. This way, we leverage the development skill, access to opportunities, and capital of such developers, and we eliminate the need and expense of an in-house development staff. Under a typical joint venture agreement with a Development Alliance Partner, we would fund 95% of the construction costs and our partner would fund 5%. Upon completion, we generally would purchase our partner’s interest in the joint venture.

Growth Through Co-Investments

      We co-invest with third party partners (some of whom may be clients of AMB Investment Management, Inc., to the extent such clients newly commit investment capital), through partnerships, limited liability companies, or joint ventures. We currently use a co-investment formula with each third party whereby we will own at least a 20% interest in all ventures. We currently have five co-investment joint ventures. In general, we control all significant operating and investment decisions of our co-investment entities.

AMB Investment Management

      AMB Investment Management, Inc. provides real estate investment management services on a fee basis to clients. As of May 31, 2001, the operating partnership held all of the outstanding capital stock of AMB Investment Management. AMB Investment Management, Inc. conducts its operations through AMB Investment Management Limited Partnership, a Maryland limited partnership, of which it is the sole general partner.

Headlands Realty Corporation

      Headlands Realty Corporation conducts a variety of businesses that include incremental income programs, such as our AMB CustomerAssist Program and development projects available for sale to third parties. As of May 31, 2001, the operating partnership holds all of the outstanding capital stock of Headlands Realty Corporation.

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RESULTS OF OPERATIONS

      The analysis below includes changes attributable to acquisitions, development activity and divestitures and the changes resulting from properties that we owned during both the current and prior year reporting periods, excluding development properties prior to being stabilized (generally defined as 90% leased). We refer to these properties as the same store properties. For the comparison between the three and nine months ended September 30, 2001 and 2000, the same store industrial properties consisted of properties aggregating approximately 60.2 million square feet. The properties acquired in 2000 consisted of 145 buildings, aggregating approximately 10.5 million square feet, and the properties acquired during the nine months of 2001 consisted of 42 buildings, aggregating 4.5 million square feet. In 2000, property divestitures consisted of one retail center and 25 industrial buildings, aggregating approximately 2.5 million square feet, and property divestitures during the first nine months of 2001 consisted of 23 industrial and two retail buildings, aggregating approximately 3.1 million square feet. Our future financial condition and results of operations, including rental revenues, may be impacted by the acquisition of additional properties and dispositions. Our future revenues and expenses may vary materially from historical rates.

Three Months Ended September 30, 2001 Compared to the Three Months Ended September 30, 2000 (dollars in millions):

Rental Revenues		2001		2000		$ Change			% Change
Same store		$	100.8	$	95.6	$	5.2			5.4	%
2000 acquisitions			29.2		9.8		19.4			198.0	%
2001 acquisitions			6.6		—		6.6			—
Developments			1.7		0.7		1.0			142.9	%
Divestitures			3.7		10.6		(6.9	)		(65.1	)%
Straight-line rents			4.1		1.8		2.3			127.8	%
	Total	$	146.1	$	118.5	$	27.6			23.3	%

      The growth in rental revenues in same store properties resulted primarily from the incremental effect of cash rental rate increases on renewals and rollovers, fixed rent increases on existing leases, and reimbursement of expenses, partially offset by lower same-store industrial occupancy of 96.5% at September 30, 2001, compared to 97.2% at September 30, 2000. During the three months ended September 30, 2001, the same store rent increases on industrial renewals and rollovers (cash basis) was 16.8% on 2.7 million square feet leased.

Investment Management and Other Income		2001		2000		$ Change		% Change
Equity in earnings of unconsolidated JVs		$	1.6	$	1.5	$	0.1		6.7	%
Investment management income			2.3		0.9		1.4		155.6	%
Interest and other income			5.4		0.5		4.9		980.0	%
	Total	$	9.3	$	2.9	$	6.4		220.7	%

      The $1.4 million increase in investment management income was due primarily to increased management fees and priority distributions from our co-investment joint ventures. The $4.9 million increase in interest and other income was primarily due to interest income from our mortgage note on the retail center that we sold in 2000 and interest income resulting from increased average cash balances.

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Property Operating Expenses and Real Estate Taxes			2001		2000		$ Change			% Change
(Exclusive of depreciation and amortization)
Rental expenses			$	17.9	$	13.4	$	4.5			33.6	%
Real estate taxes				17.4		14.0		3.4			24.3	%
	Property operating expenses		$	35.3	$	27.4	$	7.9			28.8	%
Same store			$	23.3	$	22.7	$	0.6			2.6	%
2000 acquisitions				8.5		2.0		6.5			325.0	%
2001 acquisitions				1.3		—		1.3			—
Developments				1.2		0.1		1.1			—
Divestitures				1.0		2.6		(1.6	)		(61.5	)%
		Total	$	35.3	$	27.4	$	7.9			28.8	%

      The increase in same store properties’ operating expenses primarily relates to increases in insurance expense of $0.6 million.

Other Expenses		2001		2000		$ Change		% Change
Interest, including amortization		$	33.0	$	22.6	$	10.4		46.0	%
Depreciation and amortization			39.0		23.3		15.7		67.4	%
General and administrative			8.8		6.0		2.8		46.7	%
	Total	$	80.8	$	51.9	$	28.9		55.7	%

      The increase in interest expense was primarily due to the issuance of additional unsecured senior debt securities and an increase in secured debt balances, partially offset by a decrease in credit facility balances. The secured debt issuances were primarily for our co-investment joint ventures’ properties. The increase in depreciation expense was due to unrealized losses on assets held for sale of $10.0 million and the increase in our net investment in real estate. The increase in general and administrative expenses was primarily due to increased personnel and occupancy costs. In addition, the consolidation of AMB Investment Management, Inc. and Headlands Realty Corporation on May 31, 2001, resulted in an increase in general and administrative expenses of $0.5 million.

      During the three months ended September 30, 2001, we retired $43.5 million of secured debt prior to maturity primarily in connection with property divestitures. We recognized a net extraordinary gain of $0.1 million related to the early retirement of debt, resulting from the write-off of debt premiums partially offset by prepayment penalties.

Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September 30, 2000 (dollars in millions):

Rental Revenues		2001		2000		$ Change			% Change
Same store		$	299.4	$	279.9	$	19.5			7.0	%
2000 acquisitions			81.0		17.6		63.4			360.2	%
2001 acquisitions			12.3		—		12.3			—
Developments			4.5		1.3		3.2			246.2	%
Divestitures			16.6		31.4		(14.8	)		(47.1	)%
Straight-line rents			7.6		7.2		0.4			5.6	%
	Total	$	421.4	$	337.4	$	84.0			24.9	%

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      The growth in rental revenues in same store properties resulted primarily from the incremental effect of cash rental rate increases on renewals and rollovers, fixed rent increases on existing leases, and reimbursement of expenses, partially offset by lower occupancy. During the nine months ended September 30, 2001, the same store rent increases on industrial renewals and rollovers (cash basis) was 32.1% on 6.8 million square feet leased.

Investment Management and Other Income		2001		2000		$ Change		% Change
Equity in earnings of unconsolidated JVs		$	4.4	$	4.0	$	0.4		10.0	%
Investment management income			8.0		2.2		5.8		263.6	%
Interest and other income			12.5		1.6		10.9		681.3	%
	Total	$	24.9	$	7.8	$	17.1		219.2	%

      The $5.8 million increase in investment management income was due primarily to increased management and acquisition fees and priority distributions from our co-investment joint ventures. The $10.9 million increase in interest and other income was primarily due to interest income from our mortgage note on the retail center that we sold in 2000 and from interest income resulting from increased average cash balances.

Property Operating Expenses and Real Estate Taxes			2001		2000		$ Change			% Change
(Exclusive of depreciation and amortization)
Rental expenses			$	51.0	$	36.5	$	14.5			39.7	%
Real estate taxes				50.9		41.0		9.9			24.1	%
	Property operating expenses		$	101.9	$	77.5	$	24.4			31.5	%
Same store			$	69.5	$	65.1	$	4.4			6.8	%
2000 acquisitions				24.3		4.4		19.9			452.3	%
2001 acquisitions				2.5		—		2.5			—
Developments				2.2		0.1		2.1			—
Divestitures				3.4		7.9		(4.5	)		(57.0	)%
		Total	$	101.9	$	77.5	$	24.4			31.5	%

      The increase in same store properties’ operating expenses primarily relates to increases in common area maintenance expenses of $1.7 million, real estate taxes of $1.8 million, and insurance expense of $0.6 million.

Other Expenses		2001		2000		$ Change		% Change
Interest, including amortization		$	94.8	$	62.9	$	31.9		50.7	%
Depreciation and amortization			93.1		65.1		28.0		43.0	%
General and administrative			26.2		17.4		8.8		50.6	%
	Total	$	214.1	$	145.4	$	68.7		47.2	%

      The increase in interest expense was primarily due to the issuance of additional unsecured senior debt securities and an increase in secured debt balances, partially offset by a decrease in credit facility balances. The secured debt issuances were primarily for our co-investment joint ventures’ properties. The increase in depreciation expense was due to unrealized losses on assets held for sale of $10.0 million and the increase in our net investment in real estate. The increase in general and administrative expenses was primarily due to increased personnel and occupancy costs. In addition, the consolidation of AMB Investment Management, Inc. and Headlands Realty Corporation on May 31, 2001, resulted in an increase in general and administrative expenses of $2.3 million.

      The $20.8 million loss on investments in other companies during the nine months ended September 30, 2001, related to our investment in Webvan Group, Inc. and other technology-based companies. The loss reflects a 100% write-down of the book value of the investments.

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      During the nine months ended September 30, 2001, we retired $55.2 million of secured debt prior to maturity primarily in connection with property divestitures. We recognized a net extraordinary loss of $0.4 million related to the early retirement of debt, resulting from prepayment penalties, partially offset by the write-off of debt premiums.

LIQUIDITY AND CAPITAL RESOURCES

      We currently expect that our principal sources of working capital and funding for acquisitions, development, expansion, and renovation of properties will include: (1) cash flow from operations; (2) borrowings under our unsecured credit facility; (3) other forms of secured or unsecured financing; (4) proceeds from equity or debt offerings by us or the operating partnership (including issuances of limited partnership units in the operating partnership or its subsidiaries); and (5) net proceeds from divestitures of properties. Additionally, our co-investment program will also continue to serve as a source of capital for acquisitions and developments. We believe that our sources of working capital and our ability to access private and public debt and equity capital are adequate for us to meet our liquidity requirements for the foreseeable future.

Capital Resources

      Property Divestitures. In the third quarter, we divested ourselves of ten industrial and two retail buildings for an aggregate price of $97.3 million, with a resulting net gain of $5.6 million, net of minority interests’ share. Year to date, we have divested ourselves of 23 industrial and two retail buildings for an aggregate price of $190.4 million, with a resulting net gain of $23.9 million, net of minority interest partners’ share.

      Properties Held for Divestiture. We have decided to divest ourselves of one industrial property and four retail centers, which are not in our core markets or which do not meet our strategic objectives. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. As of September 30, 2001, the net carrying value of the properties held for divestiture was $106.1 million.

      Co-investment Program. Year to date, we have contributed $539.2 million in operating properties, consisting of 111 industrial buildings aggregating approximately 10.8 million square feet, to three of our co-investment joint ventures.

      On June 28, 2001, we formed the Alliance Fund II to acquire, develop, and redevelop distribution facilities nationwide. As of September 30, 2001, the Alliance Fund II had received equity commitments from third-party investors of $181.8 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $456.1 million. Subsequently, on October 9, 2001, the Alliance Fund II received additional equity commitments of $13.6 million at its final closing. Therefore, as of October 9, 2001, the Alliance Fund II had received total equity commitments from third party investors of $195.4 million, which, when combined with anticipated debt financings and the Company’s investment, creates a total planned capitalization of $488.6 million. We are the managing general partner of the Alliance Fund II and owned, as of September 30, 2001, approximately 20% of the co-investment joint venture.

      On March 26, 2001, we formed a joint venture, AMB-SGP, L.P., with a subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation, to own and operate, through a private real estate investment trust, distribution facilities nationwide. As of September 30, 2001, AMB-SGP, L.P. had received an equity contribution from GIC of $75.0 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $335.0 million. We are the managing general partner of AMB-SGP, L.P. and owned, as of September 30, 2001, approximately 50.3% of the co-investment joint venture.

      On February 14, 2001, we formed AMB Partners II, L.P. with the City and County of San Francisco Employees’ Retirement System to acquire, develop, and redevelop distribution facilities nationwide. As of September 30, 2001, AMB Partners II had received an equity contribution from third party investors of $50.0 million, which, when combined with anticipated debt financings and our investment, creates a total planned capitalization of $250.0 million. We are the managing general partner of Partners II and owned, as of September 30, 2001, approximately 50% of the co-investment joint venture.

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      Credit Facilities. In May 2000, the operating partnership entered into a $500.0 million unsecured revolving credit agreement. We guarantee the operating partnership’s obligations under the credit facility. The credit facility matures in May 2003, has a one-year extension option, and is subject to a 15 basis point annual facility fee, which is based on our credit rating. The operating partnership has the ability to increase available borrowings to $700.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase its commitments. We use our unsecured credit facility principally for acquisitions and for general working capital requirements. Borrowings under our credit facility currently bear interest at LIBOR plus 75 basis points. As of September 30, 2001, there was no outstanding balance on our unsecured credit facility. Monthly debt service payments on our credit facility are interest only. The total amount available under our credit facility fluctuates based upon the borrowing base, as defined in the agreement governing the credit facility. At September 30, 2001, the remaining amount available under our unsecured credit facility was $500.0 million (excluding the additional $200.0 million of potential additional capacity).

      In July 2001, the Alliance Fund II obtained a $150.0 million secured credit facility from Bank of America N.A. Borrowings currently bear interest at LIBOR plus 87.5 basis points, which includes the facility fee. As of September 30, 2001, the outstanding balance was $125.0 million and the remaining amount available was $25.0 million.

      Equity. In September 2001, the operating partnership issued and sold 800,000 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in a private placement. Distributions are cumulative from the date of issuance and payable quarterly in arrears. The Series J Preferred Units are redeemable by the operating partnership on or after September 21, 2006, subject to certain conditions, for cash at a redemption price equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if any, to the redemption date. The Series J Preferred Units are exchangeable, at specified times and subject to certain conditions, on a one-for-one basis, for shares of our Series J Preferred Stock. The operating partnership used the net proceeds of $38.9 million for general corporate purposes, which may include the partial repayment of indebtedness or the acquisition or development of additional properties.

      In March 2001, AMB Property II, L.P., one of our subsidiaries, issued and sold 510,000 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in a private placement. Distributions are cumulative from the date of issuance and payable quarterly in arrears at a rate per unit equal to $4.00 per annum. The Series I Preferred Units are redeemable by AMB Property II, L.P. on or after March 21, 2006, subject to certain conditions, for cash at a redemption price equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if any, to the redemption date. The Series I Preferred Units are exchangeable, at specified times and subject to certain conditions, on a one-for-one basis, for shares of our Series I Preferred Stock. AMB Property II, L.P. used the net proceeds of $24.9 million to repay advances from the operating partnership and to make a loan to the operating partnership. The operating partnership used the funds to partially repay borrowings under its unsecured credit facility and for general corporate purposes. The loan bears interest at 8.0% per annum and is payable on demand.

      During the third quarter of 2001, we redeemed 218,092 and 23,700 common limited partnership units of the operating partnership for cash and shares of our common stock, respectively. During the first quarter of 2001, we redeemed 598,297 common limited partnership units of the operating partnership for shares of our common stock.

      Our board of directors approved a stock repurchase program in 1999 for the repurchase of up to $100.0 million worth of our common stock. During the third quarter, we repurchased 907,700 shares of our common stock at an average purchase price of $23.68 per share under the program. During the second quarter, we repurchased 25,000 shares of our common stock at a purchase price of $22.80 per share under the program. Under the program to date, we have repurchased 2,376,300 shares our common stock at an average purchase price of $20.77 per share. Our stock repurchase program expires in December 2001.

      Debt. As of September 30, 2001, the aggregate principal amount of our secured debt was $1.1 billion, excluding unamortized debt premiums of $7.5 million. The secured debt bears interest at rates varying from 4.0% to 10.4% per annum (with a weighted average rate of 7.6%) and final maturity dates ranging from November 2001 to June 2023. All of the secured debt bears interest at fixed rates, except for three loans with

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an aggregate principal amount of $35.9 million as of September 30, 2001, which bear interest at variable rates (with a weighted average interest rate of 4.3% at September 30, 2001).

      In August 2000, the operating partnership commenced a medium-term note program for the possible issuance of up to $400.0 million in principal amount of medium-term notes, which will be guaranteed by us. As of September 30, 2001, the operating partnership had issued $380.0 million of medium-term notes under this program, leaving $20.0 million available for issuance. In January 2001, the operating partnership issued and sold $25.0 million of the notes under this program to A.G. Edwards & Sons, Inc., as principal. We have guaranteed the notes, which mature on January 30, 2006, and bear interest at 6.90% per annum. The operating partnership used the net proceeds of $24.9 million for general corporate purposes, to partially repay indebtedness, and to acquire and develop additional properties. In March 2001, the operating partnership issued and sold $50.0 million of the notes under this program to First Union Securities, Inc., as principal. We have guaranteed the notes, which mature on March 7, 2011, and bear interest at 7.00% per annum. The operating partnership used the net proceeds of $49.7 million for general corporate purposes, to partially repay indebtedness, and to acquire and develop of additional properties. In September 2001, the operating partnership issued and sold $25.0 million of the notes under this program to Lehman Brothers, Inc., as principal. We have guaranteed the notes, which mature on September 6, 2011, and bear interest at 6.75% per annum. The operating partnership used the net proceeds of $24.8 million for general corporate purposes and to acquire and develop additional properties.

      Mortgage Receivables. In September 2000, we sold our retail center located in Los Angeles, California. As of September 30, 2001, we carried an 8.75% mortgage note in the principal amount of $79.0 million on the retail center. The maturity date of the mortgage note, which was originally scheduled to mature on October 1, 2001, had been extended to October 15, 2001. As of November 13, 2001, the borrower was in default, however, we are negotiating an extension on the maturity date and to change certain terms of the note. We have a first lien against the retail center as collateral for the mortgage note and believe that the underlying value of the retail center is equal to or greater than the fair value of the mortgage note. Through a wholly-owned subsidiary, we also hold a mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture. The note bears interest at 13.0% and matures in May 2026. As of September 30, 2001, the outstanding balance on the note was $13.2 million.

      In order to maintain financial flexibility and facilitate the rapid deployment of capital through market cycles, we presently intend to operate with a debt-to-total market capitalization ratio of approximately 45% or less. Additionally, we presently manage our capitalization in order to maintain an investment grade rating on our senior unsecured debt. In spite of these policies, our organizational documents do not contain any limitation on the amount of indebtedness that we may incur. Accordingly, our board of directors could alter or eliminate these policies.

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      The tables below summarize our debt maturities and capitalization as of September 30, 2001 (dollars in thousands):

Debt

				Our			Joint			Unsecured
				Secured			Venture			Senior Debt			Credit			Total
				Debt(1)			Debt			Securities			Facilities(2)			Debt
2001				$	2,996		$	9,014		$	—		$	—		$	12,010
2002					28,194			51,937			—			—			80,131
2003					76,296			12,005			—			125,000			213,301
2004					65,285			25,791			—			—			91,076
2005					63,027			40,019			250,000			—			353,046
2006					94,966			72,166			25,000			—			192,132
2007					30,198			23,470			55,000			—			108,668
2008					33,604			145,108			175,000			—			353,712
2009					5,176			29,812			—			—			34,988
2010					52,780			69,205			75,000			—			196,985
2011					1,311			135,820			75,000			—			212,131
Thereafter					3,307			23,785			125,000			—			152,092
	Subtotal				457,140			638,132			780,000			125,000			2,000,272
	Unamortized premiums				7,529			—			—			—			7,529
			Total consolidated debt		464,669			638,132			780,000			125,000			2,007,801
Our share of unconsolidated joint venture debt(3)					—			32,694			—			—			32,694
			Total debt		464,669			670,826			780,000			125,000			2,040,495
Joint venture partners’ share of consolidated joint venture debt					—			(326,970	)		—			(100,000	)		(426,970	)
		Our share of total debt		$	464,669		$	343,856		$	780,000		$	25,000		$	1,613,525
Weighed average interest rate					8.1	%		7.3	%		7.3	%		3.5	%		7.2	%
Weighed average maturity (in years)					5.0			7.5			7.9			1.9			6.6

(1)	All of the secured debt bears interest at fixed rates, except for two loans with an aggregate principal amount of $35.9 million as of September 30, 2001, which bear interest at variable rates (with a weighted average interest rate of 4.3% at September 30, 2001).
(2)	The 2003 maturity represents a credit facility obtained by the Alliance Fund  II, which will repay the facility with capital contributions and secured debt proceeds. The operating partnership also has a $500.0 million credit facility, which matures in 2003 and had no outstanding balance at September 30, 2001.
(3)	The weighted average interest and weighted average maturity for the unconsolidated joint venture debt were 5.7% and 4.6  years, respectively.

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Market Equity

		Shares/Units
Security		Outstanding		Market Price		Market Value
Common stock			84,164,842	$	24.50	$	2,062,039
Common limited partnership units			4,987,828		24.50		122,202
	Total		89,152,670			$	2,184,241

Preferred Stock and Units

		Dividend			Liquidation		Redemption
Security		Rate			Preference		Provisions
Series A preferred stock			8.50	%	$	100,000		July 2003
Series B preferred units			8.63	%		65,000		November 2003
Series C preferred units			8.75	%		110,000		November 2003
Series D preferred units			7.75	%		79,767		May 2004
Series E preferred units			7.75	%		11,022		August 2004
Series F preferred units			7.95	%		19,872		March 2005
Series G preferred units			7.95	%		1,000		August 2005
Series H preferred units			8.13	%		42,000		September 2005
Series I preferred units			8.00	%		25,500		March 2006
Series J preferred units			7.95	%		40,000		September 2006
	Weighted Average/Total		8.31	%	$	494,161

Capitalization Ratios

Total debt-to-total market capitalization	43.2	%
Our share of total debt-to-total market capitalization	37.6	%
Total debt plus preferred-to-total market capitalization	53.7	%
Our share of total debt plus preferred-to-total market capitalization	49.1	%
Our share of total debt-to-total book capitalization	42.9	%

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     Liquidity

      As of September 30, 2001, we had approximately $256.9 million in cash, restricted cash, and cash equivalents, and $500.0 million of additional available borrowings under our credit facility. To fund acquisitions, development activities, and capital expenditures and to provide for general working capital requirements, we intend to use: (1) cash from operations; (2) borrowings under our credit facility; (3) other forms of secured and unsecured financing; (4) proceeds from any future debt or equity offerings by us or the operating partnership (including issuances of limited partnership units in the operating partnership or its subsidiaries); (5) proceeds from divestitures of properties; and (6) private capital

      Our board of directors declared a regular cash dividend for the quarter ending September 30, 2001, of $0.395 per share of common stock and the operating partnership declared a regular cash distribution for the quarter ending September 30, 2001, of $0.395 per common unit. The dividends and distributions were payable on October 15, 2001, to stockholders and unitholders of record on October 4, 2001. The Series A, B, C, E, F, G, and J preferred stock and unit dividends and distributions were also payable on October 15, 2001, to stockholders and unitholders of record on October 4, 2001. The Series D, H, and I preferred unit distributions were payable on September 25, 2001, to unitholders of record on September 15, 2001. The following table sets forth the dividend payments and distributions:

			For the Three				For the Nine
			Months Ended				Months Ended
			September 30,				September 30,
Security	Paying Entity		2001		2000		2001		2000
Common stock		AMB Property Corporation	$	0.395	$	0.370	$	1.185	$	1.110
Operating partnership units		Operating Partnership	$	0.395	$	0.370	$	1.185	$	1.110
Series A preferred stock		AMB Property Corporation	$	0.531	$	0.531	$	1.594	$	1.594
Series A preferred units		Operating Partnership	$	0.531	$	0.531	$	1.594	$	1.594
Series B preferred units		Operating Partnership	$	1.078	$	1.078	$	3.234	$	3.234
Series C preferred units		AMB Property II, L.P.	$	1.094	$	1.094	$	3.281	$	3.281
Series D preferred units		AMB Property II, L.P.	$	0.969	$	0.969	$	2.906	$	2.906
Series E preferred units		AMB Property II, L.P.	$	0.969	$	0.969	$	2.906	$	2.906
Series F preferred units		AMB Property II, L.P.	$	0.994	$	0.994	$	2.952	$	2.097
Series G preferred units		AMB Property II, L.P.	$	0.994	$	0.357	$	2.982	$	0.357
Series H preferred units		AMB Property II, L.P.	$	1.016	$	0.282	$	3.048	$	0.282
Series I preferred units		AMB Property II, L.P.	$	1.000		n/a	$	2.044		n/a
Series J preferred units		Operating Partnership	$	0.097		n/a	$	0.097		n/a

      The anticipated size of our distributions, using only cash from operations, will not allow us to retire all of our debt as it comes due. Therefore, we intend to also repay maturing debt with net proceeds from future debt or equity financings. However, we may not be able to obtain future financings on favorable terms or at all.

Capital Commitments

      In addition to recurring capital expenditures and costs to renew or re-tenant space, as of September 30, 2001, we are developing 18 projects representing a total estimated investment of $320.2 million upon completion. Of this total, $221.2 million had been funded as of September 30, 2001, and approximately $99.0 million is estimated to be required to complete current and planned projects. We expect to fund these expenditures with cash from operations, borrowings under our credit facility, debt or equity issuances, and net proceeds from property divestitures. We have no other material capital commitments.

      Year to date, we have invested $283.4 million in 42 operating industrial buildings, aggregating approximately 4.5 million rentable square feet. We funded these acquisitions and initiated development and renovation projects through private capital contributions, borrowings under our credit facility, cash, debt and equity issuances, and net proceeds from property divestitures.

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FUNDS FROM OPERATIONS

      We believe that funds from operations, or FFO, as defined by the National Association of Real Estate Investment Trusts, is an appropriate measure of performance for an equity real estate investment trust. While funds from operations is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by U.S. generally accepted accounting principles and it should not be considered as an alternative to those indicators in evaluating liquidity or operating performance. Further, funds from operations as disclosed by other real estate investment trusts may not be comparable.

      FFO is defined as income from operations before minority interest, gains or losses from sale of real estate, and extraordinary items plus real estate depreciation and adjustment to derive our pro rata share of FFO of unconsolidated joint ventures, less minority interests’ pro rata share of FFO of consolidated joint ventures and perpetual preferred stock dividends. In accordance with the NAREIT White Paper on funds from operations, we include the effects of straight-line rents in funds from operations. Further, we do not adjust FFO to eliminate the effects of non-recurring charges.

      The following table reflects the calculation of funds from operations (dollars in thousands, except share and per share data):

			For the Three Months						For the Nine Months
			Ended September 30,						Ended September 30,
			2001			2000			2001			2000
Income from operations			$	39,355		$	42,116		$	109,578		$	122,355
Gains on developments held for sale				1,341			—			1,341			—
Real estate related depreciation and amortization:
	Total depreciation and amortization			38,961			23,312			93,138			65,135
	FF&E depreciation and ground lease amortization(1)			(483	)		(223	)		(1,456	)		(857	)
FFO attributable to minority interests(2)				(13,393	)		(4,262	)		(29,119	)		(9,569	)
Adjustments to derive FFO in unconsolidated joint venture(3):
	Our share of net income			(1,636	)		(1,447	)		(4,365	)		(4,006	)
	Our share of FFO			2,235			1,941			6,488			5,488
Preferred stock dividends				(2,125	)		(2,125	)		(6,375	)		(6,375	)
Preferred unit distributions				(7,423	)		(6,206	)		(21,626	)		(17,778	)
		Funds from operations	$	56,832		$	53,106		$	147,604		$	154,393

(1)	FF&E depreciation represents depreciation on furniture, fixtures, and equipment that isn’t real-estate related. Ground lease amortization represents the amortization of our investments in ground lease properties, for which we do not have a purchase option.
(2)	Represents FFO attributable to minority interests in consolidated joint ventures whose interests are not exchangeable into common stock. The minority interests’ share of net operating income for the quarters ended September 30, 2001 and 2000, was $18.2 million and $6.8 million, respectively, and for the nine months ended September 30, 2001 and 2000, was $44.4 million and $16.9 million, respectively.
(3)	Our share of net operating income for the quarters ended September 30, 2001 and 2000, was $2.7 million and $2.2 million, respectively, and for the nine months ended September  30, 2001 and 2000, was $7.8 million and $6.3 million, respectively.

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OPERATING AND LEASING STATISTICS SUMMARY

      The following table summarizes key operating and leasing statistics for all of our industrial properties as of and for the periods ended September 30, 2001 (dollars in thousands):

				Three Months			Nine Months
				Ended			Ended
				September 30, 2001			September 30, 2001
Square feet owned(1)(2)					78,428,611			78,428,611
Occupancy percentage(1)					96.6	%		96.6	%
Weighted average lease terms:
	Original				6.3 years			6.3 years
	Remaining				3.3 years			3.3 years
Tenant retention					68.4	%		66.2	%
Rent increases on renewals and rollovers					14.4	%		27.8	%
	Square feet leased				3,088,069			8,091,402
Second generation tenant improvements and leasing commissions per sq. ft.(3):
		Renewals		$	1.22		$	1.05
		Re-tenanted			4.18			3.66
			Weighted average	$	2.71		$	2.28
Recurring capital expenditures(4)
		Tenant improvements		$	1,980		$	6,019
		Lease commissions and other lease costs			8,760			16,043
		Building improvements			5,584			11,136
			Sub-total		16,324			33,198
		Partners’ share of capital expenditures			(1,154	)		(2,829	)
			Total	$	15,170		$	30,369

(1)	Includes all industrial consolidated operating properties and excludes development and renovation projects. Excludes retail and other properties’ square feet of 1,314,533, occupancy of 87.6%, and annualized base rent of $14.6  million.
(2)	In addition to owned square feet as of September 30, 2001, we managed, through our subsidiary, AMB Investment Management, approximately 3.3 million additional square feet of industrial, retail, and other properties. We also have an investment in approximately 4.9 million square feet of industrial properties through our investments in the unconsolidated joint ventures.
(3)	Consists of all second-generation leases renewing or re-tenanting with lease terms greater than one year.
(4)	Includes second generation leasing costs and building improvements.

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      The following summarizes key same store properties’ operating statistics for our industrial properties as of and for the three and nine month periods ended September 30, 2001:

		Three Months			Nine Months
		Ended			Ended
		September 30, 2001			September 30, 2001
Square feet in same store pool(1)			60,196,156			60,196,156
	% of total square feet		76.8	%		76.8	%
Occupancy percentage at period end
	September 30, 2001		96.5	%		96.5	%
	September 30, 2000		97.2	%		97.2	%
Tenant retention			65.7	%		64.7	%
Rent increases on lease commencements			16.8	%		32.1	%
	Square feet leased		2,682,235			6,792,332
Cash basis net operating income growth % increase:
	Revenues		5.7	%		7.2	%
	Expenses		2.5	%		6.9	%
	Net operating income		6.7	%		7.2	%

(1)  Excludes properties purchased or developments stabilized after December 31, 1999.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

      Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings and cash flows are dependent upon prevalent market rates. Accordingly, we manage our market risk by matching projected cash inflows from operating, investing, and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to stockholders and unitholders, and other cash requirements. The majority of our outstanding debt has fixed interest rates, which minimizes the risk of fluctuating interest rates. Our exposure to market risk includes: (1) interest rate fluctuations in connection with our credit facilities and other variable rate borrowings; and (2) our ability to incur more debt without stockholder approval, thereby increasing our debt service obligations, which could adversely affect our cash flows. As of September 30, 2001, we had no interest rate caps or swaps. See “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Resources — Market Capitalization.”

      The table below summarizes the market risks associated with our fixed and variable rated debt outstanding as of September 30, 2001:

	Expected Maturity Date
	2001			2002			2003			2004			2005			Thereafter			Total Debt
Fixed rate debt(1)	$	12,010		$	58,315		$	88,301		$	86,895		$	353,046		$	1,240,785		$	1,839,352
Average interest rate		8.0	%		8.0	%		7.8	%		8.1	%		7.3	%		7.5	%		7.5	%
Variable rate debt(2)		—		$	21,816		$	125,000		$	4,181			—		$	9,923		$	160,920
Average interest rate		—			4.3	%		3.5	%		4.3	%		—			4.3	%		3.7	%

(1)	Represents 92.0% of all outstanding debt.
(2)	Represents 8.0% of all outstanding debt.

      If market rates of interest on our variable rate debt increased by 10% (or approximately 37 basis points), then the increase in interest expense on the variable rate debt would be approximately $0.6 million annually.

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PART II

Item 1.    Legal Proceedings

      As of September 30, 2001, there were no pending legal proceedings to which we are a party or of which any of our properties is the subject, the adverse determination of which we anticipate would have a material adverse effect upon our financial condition and results of operations.

Item 2.    Changes in Securities and Use of Proceeds

      In September 2001, we repurchased 907,700 shares of our common stock.

      On August 17, 2001, we redeemed 68,092 common limited partnership units of the operating partnership for cash to two individuals. On September 7, 2001, we redeemed 150,000 common limited partnership units of the operating partnership for cash to two individuals. On September 18, 2001, we redeemed 23,700 common limited partnership units of the operating partnership for 23,700 shares of our common stock to an individual. The issuance of the 23,700 shares of our common stock in exchange for the common limited partnership units was exempt from the registration requirement of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D.

      On September 21, 2001, the operating partnership issued and sold 800,000 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit, for an aggregate offering price of $40.0 million, less a sales commission of $1.1 million, in a private placement. The issuance and sale of the Series J Preferred Units constituted a private placement of securities that was exempt from the registration requirement of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D. The Series J Preferred Units are exchangeable, at specified times and subject to certain conditions, on a one-for-one basis, for shares of our Series J Preferred Stock. The Articles Supplementary establishing the rights and preferences of the holders of the Series J Preferences Stock were filed as Exhibit 3.1 to our Current Report on Form 8-K filed on October 3, 2001.

Item 3.    Defaults Upon Senior Securities

      None.

Item 4.    Submission of Matters to a Vote of Security Holders

      None.

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Item 5.    Other Information

BUSINESS RISKS

      Our operations involve various risks that could have adverse consequences to us. These risks include, among others:

General Real Estate Risks

There are Factors Outside of Our Control that Affect the Performance and Value of Our Properties

      Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the related properties as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay dividends to our stockholders could be adversely affected. Income from, and the value of, our properties may be adversely affected by the general economic climate, local conditions such as oversupply of industrial space, or a reduction in demand for industrial space, the attractiveness of our properties to potential customers, competition from other properties, our ability to provide adequate maintenance and insurance, and an increase in operating costs. Periods of economic slowdown or recession in the United States and in other countries, rising interest rates, or declining demand for real estate, or public perception that any of these events may occur would result in a general decrease in rents or an increased occurrence of defaults under existing leases, which would adversely affect our financial condition and results of operations.

      Future terrorist attacks in the United States may result in declining economic activity, which could harm the demand for and the value of our properties. To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases. Our properties are currently concentrated predominantly in the industrial real estate sector. Our concentration in a certain property type exposes us to the risk of economic downturns in this sector to a greater extent than if our portfolio also included other property types. As a result of such concentration, economic downturns in the industrial real estate sector could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. In addition, revenues from properties and real estate values are also affected by factors such as the cost of compliance with regulations, the potential for liability under applicable laws (including changes in tax laws), interest rate levels, and the availability of financing. Our income would be adversely affected if a significant number of customers were unable to pay rent or if we were unable to rent our industrial space on favorable terms. Certain significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes, and maintenance costs) generally do not decline when circumstances cause a reduction in income from the property.

We May Be Unable to Renew Leases or Relet Space as Leases Expire

      We are subject to the risks that leases may not be renewed, space may not be relet, or the terms of renewal or reletting (including the cost of required renovations) may be less favorable than current lease terms. Leases on a total of 5.3% of our industrial properties (based on annualized base rent) as of September 30, 2001, will expire on or prior to December 31, 2001. In addition, numerous properties compete with our properties in attracting customers to lease space, particularly with respect to retail centers. The number of competitive commercial properties in a particular area could have a material adverse effect on our ability to lease space in our properties and on the rents that we are able to charge. Our financial condition, results of operations, cash flow, and our ability to pay dividends on, and the market price of, our stock could be adversely affected if we are unable to promptly relet or renew the leases for all or a substantial portion of expiring leases, if the rental rates upon renewal or reletting is significantly lower than expected, or if our reserves for these purposes prove inadequate.

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Real Estate Investments are Illiquid

      Because real estate investments are relatively illiquid, our ability to vary our portfolio promptly in response to economic or other conditions is limited. The limitations in the Internal Revenue Code and related regulations on a real estate investment trust holding property for sale may affect our ability to sell properties without adversely affecting dividends to our stockholders. The relative illiquidity of our holdings and Internal Revenue Code prohibitions and related regulations could impede our ability to respond to adverse changes in the performance of our investments and could adversely affect our financial condition, results of operations, cash flow, and our ability to pay dividends on, and the market price of, our stock.

A Significant Number of Our Properties are Located in California

      Our industrial properties located in California as of September 30, 2001, represented approximately 27% of the aggregate square footage of our industrial properties as of September 30, 2001, and 34% of our annualized base rent. Annualized base rent means the monthly contractual amount under existing leases at September 30, 2001, multiplied by 12. This amount excludes expense reimbursements and rental abatements. Our revenue from, and the value of, our properties located in California may be affected by a number of factors, including local real estate conditions (such as oversupply of or reduced demand for industrial properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics, and other factors may adversely impact the local economic climate. A downturn in either the California economy or in California real estate conditions could adversely affect our financial condition, results of operations, cash flow, and our ability to pay dividends on, and the market price of, our stock. Certain of our properties are also subject to possible loss from seismic activity.

Some Potential Losses are not Covered by Insurance

      We carry comprehensive liability, fire, extended coverage, and rental loss insurance covering all of our properties, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances given relative risk of loss, the cost of such coverage, and industry practice. There are, however, certain losses that are not generally insured because it is not economically feasible to insure against them, including losses due to riots or acts of war. Under our current policies, we are insured for acts of terrorism, however, there can be no assurance that we will be able to maintain this coverage in the future. Certain losses such as losses due to floods or seismic activity may be insured subject to certain limitations including large deductibles or co-payments and policy limits. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated future revenue from the properties and, in the case of debt, which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the properties. Moreover, as the general partner of the operating partnership, we generally will be liable for all of the operating partnership’s unsatisfied obligations other than non-recourse obligations. Any such liability could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

      A number of our properties are located in areas that are known to be subject to earthquake activity, including California where, as of September 30, 2001, 267 industrial buildings aggregating approximately 21.0 million square feet (representing 27% of our properties based on aggregate square footage and 34% based on annualized base rent) are located. We carry replacement cost earthquake insurance on all of our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles that we believe are commercially reasonable. This insurance coverage also applies to the properties managed by AMB Investment Management, with a single aggregate policy limit and deductible applicable to those properties and our properties. Through an annual analysis prepared by outside consultants, we evaluate our earthquake insurance coverage in light of current industry practice and determine the appropriate amount of earthquake insurance to carry. We may incur material losses in excess of insurance proceeds and we may not be able to continue to obtain insurance at commercially reasonable rates.

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We are Subject to Risks and Liabilities In Connection With Properties Owned Through Joint Ventures, Limited Liability Companies, and Partnerships

      As of September 30, 2001, we had ownership interests in several joint ventures, limited liability companies, or partnerships with third parties, as well as interests in three unconsolidated entities. As of September 30, 2001, we owned approximately 27.0 million square feet (excluding three unconsolidated joint ventures) of our properties through these entities. We may make additional investments through these ventures in the future and presently plan to do so. Such partners may share certain approval rights over major decisions. Partnership, limited liability company, or joint venture investments may involve risks such as the following: (1) our partners, co-members, or joint venturers might become bankrupt (in which event we and any other remaining general partners, members, or joint venturers would generally remain liable for the liabilities of the partnership, limited liability company, or joint venture); (2) our partners, co-members, or joint venturers might at any time have economic or other business interests or goals that are inconsistent with our business interests or goals; (3) our partners, co-members, or joint venturers may be in a position to take action contrary to our instructions, requests, policies, or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust; and (4) agreements governing joint ventures, limited liability companies, and partnerships often contain restrictions on the transfer of a joint venturer’s, member’s, or partner’s interest or “buy-sell” or other provisions, which may result in a purchase or sale of the interest at a disadvantageous time or on disadvantageous terms.

      We will, however, generally seek to maintain sufficient control of our partnerships, limited liability companies, and joint ventures to permit us to achieve our business objectives. Our organizational documents do not limit the amount of available funds that we may invest in partnerships, limited liability companies, or joint ventures. The occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

We May be Unable to Consummate Acquisitions on Advantageous Terms

      We intend to continue to acquire primarily industrial properties. Acquisitions of properties entail risks that investments will fail to perform in accordance with expectations. Estimates of the costs of improvements necessary for us to bring an acquired property up to market standards may prove inaccurate. In addition, there are general investment risks associated with any real estate investment. Further, we anticipate significant competition for attractive investment opportunities from other major real estate investors with significant capital including both publicly traded real estate investment trusts and private institutional investment funds. We expect that future acquisitions will be financed through a combination of borrowings under our unsecured credit facility, proceeds from equity or debt offerings by us or the operating partnership (including issuances of limited partnership units by the operating partnership or its subsidiaries), and proceeds from property divestitures, which could have an adverse effect on our cash flow. We may not be able to acquire additional properties. Our inability to finance any future acquisitions on favorable terms or the failure of acquisitions to conform with our expectations or investment criteria, or our failure to timely reinvest the proceeds from property divestitures could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

We May be Unable to Complete Renovation and Development on Advantageous Terms

      The real estate development business, including the renovation and rehabilitation of existing properties, involves significant risks. These risks include the following: (1) we may not be able to obtain financing on favorable terms for development projects and we may not complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing such properties and generating cash flow; (2) we may not be able to obtain, or we may experience delays in obtaining, all necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations; (3) new or renovated properties may perform below anticipated levels, producing cash flow below budgeted amounts; (4) substantial renovation as well as new development activities, regardless of whether or not they are ultimately successful, typically require a substantial portion of management’s time and attention that could

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divert management’s time from our day-to-day operations; and (5) activities that we finance through construction loans involve the risk that, upon completion of construction, we may not be able to obtain permanent financing or we may not be able to obtain permanent financing on advantageous terms. These risks could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

We May be Unable to Complete Divestitures on Advantageous Terms

      We have decided to divest ourselves of four retail centers and one industrial property, which are not in our core markets of which do not meet our strategic objectives. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. Our ability to dispose of properties on advantageous terms is dependent upon factors beyond our control, including competition from other owners (including other real estate investment trusts) that are attempting to dispose of industrial and retail properties and the availability of financing on attractive terms for potential buyers of our properties. Our inability to dispose of properties on favorable terms or our inability to redeploy the proceeds of property divestitures in accordance with our investment strategy could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

Debt Financing

We Could Incur More Debt

      We operate with a policy of incurring debt, either directly or through our subsidiaries, only if upon such incurrence our debt-to-total market capitalization ratio would be approximately 45% or less. The aggregate amount of indebtedness that we may incur under our policy varies directly with the valuation of our capital stock and the number of shares of capital stock outstanding. Accordingly, we would be able to incur additional indebtedness under our policy as a result of increases in the market price per share of our common stock or other outstanding classes of capital stock, and future issuance of shares of our capital stock. However, our organizational documents do not contain any limitation on the amount of indebtedness that we may incur. Accordingly, our board of directors could alter or eliminate this policy. If we change this policy, then we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

Scheduled Debt Payments Could Adversely Affect Our Financial Condition

      We are subject to risks normally associated with debt financing, including the risks that cash flow will be insufficient to pay dividends to our stockholders, that we will be unable to refinance existing indebtedness on our properties (which in all cases will not have been fully amortized at maturity) and that the terms of refinancing will not be as favorable as the terms of existing indebtedness. As of September 30, 2001, we had total debt outstanding of approximately $2.0 billion.

      In addition, we guarantee the operating partnership’s obligations with respect to the senior debt securities referenced in our financial statements. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds of other capital transactions, then we expect that our cash flow will not be sufficient in all years to pay dividends to our stockholders and to repay all such maturing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. This increased interest expense would adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. In addition, if we mortgage one or more of our properties to secure payment of indebtedness and we are unable to meet mortgage payments, then the property could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. A foreclosure on one or more of our properties could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

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Rising Interest Rates Could Adversely Affect Our Cash Flow

      As of September 30, 2001, we had approximately $125.0 million outstanding under our Alliance Fund II secured credit facility and we had two secured loans with an aggregate principal amount of $35.9 million, which bear interest at variable rates (with weighted average interest rate of 4.3% at September 30, 2001). In addition, we may incur other variable rate indebtedness in the future. Increases in interest rates on this indebtedness could increase our interest expense, which would adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. Accordingly, in the future, we may engage in transactions to limit our exposure to rising interest rates.

We Are Dependent on External Sources of Capital

      In order to qualify as a real estate investment trust under the Internal Revenue Code, we are required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and we are subject to tax on our income to the extent it is not distributed. Because of this distribution requirement, we may not be able to fund all future capital needs, including capital needs in connection with acquisitions, from cash retained from operations. As a result, to fund capital needs, we rely on third party sources of capital, which we may not be able to obtain on favorable terms or at all. Our access to third party sources of capital depends upon a number of factors, including: (1) general market conditions; (2) the market’s perception of our growth potential; (3) our current and potential future earnings and cash distributions; and (4) the market price of our capital stock. Additional debt financing may substantially increase our debt-to-total capitalization ratio.

We Could Default on Cross-Collateralized and Cross-Defaulted Debt

      As of September 30, 2001, we had 21 non-recourse secured loans, which are cross collateralized by 41 properties. As of September 30, 2001, we had $430.5 million (not including unamortized debt premium) outstanding on these loans. If we default on any of these loans, then we could be required to repay the aggregate of all indebtedness, together with applicable prepayment charges, to avoid foreclosure on all the cross-collateralized properties within the applicable pool. Foreclosure on our properties, or our inability to refinance our loans on favorable terms, could adversely impact our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. In addition, our credit facilities and the senior debt securities of the operating partnership contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the credit facilities and the senior debt securities in addition to any mortgage or other debt that is in default, which could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

Contingent or Unknown Liabilities Could Adversely Affect Our Financial Condition

      Our predecessors have been in existence for varying lengths of time up to 18 years. At the time of our formation we acquired the assets of these entities subject to all of their potential existing liabilities. There may be current liabilities or future liabilities arising from prior activities that we are not aware of and therefore have not disclosed in this report. We assumed these liabilities as the surviving entity in the various merger and contribution transactions that occurred at the time of our formation. Existing liabilities for indebtedness generally were taken into account in connection with the allocation of the operating partnership’s limited partnership units or shares of our common stock in the formation transactions, but no other liabilities were taken into account for these purposes. We do not have recourse against our predecessors or any of their respective stockholders or partners or against any individual account investors with respect to any unknown liabilities. Unknown liabilities might include the following: (1) liabilities for clean-up or remediation of undisclosed environmental conditions; (2) claims of customers, vendors, or other persons dealing with our predecessors prior to the formation transactions that had not been asserted prior to the formation transactions; (3) accrued but unpaid liabilities incurred in the ordinary course of business; (4) tax liabilities; and

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(5) claims for indemnification by the officers and directors of our predecessors and others indemnified by these entities.

      Certain customers may claim that the formation transactions gave rise to a right to purchase the premises that they occupy. We do not believe any such claims would be material and, to date, no such claims have been filed. See “— Government Regulations — We Could Encounter Costly Environmental Problems” below regarding the possibility of undisclosed environmental conditions potentially affecting the value of our properties. Undisclosed material liabilities in connection with the acquisition of properties, entities and interests in properties, or entities could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

Conflicts of Interest

Some of Our Directors and Executive Officers are Involved in Other Real Estate Activities and Investments

      Some of our executive officers own interests in real estate-related businesses and investments. These interests include minority ownership of Institutional Housing Partners, L.P., a residential housing finance company, and ownership of Aspire Development, Inc. and Aspire Development, L.P., developers that own property not suitable for ownership by us. Aspire Development, Inc. and Aspire Development, L.P. have agreed not to initiate any new development projects not contemplated at our initial public offering in November 1997. These entities have also agreed that they will not make any further investments in industrial properties other than those currently under development at the time of our initial public offering. The continued involvement in other real estate-related activities by some of our executive officers and directors could divert management’s attention from our day-to-day operations. Most of our executive officers have entered into non-competition agreements with us pursuant to which they have agreed not to engage in any activities, directly or indirectly, in respect of commercial real estate, and not to make any investment in respect of industrial real estate, other than through ownership of not more than 5% of the outstanding shares of a public company engaged in such activities or through the existing investments referred to in this report. State law may limit our ability to enforce these agreements.

Certain of Our Executive Officers and Directors May Have Conflicts of Interest with Us in Connection with Other Properties that They Own or Control

      As of September 30, 2001, Aspire Development, L.P. owns interests in three retail development projects in the U.S., one of which are single freestanding Walgreens drugstores and two of which are Walgreens drugstores plus shop buildings, which are less than 10,000 feet. In addition, Messrs. Abbey, Moghadam, and Burke, each a founder and director, own less than 1% interests in two partnerships that own office buildings in various markets; these interests have negligible value. Luis A. Belmonte, an executive officer, owns less than a 10% interest, representing an estimated value of $150,000, in a limited partnership, which owns an office building located in Oakland, California.

      In addition, several of our executive officers individually own: (1) less than 1% interests in the stocks of certain publicly-traded real estate investment trusts; (2) certain interests in and rights to developed and undeveloped real property located outside the United States; and (3) certain other de minimus holdings in equity securities of real estate companies.

      Thomas W. Tusher, a member of our board of directors, is a limited partner in a partnership in which Messrs. Abbey, Moghadam, and Burke are general partners and which owns a 75% interest in an office building. Mr. Tusher owns a 20% interest in the partnership, valued at approximately $1.7 million. Messrs. Abbey, Moghadam, and Burke each have a 26.7% interest in the partnership, each valued at approximately $2.2 million.

      We believe that the properties and activities set forth above generally do not directly compete with any of our properties. However, it is possible that a property in which an executive officer or director, or an affiliate of an executive officer or director, has an interest may compete with us in the future if we were to invest in a

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property similar in type and in close proximity to that property. In addition, the continued involvement by our executive officers and directors in these properties could divert management’s attention from our day-to-day operations. Our policy prohibits us from acquiring any properties from our executive officers or their affiliates without the approval of the disinterested members of our board of directors with respect to that transaction.

Our Role as General Partner of the Operating Partnership May Conflict with the Interests of Stockholders

      As the general partner of the operating partnership, we have fiduciary obligations to the operating partnership’s limited partners, the discharge of which may conflict with the interests of our stockholders. In addition, those persons holding limited partnership units will have the right to vote as a class on certain amendments to the partnership agreement of the operating partnership and individually to approve certain amendments that would adversely affect their rights. The limited partners may exercise these voting rights in a manner that conflicts with the interests of our stockholders. In addition, under the terms of the operating partnership’s partnership agreement, holders of limited partnership units will have certain approval rights with respect to certain transactions that affect all stockholders but which they may not exercise in a manner that reflects the interests of all stockholders.

Our Directors, Executive Officers, and Significant Stockholders Could Act in a Manner that is Not in the Best Interest of All Stockholders

      As of November 2, 2001, our two largest stockholders, Cohen & Steers Capital Management, Inc. (with respect to various client accounts for which Cohen & Steers Capital Management, Inc. serves as investment advisor) and PREEF Real Estate Security Advisors, L.P. (with respect to various client accounts for which PREEF Real Estate Security Advisors, L.P. serves as investment advisor) beneficially owned approximately 13.0% of our outstanding common stock. In addition, our executive officers and directors beneficially owned approximately 5.4% of our outstanding common stock as of November 2, 2001, and will have influence on our management and operation and, as stockholders, will have influence on the outcome of any matters submitted to a vote of our stockholders. This influence might be exercised in a manner that is inconsistent with the interests of other stockholders. Although there is no understanding or arrangement for these directors, officers, and stockholders and their affiliates to act in concert, these parties would be in a position to exercise significant influence over our affairs if they choose to do so.

Government Regulations

      Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Costs of Compliance with Americans with Disabilities Act

      Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Compliance with the Americans with Disabilities Act might require us to remove structural barriers to handicapped access in certain public areas where such removal is “readily achievable.” If we fail to comply with the Americans with Disabilities Act, then we might be required to pay fines to the government or damages to private litigants. The impact of application of the Americans with Disabilities Act to our properties, including the extent and timing of required renovations, is uncertain. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, then our cash flow and the amounts available for dividends to our stockholders may be adversely affected.

We Could Encounter Environmental Problems

      Federal, state, and local laws and regulations relating to the protection of the environment impose liability on a current or previous owner or operator of real estate for contamination resulting from the presence or discharge of hazardous or toxic substances or petroleum products at the property. A current or previous owner

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may be required to investigate and clean up contamination at or migrating from a site. These laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, property damage, or other costs, including investigation and clean-up costs, resulting from environmental contamination present at or emanating from that site.

      Environmental laws also govern the presence, maintenance, and removal of asbestos. These laws require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, that they adequately inform or train those who may come into contact with asbestos, and that they undertake special precautions, including removal or other abatement in the event that asbestos is disturbed during renovation or demolition of a building. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers. Some of our properties may contain asbestos-containing building materials.

      Some of our properties are leased or have been leased, in part, to owners and operators of businesses that use, store, or otherwise handle petroleum products or other hazardous or toxic substances. These operations create a potential for the release of petroleum products or other hazardous or toxic substances. Some of our properties are adjacent to or near other properties that have contained or currently contain petroleum products or other hazardous or toxic substances. In addition, certain of our properties are on, are adjacent to, or are near other properties upon which others, including former owners or tenants of the properties, have engaged or may in the future engage in activities that may release petroleum products or other hazardous or toxic substances. From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and the acquisition will yield a superior risk-adjusted return. Environmental issues for each property are evaluated and quantified prior to acquisition. The costs of environmental investigation, clean-up, and monitoring are underwritten into the cost of the acquisition and appropriate environmental insurance is obtained for the property. In connection with certain divested properties, we have agreed to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.

      All of our properties were subject to a Phase I or similar environmental assessments by independent environmental consultants at the time of acquisition. Phase I assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties and include an historical review, a public records review, an investigation of the surveyed site and surrounding properties, and preparation and issuance of a written report. We may perform additional Phase II testing if recommended by the independent environmental consultant. Phase II testing may include the collection and laboratory analysis of soil and groundwater samples, completion of surveys for asbestos-containing building materials, and any other testing that the consultant considers prudent in order to test for the presence of hazardous materials.

      None of the environmental assessments of our properties has revealed any environmental liability that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole. Furthermore, we are not aware of any such material environmental liability. Nonetheless, it is possible that the assessments do not reveal all environmental liabilities and that there are material environmental liabilities of which we are unaware or that known environmental conditions may give rise to liabilities that are materially greater than anticipated. Moreover, the current environmental condition of our properties may be affected by tenants, the condition of land, operations in the vicinity of the properties (such as releases from underground storage tanks), or by third parties unrelated to us. If the costs of compliance with existing or future environmental laws and regulations exceed our budgets for these items, then our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock could be adversely affected.

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Our Financial Condition could be Adversely Affected if We Fail to Comply with Other Regulations

      Our properties are also subject to various federal, state, and local regulatory requirements such as state and local fire and life safety requirements. If we fail to comply with these requirements, then we might incur fines by governmental authorities or be required to pay awards of damages to private litigants. We believe that our properties are currently in substantial compliance with all such regulatory requirements. However, these requirements may change or new requirements may be imposed, which could require significant unanticipated expenditures by us. Any such unanticipated expenditure could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

Federal Income Tax Risks

Our Failure to Qualify as a Real Estate Investment Trust Would Have Serious Adverse Consequences to Stockholders

      We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 1997. We currently intend to operate so as to qualify as a real estate investment trust under the Internal Revenue Code and believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to continue to qualify as a real estate investment trust. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a real estate investment trust, or that our future operations could cause us to fail to qualify. Qualification as a real estate investment trust requires us to satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a real estate investment trust, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must pay dividends to stockholders aggregating annually at least 90% of our real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. These provisions and the applicable treasury regulations are more complicated in our case because we hold our assets in partnership form. Legislation, new regulations, administrative interpretations, or court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a real estate investment trust.

      If we fail to qualify as a real estate investment trust in any taxable year, then we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a real estate investment trust for the four taxable years following the year during which we lost qualification. If we lose our real estate investment trust status, then our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to our stockholders.

We Pay Some Taxes

      Even if we qualify as a real estate investment trust, we will be required to pay certain state and local taxes on our income and property. In addition, we will be required to pay federal and state income tax on the net taxable income, if any, from the activities conducted through AMB Investment Management, Inc. and Headlands Realty Corporation. AMB Investment Management, Inc. and Headlands Realty Corporation, as taxable real estate investment subsidiaries, are also subject to tax on their income, reducing their cash available for distribution to us.

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Certain Property Transfers May Generate Prohibited Transaction Income

      From time to time, we may transfer or otherwise dispose of some of our properties. Under the Internal Revenue Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction. We would be required to pay a 100% penalty tax on that income. Since we acquire properties for investment purposes, we believe that any transfer or disposal of property by us would not be deemed by the Internal Revenue Service to be a prohibited transaction with any resulting gain allocable to us being subject to a 100% penalty tax. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. While we believe that the Internal Revenue Service would not prevail in any such dispute, if the IRS successfully argued that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction. In addition, any income from a prohibited transaction may adversely affect our ability to satisfy the income tests for qualifications as a real estate investment trust for federal income tax purposes.

We Are Dependent On Our Key Personnel

      We depend on the efforts of our executive officers. While we believe that we could find suitable replacements for these key personnel, the loss of their services or the limitation of their availability could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. We do not have employment agreements with any of our executive officers.

We May Be Unable to Manage Our Growth

      Our business has grown rapidly and continues to grow through property acquisitions and developments. If we fail to effectively manage our growth, then our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock could be adversely affected.

Ownership of Our Stock

Limitations in Our Charter and Bylaws Could Prevent a Change in Control

      Certain provisions of our charter and bylaws may delay, defer, or prevent a change in control or other transaction that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for the common stock. To maintain our qualification as a real estate investment trust for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year after the first taxable year for which a real estate investment trust election is made. Furthermore, our common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year (or a proportionate part of a short tax year). In addition, if we, or an owner of 10% or more of our stock, actually or constructively owns 10% or more of one of our tenants (or a tenant of any partnership in which we are a partner), then the rent received by us (either directly or through any such partnership) from that tenant will not be qualifying income for purposes of the real estate investment trust gross income tests of the Internal Revenue Code. To facilitate maintenance of our qualification as a real estate investment trust for federal income tax purposes, we will prohibit the ownership, actually or by virtue of the constructive ownership provisions of the Internal Revenue Code, by any single person of more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of our common stock and more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of our Series A Preferred Stock, and we will also prohibit the ownership, actually or constructively, of any shares of our other preferred stock by any single person so that no such person, taking into account all of our stock so owned by such person, may own in excess of 9.8% of our issued and outstanding capital stock. We refer to this limitation as the “ownership limit.” Shares acquired or held in violation of the ownership limit will be transferred to a trust for the benefit of a designated charitable beneficiary. Any person

46

who acquires shares in violation of the ownership limit will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid for the shares or the amount realized from the sale. A transfer of shares in violation of the above limits may be void under certain circumstances. The ownership limit may have the effect of delaying, deferring, or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction.

      Our charter authorizes us to issue additional shares of common and preferred stock and to establish the preferences, rights, and other terms of any series or class of preferred stock that we issue. Although our board of directors has no intention to do so at the present time, it could establish a series or class of preferred stock that could delay, defer, or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interests of our stockholders.

      Our charter and bylaws and Maryland law also contain other provisions that may delay, defer, or prevent a transaction, including a change in control, that might involve payment of a premium price for the common stock or otherwise be in the best interests of our stockholders. Those provisions include the following: (1) the provision in the charter that directors may be removed only for cause and only upon a two-thirds vote of stockholders, together with bylaw provisions authorizing the board of directors to fill vacant directorships; (2) the provision in the charter requiring a two-thirds vote of stockholders for any amendment of the charter; (3) the requirement in the bylaws that the request of the holders of 50% or more of our common stock is necessary for stockholders to call a special meeting; (4) the requirement of Maryland law that stockholders may only take action by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question; and (5) the requirement in the bylaws of advance notice by stockholders for the nomination of directors or proposal of business to be considered at a meeting of stockholders.

      These provisions may impede various actions by stockholders without approval of our board of directors, which in turn may delay, defer or prevent a transaction involving a change of control.

We Could Change Our Investment and Financing Policies without a Vote of Stockholders

      Subject to our current investment policy to maintain our qualification as a real estate investment trust (unless a change is approved by our board of directors under certain circumstances), our board of directors will determine our investment and financing policies, our growth strategy and our debt, capitalization, distribution, and operating policies. Although the board of directors has no present intention to revise or amend these strategies and policies, the board of directors may do so at any time without a vote of stockholders. Accordingly, stockholders will have no control over changes in our strategies and policies (other than through the election of directors), and any such changes may not serve the interests of all stockholders and could adversely affect our financial condition or results of operations, including our ability to pay dividends to our stockholders.

If We Issue Additional Securities, then the Investment of Existing Stockholders Will Be Diluted

      We have authority to issue shares of common stock or other equity or debt securities in exchange for property or otherwise. Similarly, we may cause the operating partnership to issue additional limited partnership units in exchange for property or otherwise. Existing stockholders will have no preemptive right to acquire any additional securities issued by us or the operating partnership and any issuance of additional equity securities could result in dilution of an existing stockholder’s investment.

The Large Number of Shares Available for Future Sale Could Adversely Affect the Market Price of Our Common Stock

      We cannot predict the effect, if any, that future sales of shares of our common stock, or the availability of shares of our common stock for future sale, will have on its market price. Sales of a substantial number of shares of our common stock in the public market (or upon exchange of limited partnership units in the

47

operating partnership) or the perception that such sales (or exchanges) might occur could adversely affect the market price of our common stock.

      All shares of common stock issuable upon the redemption of limited partnership units in the operating partnership will be deemed to be “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be transferred unless registered under the Securities Act or an exemption from registration is available, including any exemption from registration provided under Rule 144. In general, upon satisfaction of certain conditions, Rule 144 permits the holder to sell certain amounts of restricted securities one year following the date of acquisition of the restricted securities from us and, after two years, permits unlimited sales by persons unaffiliated with us. Commencing generally on the first anniversary of the date of acquisition of common limited partnership units (or such other date agreed to by the operating partnership and the holders of the units), the operating partnership may redeem common limited partnership units at the request of the holders for cash (based on the fair market value of an equivalent number of shares of common stock at the time of redemption) or, at our option, exchange the common limited partnership units for an equal number of shares of our common stock, subject to certain antidilution adjustments. The operating partnership had issued and outstanding 4,987,828 common limited partnership units as of September 30, 2001. As of September 30, 2001, we had reserved 8,175,903 shares of common stock for issuance under our Stock Option and Incentive Plan (not including shares that we have already issued) and, as of September 30, 2001, we had granted to certain directors, officers, and employees options to purchase 7,605,634 shares of common stock (excluding forfeitures and 226,750 shares that we have issued pursuant to the exercise of options). As of September 30, 2001, we had granted 549,739 restricted shares of common stock, 2,392 of which have been forfeited. In addition, we may issue additional shares of common stock and the operating partnership may issue additional limited partnership units in connection with the acquisition of properties. In connection with the issuance of common limited partnership units to other transferors of properties, and in connection with the issuance of the performance units, we have agreed to file registration statements covering the issuance of shares of common stock upon the exchange of the common limited partnership units. We have also filed a registration statement with respect to the shares of common stock issuable under our Stock Option and Incentive Plan. These registration statements and registration rights generally allow shares of common stock covered thereby, including shares of common stock issuable upon exchange of limited partnership units, including performance units, or the exercise of options or restricted shares of common stock, to be transferred or resold without restriction under the Securities Act. We may also agree to provide registration rights to any other person who may become an owner of the operating partnership’s limited partnership units.

      Future sales of the shares of common stock described above could adversely affect the market price of our common stock. The existence of the operating partnership’s limited partnership units, options, and shares of common stock reserved for issuance upon exchange of limited partnership units, and the exercise of options and registration rights referred to above, also may adversely affect the terms upon which we are able to obtain additional capital through the sale of equity securities.

Various Market Conditions Affect the Price of Our Stock

      As with other publicly-traded equity securities, the market price of our stock will depend upon various market conditions, which may change from time to time. Among the market conditions that may affect the market price of our stock are the following: (1) the extent of investor interest in us; (2) the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies); (3) our financial performance; (4) general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from future dividends; and (5) terrorist activity may adversely affect the markets in which our securities trade, possibly increasing market volatility, and cause further erosion of business and consumer confidence and spending.

      Other factors such as governmental regulatory action and changes in tax laws could also have a significant impact on the future market price of our stock.

48

Earnings and Cash Dividends, Asset Value, and Market Interest Rates Affect the Price of Our Stock

      The market value of the equity securities of a real estate investment trust generally is based primarily upon the market’s perception of the real estate investment trust’s growth potential and its current and potential future earnings and cash dividends. It is based secondarily upon the real estate market value of the underlying assets. For that reason, shares of our stock may trade at prices that are higher or lower than the net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock. Our failure to meet the market’s expectation with regard to future earnings and cash dividends likely would adversely affect the market price of our stock. Another factor that may influence the price of our stock will be the distribution yield on the stock (as a percentage of the price of the stock) relative to market interest rates. An increase in market interest rates might lead prospective purchasers of our stock to expect a higher distribution yield, which would adversely affect the market price of the stock. If the market price of our stock declines significantly, then we might breach certain covenants with respect to debt obligations, which might adversely affect our liquidity and ability to make future acquisitions and our ability to pay dividends to our stockholders.

Item 6.    Exhibits and Reports on Form 8-K

      (a)  Exhibits:

Exhibit
Number		Description
	3.1	Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series J Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on October 3, 2001).
	4.1	$25,000,000 6.75% Fixed Rate Note No. 10 dated September  6, 2001, attaching the Parent Guarantee dated September 6, 2001 (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on September  18, 2001).
	10.1	Terms Agreement dated as of August 30, 2001, by and among Lehman Brothers Inc. and AMB Property, L.P. and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed on September 18, 2001)
	10.2	Fifth Amended and Restated Agreement of Limited Partnership of AMB Property, L.P., dated September 21, 2001 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on October  3, 2001)
	10.3	Registration Rights Agreement among AMB Property Corporation, AMB Property, L.P., and the unit holders signatory thereto dated September 21, 2001 (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on October 3, 2001).
	10.4	Revolving Credit Agreement dated as of August 23, 2001, among AMB Institutional Alliance Fund II, L.P. and AMB Institutional Alliance REIT II, Inc., the banks and financial institutions listed therein, Bank of America, N.A. as Administrative Agent, Dresdner Bank AG, as Syndication Agent, and Bank One, NA, as Documentation Agent.

      (b)  Reports on Form 8-K:

•  The Registrant filed a Current Report on Form 8-K on September 18, 2001, in connection with the issuance of $25.0 million in senior unsecured notes by AMB Property, L.P. under its medium-term note program.

•  The Registrant filed a Current Report on Form 8-K on October 3, 2001, in connection with the issuance and sale by AMB Property, L.P. of 800,000 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units and the filing by the Registrant Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series J Cumulative Redeemable Preferred Stock.

•  The Registrant filed a Current Report on Form 8-K on October 16, 2001, in connection with its third quarter 2001 earnings release.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMB PROPERTY CORPORATION

Registrant

By:  /s/ MICHAEL A. COKE

Michael A. Coke

Chief Financial Officer and

Executive Vice President

(Duly Authorized Officer and Principal

Financial and Accounting Officer)

Date: November 12, 2001

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EXHIBITS INDEX

Exhibit
Number		Exhibit List
	3.1	Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series J Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on October 3, 2001).
	4.1	$25,000,000 6.75% Fixed Rate Note No. 10 dated September  6, 2001, attaching the Parent Guarantee dated September 6, 2001 (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on September  18, 2001).
	10.1	Terms Agreement dated as of August 30, 2001, by and among Lehman Brothers Inc. and AMB Property, L.P. and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed on September 18, 2001)
	10.2	Fifth Amended and Restated Agreement of Limited Partnership of AMB Property, L.P., dated September 21, 2001 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on October  3, 2001)
	10.3	Registration Rights Agreement among AMB Property Corporation, AMB Property, L.P., and the unit holders signatory thereto dated September 21, 2001 (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on October 3, 2001).
	10.4	Revolving Credit Agreement dated as of August 23, 2001, among AMB Institutional Alliance Fund II, L.P. and AMB Institutional Alliance REIT II, Inc., the banks and financial institutions listed therein, Bank of America, N.A. as Administrative Agent, Dresdner Bank AG, as Syndication Agent, and Bank One, NA, as Documentation Agent.

EX-10.4

                                                                EXHIBIT 10.4
================================================================================


                    AMB INSTITUTIONAL ALLIANCE FUND II, L.P.
                                    BORROWER

                    AMB INSTITUTIONAL ALLIANCE REIT II, INC.
                                    GUARANTOR


================================================================================


                AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT


================================================================================


                              BANK OF AMERICA, N.A.
                             As Administrative Agent

                         BANC OF AMERICA SECURITIES LLC
                   As Sole Lead Arranger and Sole Book Manager

                                DRESDNER BANK AG
                              As Syndication Agent

                                  BANK ONE, NA
                             As Documentation Agent


                                 AUGUST 23, 2001


================================================================================



                           TABLE OF CONTENTS

                                                                                   
SECTION 1.     DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
        1.1    Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
        1.2    Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . 17

SECTION 2.     REVOLVING CREDIT LOAN AND LETTERS OF CREDIT . . . . . . . . . . . . . . . 18
        2.1    The Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
               (a)    Committed Amount . . . . . . . . . . . . . . . . . . . . . . . . . 18
               (b)    Limitation on Borrowings and Re-borrowings . . . . . . . . . . . . 18
               (d)    Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . 20
        2.2    Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . 20
        2.3    Manner of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
               (a)    Request for Borrowing  . . . . . . . . . . . . . . . . . . . . . . 21
               (b)    Request for Current Rates  . . . . . . . . . . . . . . . . . . . . 21
               (c)    Rollovers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
               (d)    Conversions  . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
               (e)    Tranches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
               (f)    Agent Notification of Lenders  . . . . . . . . . . . . . . . . . . 22
        2.4    Minimum Loan Amounts  . . . . . . . . . . . . . . . . . . . . . . . . . . 22
        2.5    Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
        2.6    Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
               (a)    Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
               (b)    Change in Rate; Past Due Amounts; Calculations of Interest . . . . 23
        2.7    Determination of Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 24
        2.8    Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
               (a)    Letter of Credit Commitment  . . . . . . . . . . . . . . . . . . . 24
               (b)    Request  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
               (c)    Participation by Lenders . . . . . . . . . . . . . . . . . . . . . 25
               (d)    Payment of Letter of Credit  . . . . . . . . . . . . . . . . . . . 25
               (e)    Acceleration of Undrawn Amounts  . . . . . . . . . . . . . . . . . 25
        2.9    Payment of Borrower Guaranty  . . . . . . . . . . . . . . . . . . . . . . 26
        2.10   Use of Proceeds, Letters of Credit and Borrower Guaranties  . . . . . . . 26
        2.11   Administrative Agent Fees . . . . . . . . . . . . . . . . . . . . . . . . 26
        2.12   Unused Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 26
        2.13   Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 3.     PAYMENT OF OBLIGATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . 27
        3.1    Revolving Credit Notes  . . . . . . . . . . . . . . . . . . . . . . . . . 27
        3.2    Payment of Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 27
        3.3    Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
               (a)    Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
               (b)    Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . 28
               (c)    Direct Disbursement  . . . . . . . . . . . . . . . . . . . . . . . 28
        3.4    Payments on the Obligation . . . . . . . . . . . . . . . . . . . . . .  . 28
        3.5    Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . . . . .. . 28




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        3.6    Reduction or Early Termination of Commitments . . . . . . . . . . . . . . 29
        3.7    Lending Office  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

CHANGE IN CIRCUMSTANCES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
        4.1    Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . 30
               (a)    Change in Law: Increased Cost. . . . . . . . . . . . . . . . . . . 30
               (b)    Change in Law: Reduced Return. . . . . . . . . . . . . . . . . . . 31
               (c)    Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
        4.2    Limitation on Types of Loans  . . . . . . . . . . . . . . . . . . . . . . 31
        4.3    Illegality  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
        4.4    Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . 32
        4.5    Compensation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
               (a)    Excluded Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 33
               (b)    Other Taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
               (c)    Indemnification  . . . . . . . . . . . . . . . . . . . . . . . . . 34
               (d)    Prescribed Forms . . . . . . . . . . . . . . . . . . . . . . . . . 34
               (e)    Selection of Lending Office  . . . . . . . . . . . . . . . . . . . 35
               (f)    Evidence of Payment  . . . . . . . . . . . . . . . . . . . . . . . 35
               (g)    Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . 35

SECTION 5.     SECURITY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
        5.1    Liens and Security Interest . . . . . . . . . . . . . . . . . . . . . . . 35
        5.2    Subscription Accounts; Capital Calls. . . . . . . . . . . . . . . . . . . 36
               (c)    Capital Calls. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
               (d)    Use of Account; Capital Calls by Administrative Agent  . . . . . . 37
               (e)    Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 37
               (f)    No Representations . . . . . . . . . . . . . . . . . . . . . . . . 38
        5.3    Lender Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
        5.4    Agreement to Deliver Additional Collateral Documents  . . . . . . . . . . 38
        5.5    Subordination of All Credit Party Claims  . . . . . . . . . . . . . . . . 39
        6.1    Guaranty of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
        6.2    Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . 40
        6.3    Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
        6.4    Waiver of Rights  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
        6.5    Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
        6.6    Remedies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
        6.7    Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

SECTION 7.     CONDITIONS PRECEDENT TO LENDING . . . . . . . . . . . . . . . . . . . . . 42
        7.1    Obligation of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . 42
        7.2    All Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . 44
        7.3    Qualified Borrower Loans and Letters of Credit  . . . . . . . . . . . . . 44

SECTION 8.     REPRESENTATIONS AND WARRANTIES  . . . . . . . . . . . . . . . . . . . . . 46
        8.1    Organization and Good Standing of Borrower  . . . . . . . . . . . . . . . 46
        8.2    Organization and Good Standing of General Partner . . . . . . . . . . . . 46




                                       ii


                                                                                   
        8.4    Authorization and Power . . . . . . . . . . . . . . . . . . . . . . . . . 46
        8.5    No Conflicts or Consents. . . . . . . . . . . . . . . . . . . . . . . . . 46
        8.6    Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.7    Priority of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.8    Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.9    Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.10   No Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.11   No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
        8.12   Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.13   Principal Office  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.14   ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.15   Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.16   Hazardous Substances  . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.17   Insider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.18   Partnership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 48
        8.19   Capital Commitments and Contributions . . . . . . . . . . . . . . . . . . 48
        8.20   Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
        8.21   Closing Date  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
        8.22   Investment Company Act  . . . . . . . . . . . . . . . . . . . . . . . . . 49
        8.23   REIT Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

SECTION 9.     AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 49
        9.1    Financial Statements, Reports and Notices  . . . . . . . . . . .  . . . . 49
               (a)    Partnership Financial Reports  . . . . . . . . . . . . . . . . . . 49
               (b)    Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . 50
               (c)    Other Reporting  . . . . . . . . . . . . . . . . . . . . . . . . . 50
               (e)    Operating Company Status . . . . . . . . . . . . . . . . . . . . . 50
               (f)    Other Information  . . . . . . . . . . . . . . . . . . . . . . . . 50
        9.2    Payment of Taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
        9.3    Maintenance of Existence and Rights . . . . . . . . . . . . . . . . . . . 50
        9.4    Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
        9.5    Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
        9.6    Compliance with Loan Documents and Partnership Agreement  . . . . . . . . 51
        9.7    Operations and Properties . . . . . . . . . . . . . . . . . . . . . . . . 51
        9.8    Books and Records; Access . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.9    Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.10   Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.11   Authorizations and Approvals  . . . . . . . . . . . . . . . . . . . . . . 52
        9.12   Maintenance of Liens  . . . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.13   ERISA Compliance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.14   Further Assurances  . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
        9.15   Covenants of Qualified Borrowers  . . . . . . . . . . . . . . . . . . . . 53
        9.16   Investor Financial and Rating Information . . . . . . . . . . . . . . . . 53
        9.17   Certain Included Investor Requirements  . . . . . . . . . . . . . . . . . 53
        9.18   Maintenance of REIT Status  . . . . . . . . . . . . . . . . . . . . . . . 53




                                      iii


                                                                                   
SECTION 10.    NEGATIVE COVENANTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
        10.1   Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
        10.2   Negative Pledge  . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 54
        10.3   Fiscal Year and Accounting Method  . . . . . . . . . . . . . . . . .. . . 54
        10.4   Partnership Agreement  . . . . . . . . . . . . . . . . . . . .. . . . . . 54
        10.5   Transfer by, or Admission of, Investors . . . . . . . . . . . . . . . . . 55
               (a)    Transfer of Partnership Interest or Capital Stock  . . . . . . . . 55
               (b)    Admission of Investors  . . . . . . . . . . . . . . . . .. . . . . 55
               (c)    Documentation Requirements  . . . . . . . . . . . . . . . . .  . . 55
               (d)    Funding Requirements  . . . . . . . . . . . . . . . . . .  . . . . 55
        10.6   Capital Commitments  . . . . . . . . . . . . . . . . . . . . .. . . . . . 55
        10.7   ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 56
        10.8   Environmental Matters  . . . . . . . . . . . . . . . . . . . .. . . . . . 56
        10.9   Dissolution  . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . 56
        10.10  Limitations on Dividends and Distributions  . . . . . . . . . . . . . . . 56
        10.11  Limitation on Debt . . . . . . . . . . . . . . . . . . . .  . . . . . . . 56

SECTION 11.    EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
        11.1   Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
        11.2   Remedies Upon Event of Default  . . . . . . . . . . . . . . . . . . . . . 59
        11.3   Performance by Administrative Agent . . . . . . . . . . . . . . . . . . . 59

SECTION 12.    AGENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
        12.1   Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
               (a)    Authority of Agents  . . . . . . . . . . . . . . . . . . . . . . . 60
               (b)    Release of Collateral  . . . . . . . . . . . . . . . . . . . . . . 60
        12.2   Delegation of Duties  . . . . . . . . . . . . . . . . . . . . . . . . . . 60
        12.3   Exculpatory Provisions  . . . . . . . . . . . . . . . . . . . . . . . . . 61
        12.4   Reliance on Communications  . . . . . . . . . . . . . . . . . . . . . . . 61
        12.5   Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
        12.6   Non-Reliance on Administrative Agent and Lenders  . . . . . . . . . . . . 62
        12.7   Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
        12.8   Administrative Agent in Its Individual Capacity . . . . . . . . . . . . . 62
        12.9   Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
        12.10  Reliance by Credit Parties  . . . . . . . . . . . . . . . . . . . . . . . 63

SECTION 13.    MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
        13.1   Amendments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
        13.2   Sharing of Offsets  . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
        13.3   Sharing of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 65
        13.4   Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
        13.5   Payment of Expenses; Indemnity  . . . . . . . . . . . . . . . . . . . . . 66
        13.6   Notice  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
        13.7   Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
        13.8   Choice of Forum; Consent to Service of Process and Jurisdiction;
               Waiver of Trial by Jury  . . . . . . . . . . . . . . .  . . . . . . . . . 69




                                       iv


                                                                                   
        13.9   Invalid Provisions  . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
        13.10  Entirety and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 70
        13.11  Parties Bound; Assignment . . . . . . . . . . . . . . . . . . . . . . . . 70
               (a)    Parties Bound  . . . . . . . . . . . . . . . . . . . . . . . . . . 70
               (b)    Participations . . . . . . . . . . . . . . . . . . . . . . . . . . 70
               (c)    Assignments  . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
               (d)    Consequences of Assignment . . . . . . . . . . . . . . . . . . . . 71
               (e)    Register of Lenders  . . . . . . . . . . . . . . . . . . . . . . . 72
               (f)    Disclosure of Information  . . . . . . . . . . . . . . . . . . . . 72
        13.12  Lender Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
        13.13  Maximum Interest  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
        13.14  Headings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
        13.15  Survival  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
        13.16  Limited Liability of Partners . . . . . . . . . . . . . . . . . . . . . . 73
        13.17  Availability of Records; Confidentiality  . . . . . . . . . . . . . . . . 73
        13.18  Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 74






                                       v



                  AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT

        THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "CREDIT
AGREEMENT") is dated as of August 23, 2001 by and among AMB INSTITUTIONAL
ALLIANCE FUND II, L.P., a Delaware limited partnership (the "BORROWER") and AMB
INSTITUTIONAL ALLIANCE REIT II, INC. (the "INVESTOR REIT" or "GUARANTOR"), the
banks and financial institutions listed on the signature page hereof as the
Initial Lenders (the "INITIAL LENDERS"), and BANK OF AMERICA, N.A., a national
banking association (in its individual capacity, "BANK OF AMERICA"), as
administrative agent (together with any successor appointed pursuant to SECTION
12 below, the "ADMINISTRATIVE AGENT") for the Lenders (as hereinafter defined),
DRESDNER BANK AG, a German banking corporation, acting through its New York and
Grand Cayman branches, as syndication agent (the "SYNDICATION AGENT") for the
Lenders, BANK ONE, NA, a national banking association, as documentation agent
(the "DOCUMENTATION AGENT" and, collectively with the Administrative Agent and
the Syndication Agent, the "AGENTS") for the Lenders, and each of the other
lending institutions that becomes a lender hereunder (herein collectively
referred to as the "LENDERS"; and each individually referred to as a "LENDER").

A.      Borrower has requested that Lenders make loans and cause the issuance of
letters of credit for the principal purpose of financing the costs and other
expenses to be incurred by Borrower in connection with making investments
permitted under the Partnership Agreement, paying expenses, and carrying on its
day-to-day business;

B.      Lenders are willing to lend funds and to cause the issuance of letters
of credit upon the terms and subject to the conditions set forth in this Credit
Agreement; and

C.      This Credit Agreement amends and restates in its entirety that certain
Revolving Credit Agreement (the "ORIGINAL CREDIT AGREEMENT") dated as of June
28, 2001, by and among Borrower, Guarantor, Bank of America, N.A., as
administrative agent, and the lenders party thereto.

        NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration the parties hereto do hereby agree as
follows:

SECTION 1. DEFINITIONS

        1.1 DEFINED TERMS. For the purposes of this Credit Agreement, unless
otherwise expressly defined, the following terms shall have the respective
meanings assigned to them in this SECTION 1 or in the Section or recital
referred to:

"ACCOUNT ASSIGNMENT" means an assignment of the Borrower Subscription Account or
an assignment of the Guarantor Subscription Account, each in substantially the
form attached hereto as EXHIBIT J, and "ACCOUNT ASSIGNMENT" means either one of
them.

"ADEQUATELY CAPITALIZED" means compliance with the capital standards for bank
holding companies as described in the Bank Holding Company Act of 1956, as
amended, and regulations promulgated thereunder.




"ADJUSTED LIBOR RATE" means, for any LIBOR Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by Administrative Agent to be equal to: (a) the quotient
obtained by dividing: (i) the LIBOR Rate for such LIBOR Loan for such Interest
Period; by (ii) one (1) minus the LIBOR Reserve Requirement for such LIBOR Loan
for such Interest Period; plus (b) the Applicable Margin.

"ADMINISTRATIVE AGENT" is defined in the preamble to this Credit Agreement.

"AFFILIATE" means any other Person that, directly or indirectly, controls or is
controlled by, or is under common control with, such Person. For the purpose of
this definition, "control" and the correlative meanings of the terms "controlled
by" and "under common control with" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting shares or
partnership interests or by contract or otherwise.

"AGENTS" is defined in the preamble to this Credit Agreement.

"ANNUAL VALUATION PERIOD" means the "annual valuation period" as defined in 29
CFR Section 2510.3-101(d)(5) as determined, for Borrower, by designation of the
General Partner, and, for Guarantor, by action of its duly authorized officer.

"APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of Loan,
the "lending office" of such Lender (or of an affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
office of such Lender (or an affiliate of such Lender) as such Lender may from
time to time specify to Administrative Agent and Borrower by written notice in
accordance with the terms hereof as the office by which its Loans of such Type
are to be made and maintained.

"APPLICABLE MARGIN" means, with respect to interest rate spreads and letter of
credit fees, eighty-seven and one-half basis points (0.875%) per annum.

"APPLICABLE REQUIREMENT" means for any Included Investor that is (or whose
Credit Provider, if applicable, is): (a) a Bank Holding Company, Adequately
Capitalized status or better and a Rating of BBB/Baa2 or higher; (b) an
insurance company, a Best's Rating of A- or higher and a Rating of BBB/Baa2; (c)
an ERISA Investor, or the trustee or nominee of an ERISA Investor, in addition
to the Sponsor's Rating of BBB/Baa2 or higher, a minimum Funding Ratio for the
ERISA Investor based on the Rating of the Sponsor of the pension fund as
follows:



        Sponsor Rating                           Minimum Funding Ratio
                                              
        A-/A3 or higher                          No minimum
        BBB+/Baal or higher                      90%
        BBB/Baa2                                 95%


(d) a Governmental Plan Investor, or the Responsible Party with respect to such
Governmental Plan Investor, in addition to the Responsible Party's Rating of
BBB/Baa2 or higher, a minimum Funding Ratio for the pension fund based on the
Rating of the Responsible Party as follows:


                                       2




        Responsible                      Minimum Funding Ratio
        Party Rating
                                      
        A-/A3 or higher                       No minimum
        BBB+/Baa1 or higher                      90%
        BBB/Baa2                                 95%


and (e) otherwise a Rated Investor, a Rating of BBB/Baa2 or higher.

The first rating indicated in each case above is the S&P rating and the second
rating indicated in each case above is the Moody's rating. In the event that the
S&P and Moody's ratings are not equivalent, the Applicable Requirement shall be
based on the lower of the two. If any such Person has only one Rating, from
either S&P or Moody's, that Rating shall apply.

"APPLICATION AND AGREEMENT FOR LETTER OF CREDIT" means an application and
agreement for standby letter of credit by, between and among all or any of
Borrower or a Qualified Borrower, on the one hand, and the Letter of Credit
Issuer, on the other hand, in a form provided by the Letter of Credit Issuer
(and customarily used by it in similar circumstances) and conformed to the terms
of this Credit Agreement, either as originally executed or as it may from time
to time be supplemented, modified, amended, renewed, or extended, provided,
however, to the extent that the terms of such Application and Agreement are
inconsistent with the terms of this Credit Agreement, the terms of this Credit
Agreement shall control.

"ARTICLES OF INCORPORATION" means the Articles of Incorporation of Guarantor
dated as of June 27, 2001, as the same may be further amended, restated,
supplemented or otherwise modified from time to time with the consent of
Administrative Agent, the Letter of Credit Issuer, and the Lenders to the extent
expressly required hereby.

"ASSIGNEE" is defined in SECTION 13.11(c) hereof.

"ASSIGNMENT AND ACCEPTANCE AGREEMENT" means the agreement contemplated by
SECTION 13.11(c) hereof, pursuant to which any Lender assigns all or any portion
of its rights and obligations hereunder, which agreement shall be in the form of
EXHIBIT O attached hereto.

"AVAILABLE COMMITMENT" means the lesser of: (a) the Maximum Commitment, or such
lesser amount after giving effect to reductions in the Commitments pursuant to
SECTION 3.6 hereof; or (b) ninety percent (90%) of the Remaining Capital
Commitments of the Included Investors.

"BANK HOLDING COMPANY" means a "bank holding company" as defined in Section 2(a)
of the Bank Holding Company Act of 1956, as amended, or a non-bank subsidiary of
such bank holding company.

"BANK OF AMERICA" is defined in the preamble to this Credit Agreement.

"BAS" means Banc of America Securities LLC.

"BEST'S RATING" means a "Best's Rating" by A.M. Best Company.


                                       3


"BORROWER" is defined in the first paragraph hereof.

"BORROWER GUARANTY" means an unconditional guaranty of payment in the form of
EXHIBIT H attached hereto, enforceable against Borrower for the payment of a
Qualified Borrower's debt or obligation to Lenders; and "BORROWER GUARANTIES"
means such guaranties, collectively.

"BORROWER PARTY" is defined in SECTION 12.1(a) hereof.

"BORROWER'S SECURITY AGREEMENT" means a security agreement substantially in the
form of EXHIBIT I, between Borrower and Administrative Agent.

"BORROWER SUBSCRIPTION ACCOUNT" is defined in SECTION 5.2(a).

"BORROWING" means a disbursement made by Lenders of any of the proceeds of the
Loans when such disbursement increases the outstanding principal amount of the
Loans, and "BORROWINGS" means the plural thereof.

"BUSINESS DAY" means any day of the year except a Saturday, Sunday or other day
on which commercial banks in the State of California are authorized by law to
close.

"CAPITAL ACCOUNT" is defined in the Partnership Agreement.

"CAPITAL CALL" means a call upon the Investors to fund all or any portion of the
Capital Commitments pursuant to and in accordance with, as applicable, their
respective Subscription Agreements and the Articles of Incorporation, or the
Partnership Agreement.

"CAPITAL CALL NOTICE" means any notice sent to the Investors for the purpose of
making a Capital Call.

"CAPITAL CALL NOTICE DATE" is defined in SECTION 5.2(c) hereof.

"CAPITAL COMMITMENT" means: (a) for any Shareholder, the commitment of such
Shareholder to fund Capital Contributions to Guarantor in the amount set forth
in, and pursuant to the terms of, such Investor's Subscription Agreement and the
Articles of Incorporation; and (b) for any Partner, its "Capital Commitment" as
defined in the Partnership Agreement; and "CAPITAL COMMITMENTS" shall mean the
aggregate Capital Commitments of all Investors.

"CAPITAL CONTRIBUTION" means: (a) for any Shareholder, the payment by such
Shareholder of the Purchase Price (as defined in such Shareholder's Subscription
Agreement) for shares of capital stock of Guarantor; and (b) for any Partner, a
"Capital Contribution" as defined in the Partnership Agreement.

"CAPITAL LEASE" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person and the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.


                                       4


"CAPITAL STOCK" means the capital stock of Guarantor.

"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System.

"CLOSING DATE" means the date hereof, provided that all of the conditions
precedent set forth in SECTION 7.1 hereof are satisfied or waived.

"CODE" means the Uniform Commercial Code as adopted in the State of New York and
any other state, which governs creation or perfection (and the effect thereof)
of security interests in any collateral for the Obligation.

"COLLATERAL" is defined in SECTION 5.1 hereof.

"COLLATERAL DOCUMENTS" means the security agreements, financing statements,
assignments, and other documents and instruments from time to time executed and
delivered pursuant to this Credit Agreement and any documents or instruments
amending or supplementing the same, including, without limitation, the
Borrower's Security Agreement, the Pledge and Security Agreements, the Pledge
Agreement, and the Account Assignments.

"COMMITMENT" means, for each Lender, the amount set forth opposite its signature
on this Credit Agreement or on its respective Assignment and Acceptance
Agreement, as the same may be reduced from time to time by Borrower, pursuant to
SECTION 3.6 hereof, or by further assignment by such Lender pursuant to SECTION
13.11(c) hereof.

"COMMITMENT PERIOD" means the period commencing on the Closing Date and ending
on the Maturity Date.

"COMPLIANCE CERTIFICATE" is defined in SECTION 9.1(b).

"CONFIDENTIAL INFORMATION" means, at any time, all data, reports,
interpretations, forecasts and records containing or otherwise reflecting
information and concerning any or all of Borrower, its Partners, Guarantor or
its Shareholders which is not available to the general public, together with
analyses, compilations, studies or other documents, which contain or otherwise
reflect such information made available by or on behalf of Borrower, its
Partners, Guarantor or its Shareholders pursuant to this Credit Agreement orally
or in writing to Administrative Agent or any Lender or their respective
attorneys, certified public accountants or agents, which was clearly and
conspicuously marked or communicated as "Confidential," or otherwise requested
in writing to be held confidential, but shall not include any data or
information that: (a) was or became generally available to the public at or
prior to such time (unless divulged by Administrative Agent or such Lender or
Administrative Agent's or Lender's respective attorneys, certified public
accountants or agents); or (b) was or became available to Administrative Agent
or a Lender or to Administrative Agent's or Lender's respective attorneys,
certified public accountants or agents on a non-confidential basis from
Borrower, its Partners, Guarantor or its Shareholders, or any other source at or
prior to such time.

"CONSTITUENT DOCUMENTS" means, for any entity, its constituent or organizational
documents, including: (a) in the case of a limited partnership, its certificate
of limited partnership and its limited partnership agreement;


                                       5


(ii) in the case of a limited liability company, its certificate of formation or
organization and its operating agreement or limited liability company agreement;
and (iii) in the case of a corporation, its articles or certificate of
incorporation and its bylaws.

"CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the continuation
pursuant to a Rollover of a LIBOR Loan as a LIBOR Loan from one Interest Period
to the next Interest Period.

"CONTROLLED GROUP" means: (a) the controlled group of corporations as defined in
Section 1563 of the Internal Revenue Code; or (b) the group of trades or
businesses under common control as defined in Section 414(c) of the Internal
Revenue Code, in each case of which Borrower is a part or may become a part.

"CONVERSION DATE" is any LIBOR Conversion Date, or Reference Rate Conversion
Date, as applicable.

"CONVERSION NOTICE" is defined in SECTION 2.3(d) hereof.

"CONVERT," "CONVERSION," and "CONVERTED" shall refer to a conversion pursuant to
SECTION 2.3(d) or SECTION 4 of one Type of Loan into another Type of Loan.

"COVERED PLAN" means an "employee benefit plan" as defined in Section 3(3) of
ERISA and covered by Section 4 of ERISA.

"CREDIT AGREEMENT" means this Revolving Credit Agreement, of which this SECTION
1 forms a part, together with all amendments and modifications hereof and
supplements and attachments hereto.

"CREDIT PARTY CLAIMS" is defined in SECTION 5.5 hereof.

"CREDIT PARTIES" means Borrower and Guarantor and "CREDIT PARTY" means any one
of them.

"CREDIT PROVIDER" means a Person providing a guaranty, in form and substance
acceptable to Administrative Agent, of the obligations of an Included Investor
to make Capital Contributions to Borrower or Guarantor, or, under the Investor
Letter, to Administrative Agent.

"CURRENT PARTY" is defined in SECTION 13.12.

"DEBTOR RELIEF LAWS" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, fraudulent conveyance,
reorganization, or similar laws affecting the rights, remedies, or recourse of
creditors generally, including without limitation the United States Bankruptcy
Code and all amendments thereto, as are in effect from time to time during the
term of the Loans.

"DEFAULT RATE" means on any day the lesser of: (a) the Reference Rate in effect
on such day, PLUS four percent (4%); or (b) the Maximum Rate.

"DEFAULTING INVESTOR" is defined in SECTION 2.1(c) hereof.


                                       6


"DOCUMENTATION AGENT" is defined in the preamble to this Credit Agreement.

"DOLLARS" and the sign "$" means lawful currency of the United States of
America.

"ELIGIBLE ASSIGNEE" means: (a) a Lender; (b) an Affiliate of a Lender, so long
as the assigning Lender is not released from its obligations hereunder; or (c)
any other Person approved by Administrative Agent, such approval not to be
unreasonably withheld or delayed.

"ENVIRONMENTAL COMPLAINT" means any complaint, order, demand, citation or notice
threatened or issued in writing to Borrower by any Person with regard to air
emissions, water discharges, Releases, or disposal of any Hazardous Material,
noise emissions or any other environmental, health or safety matter affecting
Borrower or any of Borrower's Properties.

"ENVIRONMENTAL LAWS" means: (a) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Re-authorization Act of 1986, 42 U.S.C. Section 9601 et seq.; (b) the
Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and
Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq.; (c) the Clean
Air Act, 42 U.S.C. Section 7401 et seq., as amended by the Clean Air Act
Amendments of 1990; (d) the Clean Water Act of 1977, 33 U.S.C. Section 1251 et
seq.; (e) the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 et seq.;
(f) all other federal, state and local laws, or ordinances relating to pollution
or protection of human health or the environment including without limitation,
air pollution, water pollution, noise control, or the use, handling, discharge,
disposal or Release of Hazardous Materials, as each of the foregoing may be
amended from time to time, applicable to Borrower, and (g) any and all
regulations promulgated under or pursuant to any of the foregoing statutes.

"ENVIRONMENTAL LIABILITY" means any written claim, demand, obligation, cause of
action, accusation or allegation, or any order, violation, damage (including,
without limitation, to any Person, property or natural resources), injury,
judgment, penalty or fine, cost of enforcement, cost of remedial action,
cleanup, restoration or any other cost or expense whatsoever, including
reasonable attorneys' fees and disbursements resulting from the violation or
alleged violation of any Environmental Law or the imposition of any
Environmental Lien or otherwise arising under any Environmental Law or resulting
from any common law cause of action asserted by any Person.

"ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority: (a)
under any Environmental Law; or (b) for any liability or damages arising from,
or costs incurred by, any Governmental Authority in response to the Release or
threatened Release of any Hazardous Material.

"ENVIRONMENTAL REQUIREMENT" means any Environmental Law, agreement, or
restriction, as the same now exists or may be changed, amended, or come into
effect in the future, which pertains to health, safety, or the environment,
including, but not limited to ground, air, water, or noise pollution, or
underground or aboveground tanks.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder by any Governmental
Authority, as from time to time in effect.


                                       7


"ERISA INVESTOR" means an Investor that is an "employee benefit plan" (as such
term is defined in Section 3(3) of ERISA) subject to Title I of ERISA, any
"plan" defined in Section 4975(e) of the Code, a group trust, as described in
Revenue Ruling 81-100, or a partnership or commingled account of a fund, or any
other entity whose assets include or are deemed to include the assets of one or
more such employee benefit plans subject to Title I of ERISA, as determined
under Section 2510.3-101 or Section 2550.401c-1 of the regulations of the United
States Department of Labor or under any other relevant legal authority.

"EVENT OF DEFAULT" is defined in SECTION 11.1 hereof.

"EXCLUSION EVENT" is defined in SECTION 2.1(c) hereof.

"FEDERAL FUNDS RATE" means, on any day, a fluctuating interest rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by Administrative Agent
from three (3) Federal funds brokers of recognized standing selected by
Administrative Agent.

"FEE LETTER" shall mean that certain letter agreement by and among Borrower,
Guarantor, Administrative Agent and BAS, dated May 21, 2001.

"FUNDING ACCOUNT" means an account maintained by Administrative Agent for the
purpose of funding Loans and receiving and disbursing payments hereunder. The
Funding Account shall be maintained at an office of Administrative Agent in San
Francisco, California, or such other place of which Administrative Agent shall
notify Borrower and Lenders.

"FUNDING RATIO" means: (a) for a Governmental Plan Investor, the total net fair
market value of the assets of the plan over the actuarial present value of the
plan's total benefit liabilities, as reported in such plan's audited financial
statements; and (b) for an ERISA Investor, the funded current liability
percentage reported on Schedule B to the most recent Form 5500 filed by such
plan with the United States Department of Labor.

"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means those generally accepted
accounting principles and practices that are recognized as such by the American
Institute of Certified Public Accountants or by the Financial Accounting
Standards Board or through other appropriate boards or committees thereof, and
that are consistently applied for all periods, after the date hereof, so as to
properly reflect the financial position of Borrower, except that any accounting
principle or practice required to be changed by the Financial Accounting
Standards Board (or other appropriate board or committee of the said Board) in
order to continue as a generally accepted accounting principle or practice may
be so changed.

"GENERAL PARTNER" means AMB Property, L.P., a Delaware limited partnership,
which is the general partner of Borrower.

"GOVERNMENTAL AUTHORITY" means any foreign governmental authority, the United
States of America, any State of the United States of America, and any
subdivision of any of the foregoing, and any agency,


                                       8


department, commission, board, authority or instrumentality, bureau or court
having jurisdiction over Borrower, General Partner, Guarantor, Administrative
Agent, any Lender, or the Letter of Credit Issuer, or any of their respective
businesses, operations, assets, or properties.

"GOVERNMENTAL PLAN INVESTOR" means an Investor that is a pension plan and that
is a governmental plan as defined in Section 3(32) of ERISA.

"GUARANTOR" is defined in the first paragraph hereof.

"GUARANTOR SUBSCRIPTION ACCOUNT" is defined in SECTION 5.2(a).

"GUARANTY" means the Guaranty of Guarantor made under SECTION 6 hereof.

"GUARANTY OBLIGATIONS" means, with respect to any Person, without duplication,
any obligations (other than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) guaranteeing any Indebtedness
of any other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent: (a) to purchase
any such Indebtedness or other obligation or any property constituting security
therefor; (b) advance or provide funds or other support for the payment or
purchase of such Indebtedness or obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person (including,
without limitation, maintenance agreements, comfort letters, take or pay
arrangements, put agreements or similar agreements or arrangements) for the
benefit of the holder of Indebtedness of such other Person; (c) to lease or
purchase property, securities or services primarily for the purpose of assuring
the owner of such Indebtedness; or (d) to otherwise assure or hold harmless the
owner of such Indebtedness or obligation against loss in respect thereof. The
amount of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein) be deemed to be an amount equal to the outstanding principal
amount (or maximum principal amount, if larger) of the Indebtedness in respect
of which such Guaranty Obligation is made.

"HAZARDOUS MATERIAL" means any substance, material, or waste which is or becomes
regulated, under any Environmental Law, as hazardous to public health or safety
or to the environment, including, but not limited to: (a) any substance or
material designated as a "hazardous substance" pursuant to Section 311 of the
Clean Water Act, as amended, 33 U.S.C. Section 1251 et seq., or listed pursuant
to Section 307 of the Clean Water Act, as amended; (b) any substance or material
defined as "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.; (c)
any substance or material defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, 42 U.S.C. Section 9601 et seq.; or (d) petroleum, petroleum products
and petroleum waste materials.

"HEDGING AGREEMENTS" means, collectively, interest rate protection agreements,
foreign currency exchange agreements, commodity purchase or option agreements or
other interest or exchange rate or commodity price hedging agreements, in each
case, entered into or purchased by Borrower.

"INCLUDED INVESTOR" means an Investor (other than a Defaulting Investor): (a)(i)
that has, or that has a Credit Provider that has, met the Applicable
Requirement; or (ii) that has not met the Applicable Requirement but that is
approved by all Lenders in their sole discretion as an Included Investor, as
evidenced in writing


                                       9


executed by Administrative Agent from time to time; and (b) that has delivered
to Administrative Agent the information and documents required under SECTION
10.5(c); provided that a Defaulting Investor shall no longer be an Included
Investor until such time as all Exclusion Events affecting such Investor have
been cured and such Investor shall have been approved as an Included Investor in
the sole and absolute discretion of Administrative Agent, the Letter of Credit
Issuer, and all of the Lenders.

"INDEBTEDNESS" of any Person means, without duplication: (a) all obligations of
such Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, or upon which interest payments
are customarily made; (c) all obligations of such Person under conditional sale
or other title retention agreements relating to property purchased by such
Person to the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers entered into
in the ordinary course of business); (d) all obligations, other than
intercompany items, of such Person issued or assumed as the deferred purchase
price of property or services purchased by such Person which would appear as
liabilities on an unconsolidated balance sheet of such Person; (e) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on,
or payable out of the proceeds of production from, property owned or acquired by
such Person, whether or not the obligations secured thereby have been assumed;
(f) all Guaranty Obligations of such Person; (g) the principal portion of all
obligations of such Person under: (i) Capital Leases; and (ii) any synthetic
lease, tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing product of such Person where such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP; (h) all obligations of such Person to
repurchase any securities which repurchase obligation is related to the issuance
thereof, including, without limitation, obligations commonly known as residual
equity appreciation potential shares; (i) all net obligations of such Person in
respect of Hedging Agreements; (j) the maximum amount of all performance and
standby letters of credit issued or bankers' acceptances facilities created for
the account of such Person and, without duplication, all drafts drawn thereunder
(to the extent unreimbursed); and (k) the aggregate amount of uncollected
accounts receivable of such Person subject at such time to a sale of receivables
(or similar transaction) regardless of whether such transaction is effected
without recourse to such Person or in a manner that would not be reflected on
the balance sheet of such Person in accordance with GAAP. The Indebtedness of
any Person shall include the Indebtedness of any partnership or unincorporated
joint venture for which such Person is legally obligated.

"INDEMNITEE" is defined in SECTION 13.5(b) hereof.

"INTEREST OPTION" means the Adjusted LIBOR Rate and the Reference Rate.

"INTEREST PAYMENT DATE" means: (a) as to any Reference Rate Loan, the first
Business Day of each month for interest due through the last day of the
preceding month, commencing on the first of such days to occur after such
Reference Rate Loan is made or after any LIBOR Loan is converted to a Reference
Rate Loan, or such earlier date as such Reference Rate Loan shall mature, by
acceleration or otherwise, and on any Conversion Date; (b) as to any LIBOR Loan,
the last day of such Interest Period, or such earlier date as such LIBOR Loan
shall mature, by acceleration or otherwise; and (c) as to any Loan, the date of
any prepayment made hereunder, as to the amount prepaid.


                                       10


"INTEREST PERIOD" means, with respect to any LIBOR Loan, a period commencing:

                 (a)     on the borrowing date of such LIBOR Loan; or

                 (b)     on the termination date of the immediately preceding
        Interest Period in the case of a Rollover to a successive Interest
        Period as described in SECTION 2.3 hereof,

and ending one, two, or three months thereafter, or one week thereafter, each as
Borrower or a Qualified Borrower shall elect in accordance with SECTION 2.3
hereof; provided, further, however, that:

                         (i) any Interest Period that would otherwise end on a
                 day that is not a LIBOR Banking Day shall be extended to the
                 next succeeding LIBOR Banking Day UNLESS such LIBOR Banking Day
                 falls in another calendar month, in which case such Interest
                 Period shall end on the next preceding LIBOR Banking Day;

                         (ii) any Interest Period which begins on the last LIBOR
                 Banking Day of a calendar month (or on a day for which there is
                 no numerically corresponding day in the calendar month at the
                 end of such Interest Period) shall, subject to clause (i)
                 above, end on the last LIBOR Banking Day of a calendar month;
                 and

                         (iii) if the Interest Period would otherwise end after
                 the Stated Maturity Date, such Interest Period shall end on the
                 Stated Maturity Date.

"INTERNAL REVENUE CODE" means the United States Internal Revenue Code of 1986,
as amended.

"INITIAL LENDERS" is defined in the recital of parties to this Credit Agreement.

"INVESTOR" means a Partner of Borrower or a Shareholder of Guarantor, as
applicable.

"INVESTOR LETTER" means a letter substantially in the form of EXHIBIT K executed
by an Investor and delivered to Administrative Agent.

"INVESTOR OPINION" means a written opinion (addressed to Administrative Agent,
the Letter of Credit Issuer, and the Lenders) of counsel to an Investor,
substantially in the form of EXHIBIT L and otherwise acceptable to
Administrative Agent, and covering such other matters relating to the Investor,
the Loan Documents, the Investor's Constituent Documents, or the transactions
contemplated hereby as the Administrative Agent or Required Lenders may
reasonably request.

"INVESTOR REIT" is defined in the first paragraph hereof.

"INVESTOR REIT OBLIGATION" means all obligations, liabilities and Indebtedness
of every nature of the Investor REIT from time to time owing to Administrative
Agent, the Letter of Credit Issuer, or any Lender, under or in connection with
this Credit Agreement or any other Loan Document, including, without limitation,
the obligations and liabilities of Investor REIT, as the Guarantor, under the
Guaranty.


                                       11


"LENDER DEFAULT" is defined in SECTION 13.12 hereof.

"LENDERS" means the Initial Lenders and each of the other lending institutions
that shall become a Lender hereunder pursuant to SECTION 13.11(c) hereof.

"LETTER OF CREDIT" means any letter of credit issued by the Letter of Credit
Issuer pursuant to SECTION 2.8 hereof either as originally issued or as the same
may, from time to time, be amended or otherwise modified or extended.

"LETTER OF CREDIT ISSUER" means Bank of America, or any Lender or Affiliate of
such Lender so designated, and which accepts such designation, by Administrative
Agent and approved by Borrower.

"LETTER OF CREDIT LIABILITY" means the aggregate amount of the undrawn stated
amount of all outstanding Letters of Credit plus the amount drawn under Letters
of Credit for which the Letter of Credit Issuer and Lenders, or any one or more
of them, have not yet received payment or reimbursement (in the form of a
conversion of such liability to Loans, or otherwise) as required pursuant to
SECTION 2.8 hereof.

"LETTER OF CREDIT SUBLIMIT" means twenty percent (20%) of the Available
Commitment.

"LIBOR BANKING DAY" means a day other than a Saturday or a Sunday, and on which
Administrative Agent is open for business in California, New York, and London,
and dealing in offshore Dollars, or, if Administrative Agent does not have an
office dealing with offshore Dollars in such locations, then in such location as
Administrative Agent does have such an office.

"LIBOR CONVERSION DATE" is defined in SECTION 2.3(d) hereof.

"LIBOR LOAN" means a Loan made hereunder with respect to which the interest rate
is calculated by reference to the LIBOR Rate for a particular Interest Period.

"LIBOR RATE" means, with respect to any LIBOR Loan for any Interest Period, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 as the London interbank offered rate for
deposits in Dollars with respect to such Interest Period at approximately 11:00
a.m. (London time) on the date two (2) LIBOR Banking Days prior to the date such
rate shall apply. If for any reason such rate is not available, the "LIBOR RATE"
shall be the rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in Dollars with respect to such Interest Period at
approximately 11:00 a.m. (London time) on the date two (2) LIBOR Banking Days
prior to the date such rate shall apply; provided, however, if more than one
rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
1/100 of 1%).

"LIBOR RESERVE REQUIREMENT" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the LIBOR Reserve Requirement


                                       12


shall reflect any other reserves required to be maintained by such member banks
with respect to: (a) any category of liabilities which includes deposits by
reference to which the Adjusted LIBOR Rate is to be determined; or (b) any
category of extensions of credit or other assets which include LIBOR Loans. The
LIBOR Rate shall be adjusted automatically on and as of the effective date of
any change in the LIBOR Reserve Requirement. Each determination by
Administrative Agent of the LIBOR Reserve Requirement shall, in the absence of
manifest error, be conclusive and binding.

"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, or conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of indebtedness, whether
arising by agreement or under any statute or law, or otherwise.

"LOAN DOCUMENTS" means this Credit Agreement, the Notes (including any renewals,
extensions, re-issuances and refundings thereof), each Application and Agreement
for Letter of Credit, each of the Collateral Documents, each Borrower Guaranty
and such other agreements and documents, and any amendments or supplements
thereto or modifications thereof, executed or delivered pursuant to the terms of
this Credit Agreement or any of the other Loan Documents and any additional
documents delivered in connection with any such amendment, supplement or
modification.

"LOANS" means the group of LIBOR Loans and Reference Rate Loans made by Lenders
to Borrower or Qualified Borrowers pursuant to the terms and conditions of this
Credit Agreement.

"MATERIAL ADVERSE EFFECT" means any circumstances or events which could
reasonably be expected to: (a) have any adverse effect whatsoever upon the
validity, performance, or enforceability of any of the Loan Documents executed
by Borrower, General Partner, Guarantor, or any Qualified Borrower; (b)
materially impair the ability of Borrower or Guarantor, or both, to fulfill
their respective obligations under the Loan Documents; (c) cause an Event of
Default; or (d) impair, impede, or jeopardize the obligation and the liability
of Borrower or its General Partner to fulfill its obligations under the
Partnership Agreement, or of Guarantor to fulfill its obligations under the
Subscription Agreements or the Articles of Incorporation.

"MATURITY DATE" means the earliest of: (a) the Stated Maturity Date; (b) the
date upon which Administrative Agent declares the Obligation due and payable
after the occurrence of an Event of Default; and (c) the date upon which
Borrower terminates the Commitments pursuant to SECTION 3.6 hereof or otherwise.

"MAXIMUM COMMITMENT" means $150,000,000, as it may be reduced by Borrower
pursuant to SECTION 3.6.

"MAXIMUM RATE" means, on any day, the highest rate of interest (if any)
permitted by applicable law on such day.

"MOODY'S" means Moody's Investors Service, Inc.

"NOTES" means the promissory notes provided for in SECTION 3.1 hereof, and all
promissory notes delivered in substitution or exchange therefor, as such notes
may be amended, restated, reissued, extended or modified, and the Qualified
Borrower Notes; and "NOTE" means any one of the Notes.


                                       13


"OBLIGATION" means all present and future indebtedness, obligations, and
liabilities of Borrower and each Qualified Borrower to Lenders, and all renewals
and extensions thereof (including, without limitations, Loans, Letters of Credit
Liability, or both), or any part thereof, arising pursuant to this Credit
Agreement (including, without limitation, the indemnity provisions hereof) or
represented by the Notes, each Application and Agreement for Letter of Credit
and each Borrower Guaranty, and all interest accruing thereon, and attorneys'
fees incurred in the enforcement or collection thereof, regardless of whether
such indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, joint, several, or joint and several; together with all
indebtedness, obligations, and liabilities of Borrower to Lenders evidenced or
arising pursuant to any of the other Loan Documents, and all renewals and
extensions thereof, or any part thereof.

"OPERATING COMPANY" means an "operating company" within the meaning of 29 C.F.R.
Section 2510.3-101(c) of the regulations of the United States Department of
Labor.

"ORIGINAL CREDIT AGREEMENT" is defined in Paragraph C of the Recitals.

"OTHER TAXES" is defined in SECTION 4.6(b) hereof.

"PARTICIPANT" is defined in SECTION 13.11(b) hereof.

"PARTNER" means the General Partner or any one of limited partners of Borrower,
and reference to "PARTNERS" shall be to all of such limited partners and the
General Partner, collectively.

"PARTNERSHIP AGREEMENT" means that certain Amended and Restated Agreement of
Limited Partnership of Borrower dated as of June 28, 2001, as it has been and
may be restated, modified, amended or further supplemented from time to time.

"PARTNERSHIP DOCUMENTS" means, for any partnership, a true copy of the
partnership agreement evidencing the creation of such partnership, with all
amendments thereto, certified by the general partner of such partnership as
being true, correct and complete, together with: (a) if appropriate, a
certificate of limited partnership and all amendments thereto currently
certified by the applicable authority for the state of organization; (b) if
appropriate, a current certificate of existence and good standing of such
partnership issued by the applicable authority for the state of organization;
and (c) if appropriate, a current certificate of qualification and good standing
(or other similar instruments) from the appropriate authority of each state in
which it must be qualified to do business.

"PARTNERSHIP EXPENSE" is defined in the Partnership Agreement.

"PARTNERSHIP INTEREST" of any Partner means the "Percentage Interest" of such
Partner in Borrower, as defined in the Partnership Agreement.

"PARTY-IN-INTEREST LENDER" means: (a) with respect to an ERISA Investor, any
Lender that would be a "party-in-interest" of such Investor within the meaning
of Section 3(14) of ERISA, or a "disqualified person," with respect to such
Investor within the meaning of Section 4975(e) of the Internal Revenue Code; and
(b) with respect to a Investor that is an insurance company that is investing
assets of a Covered Plan in Borrower, any Lender that would be a
"party-in-interest" (within the meaning of Section 3(14) of ERISA)


                                       14


of any such Covered Plan, or a "disqualified person" (within the meaning of
Section 4975(e) of the Internal Revenue Code) with respect to such Covered Plan.

"PENDING CAPITAL CALL" means any Capital Call that has been made upon the
Investors and that has not yet been funded by the applicable Investor, but with
respect to which such Investor is not in default.

"PERSON" means an individual, sole proprietorship, joint venture, association,
trust, estate, business trust, corporation, nonprofit corporation, partnership,
sovereign government or agency, instrumentality, or political subdivision
thereof, or any similar entity or organization.

"PLAN" means any plan, including single employer and multi-employer plans to
which Section 4021(a) of ERISA applies, or any retirement medical plan, each as
established or maintained for employees of Borrower or any member of the
Controlled Group to which Section 4021(a) of ERISA applies.

"PLEDGE AGREEMENT" means the Pledge and Security Agreement (Interest in Fund),
substantially in the form of Exhibit M, between Guarantor and the Administrative
Agent.

"PLEDGE AND SECURITY AGREEMENT" means a Subscription Agreement Pledge and
Security Agreement, substantially in the form of EXHIBIT N.

"POTENTIAL DEFAULT" means any condition, act, or event which, with the giving of
notice or lapse of time or both, would become an Event of Default.

"PRIME RATE" means, on any day, the rate of interest per annum then most
recently established and announced by Administrative Agent as its "prime rate."
Any such rate is a general reference rate of interest, may not be related to any
other rate, and may not be the lowest or best rate actually charged by
Administrative Agent to any customer or a favored rate. Such rate may not
correspond with future increases or decreases in interest rates charged by other
lenders or market rates in general, and Administrative Agent may make various
business or other loans at rates of interest having no relationship to such
rate. If Administrative Agent ceases to exist or to establish or publish a prime
rate from which the Prime Rate is then determined, the applicable variable rate
from which the Prime Rate is determined thereafter shall be instead the prime
rate reported in the Wall Street Journal (or the average prime rate if a high
and low prime rate are therein reported), and the Prime Rate shall change
without notice with each change in such prime rate as of the date such change is
reported. If the Wall Street Journal does not or ceases to report such a prime
rate, the Prime Rate shall thereafter be determined by such alternate method as
may be reasonably selected by Administrative Agent.

"PRINCIPAL OBLIGATION" means the sum of: (a) the aggregate outstanding principal
amount of the Loans; plus (b) the Letter of Credit Liability.

"PROPERTY" is defined in the Partnership Agreement.

"PRO RATA SHARE" means, with respect to each Lender, the percentage obtained
from the fraction: (a) (i) the numerator of which is the Commitment of such
Lender; and (ii) the denominator of which is the aggregate Commitments of all
Lenders; or (b) in the event the Commitments are zero (0): (i) the numerator of
which


                                       15


is the Obligation outstanding with respect to such Lender; and (ii) the
denominator of which is the total Obligation outstanding.

"QUALIFIED BORROWER" means any entity, which entity may be organized in the
United States or outside of the United States, in which Borrower owns a direct
or indirect ownership interest, the indebtedness of which entity can be
guaranteed by Borrower pursuant to the terms of the Partnership Agreement, and
which entity has executed a Qualified Borrower Note and in respect of which
entity Borrower has executed a Borrower Guaranty.

"QUALIFIED BORROWER LETTER OF CREDIT NOTE" means a letter of credit note
executed and delivered by a Qualified Borrower, in the form of EXHIBIT G
attached hereto, the payment of which is guaranteed by Borrower pursuant to
Borrower Guaranties, as such note may be amended, restated, reissued, extended
or modified.

"QUALIFIED BORROWER NOTES" means the Qualified Borrower Promissory Notes and the
Qualified Borrower Letter of Credit Notes, and "QUALIFIED BORROWER NOTE" means
any one of them, as such note may be amended, restated, reissued, extended or
modified.

"QUALIFIED BORROWER PROMISSORY NOTE" means a promissory note executed and
delivered by a Qualified Borrower, in the form of EXHIBIT F attached hereto, the
payment of which is guaranteed by Borrower pursuant to Borrower Guaranties.

"RECOURSE DEBT LIMITATIONS" means the limitations set forth in SECTION 10.11
hereof.

"RATED INVESTOR" means any Investor that has a Rating (or that has a Credit
Provider, Sponsor, or Responsible Party that has a Rating).

"RATING" means, for any Person, its senior unsecured debt rating (or equivalent
thereof, such as, but not limited to, a corporate credit rating, issuer
rating/insurance financial strength rating (for an insurance company), general
obligation rating (for a governmental entity), or revenue bond rating (for a
educational institution)) from either of S&P or Moody's.

"REFERENCE RATE" means, on any date, the greater of: (a) the Prime Rate; or (b)
the Federal Funds Rate plus fifty basis points (0.50%) per annum. Each change in
the Reference Rate shall become effective without prior notice to Borrower
automatically as of the opening of business on the day of such change in the
Reference Rate.

"REFERENCE RATE CONVERSION DATE" is defined in  SECTION 2.3(d).

"REFERENCE RATE LOAN" means a Loan made hereunder with respect to which the
interest rate is calculated by reference to the Reference Rate.

"REGISTER" is defined in SECTION 13.11(e) hereof.


                                       16


"REGULATION D," "REGULATION T," "REGULATION U," and "REGULATION X" means
Regulation D, T, U, or X, as the case may be, of the Board of Governors of the
Federal Reserve System, from time to time in effect, and shall include any
successor or other regulation relating to reserve requirements applicable to
partner banks of the Federal Reserve System.

"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching, or migration of Hazardous
Materials into the environment, or into or out of any Property, including the
movement of any Hazardous Material through or in the air, soil, surface water,
groundwater, of any Property.

"REMAINING CAPITAL COMMITMENT" means, with respect to any Investor at any time:
(a) such Investor's Capital Commitment at such time (excluding any Capital
Commitment subject to a Pending Capital Call); minus (b) such Investor's
aggregate Capital Contributions made prior to such time.

"REQUEST FOR BORROWING" is defined in SECTION 2.3 hereof.

"REQUEST FOR LETTER OF CREDIT" is defined in SECTION 2.8(b) hereof.

"REQUIRED LENDERS" means, at any time: (a) Lenders holding an aggregate Pro Rata
Share of greater than sixty-six and two-thirds percent (66-2/3%) of the
Commitments; or (b) at any time that the Lender Commitments are zero (0),
Lenders owed an aggregate Pro Rata Share of greater than sixty-six and two-
thirds percent (66-2/3%) of the Obligation outstanding at such time.

"RESPONSIBLE OFFICER" means: (a) in the case of a corporation, its president or
any vice president, and, in any case where two Responsible Officers are acting
on behalf of such corporation, the second such Responsible Officer may be a
secretary or assistant secretary; (b) in the case of a limited partnership, the
Responsible Officer of the general partner, acting on behalf of such general
partner in its capacity as general partner; and (c) in the case of a limited
liability company, the Responsible Officer of the managing member, acting on
behalf of such managing member in its capacity as managing member.

"RESPONSIBLE PARTY" means, for any Governmental Plan Investor: (a) if the state
under which the Governmental Plan Investor operates is obligated to fund the
Governmental Plan Investor and is liable to fund any shortfalls, the state; and
(b) otherwise, the Governmental Plan Investor itself.

"ROLLOVER" means the renewal of any LIBOR Loan upon the expiration of the
Interest Period with respect thereto, pursuant to SECTION 2.3 hereof.

"ROLLOVER NOTICE" is defined in SECTION 2.3(c) hereof.

"S&P" means Standard & Poor's Rating Services, a division of the McGraw & Hill
Companies, Inc.

"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
to the date hereof and from time to time hereafter, and any successor statute.

"SHAREHOLDER" means a holder of shares of the Capital Stock of Guarantor.


                                       17


"SPONSOR" of an ERISA Investor means a sponsor as that term is understood under
ERISA, specifically, the entity that established the plan and is responsible for
the maintenance of the plan and, in the case of a plan that has a sponsor and
participating employers, the entity that has the ability to amend or terminate
the plan.

"STATED MATURITY DATE" means August 23, 2003.

"SUBSCRIPTION ACCOUNT" means, collectively, the Borrower Subscription Account
and the Guarantor Subscription Account.

"SUBSCRIPTION AGREEMENT" means a Subscription Agreement executed by a
Shareholder in connection with the subscription for Capital Stock in Guarantor,
or by a Partner in connection with the subscription for a partnership interest
in Borrower.

"SUBSEQUENT INVESTOR" is defined in SECTION 10.5(c) hereof.

"SYNDICATION AGENT" is defined in the preamble to this Credit Agreement.

"TAXES" is defined in SECTION 4.6(a) hereof.

"TELERATE PAGE 3750" means the display designated as "Page 3750" on the Bridge
Telerate Capital Markets Report (or such other page as may replace Page 3750 on
the Bridge Telerate Capital Markets Report or such other service as may be
nominated by the British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association interest settlement rates for
U.S. Dollar deposits). Any LIBOR Rate determined on the basis of the rate
displayed on Telerate Page 3750 in accordance with the provisions hereof shall
be subject to corrections, if any, made in such rate and displayed by the Bridge
Telerate Capital Markets Report within one hour of the time when such rate is
first displayed by such Service.

"TYPE OF LOAN" means any type of Loan (i.e., a Reference Rate Loan or LIBOR
Loan).

        1.2    OTHER DEFINITIONAL PROVISIONS.

               (a)    All terms defined in this Credit Agreement shall have the
        above-defined meanings when used in the Notes or any other Loan
        Documents or any certificate, report or other document made or delivered
        pursuant to this Credit Agreement, unless otherwise defined in such
        other document.

               (b)    Defined terms used in the singular shall import the plural
        and vice versa.

               (c)    The words "hereof," "herein," "hereunder," and similar
        terms when used in this Credit Agreement shall refer to this Credit
        Agreement as a whole and not to any particular provisions of this Credit
        Agreement.


                                       18


SECTION 2. REVOLVING CREDIT LOAN AND LETTERS OF CREDIT

        2.1     THE COMMITMENT.

               (a)    COMMITTED AMOUNT. Subject to the terms and conditions
        herein set forth, Lenders agree, during the Commitment Period: (i) to
        extend to Borrower or any Qualified Borrower a revolving line of credit;
        and (ii) to participate in Letters of Credit issued by the Letter of
        Credit Issuer for the account of Borrower or any Qualified Borrower.

               (b)    LIMITATION ON BORROWINGS AND RE-BORROWINGS.
        Notwithstanding anything to the contrary herein contained, Lenders shall
        not be required to advance any Borrowing, Rollover, or cause the
        issuance of any Letter of Credit hereunder if:

                      (i) after giving effect to such Borrowing, Rollover, or
               issuance of such Letter of Credit: (A) the Principal Obligation
               would exceed the Available Commitment; or (B) the Letter of
               Credit Liability would exceed the Letter of Credit Sublimit;

                      (ii) The limited partners of Borrower have given notice,
               under Section 11.2 of the Partnership Agreement or otherwise, of
               their intent to remove the General Partner as the general partner
               of Borrower; or

                      (iii) an Event of Default or, to Borrower's knowledge, a
               Potential Default exists.

               Conversions to Reference Rate Loans shall be permitted in the
        case of CLAUSES (ii) or (iii) above, unless Administrative Agent has
        otherwise accelerated the Obligation or exercised other rights that
        terminate the Commitments under SECTION 11.2 hereof.

               (c)    EXCLUSION EVENTS. If any of the following events (each, an
        "EXCLUSION EVENT") shall occur with respect to any Included Investor or,
        if applicable, the Sponsor, Responsible Party, or Credit Provider of
        such Included Investor (such Investor hereinafter referred to as a
        "DEFAULTING INVESTOR"), then such Investor shall no longer be an
        Included Investor:

                      (i) it shall: (A) apply for or consent to the appointment
               of a receiver, trustee, custodian, intervenor, or liquidator of
               itself or of all or a substantial part of its assets; (B) file a
               voluntary petition as debtor in bankruptcy or admit in writing
               that it is unable to pay its debts as they become due; (C) make a
               general assignment for the benefit of creditors; (D) file a
               petition or answer seeking reorganization or an arrangement with
               creditors or take advantage of any Debtor Relief Laws; (E) file
               an answer admitting the material allegations of, or consent to,
               or default in answering, a petition filed against it in any
               bankruptcy, reorganization, or insolvency proceeding; or (F) take
               personal, partnership, limited liability company, corporate or
               trust action, as applicable, for the purpose of effecting any of
               the foregoing;

                      (ii) an order, order for relief, judgment, or decree shall
               be entered by any court of competent jurisdiction or other
               competent authority approving a petition seeking such


                                       19


               Person's reorganization or appointing a receiver, custodian,
               trustee, intervenor, or liquidator of such Person or of all or
               substantially all of its assets, and such order, judgment, or
               decree shall continue unstayed and in effect for a period of
               sixty (60) days;

                      (iii) any final judgment(s) for the payment of money which
               in the aggregate exceed fifteen percent (15%) of its net worth
               shall be rendered against such Person, and such judgment or
               judgments shall not be satisfied or discharged at least ten (10)
               days prior to the date on which any of its assets could be
               lawfully sold to satisfy such judgment;

                      (iv) such Investor shall repudiate, challenge, or declare
               unenforceable its obligation to make contributions to the capital
               of Borrower or Guarantor pursuant to its Capital Commitment or a
               Capital Call Notice, or shall otherwise disaffirm any material
               provision of its Subscription Agreement, the Articles of
               Incorporation, or the Partnership Agreement relating to Capital
               Contributions;

                      (v) such Investor shall fail to make a contribution to the
               capital of Borrower or Guarantor when required pursuant to a
               Capital Call Notice, subject to any applicable notice or cure
               periods, or shall otherwise be in default under its Subscription
               Agreement, the Articles of Incorporation, or the Partnership
               Agreement, following any applicable notice requirements or cure
               periods;

                      (vi) any representation or warranty made under any Loan
               Documents executed by such Person shall prove to be untrue or
               inaccurate in any material respect, as of the date on which such
               representation or warranty is made, and such Person shall fail to
               cure the adverse effect of the failure of such representation or
               warranty within thirty (30) days after written notice thereof is
               delivered by Administrative Agent to Borrower and to such
               Investor;

                      (vii) such Investor shall transfer its Partnership
               Interest in Borrower, or its Capital Stock in Guarantor, in
               violation of this Credit Agreement;

                      (viii) default shall occur in the performance by it of any
               of the covenants or agreements contained in any of the Loan
               Documents executed by it (except as otherwise specifically
               addressed in this SECTION 2.1(c), in which case no grace period
               beyond any provided for herein shall apply) and such default
               shall continue uncured to the satisfaction of Administrative
               Agent for a period of thirty (30) days after written notice
               thereof has been given by Administrative Agent to Borrower and to
               such Investor;

                      (ix) in the case of each Rated Investor, it shall fail to
               maintain the Applicable Requirement for such Investor required in
               the definition of Applicable Requirement in SECTION 1 hereof;

                      (x) in the case of an Investor that is not a Rated
               Investor, the occurrence of any circumstance or event which, in
               the reasonable discretion of Administrative Agent: (A) is
               determined to be material and adverse to the financial condition
               or business operations of such Investor; (B) could reasonably be
               expected to materially impair the ability of such


                                       20


               Investor to fulfill its obligations under the Loan Documents
               executed by it; or (C) could reasonably be expected to impair,
               impede, or jeopardize the obligation and the liability of such
               Investor to fulfill its obligations under its Subscription
               Agreement, the Articles of Incorporation, or the Partnership
               Agreement; or

                      (xi) such Investor shall fail, within ten (10) days after
               the required date set forth in the Investor Letter, to deliver
               the financial information to Borrower or Guarantor, required by
               such Investor's Investor Letter, in accordance with the terms
               thereof.

               (d)    MANDATORY PREPAYMENT.

                      (i) EXCESS LOANS OUTSTANDING. If, on any day, the
               Principal Obligation exceeds the Available Commitment, then the
               Credit Parties shall pay on demand such excess to Administrative
               Agent, for the benefit of Lenders, in immediately available funds
               (except to the extent any such excess is addressed by SECTION
               2.1(d)(ii)): (A) promptly on demand (but in no event later than
               two (2) Business Days), to the extent such funds are available in
               the Subscription Account or any other account maintained by
               Credit Parties; and (B) within ten (10) Business Days of demand
               to the extent that it is necessary for a Credit Party to issue a
               Capital Call Notice to fund such required payment (and Credit
               Parties shall issue such Capital Call Notices during such time,
               and shall pay such excess immediately after the Capital
               Contributions relating to such Capital Call Notice are received);
               provided that the amount of such excess shall be paid to
               Administrative Agent concurrently with the creation of such
               excess if it results from any willful act of any Credit Party;

                      (ii) EXCESS LETTERS OF CREDIT OUTSTANDING. If any excess
               calculated pursuant to SECTION 2.1(d)(i) is attributable to
               undrawn Letters of Credit, Credit Parties (or the applicable
               Qualified Borrower) shall pay such excess to Administrative
               Agent, when required pursuant to the terms of SECTION 2.1(d)(i)
               for deposit in a segregated interest-bearing cash collateral
               account, as security for such portion of the Obligation. Unless
               otherwise required by law, upon: (i) a change in circumstances
               such that the Principal Obligation no longer exceeds the
               Available Commitment; or (ii) the full and final payment of the
               Obligation, Administrative Agent shall return to Credit Parties
               or the applicable Qualified Borrower any amounts remaining in
               said cash collateral account.

        2.2    REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions
herein set forth, each Lender severally agrees, during the Commitment Period, to
make Loans to Borrower or any Qualified Borrower at any time and from time to
time in an aggregate principal amount up to such Lender's Commitment at any such
time; provided, however, that, after making such Loans: (a) such Lender's Pro
Rata Share of the Principal Obligation would not exceed such Lender's
Commitment; and (b) the Principal Obligation would not exceed the Available
Commitment. Subject to the foregoing limitation, Borrower or any Qualified
Borrower may borrow, repay without penalty or premium, and re-borrow hereunder,
during the Commitment Period. Each Borrowing pursuant to this SECTION 2.2 shall
be made ratably by Lenders in proportion to such Lender's Pro Rata Share of the
Available Commitment. No Lender shall be obligated to fund any Loan if the
interest rate applicable thereto under SECTION 2.6(a) hereof would exceed the
Maximum Rate in effect with respect to such Loan.


                                       21


        2.3    MANNER OF BORROWING. Borrower shall give Administrative Agent
notice of the date of each requested Borrowing hereunder, which notice may be by
telephone, if confirmed in writing, telex, facsimile, or other written
communication (a "REQUEST FOR BORROWING"), and which notice shall be irrevocable
and effective upon receipt by Administrative Agent. Each Request for Borrowing
shall be furnished to Administrative Agent, no later than 11:00 a.m. (San
Francisco time): (a) at least three (3) LIBOR Banking Days prior to the
requested date of the funding of a LIBOR Loan; and (b) at least one (1) Business
Day prior to the requested date of the funding of a Reference Rate Loan; and
must specify: (i) the amount of such Borrowing; (ii) whether such Borrowing
shall be a LIBOR Loan or a Reference Rate Loan; and (iii) the Interest Period
therefor in the case of a LIBOR Loan; and (iv) the name of the applicable
Qualified Borrower, if any. Any Request for Borrowing received by Administrative
Agent after 11:00 a.m. (San Francisco time) shall be deemed to have been given
by Borrower on the next succeeding LIBOR Banking Day, in the case of a LIBOR
Loan, or the next succeeding Business Day, in the case of a Reference Rate Loan.

               (a)    REQUEST FOR BORROWING. Each Request for Borrowing shall be
        in the form attached hereto as EXHIBIT C (with blanks appropriately
        completed in conformity herewith) and shall be deemed to constitute a
        representation and warranty by Borrower that:

                      (i) The representations and warranties set forth in
               Section 8 hereof are true and correct in all material respects on
               and as of the date of such Request for Borrowing, with the same
               force and effect as if made on and as of such date (except to the
               extent of changes in facts or circumstances that have been
               disclosed to Lenders and do not constitute an Event of Default or
               a Potential Default under this Credit Agreement or any other Loan
               Document);

                      (ii) No Event of Default or, to its knowledge, Potential
               Default exists and is continuing at such date; and

                      (iii) After giving effect to such Borrowing the Principal
               Obligation will not exceed the Available Commitment as of such
               date.

               Each Request for Borrowing shall be irrevocable and binding on
        Borrower and the applicable Qualified Borrower, and Borrower and, if
        applicable, the Qualified Borrower, shall indemnify Lenders against any
        cost, loss, or expense incurred by Lenders, or any of them, as a result
        of any failure to fulfill, on or before the date specified in the
        Request for Borrowing, the conditions to such Borrowing set forth
        herein, including, without limitation, any cost, loss, or expense
        incurred by reason of the liquidation or redeployment of the deposits or
        other funds acquired by Lenders, or any of them, to fund the Borrowing
        to be made by Lenders as a part of such Borrowing when such Borrowing,
        as a result of such failure, is not made on such date. A certificate of
        Administrative Agent setting forth the amount of any such cost, loss or
        expense, and the basis for the determination thereof and the calculation
        thereof, shall be delivered to Borrower and the applicable Qualified
        Borrower and shall, in the absence of a manifest error, be conclusive
        and binding. Notwithstanding any provision to the contrary contained in
        this SECTION 2.3, Borrower and the applicable Qualified Borrower, shall
        not be required to indemnify Lenders against any costs, loss or expenses
        incurred by Lenders, or any of them, as a result of the liquidation or
        redeployment of funds due to Borrower's failure to fulfill, on or


                                       22


        before the date specified for a Reference Rate Borrowing, the conditions
        to such Borrowing set forth herein.

               (b)    REQUEST FOR CURRENT RATES. Prior to making a Request for
        Borrowing, Borrower may (without specifying whether the anticipated
        Borrowing shall be a Reference Rate Loan or LIBOR Loan) request that
        Administrative Agent provide it with the most recent Reference Rate and
        Adjusted LIBOR Rate available to Lenders. Administrative Agent shall
        endeavor to provide such quoted rates to Borrower within two (2)
        Business Days after such request, provided, however, that Administrative
        Agent's failure to timely provide such rates shall not relieve Borrower
        or any Qualified Borrower of its obligations hereunder.

               (c)    ROLLOVERS. No later than 11:00 a.m. (San Francisco time)
        at least three (3) LIBOR Banking Days prior to the termination of each
        Interest Period related to a LIBOR Loan, Borrower or any applicable
        Qualified Borrower shall give Administrative Agent written notice (which
        notice may be via fax) substantially in the form of EXHIBIT E attached
        hereto (the "ROLLOVER NOTICE") whether it desires to renew such LIBOR
        Loan. The Rollover Notice shall also specify the length of the Interest
        Period selected by Borrower or a Qualified Borrower with respect to such
        Rollover. Each Rollover Notice shall be irrevocable and effective upon
        notification thereof to Administrative Agent. If Borrower or a Qualified
        Borrower fails to timely give Administrative Agent the Rollover Notice
        with respect to any LIBOR Loan, Borrower or the applicable Qualified
        Borrower shall be deemed to have elected the Reference Rate as the
        Interest Option with respect to such Loan commencing on the expiration
        of the preceding Interest Period.

               (d)    CONVERSIONS. Borrower or the applicable Qualified Borrower
        shall have the right, with respect to: (i) any Reference Rate Loan, on
        any LIBOR Banking Day (a "LIBOR CONVERSION DATE"), to convert such
        Reference Rate Loan to a LIBOR Loan; and (ii) any LIBOR Loan, on any
        Business Day (a "REFERENCE RATE CONVERSION DATE") to convert such LIBOR
        Loan to a Reference Rate Loan, provided, however, that Borrower shall,
        on such Reference Rate Conversion Date, make the payments required by
        SECTION 4.5 hereof; in either case, by giving Administrative Agent
        written notice substantially in the form of EXHIBIT E attached hereto (a
        "CONVERSION NOTICE") of such selection no later than 11:00 a.m. (San
        Francisco time) at least: (1) three (3) LIBOR Banking Days prior to such
        LIBOR Conversion Date; or (2) one (1) Business Day prior to such
        Reference Rate Conversion Date. Each Conversion Notice shall be
        irrevocable and effective upon notification thereof to Administrative
        Agent.

               (e)    TRANCHES. Notwithstanding anything to the contrary
        contained herein, no more than eight (8) LIBOR Loans may be outstanding
        hereunder at any one time during the Commitment Period.

               (f)    AGENT NOTIFICATION OF LENDERS. Administrative Agent shall
        promptly notify each Lender (and will use good faith efforts to make
        such notification on the day such notice is timely received from
        Borrower) of receipt of a Request for Borrowing, a Conversion Notice or
        a Rollover Notice, the amount of the Borrowing and such Lender's Pro
        Rata Share thereof, the date the Borrowing is to be made, the Interest
        Option selected, the Interest Period selected, if applicable, and the
        applicable rate of interest.


                                       23


        2.4    MINIMUM LOAN AMOUNTS. Each LIBOR Rate Loan shall be in an
aggregate amount that is an integral multiple of $100,000 and not less than
$1,000,000, and each Reference Rate Loan shall be in an aggregate amount that is
an integral multiple of $100,000 and not less than $500,000, provided, however,
that a Reference Rate Loan may be in an aggregate amount that is equal to the
entire unused balance of the total Commitments or that is required to finance
the reimbursement of a Letter of Credit under SECTION 2.8(c).

        2.5    FUNDING. Each Lender shall make the proceeds of its Pro Rata
Share of each Borrowing available to Administrative Agent at the appropriate
Funding Account for the account of Borrower or a Qualified Borrower no later
than 9:00 a.m. (San Francisco time) on the date specified in the Request for
Borrowing as the borrowing date, in immediately available funds, and, upon
fulfillment of all applicable conditions set forth herein, Administrative Agent
shall deposit such proceeds in immediately available funds in Borrower's or in
the applicable Qualified Borrower's account maintained with Administrative Agent
not later than 11:00 a.m. (San Francisco time) on the borrowing date or, if
requested by Borrower in the Request for Borrowing, shall wire-transfer such
funds as requested on or before such time. The failure of any Lender to advance
the proceeds of its Pro Rata Share of any Borrowing required to be advanced
hereunder shall not relieve any other Lender of its obligation to advance the
proceeds of its Pro Rata Share of any Borrowing required to be advanced
hereunder. Absent contrary written notice from a Lender, Administrative Agent
may assume that each Lender has made its Pro Rata Share of the requested
Borrowing available to Administrative Agent on the applicable borrowing date,
and Administrative Agent may, in reliance upon such assumption (but is not
required to), make available to Borrower or a Qualified Borrower a corresponding
amount. If a Lender fails to make its Pro Rata Share of any requested Borrowing
available to Administrative Agent on the applicable borrowing date, then
Administrative Agent may recover the applicable amount on demand: (a) from such
Lender, together with interest at the Federal Funds Rate for the period
commencing on the date the amount was made available to Borrower by
Administrative Agent and ending on (but excluding) the date Administrative Agent
recovers the amount from such Lender; or (b) if Lender fails to pay its amount
upon Administrative Agent's demand, then from Borrower; (i) promptly on demand,
to the extent such funds are available in the Subscription Account or any other
account maintained by Borrower; and (ii) otherwise, to the extent that it is
necessary for Borrower to issue a Capital Call Notice to fund such required
payment, within fifteen (15) Business Days after Administrative Agent's demand
(but, in any event, Borrower shall issue such Capital Call Notice and shall make
such payment promptly after the related Capital Contributions are received);
together with interest at a rate per annum equal to the rate applicable to the
requested Borrowing for the period commencing on the borrowing date and ending
on (but excluding) the date Administrative Agent recovers the amount from
Borrower. The liabilities and obligations of each Lender hereunder shall be
several and not joint, and neither Administrative Agent nor any Lender shall be
responsible for the performance by any other Lender of its obligations
hereunder. Each Lender hereunder shall be liable to Borrower and any Qualified
Borrower only for the amount of its respective Commitment.

        2.6    INTEREST RATE.

               (a)    RATE. The unpaid principal of each Reference Rate Loan
        shall bear interest at a rate per annum which shall from day to day be
        equal to the Reference Rate in effect from day to day. The unpaid
        principal of each LIBOR Loan shall bear interest at a rate per annum
        which shall be equal to the Adjusted LIBOR Rate for the applicable
        Interest Period.


                                       24


               (b)    CHANGE IN RATE; PAST DUE AMOUNTS; CALCULATIONS OF
        INTEREST. Each change in the rate of interest for any Borrowing shall
        become effective, without prior notice to Borrower or any Qualified
        Borrower, automatically as of the opening of business of Administrative
        Agent on the date of said change. Interest on the unpaid principal
        balance of each LIBOR Rate Loan shall be calculated on the basis of the
        actual days elapsed in a year consisting of 360 days, which results in
        more interest than if a 365-day year was used. Interest on the unpaid
        principal balance of each Reference Rate Loan shall be calculated on the
        basis of the actual days elapsed in a year consisting of 365 days, or,
        if applicable 366 days. If any principal of, or interest on, the
        Obligation is not paid when due, then (in lieu of the interest rate
        provided in SECTION 2.6(a) above) such past due principal and interest
        shall bear interest at the Default Rate, provided, however, if
        Administrative Agent fails to timely deliver the notice described in
        SECTION 11.1 hereof to Borrower, the Default Rate will not be applied to
        such past due principal and interest until four (4) Business Days after
        such notice is given. If any other Event of Default hereunder shall
        arise, then (in lieu of the interest rate provided in Section 2.6(a)
        above) the principal amount of each Loan in effect at such time and the
        interest thereon shall bear interest at the Default Rate, until such
        Event of Default is cured or is waived.

        2.7    DETERMINATION OF RATE. Administrative Agent shall determine each
interest rate applicable to the Borrowings hereunder. Administrative Agent shall
give prompt notice to Borrower or the applicable Qualified Borrower and to
Lenders of each rate of interest so determined, and its determination thereof
shall be conclusive and binding in the absence of manifest error.

        2.8    LETTERS OF CREDIT.

               (a)    LETTER OF CREDIT COMMITMENT. Subject to the terms and
        conditions hereof, on any Business Day during the Commitment Period,
        Administrative Agent shall cause the Letter of Credit Issuer to issue
        such Letters of Credit in such aggregate face amounts in Dollars as
        Borrower or a Qualified Borrower may request, provided that: (i) on the
        date of issuance, after giving effect to the issuance of any such Letter
        of Credit, the Letter of Credit Liability will not exceed the lesser of:
        (A) the remainder of: (1) the Available Commitment as of such date;
        minus (2) the Principal Obligation as of such date; and (B) the Letter
        of Credit Sublimit; (ii) the expiry date of the Letter of Credit shall
        not be later than twelve months after the date of issuance without the
        Letter of Credit Issuer's consent; and (iii) the expiry date of the
        Letter of Credit shall not be later than the Stated Maturity Date.

               (b)    REQUEST. Each request for a Letter of Credit (a "REQUEST
        FOR LETTER OF CREDIT") shall be submitted to Administrative Agent in the
        form attached hereto as EXHIBIT D (with blanks appropriately completed
        in conformity herewith), together with an Application and Agreement for
        Letter of Credit, for the Letter of Credit Issuer, on or before 11:00
        a.m. (San Francisco time) at least two (2) Business Days prior to the
        requested date of issuance of a Letter of Credit. Administrative Agent
        shall promptly notify each Lender of such Request for Letter of Credit
        and the terms of the requested Letter of Credit. Upon each such
        application, Borrower or the Qualified Borrower, as applicable, shall be
        deemed to have automatically made to Administrative Agent, each Lender,
        and the Letter of Credit Issuer the following representations and
        warranties:


                                       25


                      (i) As of the date of the issuance of the Letter of Credit
               requested, the representations and warranties set forth in
               SECTION 8 hereof are true and correct in all material respects on
               and as of the date of such issuance, with the same force and
               effect as if made on and as of such date (except to the extent of
               changes in facts or circumstances that have been disclosed to
               Lenders and do not constitute an Event of Default or a Potential
               Default under this Credit Agreement or any other Loan Document);

                      (ii) No Event of Default or, to its knowledge, Potential
               Default exists and is continuing at such date; and

                      (iii) After giving effect to the issuance of the requested
               Letter of Credit the Letter of Credit Liability will not exceed
               the lesser of: (A) the remainder of: (1) the Available Commitment
               as of such date; minus (2) the Principal Obligation as of such
               date; and (B) the Letter of Credit Sublimit.

               (c)    PARTICIPATION BY LENDERS. Each Lender shall and does
        hereby participate ratably with the Letter of Credit Issuer in each
        Letter of Credit issued and outstanding hereunder to the extent of its
        Pro Rata Share of the Letter of Credit Liability with respect to each
        such Letter of Credit, and shall share in all rights and obligations
        resulting therefrom, including, without limitation: (i) the right to
        receive from Administrative Agent its Pro Rata Share of any
        reimbursement of the amount of each draft drawn under each Letter of
        Credit; (ii) the right to receive from Administrative Agent its Pro Rata
        Share of the Letter of Credit fee pursuant to SECTION 2.13 hereof; (iii)
        the right to receive from Administrative Agent its additional costs
        pursuant to SECTION 4.1 hereof; and (iv) the obligation to pay to the
        Administrative Agent or the Letter of Credit Issuer, as the case may be,
        in immediately available funds, its Pro Rata Share of any unreimbursed
        drawing under a Letter of Credit.

               (d)    PAYMENT OF LETTER OF CREDIT. In consideration for the
        issuance by the Letter of Credit Issuer of the Letters of Credit,
        Borrower and each Qualified Borrower hereby authorizes, empowers, and
        directs Administrative Agent, for the benefit of Lenders and the Letter
        of Credit Issuer, to disburse directly to the Letter of Credit Issuer,
        with notice to Borrower or the appropriate Qualified Borrower, in
        immediately available funds an amount equal to the stated amount of each
        draft drawn under each Letter of Credit plus all interest, reasonable
        costs and expenses, and fees due to the Letter of Credit Issuer pursuant
        to the applicable Application and Agreement for Letter of Credit.
        Subject to receipt of notice from the Administrative Agent, each Lender
        shall pay to the Administrative Agent such Lender's Pro Rata Share of
        the amount disbursed by the Administrative Agent on the Business Day on
        which the Letter of Credit Issuer honors any such draft or incurs or is
        owed any such interest, costs, expenses or fees. Administrative Agent
        will promptly notify Borrower or the appropriate Qualified Borrower of
        any disbursements made by Lenders pursuant to the terms hereof, provided
        that the failure to give such notice will not affect the validity of the
        disbursement, and Administrative Agent shall provide Lenders with notice
        thereof. Any such disbursement made by Lenders to the Letter of Credit
        Issuer on account of a Letter of Credit shall be deemed to be a
        Reference Rate Loan, and Borrower or the applicable Qualified Borrower
        shall be deemed to have given to Administrative Agent, in accordance
        with the terms and conditions of SECTION 2.3, a Request for Borrowing
        with respect thereto. Administrative Agent and Lenders may


                                       26


        conclusively rely on the Letter of Credit Issuer as to the amount due
        the Letter of Credit Issuer by reason of any draft of a Letter of Credit
        or due the Letter of Credit Issuer under any Application and Agreement
        for Letter of Credit.

               (e)    ACCELERATION OF UNDRAWN AMOUNTS. Should Administrative
        Agent demand payment of the Obligation hereunder prior to the Maturity
        Date pursuant to SECTION 11.2 hereof, Administrative Agent, by written
        notice to Borrower, may take one or more of the following actions: (i)
        declare the obligation of the Letter of Credit Issuer to issue Letters
        of Credit hereunder terminated, whereupon such obligations shall
        forthwith terminate without any other notice of any kind; or (ii)
        declare the outstanding Letter of Credit Liability to be forthwith due
        and payable, without presentment, demand, protest or any other notice of
        any kind, all of which are hereby waived, and demand that Borrower and
        any applicable Qualified Borrower pay to Administrative Agent for
        deposit in a segregated interest-bearing cash collateral account, as
        security for the Obligation, an amount equal to the aggregate undrawn
        stated amount of all Letters of Credit then outstanding at the time such
        notice is given. Unless otherwise required by law, upon the full and
        final payment of the Obligation, Administrative Agent shall return to
        Borrower and the applicable Qualified Borrower any amounts remaining in
        said cash collateral account.

        2.9    PAYMENT OF BORROWER GUARANTY. In consideration of Lenders'
agreement to advance funds to a Qualified Borrower pursuant to SECTIONS 2.2 and
2.3 hereof, to cause Letters of Credit to be issued for the account of a
Qualified Borrower pursuant to SECTION 2.8 hereof, and to accept Borrower
Guaranties in support thereof, Borrower hereby authorizes, empowers, and directs
the Administrative Agent, for the benefit of Lenders, within the limits of the
Available Commitment, to disburse directly to Lenders, with notice to Borrower,
in immediately available funds, an amount equal to the amount due and owing
under any Qualified Borrower Note or any Borrower Guaranty, together with all
interest, reasonable costs and expenses and fees due to Lenders pursuant thereto
in the event Administrative Agent shall have not received payment of such
Obligation when due. Administrative Agent will promptly notify Borrower of any
disbursement made to Lenders pursuant to the terms hereof, provided that the
failure to give such notice shall not affect the validity of the disbursement,
and Administrative Agent shall provide Lenders with notice thereof. Any such
disbursement made by Administrative Agent to Lenders shall be deemed to be a
Reference Rate Loan pursuant to SECTION 2.3 hereof in the amount so paid, and
Borrower shall be deemed to have given to Administrative Agent in accordance
with the terms and conditions of SECTION 2.3 a Request for Borrowing with
respect thereto. Administrative Agent may conclusively rely on Lenders as to the
amount of any such Obligation due to Lenders, absent manifest error.

        2.10   USE OF PROCEEDS, LETTERS OF CREDIT AND BORROWER GUARANTIES. The
proceeds of the Loans and the Letters of Credit shall be used for the purposes
permitted under the Partnership Agreement. Neither Lenders nor Administrative
Agent shall have any liability, obligation, or responsibility whatsoever with
respect to Borrower's or a Qualified Borrower's use of the proceeds of the
Loans, the Letters of Credit or execution and delivery of the Borrower
Guaranties, and neither Lenders nor Administrative Agent shall be obligated to
determine whether or not Borrower's or a Qualified Borrower's use of the
proceeds of the Loans or the Letters of Credit are for purposes permitted under
the Partnership Agreement. Nothing, including, without limitation, any
Borrowing, any Rollover, any issuance of any Letter of Credit, or acceptance of
any Borrower Guaranty or other document or instrument, shall be construed as a
representation or warranty,


                                       27


express or implied, to any party by Lenders or Administrative Agent as to
whether any investment by Borrower is permitted by the terms of the Partnership
Agreement.

        2.11   ADMINISTRATIVE AGENT FEES. Borrower and the Qualified Borrowers
shall pay, to Administrative Agent, fees in consideration of the arrangement and
administration of the Commitments, which fees shall be payable in amounts and on
the dates agreed to between Borrower and Administrative Agent in the Fee Letter.

        2.12   UNUSED COMMITMENT FEE. In addition to the payments provided for
in SECTION 3 hereof, Borrower shall pay to Administrative Agent, for the account
of each Lender, according to its Pro Rata Share, an unused commitment fee on the
daily amount of the Maximum Commitment which was unused (through the extension
of Loans or issuance of Letters of Credit) during the immediately preceding
calendar quarter calculated on the basis of actual days elapsed in a year
consisting of 360 days: (a) if such unused amount is more than fifty percent
(50%) of the Maximum Commitment, at the rate of seventeen and one-half basis
points (0.175%) per annum; and (b) if such unused amount is equal to or less
than fifty percent (50%) of the Maximum Commitment, at the rate of fifteen basis
points (0.15%) per annum, in each case payable in arrears on the first Business
Day of each calendar quarter for the preceding calendar quarter. For purposes of
this SECTION 2.12, the fee shall be calculated each time the Principal
Obligation or the Maximum Commitment increases or decreases, for the number of
days since the last calculation of the fee, as follows:

        (((Maximum Commitment for such period - Principal Obligation for such
        period) (*) applicable rate [as described above]) (*) number of days in
        such period) / 360)

        Borrower and Lenders acknowledge and agree that the commitment fees
payable hereunder are bona fide commitment fees and are intended as reasonable
compensation to Lenders for committing to make funds available to Borrower as
described herein and for no other purposes.

        2.13   LETTER OF CREDIT FEES. Borrower, or the appropriate Qualified
Borrower, shall pay to Administrative Agent: (a) for the benefit of Lenders, in
consideration for the issuance of Letters of Credit hereunder, a non-refundable
per annum fee equal to the Applicable Margin on the face amount of each Letter
of Credit, less the amount of any draws on such Letter of Credit, payable in
advance in quarterly installments, commencing on the issuance date and
continuing for so long as such Letter of Credit remains outstanding; and (b) for
the benefit of the Letter of Credit Issuer, in consideration of the issuance and
fronting of Letters of Credit, a non-refundable fronting fee equal to 0.125% per
annum, which fronting fee shall be calculated on the stated amount of the Letter
of Credit, payable at the time each letter of credit is issued.

SECTION 3. PAYMENT OF OBLIGATIONS

        3.1    REVOLVING CREDIT NOTES. Any Lender may request that Loans made by
it be evidenced by a promissory note. In such event: (a) Borrower shall execute
and deliver a promissory note payable to such Lender in the amount of such
Lender's Commitment; and (b) any Qualified Borrower that has not previously done
so shall execute and deliver a promissory note payable to such Administrative
Agent, for the benefit of the Lenders in the principal amount of its related
Obligation. Any such note issued by Borrower shall be substantially in the form
of EXHIBIT B attached hereto (with blanks appropriately completed in conformity
herewith), and any such note issued by a Qualified Borrower shall be
substantially in the form of


                                       28


EXHIBIT F attached hereto (with blanks appropriately completed in conformity
herewith). Borrower agrees, from time to time, upon the request of
Administrative Agent or any affected Lender, to reissue new Notes, in accordance
with the terms and in the form heretofore provided, to any Lender and any
Assignee of such Lender in accordance with SECTION 13.11(c) hereof, in renewal
of and substitution for the Notes previously issued by Borrower to the affected
Lender, and such previously issued Notes shall be returned to Borrower marked
"replaced".

        3.2    PAYMENT OF OBLIGATION. The unpaid principal amount of the
Obligation, together with all accrued but unpaid interest thereon, shall be due
and payable on the Maturity Date.

        3.3    PAYMENT OF INTEREST.

               (a)    INTEREST. Interest on each Borrowing and any portion
        thereof shall commence to accrue in accordance with the terms of this
        Credit Agreement and the other Loan Documents as of the date of the
        disbursal or wire transfer of such Borrowing by Administrative Agent,
        consistent with the provisions of SECTION 2.5, notwithstanding whether
        Borrower or a Qualified Borrower received the benefit of such Borrowing
        as of such date and even if such Borrowing is held in escrow pursuant to
        the terms of any escrow arrangement or agreement. When a Borrowing is
        disbursed by wire transfer pursuant to instructions received from
        Borrower, then such Borrowing shall be considered made at the time of
        the transmission of the wire, rather than the time of receipt thereof by
        the receiving bank. With regard to the repayment of the Loans, interest
        shall continue to accrue on any amount repaid until such time as the
        repayment has been received in federal or other immediately available
        funds by Administrative Agent in the appropriate Funding Account.

               (b)    INTEREST PAYMENT DATES. Accrued and unpaid interest on the
        Obligation shall be due and payable in arrears on each Interest Payment
        Date, and on the Maturity Date.

               (c)    DIRECT DISBURSEMENT. If, at any time, Administrative Agent
        shall not have received on the date due, any payment of interest upon
        the Loans or any fee described herein, Administrative Agent may direct
        the disbursement of funds from the Subscription Account to Lenders to
        the extent available therein for payment of any such amount. Thereafter,
        if the amount available in the Subscription Account is not sufficient
        for the full payment of such amounts due, Administrative Agent may,
        without prior notice to or the consent of Borrower, within the limits of
        the Available Commitment, disburse to Lenders in immediately available
        funds an amount equal to the interest or fee due to Lenders, which
        disbursement shall be deemed to be a Reference Rate Loan pursuant to
        SECTION 2.3 hereof, and Borrower shall be deemed to have given to
        Lenders in accordance with the terms and conditions of SECTION 2.3 a
        Request for Borrowing with respect thereto. After any disbursement of
        funds from the Subscription Account to Lenders as contemplated in this
        SECTION 3.3(c), Administrative Agent shall promptly deliver written
        notice of such disbursement to Borrower, provided, however, that the
        failure of Administrative Agent to give such notice will not affect the
        validity of such disbursement, and Administrative Agent shall provide
        Lenders with notice thereof.

        3.4    PAYMENTS ON THE OBLIGATION. All payments of principal of, and
interest on, the Obligation under this Credit Agreement by Borrower and
Qualified Borrowers to or for the account of Lenders, or any


                                       29


of them, shall be made by Borrower and Qualified Borrowers for receipt by
Administrative Agent before 11:00 a.m. (San Francisco time) in federal or other
immediately available funds to the appropriate Funding Account. Funds received
after 11:00 a.m. (San Francisco time) shall be treated for all purposes as
having been received by Administrative Agent on the first Business Day next
following receipt of such funds. Except as provided in SECTION 13.11 hereof,
each Lender shall be entitled to receive its Pro Rata Share of each payment
received by Administrative Agent hereunder for the account of Lenders on the
Obligation. Each payment received by Administrative Agent hereunder for the
account of a Lender shall be promptly distributed by Administrative Agent to
such Lender. Administrative Agent and each Lender hereby agree that payments to
Administrative Agent by Borrower and Qualified Borrowers of principal of, and
interest on, the Obligation by Borrower and Qualified Borrowers to or for the
account of Lenders in accordance with the terms of the Credit Agreement, the
Notes and the other Loan Documents shall constitute satisfaction of Borrower's
and Qualified Borrowers' obligations with respect to any such payments, and
Administrative Agent shall indemnify, and each Lender shall hold harmless,
Borrower and Qualified Borrowers from any claims asserted by any Lender in
connection with Administrative Agent's duty to distribute and apportion such
payments to Lenders in accordance with this SECTION 3.4. All payments made on
the Obligation shall be credited, to the extent of the amount thereof, in the
following manner: (a) first, against all costs, expenses and other fees
(including attorneys' fees) arising under the terms hereof; (b) second, against
the amount of interest accrued and unpaid on the Obligation as of the date of
such payment; (c) third, against all principal due and owing on the Obligation
as of the date of such payment; and (d) fourth, to all other amounts
constituting any portion of the Obligation.

        3.5    VOLUNTARY PREPAYMENTS. Borrower or any Qualified Borrower may,
without premium or penalty, upon three (3) Business Days' prior written notice
to Administrative Agent, prepay the principal of the Obligation then
outstanding, in whole or in part, at any time or from time to time; provided,
however, that if Borrower or any Qualified Borrower shall prepay the principal
of any LIBOR Loan on any date other than the last day of the Interest Period
applicable thereto, Borrower or such Qualified Borrower, as the case may be,
shall make the payments required by SECTION 4.5 hereof. Notwithstanding any
provision to the contrary in this SECTION 3.5, if Borrower or a Qualified
Borrower desires to prepay a Reference Rate Loan, Borrower or a Qualified
Borrower shall only be required to provide written notice thereof to
Administrative Agent of such prepayment one (1) Business Day in advance of such
payment. Any prepayment not received by 11:00 a.m. (San Francisco time) on a
Business Day shall be deemed to have been paid on the next succeeding Business
Day. All prepayments of LIBOR Loans must be made on a LIBOR Banking Day.

        3.6    REDUCTION OR EARLY TERMINATION OF COMMITMENTS. So long as no
Request for Borrowing or Request for Letter of Credit is outstanding, Borrower
may terminate the Commitments, or reduce the Maximum Commitment, by giving prior
irrevocable written notice to Administrative Agent of such termination or
reduction three (3) Business Days prior to the effective date of such
termination or reduction (which date shall be specified by Borrower in such
notice): (a) (i) in the case of complete termination of the Commitments, upon
prepayment of all of the outstanding Obligation, including, without limitation,
all interest accrued thereon, in accordance with the terms of SECTION 3.5; or
(ii) in the case of a reduction of the Maximum Commitment, upon prepayment of
the amount by which the Principal Obligation exceeds the reduced Available
Commitment resulting from such reduction, including, without limitation, payment
of all interest accrued thereon, in accordance with the terms of SECTION 3.5,
provided, however, that, except in connection with a termination of the
Commitments, the Maximum Commitment may not be reduced such that, upon such
reduction, the Available Commitment is less than the aggregate stated amount of
outstanding Letters of


                                       30


Credit; and (b) in the case of the complete termination of the Commitments, if
any Letter of Credit Liability exists, upon payment to Administrative Agent for
deposit in a segregated interest-bearing cash collateral account, as security
for the Letter of Credit Liability, an amount equal to the Letter of Credit
Liability then outstanding at the time such notice is given, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby waived. Unless otherwise required by law, upon the full and final payment
of the Letter of Credit Liability, or the termination of all outstanding Letter
of Credit Liability due to the expiration of all outstanding Letters of Credit
prior to draws thereon, Administrative Agent shall return to Borrower or the
applicable Qualified Borrower any amounts remaining in said cash collateral
account, provided, however, that to the extent individual Letters of Credit
expire, Agent will return to Borrower or the applicable Qualified Borrower the
corresponding amount of the expired Letter of Credit Liability. Notwithstanding
the foregoing: (1) Borrower may not terminate the Commitments or reduce the
Maximum Commitment prior to six (6) months following the Closing Date; (2) after
any reduction of the Maximum Commitment by Borrower, the next subsequent
reduction shall not occur until at least one month thereafter; (3) any reduction
of the Maximum Commitment shall be in an amount equal to or greater than
$5,000,000; and (4) in no event shall a reduction by Borrower reduce the Maximum
Commitment to $20,000,000 or less (except for a termination of all the
Commitments). Promptly after receipt of any notice of reduction or termination,
Agent shall notify each Lender of the same. Any reduction of the Maximum
Commitment shall reduce the Commitments of the Lenders on a pro rata basis.

        3.7    LENDING OFFICE. Each Lender may: (a) designate its principal
office or a branch, subsidiary or Affiliate of such Lender as its lending office
(and the office to whose accounts payments are to be credited) for any LIBOR
Loan; (b) designate its principal office or a branch, subsidiary or Affiliate as
its lending office (and the office to whose accounts payments are to be
credited) for any Reference Rate Loan and (c) change its lending offices from
time to time by notice to Administrative Agent and Borrower. In such event, such
Lender shall continue to hold the Note, if any, evidencing its loans for the
benefit and account of such branch, subsidiary or Affiliate. Each Lender shall
be entitled to fund all or any portion of its Commitment in any manner it deems
appropriate, consistent with the provisions of SECTION 2.5, but for the purposes
of this Credit Agreement such Lender shall, regardless of such Lender's actual
means of funding, be deemed to have funded its Commitment in accordance with the
Interest Option selected from time to time by the Borrower or a Qualified
Borrower for such Borrowing period.

SECTION 4. CHANGE IN CIRCUMSTANCES.

        4.1    INCREASED COST AND REDUCED RETURN.

               (a)    CHANGE IN LAW: INCREASED COST. If, after the date hereof,
        the adoption of any applicable law, rule, or regulation, or any change
        in any applicable law, rule, or regulation, or any change in the
        interpretation or administration thereof by any Governmental Authority,
        central bank, or comparable agency charged with the interpretation or
        administration thereof, or compliance by any Lender or the Letter of
        Credit Issuer (or its respective Applicable Lending Office) with any
        request or directive (whether or not having the force of law) of any
        such Governmental Authority, central bank, or comparable agency:

                      (i) shall subject such Lender or the Letter of Credit
               Issuer (or its Applicable Lending Office) to any tax, duty, or
               other charge with respect to any LIBOR Loans, Letters


                                       31


               of Credit, its Note, or its obligation to make LIBOR Loans, or
               issue Letters of Credit, or change the basis of taxation of any
               amounts payable to such Lender or the Letter of Credit Issuer (or
               its respective Applicable Lending Office) under this Credit
               Agreement or its Note in respect of any LIBOR Loans, or Letters
               of Credit (other than taxes imposed on the overall net income of
               such Lender or the Letter of Credit Issuer by the jurisdiction in
               which such Lender has been incorporated, created, or organized or
               has its principal office or such Applicable Lending Office);

                      (ii) shall impose, modify, or deem applicable any reserve,
               special deposit, assessment, compulsory loan, or similar
               requirement (other than the LIBOR Reserve Requirement utilized in
               the determination of the Adjusted LIBOR Rate) relating to any
               extensions of credit or other assets of, or any deposits with or
               other liabilities or commitments of, such Lender, the Letter of
               Credit Issuer (or its respective Applicable Lending Office),
               including the Commitment of such Lender hereunder;

                      (iii) shall increase the amount of capital required or
               expected to be maintained or funded by the Letter of Credit
               Issuer or any Lender and applicable to banks generally in
               relation to the Letters of Credit issued by the Letter of Credit
               Issuer or imposed upon any Lender by virtue of its participation
               arrangement provided in SECTION 2.8(c) hereof; or

                      (iv) shall impose on such Lender, the Letter of Credit
               Issuer (or its respective Applicable Lending Office) or on the
               United States market for certificates of deposit or the London
               interbank market any other condition affecting this Credit
               Agreement or its Note or any of such extensions of credit or
               liabilities or commitments;

        and the result of any of the foregoing is to increase the cost to such
        Lender or the Letter of Credit Issuer (or its respective Applicable
        Lending Office) of making, Converting into, Continuing, or maintaining
        any LIBOR Loans, or participating in the Letters of Credit, or to reduce
        any sum received or receivable by such Lender or the Letter of Credit
        Issuer (or its respective Applicable Lending Office) under this Credit
        Agreement or its Note, with respect to any LIBOR Loans or any Letter of
        Credit, then Borrower shall pay to such Lender such amount or amounts as
        will compensate such Lender for such increased cost or reduction
        (provided, however, that such amounts shall be consistent with amounts
        that such Lender is generally charging other borrowers similarly
        situated to the Borrower): (A) promptly on demand, to the extent that
        funds are available in the Subscription Account or any other account
        maintained by Borrower; and (B) otherwise, to the extent that it is
        necessary for Borrower to issue a Capital Call Notice to fund such
        required payment, within fifteen (15) Business Days after demand (but,
        in any event, Borrower shall issue such Capital Call Notice and shall
        make such payment promptly after the related Capital Contributions are
        received).

               (b)    CHANGE IN LAW: REDUCED RETURN. If, after the date hereof,
        the adoption of any applicable law, rule, or regulation regarding
        capital adequacy or any change therein or in the interpretation or
        administration thereof by any Governmental Authority, central bank, or
        comparable agency charged with the interpretation or administration
        thereof, or any request or directive regarding capital adequacy (whether
        or not having the force of law) of any such Governmental Authority,
        central bank, or comparable agency, has or would have the effect of
        reducing the rate of return on


                                       32


        the capital of such Lender or any corporation controlling such Lender as
        a consequence of such Lender's obligations hereunder to a level below
        that which such Lender or such corporation could have achieved but for
        such adoption, change, request, or directive (taking into consideration
        its policies with respect to capital adequacy), then from time to time
        Borrower shall pay to such Lender such additional amount or amounts as
        will compensate such Lender for such reduction (provided, however, that
        such amounts shall be consistent with amounts that such Lender is
        generally charging other borrowers similarly situated to the Borrower):
        (i) promptly on demand, to the extent that funds are available in the
        Subscription Account or any other account maintained by Borrower; and
        (ii) otherwise, to the extent that it is necessary for Borrower to issue
        a Capital Call Notice to fund such required payment, within fifteen (15)
        Business Days after demand (but, in any event, Borrower shall issue such
        Capital Call Notice and shall make such payment promptly after the
        related Capital Contributions are received).

               (c)    NOTICE. Each Lender and the Letter of Credit Issuer shall
        promptly notify Borrower and Administrative Agent of any event of which
        it has knowledge, occurring after the date hereof, but in no event later
        than ninety (90) days after the occurrence of such event, which will or
        may entitle such Lender to compensation pursuant to this SECTION 4.1 and
        will designate a different Applicable 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 Lender, be otherwise
        disadvantageous to it. Any Lender or the Letter of Credit Issuer
        claiming compensation under this SECTION 4.1 shall furnish to Borrower
        and Administrative Agent a statement setting forth the additional amount
        or amounts to be paid to it hereunder which shall be conclusive in the
        absence of manifest error. In determining such amount, such Lender may
        use any reasonable averaging and attribution methods.

        4.2    LIMITATION ON TYPES OF LOANS. If on or prior to the first day of
any Interest Period for any LIBOR Loan:

               (a)    Administrative Agent determines, in good faith (which
        determination shall be conclusive), that by reason of circumstances
        affecting the relevant market, adequate and reasonable means do not
        exist for ascertaining the LIBOR Rate for such Interest Period for the
        LIBOR Loan requested; or

               (b)    the Required Lenders determine (which determination shall
        be conclusive) and notify Administrative Agent that the Adjusted LIBOR
        Rate will not adequately and fairly reflect the cost to the Lenders of
        funding LIBOR Loans for such Interest Period;

then Administrative Agent shall give Borrower prompt notice thereof specifying
the relevant amounts or periods, and so long as such condition remains in
effect, the Lenders shall be under no obligation to make additional LIBOR Loans,
Continue LIBOR Loans, or to Convert Loans of any other Type of Loans into LIBOR
Loans and Borrower or the applicable Qualified Borrower, as the case may be,
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding LIBOR Loans either prepay such Loans or Convert such Loans into
another Type of Loan in accordance with the terms of this Credit Agreement.

        4.3    ILLEGALITY. Notwithstanding any other provision of this Credit
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund LIBOR


                                       33


Loans hereunder, then such Lender shall promptly notify Borrower or the
applicable Qualified Borrower, as the case may be, thereof and such Lender's
obligation to make or Continue LIBOR Loans and to Convert other Types of Loans
into LIBOR Loans shall be suspended until such time as such Lender may again
make, maintain, and fund LIBOR Loans (in which case the provisions of SECTION
4.4 shall be applicable), provided, however, that such Lender will designate a
different Applicable Lending Office if such designation will resolve such
illegality, and will not, in the good faith judgment of such Lender, be
otherwise disadvantageous to it.

        4.4    TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
make a LIBOR Loan or to Continue, or to Convert Loans of any other Type into
LIBOR Loans shall be suspended pursuant to SECTION 4.1 or SECTION 4.3 hereof,
such Lender's LIBOR Loans shall be automatically Converted into Reference Rate
Loans on the last day(s) of the then current Interest Period(s) for such LIBOR
Loans (or, in the case of a Conversion required by SECTION 4.3 hereof, on such
earlier date as such Lender may specify to Borrower with a copy to
Administrative Agent) and, unless and until such Lender gives notice as provided
below that the circumstances specified in SECTION 4.1 or SECTION 4.3 hereof that
gave rise to such Conversion no longer exist:

               (a)    to the extent that such Lender's LIBOR Loans have been so
        Converted, all payments and prepayments of principal that would
        otherwise be applied to such Lender's LIBOR Loans shall be applied
        instead to its Reference Rate Loans; and

               (b)    all Loans that would otherwise be made or Continued by
        such Lender as LIBOR Loans shall be made instead as Reference Rate
        Loans, and all Loans of such Lender that would otherwise be Converted
        into LIBOR Loans shall remain as Reference Rate Loans.

If such Lender gives notice to Borrower (with a copy to Administrative Agent)
that the circumstances specified in SECTION 4.1 or SECTION 4.3 hereof that gave
rise to the Conversion of such Lender's LIBOR Loans pursuant to this SECTION 4.4
no longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when LIBOR Loans made by other Lenders are
outstanding, such Lender's Reference Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding LIBOR Loans to the extent necessary so that, after giving
effect thereto, all Loans held by the Lenders holding LIBOR Loans and by such
Lender are held pro rata (as to principal amounts, Types, and Interest Periods)
in accordance with their respective Commitments.

        4.5    COMPENSATION. Upon the request of Administrative Agent, Borrower
shall pay to Lenders such amount or amounts as shall be sufficient (in the
reasonable opinion of Administrative Agent, which determination shall, in the
absence of manifest error, be conclusive and binding) to compensate Lenders for
any loss, cost, or expense incurred as a result of:

               (a)    any payment, prepayment, or Conversion of a LIBOR Loan for
        any reason (including, without limitation, the acceleration of the Loans
        pursuant to this Credit Agreement) on a date other than the last day of
        the Interest Period for such Loan, provided, however, that if Borrower
        shall be required to pay any of the foregoing amounts to Lenders due to
        a prepayment pursuant to CLAUSE (b) of SECTION 2.5 as a result of a
        Lender failing to make its Pro Rata Share of any requested Borrowing,
        such defaulting Lender shall reimburse Borrower for such amounts; or


                                       34


               (b)    any failure by Borrower for any reason (including, without
        limitation, the failure of any condition precedent specified in SECTION
        7 to be satisfied) to borrow, Convert, Continue, or prepay a LIBOR Loan
        on the date for such borrowing, Conversion, Continuation, or prepayment
        specified in the relevant notice of borrowing, prepayment, Continuation,
        or Conversion under this Credit Agreement.

        4.6    TAXES.

               (a)    EXCLUDED TAXES. Any and all payments by Borrower to or for
        the account of any Lender or Administrative Agent hereunder or under any
        other Loan Document shall be made free and clear of and without
        deduction for any and all present or future taxes, duties, levies,
        imposts, deductions, charges or withholdings, and all liabilities with
        respect thereto, excluding, in the case of each Lender and
        Administrative Agent, any taxes (including franchise taxes and taxes
        imposed on or measured by net income or profits), by reason of any
        connection between, as applicable, such Lender or Administrative Agent
        and the relevant taxing jurisdiction, including, without limitation, a
        connection arising from such Person being or having been a citizen,
        domiciliary, or resident of such jurisdiction, being organized in such
        jurisdiction, or having had a permanent establishment or fixed place of
        business therein, but excluding a connection arising solely from such
        Person having executed, delivered, performed its obligations or received
        any payment under this Credit Agreement (all such non-excluded taxes,
        duties, levies, imposts, deductions, charges, withholdings, and
        liabilities being hereinafter referred to as "TAXES"). If Borrower shall
        be required by law to deduct any Taxes from or in respect of any sum
        payable under this Credit Agreement or any other Loan Document to any
        Lender or Administrative Agent: (i) the sum payable shall be increased
        as necessary so that after making all required deductions (including
        deductions applicable to additional sums payable under this SECTION 4.6)
        such Lender or Administrative Agent receives an amount equal to the sum
        it would have received had no such deductions been made; (ii) Borrower
        shall make such deductions; (iii) Borrower shall pay the full amount
        deducted to the relevant taxation authority or other authority in
        accordance with applicable law; and (iv) Borrower shall furnish to
        Administrative Agent, at its address for notice under this Credit
        Agreement, the original or a certified copy of a receipt evidencing
        payment thereof.

               (b)    OTHER TAXES. In addition, Borrower agrees to pay any and
        all present or future stamp or documentary taxes and any other excise or
        property taxes or charges or similar levies which arise from any payment
        made under this Credit Agreement or any other Loan Document or from the
        execution or delivery of, or otherwise with respect to, this Credit
        Agreement or any other Loan Document (hereinafter referred to as "OTHER
        TAXES").

               (c)    INDEMNIFICATION. Borrower agrees to indemnify each Lender
        and Administrative Agent for the full amount of Taxes and Other Taxes
        (including, without limitation, any Taxes or Other Taxes imposed or
        asserted by any jurisdiction on amounts payable under this SECTION 4.6)
        paid by such Lender or Administrative Agent (as the case may be) and any
        liability (including penalties, interest, and expenses) arising
        therefrom or with respect thereto.

               (d)    PRESCRIBED FORMS. (i) Each Lender organized under the laws
        of the United States, on or prior to the date of its execution and
        delivery of this Credit Agreement in the case of each


                                       35


        Lender listed on the signature pages hereof and on or prior to the date
        on which it becomes a Lender in the case of each other Lender, and from
        time to time thereafter if requested in writing by Borrower or
        Administrative Agent (but only so long as such Lender remains lawfully
        able to do so), shall provide Borrower and Administrative Agent with two
        duly completed originals of Internal Revenue Service form W-9, or any
        successor form prescribed by the Internal Revenue Service. Each such
        Lender shall also provide to Borrower or Administrative Agent, on or
        before the date that any such form expires or becomes obsolete and
        promptly after the occurrence of any event requiring a change from the
        most recent forms previously delivered by it to Borrower or
        Administrative Agent in accordance with applicable U.S. law and
        regulations, a form W-9, or a successor form, and shall notify promptly
        Borrower and Administrative Agent if it is no longer able to deliver, or
        if it is required to withdraw or cancel, any form or statement
        previously delivered by it pursuant hereto. Each required form shall be
        delivered by the appropriate Lender on or before the date it becomes a
        party to this Credit Agreement, and on or before the date, if any, such
        Lender changes or substitutes its lending office and from time to time
        thereafter as reasonably required by Administrative Agent or Borrower,
        and each Lender agrees to take any required action to keep any such form
        in full force and effect. (ii) Each Lender organized under the laws of a
        jurisdiction outside the United States, on or prior to the date of its
        execution and delivery of this Credit Agreement in the case of each
        Lender listed on the signature pages hereof and on or prior to the date
        on which it becomes a Lender in the case of each other Lender, and from
        time to time thereafter if requested in writing by Borrower or
        Administrative Agent (but only so long as such Lender remains lawfully
        able to do so), shall provide Borrower and Administrative Agent with two
        duly completed original Internal Revenue Service forms W8-ECI or W8-BEN,
        or any successor form prescribed by the Internal Revenue Service. Each
        such Lender shall also provide to Borrower or Administrative Agent, on
        or before the date that any such form expires or becomes obsolete and
        promptly after the occurrence of any event requiring a change from the
        most recent forms previously delivered by it to Borrower or
        Administrative Agent in accordance with applicable U.S. law and
        regulations, a form W8-ECI or W8-BEN, or a successor form, and shall
        notify promptly Borrower and Administrative Agent if it is no longer
        able to deliver, or if it is required to withdraw or cancel, any form or
        statement previously delivered by it pursuant hereto. For any period
        with respect to which a Lender has failed to provide or is unable to
        provide Borrower and Administrative Agent with the appropriate form
        (unless such failure is due to a change in treaty, law, or regulation
        occurring subsequent to the date on which a form originally was required
        to be provided), such Lender shall not be entitled to indemnification
        under SECTIONS 4.6(a) or 4.6(b) with respect to Taxes imposed by the
        United States; provided, however, that should a Lender, which is
        otherwise exempt from withholding tax, become subject to Taxes because
        of its failure to deliver a Prescribed Form required hereunder, Borrower
        shall take such steps as such Lender shall reasonably request to assist
        such Lender to recover such Taxes, so long as such steps do not require
        Borrower to incur any material out-of-pocket expense. Each required form
        shall be delivered by the appropriate Lender on or before the date it
        becomes a party to this Credit Agreement, and on or before the date, if
        any, such Lender changes or substitutes its lending office and from time
        to time thereafter as reasonably required by Administrative Agent or
        Borrower, and each Lender agrees to take any required action to keep any
        such form in full force and effect.

               (e)    SELECTION OF LENDING OFFICE. If Borrower is or is likely
        to be required to pay additional amounts to or for the account of any
        Lender pursuant to this SECTION 4.6, then such Lender will agree to use
        reasonable efforts to change the jurisdiction of its Applicable Lending
        Office so as


                                       36


        to eliminate or reduce any such additional payment which may thereafter
        accrue if such change, in the good faith judgment of such Lender, is not
        otherwise disadvantageous to such Lender.

               (f)    EVIDENCE OF PAYMENT. Within thirty (30) days after the
        date of any payment of Taxes, Borrower shall furnish to Administrative
        Agent the original or a certified copy of a receipt evidencing such
        payment.

               (g)    SURVIVAL OF AGREEMENTS. Without prejudice to the survival
        of any other agreement of Borrower hereunder, the agreements and
        obligations of Borrower contained in this SECTION 4.6 shall survive the
        termination of the Commitments and the payment in full of the
        Obligation.

        SECTION 5. SECURITY

        5.1    LIENS AND SECURITY INTEREST. To secure the payment and
performance of the Obligation: (i) pursuant to a Pledge and Security Agreement,
Guarantor shall grant to Administrative Agent, for the benefit of each Lender,
an exclusive, perfected, first priority security interest in all of the
Collateral described therein, including the Capital Commitments and any rights
to call for and receive payment of Capital Contributions as contemplated by the
Subscription Agreements and the Articles of Incorporation, and to enforce the
payment thereof or any guarantees thereof now existing or hereafter arising;
(ii) pursuant to its Account Assignment, Guarantor shall grant to Administrative
Agent, for the benefit of each Lender, an exclusive, perfected, first priority
security interest in the Guarantor Subscription Account and all of the proceeds
thereof as more fully described in such Account Assignment; (iii) pursuant to
the Pledge Agreement, Guarantor shall grant to Administrative Agent, for the
benefit of each Lender, an exclusive, perfected, first priority security
interest in the Collateral described therein, including all of Guarantor's
interest in Borrower now existing or hereafter arising; (iv) pursuant to a
Pledge and Security Agreement, Borrower shall grant to Administrative Agent, for
the benefit of each Lender, an exclusive, perfected, first priority security
interest in all of the Collateral described therein, including the Capital
Commitments and any rights to call for and receive payment of Capital
Contributions as contemplated by the Subscription Agreements and the Partnership
Agreement, and to enforce the payment thereof or any guarantees thereof now
existing or hereafter arising; (v) pursuant to its Account Assignment, Borrower
shall grant to Administrative Agent, for the benefit of each Lender, an
exclusive, perfected, first priority security interest in the Borrower
Subscription Account and all of the proceeds thereof as more fully described in
such Account Assignment; and (vi) pursuant to the Borrower's Security Agreement,
Borrower shall grant to Administrative Agent, for the benefit of each Lender, an
exclusive, perfected, first priority security interest in its rights to receive
profits and distributions from any subsidiary Affiliate (all of the collateral
described in (i) through (vi) above, collectively, "COLLATERAL").

        5.2    SUBSCRIPTION ACCOUNTS; CAPITAL CALLS.

               (a)    SUBSCRIPTION ACCOUNTS. In order to secure further the
        payment and performance of the Obligation and to effect and facilitate
        Lenders' right of offset: (i) Borrower hereby irrevocably appoints
        Administrative Agent as subscription agent and the sole party entitled
        in the name of Borrower upon the occurrence and during the continuance
        of an Event of Default, to make any Capital Calls upon the Partners
        pursuant to the terms of the applicable Subscription Agreements and the
        Partnership Agreement, and Borrower shall require that all Partners
        wire-transfer to Bank of


                                       37


        America, N.A., San Francisco, CA, ABA#121-000-358, for further credit to
        Account No. 1422303330 reference "AMB Institutional Alliance Fund II,
        L.P. Subscription Account" (the "BORROWER SUBSCRIPTION ACCOUNT"), all
        monies or sums paid or to be paid by any Partner to the capital of
        Borrower as Capital Contributions as and when Capital Contributions are
        called pursuant to the Capital Call Notices; and (ii) Guarantor hereby
        irrevocably appoints Administrative Agent as subscription agent and the
        sole party entitled in the name of Guarantor upon the occurrence and
        during the continuance of an Event of Default, to make any Capital Calls
        upon the Shareholders pursuant to the terms of the applicable
        Subscription Agreements and the Guarantor's Constituent Documents, and
        shall require that all Shareholders wire-transfer to Bank of America,
        N.A., San Francisco, CA, ABA#121-000-358, for further credit to Account
        No. 1422103331 reference "AMB Institutional Alliance REIT II, Inc.
        Subscription Account" (the "GUARANTOR SUBSCRIPTION ACCOUNT"), all monies
        or sums paid or to be paid by any Shareholder to the capital of
        Guarantor as Capital Contributions as and when Capital Contributions are
        called pursuant to the Capital Call Notices. In addition, each of
        Guarantor and Borrower shall, upon receipt, deposit in the applicable
        Subscription Account described above, any payments and monies that
        Borrower or Guarantor receives directly from its Partners or
        Shareholders, as applicable, as Capital Contributions.

               (b)    NO DUTY. Notwithstanding anything to the contrary herein
        contained, it is expressly understood and agreed that neither
        Administrative Agent, Letter of Credit Issuer, nor any Lender undertakes
        any duties, responsibilities, or liabilities with respect to Capital
        Calls. None of them shall be required to refer to the Constituent
        Documents of Borrower or Guarantor or take any other action with respect
        to any other matter which might arise in connection with such
        Constituent Documents or the Subscription Agreements, or any Capital
        Call. None of them shall have any duty to determine or inquire into any
        happening or occurrence or any performance or failure of performance of
        any Credit Party or any Investor. None of them has any duty to inquire
        into the use, purpose, or reasons for the making of any Capital Call or
        with respect to the investment or the use of the proceeds thereof.

               (c)    CAPITAL CALLS. In order that Lenders may monitor the
        Collateral and the Capital Commitments, neither Borrower nor Guarantor
        shall issue any Capital Call Notice or otherwise request, notify, or
        demand that any Investor make any Capital Contribution, without
        delivering to Administrative Agent (which delivery may be via facsimile)
        simultaneously with delivery of the Capital Call Notices to any
        Investors ("CAPITAL CALL NOTICE DATE"), copies of the Capital Call
        Notice for each Investor from whom a Capital Contribution is being
        sought. Any attempted Capital Call Notice by Borrower or Guarantor other
        than in the manner contemplated above shall be void with respect to
        Borrower's and Guarantor's obligations under this SECTION 5.2(c) or the
        other Loan Documents.

               (d)    USE OF ACCOUNT; CAPITAL CALLS BY ADMINISTRATIVE AGENT.
        Borrower may withdraw funds from the Subscription Account at any time or
        from time to time, so long as after giving effect to such withdrawal or
        disbursement: (i) there does not exist an Event of Default; (ii) there
        does not exist a Potential Default under SECTIONS 11.1(a), 11.1(i), or
        11.1(j) hereof; and (iii) the Principal Obligation does not exceed the
        Available Commitment (unless, in the latter case, Borrower has directed
        that such disbursement be paid to Administrative Agent to repay such
        excess).


                                       38


               Borrower and Guarantor hereby irrevocably authorize and direct
        Lenders, acting through Administrative Agent, to charge from time to
        time the Subscription Account and any other accounts of Borrower or
        Guarantor at any Lender for amounts not paid when due (after the passage
        of any applicable grace period) to Lenders or any of them hereunder and
        under the Notes, provided, however, that promptly after any disbursement
        of funds from any such account to Lenders, as contemplated in this
        SECTION 5.2(d), Administrative Agent shall deliver a written notice of
        such disbursement to Borrower. Administrative Agent, on behalf of
        Lenders, is hereby authorized, in the name of Lenders or the name of
        Borrower or Guarantor, at any time or from time to time upon the
        occurrence and while an Event of Default exists, to notify any or all
        parties obligated to Borrower or Guarantor with respect to the Capital
        Commitments to make all payments due or to become due thereon directly
        to Administrative Agent on behalf of Lenders, at a different account
        number, or to initiate one or more Capital Call Notices in order to pay
        the Obligation. With or without such general notification, when an Event
        of Default exists, Administrative Agent, on behalf of Lenders: (i) may
        make Capital Calls in the name of Borrower or Guarantor, as applicable;
        (ii) may take or bring in Borrower's name or Guarantor's name or that of
        Lenders all steps, actions, suits, or proceedings deemed by
        Administrative Agent necessary or desirable to effect possession or
        collection of Capital Commitments; (iii) may complete any contract or
        agreement of Borrower or Guarantor in any way related to any of the
        Capital Commitments; (iv) may make allowances or adjustments related to
        the Capital Commitments; (v) may compromise any claims related to the
        Capital Commitments; (vi) may issue credit in its own name or the name
        of Borrower or Guarantor; or (vii) may exercise any right, privilege,
        power, or remedy provided to Borrower or Guarantor under the Constituent
        Documents of either, or the Subscription Agreements or relating to the
        right to call for Capital Contributions and to receive Capital Calls.
        Regardless of any provision hereof, in the absence of gross negligence
        or willful misconduct by Administrative Agent or Lenders, none of
        Administrative Agent or Lenders shall ever be liable for failure to
        collect or for failure to exercise diligence in the collection,
        possession, or any transaction concerning, all or part of the Capital
        Call Notices, Capital Commitments, or any Capital Contributions, or sums
        due or paid thereon, nor shall they be under any obligation whatsoever
        to anyone by virtue of the security interests and liens relating to the
        Capital Call Notices, Capital Commitments or any Capital Contributions.
        Administrative Agent shall give Borrower prompt notice of any action
        taken pursuant to this SECTION 5.2(d), but failure to give such notice
        shall not affect the validity of such action or give rise to any defense
        in favor of Borrower with respect to such action.

               (e)    Event of Default. During the existence of an Event of
        Default, issuance by Administrative Agent on behalf of Lenders of a
        receipt to any Person obligated to pay any Capital Contribution to
        Borrower shall be a full and complete release, discharge, and
        acquittance to such Person to the extent of any amount so paid to
        Administrative Agent for the benefit of Lenders. Administrative Agent,
        on behalf of Lenders, is hereby authorized and empowered, during the
        existence of an Event of Default, on behalf of Borrower or Guarantor, to
        endorse the name of Borrower or Guarantor upon any check, draft,
        instrument, receipt, instruction, or other document or items, including,
        but not limited to, all items evidencing payment upon a Capital
        Contribution of any Person to Borrower or Guarantor coming into
        Administrative Agent's possession, and to receive and apply the proceeds
        therefrom in accordance with the terms hereof. Administrative Agent on
        behalf of Lenders is hereby granted an irrevocable power of attorney,
        which is coupled with an interest, to execute all checks, drafts,
        receipts, instruments, instructions, or other documents, agreements, or
        items on behalf of Borrower or Guarantor, either before or after demand
        of payment on the


                                       39


        Obligation but only during the existence of an Event of Default, as
        shall be deemed by Administrative Agent to be necessary or advisable, in
        the sole discretion, reasonably exercised, of Administrative Agent, to
        protect the security interests and liens in the Capital Commitments or
        the repayment of the Obligation, and neither Administrative Agent nor
        Lenders shall incur any liability, in the absence of gross negligence or
        willful misconduct, in connection with or arising from its exercise of
        such power of attorney.

               The application by Lenders of such funds shall, unless
        Administrative Agent shall agree otherwise in writing, be the same as
        set forth in SECTION 3.4. Borrower acknowledges that all funds so
        transferred into the Subscription Accounts shall be the property of
        Borrower.

               (f)    NO REPRESENTATIONS. Neither Agents nor Lenders shall be
        deemed to make at any time any representation or warranty as to the
        validity of any Capital Call Notice nor shall Agents or Lenders be
        accountable for Borrower's use of the proceeds of any Capital Call
        Notice.

        5.3    LENDER OFFSET. In addition to the rights granted to
Administrative Agent and Lenders under SECTION 5.2(a) hereof, each of Borrower
and each Qualified Borrower hereby grants to each Lender a right of offset, to
secure repayment of the Obligation, upon any and all monies, securities, or
other property of Borrower or such Qualified Borrower and the proceeds
therefrom, now or hereafter held or received by or in transit to Lenders, from
or for the account of Borrower or such Qualified Borrower, whether for
safekeeping, custody, pledge, transmission, collection, or otherwise, and also
upon any and all deposits (general or specified) and credits of Borrower or such
Qualified Borrower, and any and all claims of Borrower or such Qualified
Borrower against Lenders at any time existing. Lenders are hereby authorized at
any time and from time to time during the existence of an Event of Default,
without notice to Borrower or such Qualified Borrower, to offset, appropriate,
apply, and enforce such right of offset against any and all items hereinabove
referred to against the Obligation. Borrower shall be deemed directly indebted
to Lenders, in the full amount of the Obligation, and Lenders shall be entitled
to exercise the rights of offset provided for above. Administrative Agent shall
give Borrower prompt notice of any action taken pursuant to this SECTION 5.3,
but failure to give such notice shall not affect the validity of such action or
give rise to any defense in favor of Borrower with respect to such action

        5.4    AGREEMENT TO DELIVER ADDITIONAL COLLATERAL DOCUMENTS. Borrower
shall deliver such security agreements, financing statements, assignments, and
other collateral documents (all of which shall be deemed part of the Collateral
Documents), in form and substance reasonably satisfactory to Administrative
Agent, as Administrative Agent acting on behalf of Lenders may reasonably
request from time to time for the purpose of granting to, or maintaining or
perfecting in favor of Lenders, first and exclusive security interests in any of
the Capital Call Notices, Capital Commitments, together with other assurances of
the enforceability and priority of Lenders' liens and assurances of due
recording and documentation of the Collateral Documents or copies thereof, as
Administrative Agent may reasonably require to avoid material impairment of the
liens and security interests granted or purported to be granted pursuant to this
SECTION 5.

        5.5    SUBORDINATION OF ALL CREDIT PARTY CLAIMS. As used herein, the
term "CREDIT PARTY CLAIMS" means all debts and liabilities of any Partner to
Borrower or any Shareholder to Guarantor, whether such debts and liabilities now
exist or are hereafter incurred or arise, or whether the obligations of such
Person thereon be direct, contingent, primary, secondary, several, joint and
several, or otherwise, and


                                       40


irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the Person or Persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Borrower, a Qualified Borrower, or Guarantor. Credit Party Claims
shall include without limitation all rights and claims of Borrower, any
Qualified Borrower, or Guarantor against an Investor under the Constituent
Documents of such Person or under the Subscription Agreements.

        At any time that the Principal Obligation exceeds the Available
Commitment, and until the mandatory prepayment pursuant to SECTION 2.1(d) hereof
in connection therewith, if any, shall be paid and satisfied in full, and,
during the existence and continuation of an Event of Default, neither Borrower,
any Qualified Borrower, nor Guarantor shall receive or collect, directly or
indirectly any amount upon the Credit Party Claims, other than to obtain funds
required to make any mandatory prepayment pursuant to SECTION 2.1(d).

        Any liens, security interests, judgment liens, charges, or other
encumbrances upon an Investor's assets securing payment of Credit Party Claims,
including, but not limited to, any liens or security interests on an Investor's
Partnership Interest in Borrower, or an Investor's Capital Stock in Guarantor,
shall be and remain inferior and subordinate in right and payment to any liens,
security interests, judgment liens, charges, or other encumbrances upon an
Investor's assets securing such Investor's obligations and liabilities to
Lenders pursuant to any of the Collateral Documents executed by such Investor,
regardless of whether such encumbrances in favor of Borrower, a Qualified
Borrower, Guarantor or Lenders presently exist or are hereafter created or
attach. Without the prior written consent of Administrative Agent, none of
Borrower, any Qualified Borrower, nor Guarantor shall: (a) exercise or enforce
any creditor's or partnership right it may have against an Investor; (b)
foreclose, repossess, sequester, or otherwise take steps or institute any action
or proceedings (judicial or otherwise, including without limitation, the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor's relief, or insolvency proceeding) to enforce any liens, mortgages,
deeds of trust, security interest, collateral rights, judgments or other
encumbrances on assets of such Investor held by such Person; or (c) exercise any
rights or remedies against an Investor under the Constituent Documents of such
Person or the Subscription Agreements.

SECTION 6. GUARANTY

        6.1    GUARANTY OF PAYMENT. Subject to the limitation set forth below,
Guarantor hereby unconditionally guarantees to each Lender, the Letter of Credit
Issuer, and Administrative Agent the prompt payment of the Obligation in full
when due (whether at stated maturity, as a mandatory prepayment, by acceleration
or otherwise) and the timely performance of all other obligations under this
Credit Agreement and the other Loan Documents. This Guaranty is a guaranty of
payment and not of collection and is a continuing guaranty and shall apply to
the entire Obligation whenever arising. Notwithstanding any provision to the
contrary contained herein or in any of the other Loan Documents, to the extent
the obligations of Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of Guarantor hereunder shall be limited to the maximum amount that
is permissible under applicable law (whether federal or state or otherwise and
including, without limitation, Debtor Relief Laws).

        6.2    OBLIGATIONS UNCONDITIONAL. The obligations of Guarantor hereunder
are absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Loan


                                       41


Documents or any other agreement or instrument referred to therein, to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor. Guarantor agrees that this
Guaranty may be enforced by the Lenders without the necessity at any time of
resorting to or exhausting any other security or collateral and without the
necessity at any time of having recourse to the Notes or any other of the Loan
Documents or any collateral, if any, hereafter securing the Obligation or
otherwise and Guarantor hereby waives the right to require the Lenders to
proceed against Borrower or any other Person (including a co-guarantor) or to
require the Lenders to pursue any other remedy or enforce any other right.
Guarantor further agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against Borrower or any other Guarantor of the
Obligation for amounts paid under this Guaranty until such time as the Lenders
have been paid in full, all Commitments under this Credit Agreement have been
terminated and no Person or Governmental Authority shall have any right to
request any return or reimbursement of funds from the Lenders in connection with
monies received under the Loan Documents. Guarantor further agrees that nothing
contained herein shall prevent the Lenders from suing on the Notes or any of the
other Loan Documents or foreclosing its security interest in or Lien on any
collateral, if any, securing the Obligation or from exercising any other rights
available to it under this Credit Agreement, the Notes, any other of the Loan
Documents, or any other instrument of security, if any, and the exercise of any
of the aforesaid rights and the completion of any foreclosure proceedings shall
not constitute a discharge of Guarantor's obligations hereunder; it being the
purpose and intent of Guarantor that, subject to Guarantor's rights to raise
defenses to payment that would be available to it if Guarantor was named as a
"BORROWER" hereunder rather than as Guarantor, its obligations hereunder shall
be absolute, independent and unconditional under any and all circumstances.
Neither Guarantor's obligations under this Guaranty nor any remedy for the
enforcement thereof shall be impaired, modified, changed or released in any
manner whatsoever by an impairment, modification, change, release or limitation
of the liability of Borrower or Guarantor or by reason of the bankruptcy or
insolvency of Borrower or Guarantor. Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligation and notice of
or proof of reliance by any Agent or any Lender on this Guaranty or acceptance
of this Guaranty. The Obligation, and any part of it, shall conclusively be
deemed to have been created, contracted or incurred, or renewed, extended,
amended or waived, in reliance upon this Guaranty. All dealings between Borrower
and Guarantor, on the one hand, and Administrative Agent, the Letter of Credit
Issuer, and the Lenders, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this Guaranty.
Guarantor further agrees to all rights of set-off as set forth in SECTION 5.3.
Guarantor hereby subordinates to the Obligation all debts, liabilities and other
obligations, whether direct, indirect, primary, secondary, several, joint and
several or otherwise, and irrespective of whether such debts, liabilities and
obligations be evidenced by note, contract, open account, book entry or
otherwise, owing by Borrower to Guarantor, provided, however that Borrower may
make distributions consistent with the terms of SECTION 10.10.

        6.3    MODIFICATIONS. Guarantor agrees that: (a) all or any part of the
Collateral now or hereafter held for the Obligation, if any, may be exchanged,
compromised or surrendered from time to time; (b) none of the Lenders, Letter of
Credit Issuer, and Administrative Agent shall have any obligation to protect,
perfect, secure or insure any such security interests, liens or encumbrances now
or hereafter held, if any, for the Obligation or the properties subject thereto;
(c) the time or place of payment of the Obligation may be changed or extended,
in whole or in part, to a time certain or otherwise, and may be renewed or
accelerated, in whole or in part; (d) Borrower and any other party liable for
payment under the Loan Documents may be granted indulgences generally; (e) any
of the provisions of the Notes or any of the other Loan Documents


                                       42


may be modified, amended or waived; (f) any party (including any co-guarantor)
liable for the payment thereof may be granted indulgences or be released; and
(g) any deposit balance for the credit of Borrower or any other party liable for
the payment of the Obligation or liable upon any security therefor may be
released, in whole or in part, at, before or after the stated, extended or
accelerated maturity of the Obligation, all without notice to or further assent
by Guarantor, which shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration, modification,
indulgence or release.

        6.4    WAIVER OF RIGHTS. Guarantor expressly waives to the fullest
extent permitted by applicable law: (a) notice of acceptance of this Guaranty by
the Lenders and of all extensions of credit to Borrower by the Lenders; (b)
presentment and demand for payment or performance of any of the Obligation; (c)
protest and notice of dishonor or of default (except as specifically required in
this Credit Agreement) with respect to the Obligation or with respect to any
security therefor; (d) notice of the Lenders obtaining, amending, substituting
for, releasing, waiving or modifying any security interest, lien or encumbrance,
if any, hereafter securing the Obligation, or the Lenders' subordinating,
compromising, discharging or releasing such security interests, liens or
encumbrances, if any; and (e) all other notices to which Guarantor might
otherwise be entitled.

        6.5    REINSTATEMENT. The obligations of Guarantor under this SECTION 6
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of any Person in respect of the Obligation is rescinded
or must be otherwise restored by any holder of any of the Obligation, whether as
a result of any proceedings in bankruptcy or reorganization or otherwise, and
Guarantor agrees that it will indemnify Administrative Agent, the Letter of
Credit Issuer, and each Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by such
Person in connection with such rescission or restoration, including any such
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency or similar law.

        6.6    REMEDIES. Guarantor agrees that, as between Guarantor, on the one
hand, and Administrative Agent, the Letter of Credit Issuer, and the Lenders, on
the other hand, the Obligation may be declared to be forthwith due and payable
as provided in SECTION 11.2 (and shall be deemed to have become automatically
due and payable in the circumstances provided in SECTION 11.2) notwithstanding
any stay, injunction or other prohibition preventing such declaration (or
preventing such Obligation from becoming automatically due and payable) as
against any other Person and that, in the event of such declaration (or such
Obligation being deemed to have become automatically due and payable), such
Obligation (whether or not due and payable by any other Person) shall forthwith
become due and payable by Guarantor. Guarantor acknowledges and agrees that its
obligations hereunder are secured in accordance with the terms of the Collateral
Documents and that the Lenders may exercise their remedies thereunder in
accordance with the terms thereof.

        6.7    SUBROGATION. Guarantor agrees that, until the Obligation is paid
in full in cash, it will not exercise, and hereby waives, any right of
reimbursement, subrogation, contribution, offset or other claims against
Borrower arising by contract or operation of law in connection with any payment
made or required to be made by Guarantor under this Credit Agreement or the
other Loan Documents. After the indefeasible payment in full in cash of the
Obligation (other than any part of the Obligation that represents contingent
contractual indemnities), Guarantor shall be entitled to exercise against
Borrower all such rights of


                                       43


reimbursement, subrogation, contribution, and offset, and all such other claims,
to the fullest extent permitted by law.

SECTION 7. CONDITIONS PRECEDENT TO LENDING

        7.1    OBLIGATION OF LENDERS. The obligation of Lenders to honor the
terms and conditions herein is subject to Administrative Agent's receipt of the
following (and subject further to the proviso set forth at the end of this
Section 7.1):

               (a)    CREDIT AGREEMENT. This Credit Agreement, duly executed and
        delivered by Borrower;

               (b)    NOTES. A Note for each Lender that has requested one, duly
        executed and delivered by Borrower;

               (c)    SECURITY AGREEMENTS. (i) The Borrower's Security
        Agreement, duly executed and delivered by Borrower; (ii) the Pledge
        Agreement, duly executed and delivered by Guarantor; and (iii) the
        Pledge and Security Agreements, duly executed and delivered by each of
        Borrower and Guarantor;

               (d)    ACCOUNT DOCUMENTS. The Account Assignments, duly executed
        and delivered by Borrower and Guarantor, as applicable;

               (e)    FINANCING STATEMENTS.

                      (i) searches of Uniform Commercial Code ("UCC") filings
               (or their equivalent) in each jurisdiction where any Collateral
               is located or where a filing has been or would need to be made in
               order to perfect the Lenders' security interest in the
               Collateral, copies of the financing statements on file in such
               jurisdictions and evidence that no Liens exist, or, if necessary,
               copies of proper financing statements, if any, filed on or before
               the date hereof necessary to terminate all security interests and
               other rights of any Person in any Collateral previously granted;
               and

                      (ii) duly executed UCC financing statements, and any
               amendments thereto, for each appropriate jurisdiction as is
               necessary, in the Administrative Agent's sole discretion, to
               perfect the Lenders' security interest in the Collateral;

               (f)    BORROWER'S PARTNERSHIP DOCUMENTS. True and complete copies
        of the Partnership Documents of Borrower as in effect on the date
        hereof;

               (g)    GENERAL PARTNER'S FORMATION DOCUMENTS. True and complete
        copies of: (i) the Partnership Documents of General Partner, and (ii)
        Constituent Documents of AMB Property Corporation, the general partner
        of General Partner, together with certificates of existence and good
        standing (or other similar instruments) of General Partner and AMB
        Property Corporation, in each case as in effect on the date hereof;


                                       44


               (h)    GUARANTOR'S FORMATION DOCUMENTS. True and complete copies
        of the Constituent Documents of Guarantor together with certificates of
        existence and good standing (or other similar instruments) as requested
        by Administrative Agent and its counsel, in each case as in effect on
        the date hereof;

               (i)    INCUMBENCY CERTIFICATE. From each Credit Party, a signed
        certificate of a Responsible Officer, who shall certify the names of the
        Persons authorized, on the date hereof, to sign each of the Loan
        Documents and the other documents or certificates to be delivered
        pursuant to the Loan Documents on behalf of such Credit Party, together
        with the true signatures of each such Person. Administrative Agent may
        conclusively rely on such certificate until it shall receive a further
        certificate canceling or amending the prior certificate and submitting
        the signatures of the Persons named in such further certificate;

               (j)    OPINIONS OF COUNSEL. (i) A favorable opinion of Goodwin
        Procter, LLP, counsel to the Credit Parties; and (ii) an opinion of
        Ballard Spahr Andrews & Ingersoll, LLP, Maryland counsel to Guarantor;
        covering such matters relating to the transactions contemplated hereby
        as reasonably requested by Administrative Agent, and substantially in a
        form acceptable to Administrative Agent. Each Credit Party hereby
        requests such counsel to deliver such opinions;

               (k)    ERISA OPINIONS. Written opinions of Goodwin Procter, LLP,
        counsel to the Credit Parties concerning the status of Borrower and
        Guarantor as an Operating Company and that neither the execution,
        delivery or performance of the Investor Letters nor any of the
        transactions contemplated by the Loan Documents will constitute a
        non-exempt prohibited transaction (as such term is defined in Section
        4975 of the Internal Revenue Code or Section 406 of ERISA), and covering
        such other matters relating to ERISA or the Internal Revenue Code as
        Administrative Agent or the Required Lenders shall reasonably request.
        Each Credit Party hereby requests such counsel to deliver such opinions;

               (l)    INVESTOR DOCUMENTS. From each Investor, a duly executed
        Investor Letter, and a copy of such Investor's duly executed
        Subscription Agreement; and, from each non-Included Investor, such
        evidence of authority to enter into the Partnership Agreement, or its
        Subscription Agreement, and to execute the Investor Letter, as
        Administrative Agent reasonably requests. Such Investor Letters may be
        executed by Borrower or Guarantor pursuant to powers of attorney granted
        by the Investors;

               (m)    INVESTOR OPINIONS. An Investor Opinion from counsel to
        each Included Investor, substantially in the form of EXHIBIT L attached
        hereto. If an Investor Letter is executed by Borrower or Guarantor
        pursuant to a power of attorney, Administrative Agent may require that
        such opinion include an opinion as to the enforceability of such
        Investor Letter signed pursuant to such power of attorney in such form
        as Administrative Agent may reasonably require. For each Included
        Investor that is: (i) organized under the laws of any jurisdiction other
        than the United States of America or any state thereof; or (ii) a
        Governmental Authority or an instrumentality of a Governmental Authority
        or majority-owned by a Governmental Authority or otherwise entitled to
        any immunity in respect of any litigation in any jurisdiction, court or
        venue, such Investor Opinion shall, among other things, cover the
        matters described in SECTION 9.17, as applicable, and Administrative
        Agent shall have received in


                                       45


        respect of such Investor the submission to jurisdiction or waiver or any
        immunity described in such SECTION, as applicable;

               (n)    FEES; COSTS AND EXPENSES. Payment of all fees and other
        amounts due and payable on or prior to the date hereof, including
        pursuant to the Fee Letter, and, to the extent invoiced, reimbursement
        or payment of all reasonable expenses required to be reimbursed or paid
        by Borrower hereunder, including the reasonable fees and disbursements
        invoiced through the date hereof of Administrative Agent's special
        counsel, Haynes and Boone, L.L.P.;

               (o)    ADDITIONAL INFORMATION. Such other information and
        documents as may reasonably be required by Administrative Agent and its
        counsel;

        PROVIDED, HOWEVER, that Administrative Agent acknowledges that the
        conditions precedent set forth in subsections (c), (d), (e), (f), (g),
        (h), (i) and (k) were satisfied in connection with the closing of the
        Existing Credit Agreement.

        7.2    ALL LOANS AND LETTERS OF CREDIT. The obligation of Lenders to
advance each Borrowing (including without limitation the initial Borrowing) or
to cause the issuance of Letters of Credit (including, without limitation, the
initial Letter of Credit) hereunder is subject to the conditions that:

               (a)    REPRESENTATIONS AND WARRANTIES. The representations and
        warranties set forth in SECTION 8 hereof are true and correct in all
        material respects on and as of the date of the advance of such Borrowing
        or issuance of such Letter of Credit, with the same force and effect as
        if made on and as of such date (except to the extent of changes in facts
        or circumstances that have been disclosed to Lenders and do not
        constitute an Event of Default or a Potential Default under this Credit
        Agreement or any other Loan Document);

               (b)    NO DEFAULT. No event shall have occurred and be
        continuing, or would result from the Borrowing or the issuance of the
        Letter of Credit, which constitutes an Event of Default or a Potential
        Default;

               (c)    REQUEST FOR BORROWING. Administrative Agent shall have
        received a Request for Borrowing or Request for Letter of Credit; and

               (d)    APPLICATION. In the case of a Letter of Credit, the Letter
        of Credit Issuer shall have received an Application and Agreement for
        Letter of Credit executed by Borrower and shall have countersigned the
        same.

        7.3    QUALIFIED BORROWER LOANS AND LETTERS OF CREDIT. The obligation of
Lenders to advance a Borrowing to a Qualified Borrower or to cause the issuance
of a Letter of Credit for a Qualified Borrower is subject to the conditions
that:

               (a)    QUALIFIED BORROWER PROMISSORY NOTE. Administrative Agent
        shall have received a duly executed Qualified Borrower Promissory Note
        or Qualified Borrower Letter of Credit Note, as applicable, complying
        with the terms and provisions hereof;


                                       46


               (b)    AUTHORIZATIONS OF QUALIFIED BORROWER. Administrative Agent
        shall have received from the Qualified Borrower appropriate evidence of
        the authorization of the Qualified Borrower approving the execution,
        delivery and performance of the Qualified Borrower Promissory Note or
        the Qualified Borrower Letter of Credit Note, duly adopted by Qualified
        Borrower, as required by law or agreement, and accompanied by a
        certificate of an authorized Person of such Qualified Borrower stating
        that such authorizations are true and correct, have not been altered or
        repealed and are in full force and effect;

               (c)    INCUMBENCY CERTIFICATE. Administrative Agent shall have
        received from the Qualified Borrower a signed certificate of the
        appropriate Person of the Qualified Borrower which shall certify the
        names of the Persons authorized to sign the Qualified Borrower
        Promissory Note and the other documents or certificates to be delivered
        pursuant to the terms hereof by such Qualified Borrower, together with
        the true signatures of each such Person;

               (d)    BORROWER GUARANTY. Administrative Agent shall have
        received from Borrower a duly executed Borrower Guaranty complying with
        the terms and provisions hereof;

               (e)    OPINION OF COUNSEL TO QUALIFIED BORROWER. Administrative
        Agent shall have received a favorable opinion of counsel for the
        Qualified Borrower, in form and substance satisfactory to Administrative
        Agent and addressed to Administrative Agent, that: (i) the Qualified
        Borrower is duly organized and validly existing under the laws of the
        state of its formation; (ii) the subject Note, and, if applicable, the
        Application and Agreement for Letter of Credit, has been duly
        authorized, executed and delivered by the Qualified Borrower; (iii) the
        subject Note and, if applicable, the Application and Agreement for
        Letter of Credit, is a valid and binding obligation and agreement of
        such Qualified Borrower, enforceable in accordance with its terms,
        except to the extent that it may be limited by bankruptcy, insolvency,
        moratorium and other laws affecting creditors' rights generally, by
        general equitable principles, or by applicable laws or judicial
        decisions which may qualify or limit certain rights, remedies or
        provisions contained therein but which, in the opinion of such counsel,
        will not materially interfere with the practical realization of the
        security intended to be provided thereby except for the economic
        consequences of any procedural delay which may result therefrom; and
        (iv) neither the execution nor delivery by Qualified Borrower of the
        subject Note, and, if applicable, the Application and Agreement for
        Letter of Credit, the performance by such Qualified Borrower of its
        obligations thereunder, nor the compliance by Qualified Borrower with
        the terms and provisions thereof, will: (A) contravene any provision of
        the general corporate law, or, if Qualified Borrower is a partnership or
        another type of entity, the general partnership law or applicable law
        governing such entity, of the state of formation of such Qualified
        Borrower, or the laws, statutes, rules or regulations of the State of
        New York or the United States of America to which Qualified Borrower is
        subject, or conflict with, or result in any breach of, any material
        agreement, mortgage, indenture, deed of trust or other instrument known
        to counsel to which Qualified Borrower or its properties may be subject,
        or result in the creation of any mortgage, lien, pledge or encumbrance
        in respect of any properties of Qualified Borrower; (B) contravene any
        judgment, decree, license, order or permit applicable to Qualified
        Borrower; or (C) violate any provision of the organizational documents
        of Qualified Borrower. Each Qualified Borrower hereby directs its
        counsel to prepare and deliver such legal opinion to Administrative
        Agent for the benefit of Lenders;


                                       47


               (f)    OPINION OF COUNSEL TO BORROWER. Administrative Agent shall
        have received a favorable opinion of counsel for Borrower, in form and
        substance satisfactory to Administrative Agent and addressed to
        Administrative Agent, that the subject Borrower Guaranty: (i) has been
        duly authorized, executed and delivered by Borrower, and (ii) is a valid
        and binding obligation and agreement of Borrower, enforceable in
        accordance with its terms, except to the extent that it may be limited
        by bankruptcy, insolvency, moratorium and other laws affecting
        creditors' rights generally, by general equitable principles, or by
        applicable laws or judicial decisions which may qualify or limit certain
        rights, remedies or provisions contained therein but which, in the
        opinion of such counsel, will not materially interfere with the
        practical realization of the security intended to be provided thereby
        except for the economic consequences of any procedural delay which may
        result therefrom. Borrower hereby directs such counsel to prepare and
        deliver such legal opinion to Administrative Agent for the benefit of
        Lenders; and

               (g)    ADDITIONAL INFORMATION. Administrative Agent shall have
        received such other information and documents as may reasonably be
        required by Administrative Agent and its counsel.

SECTION 8. REPRESENTATIONS AND WARRANTIES.

        To induce Lenders to make the Loans and cause the issuance of Letters of
Credit hereunder, Borrower represents and warrants to Lenders that:

        8.1    ORGANIZATION AND GOOD STANDING OF BORROWER. Borrower is a limited
partnership duly organized and existing under the laws of the State of Delaware,
has the requisite limited partnership power and authority to own its properties
and assets and to carry on its business as now conducted, and is qualified to do
business in each jurisdiction where the nature of the business conducted or the
property owned or leased requires such qualification or where the failure to be
so qualified to do business would have a Material Adverse Effect.

        8.2    ORGANIZATION AND GOOD STANDING OF GENERAL PARTNER. General
Partner is a limited partnership duly organized and existing under the laws of
the State of Delaware, has the requisite limited partnership power and authority
to own its properties and assets and to carry on its business as now conducted,
and is qualified to do business in each jurisdiction where the nature of the
business conducted or the property owned or leased requires such qualification
or where the failure to be so qualified to do business would have a Material
Adverse Effect.

        8.3    ORGANIZATION AND GOOD STANDING OF GUARANTOR. Guarantor is a
corporation duly organized, validly existing, and in good standing under the
laws of Maryland, has the requisite limited corporate power and authority to own
its properties and assets and to carry on its business as now conducted, and is
qualified to do business in each jurisdiction where the nature of the business
conducted or the property owned or leased requires such qualification or where
the failure to be so qualified to do business would have a Material Adverse
Effect.

        8.4    AUTHORIZATION AND POWER. Borrower and Guarantor have the
partnership and corporate power, as applicable, and requisite authority to
execute, deliver, and perform their respective obligations under this Credit
Agreement, the Notes, and the other Loan Documents to be executed by it; each of
Borrower and


                                       48


Guarantor are duly authorized to, and have taken all partnership and corporate
action, as applicable, necessary to authorize each of them to execute, deliver,
and perform their respective obligations under this Credit Agreement, the Notes,
and such other Loan Documents and are and will continue to be duly authorized to
perform their respective obligations under this Credit Agreement, the Notes, and
such other Loan Documents.

        8.5    NO CONFLICTS OR CONSENTS. None of the execution and delivery of
this Credit Agreement, the Notes, or the other Loan Documents, the consummation
of any of the transactions herein or therein contemplated, or the compliance
with the terms and provisions hereof or with the terms and provisions thereof,
will contravene or conflict, in any material respect, with any provision of law,
statute, or regulation to which Borrower or Guarantor is subject or any
judgment, license, order, or permit applicable to Borrower or Guarantor or any
indenture, mortgage, deed of trust, or other agreement or instrument to which
Borrower or Guarantor is a party or by which Borrower or Guarantor may be bound,
or to which Borrower or Guarantor may be subject. No consent, approval,
authorization, or order of any court or Governmental Authority or third party is
required in connection with the execution and delivery by Borrower and Guarantor
of the Loan Documents or to consummate the transactions contemplated hereby or
thereby.

        8.6    ENFORCEABLE OBLIGATIONS. This Credit Agreement, the Notes and the
other Loan Documents to which it is a party are the legal and binding
obligations of each of Borrower and Guarantor enforceable in accordance with
their respective terms, subject to Debtor Relief Laws and equitable principles.

        8.7    PRIORITY OF LIENS. The Collateral Documents create, as security
for the Obligation and the Investor REIT Obligation, as applicable, valid and
enforceable, exclusive, first priority security interests in and Liens on all of
the Collateral in which Borrower or Guarantor has any right, title or interest,
in favor of Administrative Agent for the benefit of Lenders, subject to no other
Liens, except as enforceability may be limited by Debtor Relief Laws and
equitable principles. Such security interests in and Liens on the Collateral in
which Borrower or Guarantor has any right ,title, or interest shall be superior
to and prior to the rights of all third parties in such Collateral, and, other
than in connection with any future change in Borrower's or Guarantor's name,
identity or structure, or the location of its chief executive office, no further
recordings or filings are or will be required in connection with the creation,
perfection or enforcement of such security interests and Liens, other than the
filing of continuation statements in accordance with applicable law. Each Lien
referred to in this SECTION 8.7 is and shall be the sole and exclusive Lien on
the Collateral in which Borrower or Guarantor has any right, title or interest.

        8.8    FINANCIAL CONDITION. (a) Borrower has delivered to Administrative
Agent the most-recently available copies of the financial statements and reports
described in SECTION 9.1 hereof, and copies of its pro forma balance sheet as of
June 30, 2001. Such statements fairly present, in all material respects, the
financial condition of Borrower as of the applicable date of delivery, and have
been prepared in accordance with Generally Accepted Accounting Principles,
except as provided therein; and (b) as of the Closing Date, after giving effect
to this Credit Agreement, Guarantor has no material liabilities, absolute or
contingent, matured or unmatured, other than its obligations under this Credit
Agreement, the other Loan Documents, the Subscription Agreements, and its
obligations as a limited partner of Borrower.

        8.9    FULL DISCLOSURE. There is no material fact that Borrower or
Guarantor has not disclosed to Administrative Agent in writing which could have
a Material Adverse Effect. All information heretofore


                                       49


furnished by Borrower, General Partner, or Guarantor in connection with this
Credit Agreement, the other Loan Documents or any transaction contemplated
hereby is, and all such information hereafter furnished will be, true and
correct in all material respects on the date as of which such information is
stated or deemed stated.

        8.10   NO DEFAULT. No event has occurred and is continuing which
constitutes an Event of Default or a Potential Default.

        8.11   NO LITIGATION. There are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to the knowledge of
Borrower of Guarantor threatened, against either Borrower or Guarantor that
would, if adversely determined, have a Material Adverse Effect.

        8.12   TAXES. To the extent that failure to do so would have a Material
Adverse Effect, all tax returns required to be filed by Borrower or Guarantor in
any jurisdiction have been filed and all taxes (including mortgage recording
taxes), assessments, fees, and other governmental charges upon Borrower of
Guarantor or upon any of their properties, income or franchises have been paid
prior to the time that such taxes could give rise to a lien thereon. There is no
proposed tax assessment against Borrower or Guarantor or any basis for such
assessment which is material and is not being contested in good faith.

        8.13   PRINCIPAL OFFICE. The principal office, chief executive office,
and principal place of business of Borrower and Guarantor is at Pier 1, Bay 1,
San Francisco, CA 94111.

        8.14   ERISA. Neither Borrower nor Guarantor has established or
maintains any Plan. Each of Borrower and Guarantor is an Operating Company.

        8.15   COMPLIANCE WITH LAW. Borrower and Guarantor are, to the best of
their knowledge, in compliance in all material respects with all material laws,
rules, regulations, orders, and decrees which are applicable to Borrower or
Guarantor or their respective properties, including, without limitation, the
International Investment and Trade in Services Survey Act of 1976, as amended,
and Environmental Laws.

        8.16   HAZARDOUS SUBSTANCES. Neither Borrower nor Guarantor: (a) has
received any notice or other communication or otherwise learned of any
Environmental Liability which would individually or in the aggregate reasonably
be expected to have a Material Adverse Effect arising in connection with: (i)
any non-compliance with or violation of the requirements of any Environmental
Law by Borrower, or any permit issued under any Environmental Law to Borrower;
or (ii) the Release or threatened Release of any Hazardous Material into the
environment; or (b) to its knowledge, has threatened or actual liability in
connection with the Release or threatened Release of any Hazardous Material into
the environment which would individually or in the aggregate reasonably be
expected to have a Material Adverse Effect.

        8.17   INSIDER. Neither Borrower nor Guarantor is an "executive
officer," "director," or "person who directly or indirectly or acting through or
in concert with one or more persons owns, controls, or has the power to vote
more than 10% of any class of voting securities" (as those terms are defined in
12 U.S.C. Section 375b or in regulations promulgated pursuant thereto) of any
Lender, of a bank holding company of which any Lender is a subsidiary, or of any
subsidiary, of a bank holding company of which any Lender is a


                                       50


subsidiary, of any bank at which any Lender maintains a correspondent account,
or of any bank which maintains a correspondent account with any Lender.

        8.18 PARTNERSHIP STRUCTURE. As of the date hereof, the sole general
partner of Borrower is General Partner. The only Limited Partners of Borrower
are set forth on EXHIBIT A attached hereto and incorporated herein by reference
(or on a revised EXHIBIT A delivered to Administrative Agent in accordance with
SECTION 10.5 hereof), and the Capital Commitment of each Limited Partner is set
forth on EXHIBIT A (or on such revised EXHIBIT A).

        8.19 CAPITAL COMMITMENTS AND CONTRIBUTIONS. EXHIBIT A sets forth the
names of the Partners, the Shareholders and their respective Capital Commitments
and Remaining Capital Commitments as of the date hereof. There are no Capital
Call Notices outstanding except as otherwise disclosed in writing to
Administrative Agent. To the knowledge of Borrower and Guarantor, no Investor is
in default under the Partnership Agreement, its Subscription Agreement, or the
Articles of Incorporation, as applicable. Prior to the date hereof, Borrower and
Guarantor have each satisfied all conditions to their respective rights to make
a Capital Call, including any and all conditions contained in their respective
Constituent Documents or the Subscription Agreements.

        8.20 FISCAL YEAR. The fiscal year of Borrower and General Partner is the
calendar year.

        8.21 CLOSING DATE. The "First Closing Date" as defined in the Borrower
Partnership Agreement shall be June 28, 2001.

        8.22 INVESTMENT COMPANY ACT. Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.

        8.23 REIT STATUS. Guarantor is organized in conformity with the
requirements for qualification as a real estate investment trust under the
Internal Revenue Code. Guarantor is in a position to qualify for its current
fiscal year as a real estate investment trust under the Internal Revenue Code
and its proposed methods of operation will enable it to so qualify.

SECTION 9. AFFIRMATIVE COVENANTS

        So long as Lenders have any commitment to lend hereunder or to cause the
issuance of any Letters of Credit hereunder, and until payment in full of the
Notes and the performance in full of the Obligation under this Credit Agreement
and the other Loan Documents, Borrower and each Qualified Borrower, as
applicable, agrees that, unless Administrative Agent shall otherwise consent in
writing based upon the approval of the Required Lenders (unless the approval of
Administrative Agent alone or a different number of Lenders is expressly
permitted below):

        9.1 FINANCIAL STATEMENTS, REPORTS AND NOTICES. Borrower shall deliver to
Administrative Agent sufficient copies for each Lender of the following:

                (a) PARTNERSHIP FINANCIAL REPORTS.



                                       51


                (i) ANNUAL REPORTS. As soon as available, but no later than
        ninety (90) days after the end of the Borrower's fiscal year, a report
        setting forth, as of the end of such fiscal year, the Borrower's balance
        sheet and income statement, a description of the Property (as such term
        is defined in the Partnership Agreement) acquired, sold or otherwise
        disposed of by Borrower during such fiscal year, and a statement of each
        Partner's Capital Account; together with the unqualified opinion of a
        firm of nationally-recognized independent certified public accountants,
        based on an audit using generally accepted auditing standards, that such
        financial statements were prepared in accordance with Generally Accepted
        Accounting Principles and present fairly the financial condition and
        results of operations of Borrower;

                (ii) QUARTERLY REPORTS. As soon as available, but no later than
        forty-five (45) days after the end of each of the first three fiscal
        quarters of Borrower, commencing with the fiscal quarter ending on
        September 30, 2001, an unaudited report setting forth as of the end of
        such fiscal quarter, the Borrower's balance sheet and income statement
        and a description of the Property (as such term is defined in the
        Partnership Agreement) acquired, sold or otherwise disposed of by
        Borrower during such fiscal quarter;

        (b) COMPLIANCE CERTIFICATE. No later than forty-five (45) days after the
end of each of the first three fiscal quarters of Borrower, and no later than
ninety (90) days after the end of Borrower's fiscal year, a compliance
certificate (the "COMPLIANCE CERTIFICATE"), certified by a Responsible Officer
of Borrower to be true and correct, stating: (i) whether any Event of Default
or, to its knowledge any Potential Default, exists; (ii) whether Borrower is in
compliance with the Recourse Debt Limitations contained in SECTION 10.11, and
containing the calculations evidencing such compliance; (iii) whether Borrower
is in compliance with the limitations on indebtedness set forth in Section
7.1(B)(vi) of the Partnership Agreement and containing the calculations
evidencing such compliance; and (iv) setting forth: (A) the Remaining Capital
Commitments of the Investors, and separately, the Remaining Capital Commitments
of the Included Investors; (B) the calculations for the Available Commitment as
of the end of such quarter; (C) specifying changes, if any, in the names or
notice information for any Investor; and (D) listing all Subsequent Investors
who have not satisfied each of the requirements set forth in SECTION 10.5(C);

        (c) OTHER REPORTING. Simultaneously with delivery to the Investors,
copies of all other financial statements, appraisal reports, notices, and other
matters at any time or from time to time prepared by Borrower or Guarantor and
furnished to the Investors, including, without limitation, any notice of
default, notice of election or exercise of any rights or remedies under the
Subscription Agreements or the Constituent Documents of Borrower or Guarantor,
or any notices relating in any way to any Investor's Capital Commitment, and any
notice relating in any way to the misconduct of Borrower or Guarantor;

        (d) INVESTOR FINANCIAL INFORMATION. (i) To the extent provided by the
Investors under their Investor Letters, within ninety (90) days after the end of
the fiscal year of each Investor, such Investor's financial statements as of the
end of such fiscal year, reported on by independent public accountants to the
extent available; and (ii) from time to time upon the request of Administrative
Agent, a certificate of any Investor setting forth its Remaining Capital
Commitment;



                                       52


                (e) OPERATING COMPANY STATUS. No later than sixty (60) days
        after the first day of each Annual Valuation Period of Borrower and of
        Guarantor, a certificate of each of the Borrower and the Guarantor,
        based on advice of counsel reasonably acceptable to the Administrative
        Agent, that such Credit Party has remained and still is an Operating
        Company; and

                (f) OTHER INFORMATION. Such other information concerning the
        business, properties, or financial condition of Borrower and Guarantor
        as Administrative Agent shall reasonably request.

        9.2 PAYMENT OF TAXES. Borrower, each Qualified Borrower and Guarantor
will pay and discharge all taxes, assessments, and governmental charges or
levies imposed upon it, or them, or upon its, or their, income or profits, or
upon any property belonging to it, or them, before delinquent, if such failure
would have a Material Adverse Effect; provided, however, that none of Borrower,
any Qualified Borrower or Guarantor shall be required to pay any such tax,
assessment, charge, or levy if and so long as the amount, applicability, or
validity thereof shall currently be contested in good faith by appropriate
proceedings and appropriate reserves therefor have been established.

        9.3 MAINTENANCE OF EXISTENCE AND RIGHTS. Each of Borrower, each
Qualified Borrower and Guarantor will preserve and maintain its existence.
Borrower shall further preserve and maintain all of its rights, privileges, and
franchises necessary in the normal conduct of its business and in accordance
with all valid regulations and orders of any Governmental Authority the failure
of which would have a Material Adverse Effect.

        9.4 NOTICE OF DEFAULT. Borrower will furnish to Administrative Agent,
promptly upon becoming aware of the existence of any condition or event which
constitutes an Event of Default or a Potential Default (including, without
limitation, notice from the limited partners of Borrower under Section 11.2 of
the Partnership Agreement that the limited partners of Borrower intend to seek
the removal of General Partner as general partner of Borrower), a written notice
specifying the nature and period of existence thereof and the action which
Borrower is taking or proposes to take with respect thereto. The Credit Parties
shall promptly notify Administrative Agent in writing upon becoming aware: (a)
that any Partner has violated or breached any material term of the Partnership
Agreement or has become a Defaulting Investor; (b) that any Shareholder has
breached any material term of its Subscription Agreement or has become a
Defaulting Investor; or (b) of the existence of any condition or event which,
with the lapse of time or giving of notice or both, would cause an Investor to
become a Defaulting Investor.

        9.5 OTHER NOTICES. The Credit Parties will, promptly upon receipt of
knowledge thereof, notify Administrative Agent of any of the following events
that could have a Material Adverse Effect: (a) any change in the financial
condition or business of Borrower, any Qualified Borrower or Guarantor; (b) any
default under any material agreement, contract, or other instrument to which
Borrower, any Qualified Borrower or Guarantor is a party or by which any of its
properties are bound, or any acceleration of the maturity of any material
indebtedness owing by Borrower, any Qualified Borrower, or Guarantor; (c) any
uninsured claim against or affecting Borrower, any Qualified Borrower or
Guarantor or any of their properties that may have a Material Adverse Effect;
(d) the commencement of, and any material determination in, any litigation with
any third party or any proceeding before any Governmental Authority affecting
Borrower, any Qualified Borrower or Guarantor; (e) any Environmental Complaint
or any claim, demand, action, event, condition, report or investigation
indicating any potential or actual liability arising in connection with: (i) the



                                       53


non-compliance with or violation of the requirements of any Environmental Law or
any permit issued under any Environmental Law which individually or in the
aggregate might have a Material Adverse Effect; or (ii) the Release or
threatened Release of any Hazardous Material into the environment which
individually or in the aggregate might have a Material Adverse Effect; (f) the
existence of any Environmental Lien on any Properties or assets of Borrower, any
Qualified Borrower or Guarantor; (g) any material remedial action taken by
Borrower, any Qualified Borrower, or Guarantor in response to any order, consent
decree or judgment of any Governmental Authority or any Environmental Liability;
or (h) the listing of any of Borrower's or Guarantor's Properties on CERCLIS to
the extent that Borrower obtains knowledge of such listing.

        9.6 COMPLIANCE WITH LOAN DOCUMENTS AND PARTNERSHIP AGREEMENT. Unless
otherwise approved in accordance with the terms of this Credit Agreement (which
approval, by such terms, may require more or fewer Lenders than the Required
Lenders), each of Borrower, each Qualified Borrower and Guarantor will promptly
comply with any and all covenants and provisions of this Credit Agreement, the
Notes, and all of the other Loan Documents executed by it. Borrower and each
Qualified Borrower will use the proceeds of any Capital Call Notices only for
such purposes as are permitted by the Partnership Agreement.

        9.7 OPERATIONS AND PROPERTIES. Borrower, each Qualified Borrower and
Guarantor will act prudently and in accordance with customary industry standards
in managing or operating its assets, properties, business, and investments so as
not to incur a Material Adverse Effect; Borrower, each Qualified Borrower and
Guarantor will keep in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct of
their business so as not to incur a Material Adverse Effect.

        9.8 BOOKS AND RECORDS; ACCESS. Following one (1) Business Day prior
written notice, Borrower, each Qualified Borrower and Guarantor will give any
representative of Administrative Agent or Lenders, or any of them, access during
all business hours to, and permit representative to examine, copy, or make
excerpts from, any and all books, records, and documents in the possession of
Borrower, such Qualified Borrower or Guarantor and relating to its affairs, and
to inspect any of the properties of Borrower, a Qualified Borrower or Guarantor,
provided, however, that, so long as no Event of Default exists, any such
inspection shall be conducted by Administrative Agent on behalf of Lenders.

        9.9 COMPLIANCE WITH LAW. Borrower, each Qualified Borrower and Guarantor
will comply in all material respects with all material laws, rules, regulations,
and all orders of any Governmental Authority, including without limitation,
Environmental Laws, ERISA and the International Investment and Trade in Services
Survey Act of 1976, as amended.

        9.10 INSURANCE. Borrower, each Qualified Borrower and Guarantor will
maintain workmen's compensation insurance, liability insurance, and insurance on
its present and future properties, assets, and business against such casualties,
risks, and contingencies, and in such types and amounts, as are consistent with
customary practices and standards of the real estate industry and the failure of
which to maintain could have a Material Adverse Effect.

        9.11 AUTHORIZATIONS AND APPROVALS. Borrower, each Qualified Borrower and
Guarantor will promptly obtain, from time to time at its own expense, all such
governmental licenses, authorizations, consents,



                                       54


permits and approvals as may be required to enable Borrower, each Qualified
Borrower and Guarantor to comply with their respective obligations hereunder,
under the other Loan Documents, the Subscription Agreements and their respective
Constituent Documents.

        9.12 MAINTENANCE OF LIENS. Borrower, each Qualified Borrower and
Guarantor shall perform all such acts and execute all such documents as
Administrative Agent may reasonably request in order to enable Lenders to
report, file, and record every instrument that Administrative Agent may deem
necessary in order to perfect and maintain Lenders' liens and security interests
in the Collateral and otherwise to preserve and protect the rights of Lenders.
Neither Borrower nor Guarantor shall grant or create (nor shall either suffer
any other Person to grant or create) any other Liens on any Collateral, whether
junior, equal, or superior in priority to the Liens created by the Loan
Documents.

        9.13 ERISA COMPLIANCE. Unless otherwise agreed by all Lenders, Borrower
will maintain its status as an Operating Company.

        9.14 FURTHER ASSURANCES. Each of Borrower, each Qualified Borrower and
Guarantor will make, execute or endorse, and acknowledge and deliver or file or
cause the same to be done, all such vouchers, invoices, notices, certifications,
and additional agreements, undertakings, conveyances, transfers, assignments,
financing statements, or other assurances, and take any and all such other
action, as Administrative Agent may, from time to time, deem reasonably
necessary or proper in connection with the Credit Agreement or any of the other
Loan Documents, the obligations of the Credit Parties and each Qualified
Borrower hereunder or thereunder, or for better assuring and confirming unto
Lenders all or any part of the security for any of such obligations.

        9.15 COVENANTS OF QUALIFIED BORROWERS. The covenants and agreements of
Qualified Borrowers hereunder shall be binding and effective only upon and after
the execution and delivery of a Qualified Borrower Note by such Qualified
Borrower.

        9.16 INVESTOR FINANCIAL AND RATING INFORMATION. The Credit Parties shall
request, from each Investor, financial information required under the applicable
Investor Letter, as agreed from time to time with Administrative Agent, and
shall, upon receipt of such information, promptly deliver same to Administrative
Agent, or shall promptly notify Administrative Agent of its failure to timely
obtain such information. The Credit Parties will use reasonable efforts to
monitor the Ratings of the Included Investors and promptly notify Administrative
Agent in writing (but in no event later than five (5) Business Days) after: (a)
becoming aware of: (i) any decline in the Rating of any Included Investor, or
decline in the capital status of any Included Investor that is a bank holding
company, whether or not such change results in an Exclusion Event and (ii) any
other Exclusion Event; and (b) becoming aware of the existence of any condition
or event which, with the lapse of time or giving of notice or both, would cause
an Exclusion Event.

        9.17 CERTAIN INCLUDED INVESTOR REQUIREMENTS. In addition to the other
requirements of this Credit Agreement, each Included Investor that is:(i)
organized under the laws of any jurisdiction other than the United States of
America or any state thereof shall deliver to Administrative Agent a written
submission to the jurisdiction of a United States Federal District Court and a
United States state court with respect to any litigation arising out of or in
connection with its Subscription Agreement or Investor Letter or any Constituent
Document of Borrower or Guarantor (each submission to be in form and substance
satisfactory to



                                       55


Administrative Agent in its sole and absolute discretion, including provisions
relating to waiver of venue, waiver of defense of inconvenient forum, and
consent to service of process, and accompanied by an Investor Opinion as to the
enforceability of such submission); or (ii) a Governmental Authority or an
instrumentality of a Governmental Authority or majority-owned by a Governmental
Authority or otherwise entitled to any immunity in respect of any litigation in
any jurisdiction, court or venue, shall deliver to Administrative Agent a
written waiver (in form and substance satisfactory to Administrative Agent in
its sole and absolute discretion) of any such claim of immunity and an Investor
Opinion that such waiver is enforceable or such Investor and its property is not
entitled to any immunity with respect to any litigation arising out of or in
connection with its Subscription Agreement or Investor Letter or any Constituent
Document of Borrower or Guarantor.

        9.18 MAINTENANCE OF REIT STATUS. Guarantor will use its best efforts to
operate its business so as to satisfy all requirements necessary to qualify as a
real estate investment trust under Sections 856 through 860 of the Internal
Revenue Code and will not intentionally take any action that would cause
Guarantor to fail to so qualify. Guarantor will maintain adequate records so as
to comply with all record-keeping requirements relating to its qualification as
a real estate investment trust as required by the Internal Revenue Code and
applicable regulations of the Department of Treasury promulgated thereunder and
will properly prepare and timely file with the Internal Revenue Service all
returns and reports required thereby to qualify as a real estate investment
trust each year. Guarantor will request from its Shareholders all shareholder
information required by the Internal Revenue Code and applicable regulations of
the Department of Treasury promulgated thereunder.

SECTION 10. NEGATIVE COVENANTS

        So long as Lenders have any commitment to lend hereunder or to cause the
issuance of any Letter of Credit hereunder, and until payment and performance in
full of the Obligation under this Credit Agreement and the other Loan Documents,
Borrower agrees that, without the written consent of Administrative Agent, based
upon the approval of Required Lenders (unless the approval of Administrative
Agent alone or a different number of Lenders is expressly permitted below):

        10.1 MERGERS. Neither Borrower nor Guarantor will merge or consolidate
with or into any Person, unless Borrower or Guarantor, respectively, is the
surviving entity.

        10.2 NEGATIVE PLEDGE. Without the approval of all Lenders, neither
Borrower nor Guarantor will create or suffer to exist any mortgage, pledge,
security interest, conditional sale or other title retention agreement, charge,
encumbrance, or other Lien (whether such interest is based on common law,
statute, other law or contract) upon the Collateral, other than to Lenders, nor
will Guarantor create or suffer to exist any mortgage, pledge, security
interest, conditional sale or other title retention agreement, charge,
encumbrance, or other Lien (whether such interest is based on common law,
statute, other law or contract) upon its interest in Borrower.

        10.3 FISCAL YEAR AND ACCOUNTING METHOD. Without the consent of
Administrative Agent alone, neither Borrower nor Guarantor will change their
respective fiscal year or method of accounting.



                                       56


        10.4 PARTNERSHIP AGREEMENT. No Credit Party shall alter, amend, modify,
terminate, or change any provision of its Constituent Documents affecting the
Investors' debts, duties, obligations, and liabilities, and the rights, titles,
security interests, liens, powers and privileges of Borrower, Guarantor,
Administrative Agent or Lenders, in each case relating to Capital Call Notices,
Capital Commitments, Capital Contributions or Remaining Capital Commitments (a
"MATERIAL AMENDMENT"), or suspend, reduce or terminate Partner's Remaining
Capital Commitments. With respect to any proposed amendment, modification or
change to any Constituent Document, the applicable Credit Party shall notify
Administrative Agent of such proposal. Administrative Agent shall determine, in
its sole discretion (that is, the determination of the other Lenders shall not
be required) on Administrative Agent's good faith belief, whether such proposed
amendment, modification or change to such Constituent Document is a material
amendment within ten (10) Business Days of the date on which it is deemed to
have received such notification pursuant to SECTION 13.6 hereof, and shall
promptly notify such Credit Party of its determination. If Administrative Agent
determines that the proposed amendment is a material amendment, the approval of
the Required Lenders will be required (unless the approval of all Lenders is
required consistent with the terms of SECTION 10.6 hereof), and Administrative
Agent shall promptly notify the Lenders of such request for such approval,
distributing, as appropriate, the proposed amendment and any other relevant
information provided by the Credit Parties. If Administrative Agent determines
that the proposed amendment is not a material amendment, such Credit Party may
make such amendment without the consent of Lenders. Notwithstanding the
foregoing, Borrower may, without the consent of Administrative Agent or the
Lenders, amend its Partnership Agreement: (i) to admit new Partners to the
extent permitted by this Credit Agreement;(ii) to reflect transfers of interests
in Borrower permitted by this Credit Agreement; (iii) to amend Exhibit A to
Borrower's Partnership Agreement to reflect Capital Contributions made by
Partners and the issuance of Partnership Units (as defined therein) pursuant
thereto; and (iv) to the extent provided in Sections 14.1.C(ii), 14.1.C(iii),
14.1.C(iv) or 14.1.C(v) of Borrower's Partnership Agreement; provided, however
that Borrower shall promptly provide to Administrative Agent a copy of any such
amendment which does not require the consent of Administrative Agent or the
Lenders.

        10.5 TRANSFER BY, OR ADMISSION OF, INVESTORS.

                (a) TRANSFER OF PARTNERSHIP INTEREST OR CAPITAL STOCK. Borrower
        shall not permit the transfer of the Partnership Interest of any Partner
        without the consent of Administrative Agent acting alone, which consent
        shall not be unreasonably withheld. Guarantor shall not permit the
        transfer of the Capital Stock of any Shareholder without the consent of
        Administrative Agent acting alone, which consent shall not be
        unreasonably withheld. Any transfer of a Partnership Interest by an
        Included Investor, or the Capital Stock by an Included Investor, other
        than a transfer: (i) to another Included Investor or its Affiliate; (ii)
        to an Affiliate or the Credit Provider of such Included Investor; (iii)
        to a successor trust or trustee; (iv) by virtue of a merger; in each
        case where the transferee entity has an equal or higher Rating than that
        of the transferor (and, in the case of an ERISA Investor, a Minimum
        Funding Ratio meeting the Applicable Requirement, or in the case of a
        Bank Holding Company, Adequately Capitalized status); or (v) as
        otherwise permitted by such Investor's Investor Letter; shall also
        require the consent of the Required Lenders.

                (b) ADMISSION OF INVESTORS. Borrower shall not admit any Person
        as an additional Partner without the prior written consent of
        Administrative Agent acting alone (which consent shall not be
        unreasonably withheld). Guarantor shall not admit any Person as an
        additional Shareholder



                                       57


        without the prior written consent of Administrative Agent acting alone
        (which consent shall not be unreasonably withheld).

                (c) DOCUMENTATION REQUIREMENTS. The Credit Parties shall require
        that: (i) any Person admitted as a substitute or new Shareholder or
        Partner (whether due to a transfer by an existing Investor or otherwise)
        (a "SUBSEQUENT INVESTOR") shall, as a condition to such admission,
        deliver an Investor Letter and provide other documentation similar to
        that described in SECTIONS 7.1(l) and 7.1(m) satisfactory to
        Administrative Agent in its reasonable discretion; and (ii) any existing
        Investor that is a transferee from another Investor shall provide
        confirmation of its obligations under its Investor Letter with respect
        to any increase in its Capital Commitment relating to such transfer,
        and, to the extent not addressed in the documentation previously
        delivered by such Investor, evidence of its authority to assume such
        increased Capital Commitment, all as satisfactory to Administrative
        Agent in its reasonable discretion. In the event any Person is admitted
        as an additional or substitute Investor, the Credit Parties will
        promptly deliver to Administrative Agent a revised EXHIBIT A to this
        Credit Agreement, containing the names and addresses of each Investor
        and the Capital Commitments of each.

                (d) FUNDING REQUIREMENTS. Prior to the effectiveness of any
        transfer by an Included Investor, Borrower shall calculate whether,
        taking into account the Capital Commitments of the Included Investors as
        if such transfer had occurred, the transfer would cause the Principal
        Obligation to exceed the Available Commitment, and shall make any
        Capital Calls required to pay any resulting mandatory prepayment under
        SECTION 2.1(d) prior to permitting such transfer.

        10.6 CAPITAL COMMITMENTS. Neither Borrower nor Guarantor shall: (a)
cancel, reduce or defer the Capital Commitment of any Partner (other than an
Included Investor, which is addressed below) as provided in the Constituent
Documents of such Credit Party; or (b) without the prior written approval of all
Lenders: (i) issue any Capital Call Notices other than as contemplated by
SECTION 5.2(c) hereof; (ii) cancel, reduce, excuse, defer, or abate the Capital
Commitment of any Included Investor as provided in the Constituent Documents of
such Credit Party; or (iii) excuse any Investor from or permit any Investor to
defer any Capital Contribution under the Constituent Documents of such Credit
Party, if the proceeds from the related Capital Call Notice are to be applied to
the Obligation hereunder.

        10.7 ERISA COMPLIANCE. Neither Credit Party shall establish or maintain
any Plan. Without the approval of all Lenders, neither Credit Party will take
any action that would cause it to fail to qualify as an Operating Company.

        10.8 ENVIRONMENTAL MATTERS. Except for such conditions as are in or will
promptly be brought into compliance with relevant Environmental Laws, Borrower:
(a) shall not cause and shall require that its tenants not cause any Hazardous
Material to be generated, placed, held, located or disposed of on, under or at,
or transported to or from, any Property of Borrower in material violation of
Environmental Law; and (b) shall not permit and shall require that its tenants
not cause any such Property to ever be used as a dump site or storage site
(whether permanent or temporary) for any Hazardous Material in material
violation of Environmental Law.



                                       58


        10.9 DISSOLUTION. Without the consent of all Lenders, neither Borrower
nor Guarantor will take any action to terminate or dissolve Borrower or
Guarantor.

        10.10 LIMITATIONS ON DIVIDENDS AND DISTRIBUTIONS.

                (a) Neither Credit Party shall declare or pay any dividends or
        distributions except as permitted under its Constituent Documents.

                (b) Neither Credit Party shall declare or pay any dividends or
        distributions if: (i) any Event of Default exists; or (ii) a Potential
        Default related to SECTION 11.1(a) exists; provided, however, that each
        Credit Party shall have the right to make distributions or pay dividends
        in the ordinary course in order to ensure that Guarantor continues to
        qualify as a REIT.

                (c) Guarantor shall not, while any Investor REIT Obligation is
        outstanding, make any payment to purchase, redeem, retire, or acquire
        any of its Capital Stock or any option, warrant, or other right to
        acquire such Capital Stock.

        10.11 LIMITATION ON DEBT. Neither Borrower nor Guarantor shall incur:
(a) any recourse Indebtedness (exclusive of the Obligation) secured by any of
its assets; or (b) any Indebtedness not permitted by its Constituent Documents.
Notwithstanding the foregoing, Borrower and Guarantor shall have the right to
obtain Indebtedness secured by one or more Properties where such mortgage
financing is nonrecourse to Borrower and Guarantor other than typical so-called
"nonrecourse carve-outs" and shall have the right to incur Indebtedness for the
purposes permitted in the Partnership Agreement as long as the total amount of
such recourse Indebtedness does not exceed $25,000,000.

        10.12 LIMITATION ON GENERAL PARTNER'S ACTIVITIES. The General Partner
shall not take any actions that will cause the Borrower to dissolve, terminate,
merge or consolidate. The General Partner shall not: (a) without the approval of
all Lenders, take any actions that will materially adversely affect Borrower or
the Collateral; or (b) without the approval of the Required Lenders, create or
suffer to exist any mortgage, pledge, lien, or other security interest upon its
Partnership Interest in Borrower, except for the security interest provided to
Lenders pursuant to the terms of the Loan Documents; or (c) without the approval
of the Required Lenders, transfer all or any part of its Partnership Interest in
Borrower held as General Partner, except that General Partner may, so long as
prior written notice is delivered to Administrative Agent, transfer its
Partnership Interest in Borrower to an entity that is wholly-owned and
controlled by AMB Property Corporation, without the consent of Administrative
Agent or Lenders.

SECTION 11. EVENTS OF DEFAULT

        11.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any one or
more of the following events (herein collectively called "EVENTS OF DEFAULT")
shall occur and be continuing:

                (a) (i) Borrower or any Qualified Borrower shall fail to pay
        when due any principal of the Obligation; or (ii) any Credit Party or
        any Qualified Borrower shall fail to pay when due any interest on the
        Obligation or any fee, expense, or other payment required hereunder,
        including, without limitation, payment of cash for deposit as cash
        collateral under SECTION 2.8(e), and such failure under



                                       59


        this CLAUSE (ii) shall continue for five (5) days following the date
        Administrative Agent notifies Borrower in writing of such failure
        (except for the failure to pay the Obligation in full on the Maturity
        Date for which no notice shall be required and except for the failure to
        prepay any amount required under SECTION 2.1(d) hereof for which no
        additional notice shall be required);

                (b) any representation or warranty made by any Credit Party or
        any Qualified Borrower under this Credit Agreement, or any of the other
        Loan Documents executed by either of them, or in any certificate or
        statement furnished or made to Lenders or any of them by any Credit
        Party pursuant hereto or in connection herewith or with the Loans, shall
        prove to be untrue or inaccurate in any material respect as of the date
        on which such representation or warranty is made and the adverse effect
        of the failure of such representation or warranty shall not have been
        cured within thirty (30) days after written notice thereof is delivered
        to Borrower by Administrative Agent;

                (c) default shall occur in the performance of any of the
        covenants or agreements contained herein (other than the covenants
        contained in SECTIONS 2.1(d), 9.1(e), 9.13, 9.16, or SECTIONS 10.1
        through 10.7 or 10.9 through 10.11, or SECTION 10.12(b) hereof), or of
        the covenants or agreements of any Credit Party or any Qualified
        Borrower contained in any other Loan Documents executed by such Person,
        and such default shall continue uncured to the satisfaction of
        Administrative Agent for a period of thirty (30) days after written
        notice thereof has been given by Administrative Agent to Borrower
        (provided that such 30 day cure period shall not apply respecting
        covenants relating to notices to be given by a Credit Party);

                (d) default shall occur in the performance of the covenants or
        agreements of the Credit Parties contained in SECTION 10.8 hereof, and
        such default shall continue uncured to the satisfaction of
        Administrative Agent for a period of thirty (30) days after the earlier
        of: (i) written notice thereof has been given by Administrative Agent to
        Borrower; or (ii) Administrative Agent has been notified or should have
        been notified of such default pursuant to SECTION 9.4 or SECTION 9.5
        hereof; provided that such thirty (30) -day period shall be extended
        (such extension not to exceed sixty (60) additional days) as to defaults
        which cannot reasonably be cured by the payment of money and are not
        reasonably capable of cure within such thirty (30) -day period, provided
        that Borrower has commenced to cure such default prior to the end of
        such thirty (30) -day period and prosecutes such cure to completion);

                (e) default shall occur in the performance of any of the
        covenants or agreements of the Credit Parties contained in SECTIONS
        2.1(d), 9.13, 9.16, or SECTIONS 10.1 through 10.7 or 10.9 through 10.11,
        or SECTION 10.12(b) hereof;

                (f) default shall occur in the performance of any of the
        covenants or agreements of the Credit Parties contained in SECTION
        9.1(e), and such default shall continue uncured for five (5) days;

                (g) any of the Loan Documents executed by a Credit Party or any
        Qualified Borrower shall cease, in whole or in part, to be legal, valid,
        binding agreements enforceable against the Credit Parties or such
        Qualified Borrower, as the case may be, in accordance with the terms
        thereof or shall in any way be terminated or become or be declared
        ineffective or inoperative or shall in any way



                                       60


        whatsoever cease to give or provide the respective liens, security
        interest, rights, titles, interest, remedies, powers, or privileges
        intended to be created thereby;

                (h) default shall occur in the payment of any recourse
        indebtedness or Guaranty Obligation of Borrower or Guarantor (other than
        the Obligation), in an aggregate amount of $10,000,000 or more, and such
        default shall continue for more than the applicable period of grace, if
        any; or any such indebtedness shall become due before its stated
        maturity by acceleration of the maturity thereof or shall become due by
        its terms and shall not be promptly paid or extended;

                (i) Borrower, its General Partner, any Qualified Borrower or
        Guarantor shall: (i) apply for or consent to the appointment of a
        receiver, trustee, custodian, intervenor, or liquidator of itself or of
        all or a substantial part of its assets; (ii) file a voluntary petition
        in bankruptcy or admit in writing that it is unable to pay its debts as
        they become due; (iii) make a general assignment for the benefit of
        creditors; (iv) file a petition or answer seeking reorganization of an
        arrangement with creditors or to take advantage of any Debtor Relief
        Laws; (v) file an answer admitting the material allegations of, or
        consent to, or default in answering, a petition filed against it in any
        bankruptcy, reorganization or insolvency proceeding; or (vi) take
        partnership or corporate action for the purpose of effecting any of the
        foregoing;

                (j) an order, order for relief, judgment or decree shall be
        entered by any court of competent jurisdiction or other competent
        authority approving a petition seeking reorganization of Borrower, its
        General Partner, any Qualified Borrower, or Guarantor, or appointing a
        receiver, custodian, trustee, intervenor, or liquidator of Borrower, its
        General Partner, any Qualified Borrower or Guarantor, or of all or
        substantially all of its assets, and such order, judgment or decree
        shall continue unstayed and in effect for a period of sixty (60) days;

                (k) any final judgment(s) for the payment of money in excess of
        the sum of $5,000,000 in the aggregate shall be rendered against
        Borrower, Guarantor or any Qualified Borrower and such judgment or
        judgments could have a Material Adverse Effect, unless covered by
        insurance and unless being appealed and the applicable Credit Party has
        posted a bond or cash collateral;

                (l) there shall occur any change in the condition (financial or
        otherwise) of any Credit Party which, in the reasonable judgment of
        Administrative Agent, has a Material Adverse Effect;

                (m) General Partner shall cease to be the sole general partner
        of Borrower or General Partner shall be removed as the general partner
        of Borrower;

                (n) General Partner shall: (i) repudiate, challenge, or declare
        unenforceable its obligation to make contributions to the capital of
        Borrower pursuant to its Capital Commitments or shall otherwise
        disaffirm the provisions of the Partnership Agreement; or (ii) shall be
        in default in its obligations thereunder in its capacity as general
        partner, and such default in this item (ii) shall continue uncured for
        thirty (30) days after notice or other knowledge thereof;

                (o) Guarantor shall: (i) repudiate, challenge, or declare
        unenforceable its obligation to make contributions to the capital of
        Borrower pursuant to its Capital Commitments or shall otherwise
        disaffirm the provisions of the Partnership Agreement; or (ii) shall
        default in its obligations to any



                                       61


        Shareholder under any Subscription Agreement, and such default in this
        item (ii) shall continue uncured for thirty (30) days after notice or
        other knowledge thereof;

                (p) the issuance to Borrower of any administrative order by any
        Governmental Authority under any Environmental Law, or the issuance to
        Borrower of any injunctive order by any court under any Environmental
        Law, which, in Administrative Agent's reasonable judgment, will result
        in a Material Adverse Effect or

                (q) Investors having Capital Commitments aggregating fifteen
        percent (15%) or greater of the aggregate Capital Commitments of all
        Investors shall default in their obligation to fund any Capital Call as
        required.

        11.2 REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, then Administrative Agent may: (a) suspend the
Commitments of Lenders until such Event of Default is cured; (b) terminate the
Commitment of Lenders hereunder; (c) declare the principal of, and all interest
then accrued on, the Obligation to be forthwith due and payable (including the
liability to fund the Letter of Credit Liability pursuant to SECTION 2.8(e)
hereof), whereupon the same shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice of acceleration, or of
intention to accelerate or other notice of any kind all of which Borrower and
Guarantor and each Qualified Borrower hereby expressly waives, anything
contained herein or in any other Loan Document to the contrary notwithstanding;
(d) exercise any right, privilege, or power set forth in SECTIONS 5.2 and 5.3
hereof, including, but not limited to, the initiation of Capital Call Notices of
the Capital Commitments; or (e) without notice of default or demand, pursue and
enforce any of Administrative Agent's or Lenders' rights and remedies under the
Loan Documents, or otherwise provided under or pursuant to any applicable law or
agreement; provided, however, that if any Event of Default specified in SECTIONS
11.1(i) or 11.1(j) hereof shall occur, the principal of, and all interest on,
the Obligation shall thereupon become due and payable concurrently therewith,
without any further action by Administrative Agent or Lenders, or any of them,
and without presentment, demand, protest, notice of default, notice of
acceleration, or of intention to accelerate or other notice of any kind, all of
which Borrower, Guarantor, and each Qualified Borrower hereby expressly waives.

        11.3 PERFORMANCE BY ADMINISTRATIVE AGENT. Should any Credit Party or any
Qualified Borrower fail to perform any covenant, duty, or agreement contained
herein or in any of the Loan Documents, and such failure continues beyond any
applicable cure period, Administrative Agent may, but shall not be obligated to,
perform or attempt to perform such covenant, duty, or agreement on behalf of
such Person. In such event, each Credit Party or each such Qualified Borrower
shall, at the request of Administrative Agent promptly pay any amount expended
by Administrative Agent in such performance or attempted performance to
Administrative Agent at its principal office in San Francisco, together with
interest thereon at the Default Rate from the date of such expenditure until
paid. Notwithstanding the foregoing, it is expressly understood that neither
Administrative Agent nor Lenders assume any liability or responsibility for the
performance of any duties of Borrower, Guarantor or any Qualified Borrower, or
any related Person hereunder or under any of the Loan Documents or other control
over the management and affairs of Borrower, Guarantor or any Qualified
Borrower, or any related Person, nor by any such action shall Administrative
Agent or Lenders be deemed to create a partnership arrangement with any Credit
Party, any Qualified Borrower, or any related Person.



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SECTION 12. AGENTS

        12.1 APPOINTMENT.

                (a) AUTHORITY OF AGENTS. Each Lender hereby designates and
        appoints Bank of America, N.A. as Administrative Agent of such Lender to
        act as specified herein and the other Loan Documents, and each such
        Lender hereby authorizes the Administrative Agent, as the agent for such
        Lender, to take such action on its behalf under the provisions of this
        Credit Agreement and the other Loan Documents and to exercise such
        powers and perform such duties as are expressly delegated by the terms
        hereof and of the other Loan Documents, together with such other powers
        as are reasonably incidental thereto. Notwithstanding any provision to
        the contrary elsewhere herein and in the other Loan Documents, the
        Administrative Agent shall not have any duties or responsibilities,
        except those expressly set forth herein and therein, or any fiduciary
        relationship with any Lender, and no implied covenants, functions,
        responsibilities, duties, obligations or liabilities shall be read into
        this Credit Agreement or any of the other Loan Documents, or shall
        otherwise exist against the Administrative Agent. The provisions of this
        SECTION 12.1 are solely for the benefit of the Administrative Agent and
        the Lenders and none of the Credit Parties, any Qualified Borrower,
        General Partner, any Investor, or any Affiliate of the foregoing (a
        "BORROWER PARTY") shall have any rights as a third-party beneficiary of
        the provisions hereof (except for the provisions that explicitly relate
        to Borrower in SECTION 12.10). In performing its functions and duties
        under this Credit Agreement and the other Loan Documents, Administrative
        Agent shall act solely as an agent of the Lenders and does not assume
        and shall not be deemed to have assumed any obligation or relationship
        of agency or trust with or for any Borrower Party. Notwithstanding any
        provision to the contrary elsewhere herein and in the other Loan
        Documents, neither the Syndication Agent nor the Documentation Agent
        shall have any duties or responsibilities, or any fiduciary
        relationship, with any Lender, and no implied covenants, functions,
        responsibilities, duties, obligations or liabilities shall be read into
        this Credit Agreement or any of the other Loan Documents, or shall
        otherwise exist against the Syndication Agent or the Documentation
        Agent. Notwithstanding any provision to the contrary elsewhere herein
        and in the other Loan Documents, neither the Syndication Agent nor the
        Documentation Agent shall have any duties or responsibilities, or any
        fiduciary relationship, with any Lender, and no implied covenants,
        functions, responsibilities, duties, obligations or liabilities shall be
        read into this Credit Agreement or any of the other Loan Documents, or
        shall otherwise exist against the Syndication Agent or the Documentation
        Agent.

                (b) RELEASE OF COLLATERAL. The Lenders irrevocably authorize
        Administrative Agent, at the Administrative Agent's option and in its
        discretion, to release any security interest in or Lien on any
        Collateral granted to or held by the Administrative Agent: (i) upon
        termination of this Credit Agreement and the other Loan Documents,
        termination of the Commitments and all Letters of Credit and payment in
        full of all of the Obligation, including all fees and indemnified costs
        and expenses that are then due and payable pursuant to the terms of the
        Loan Documents; and (ii) if approved by the Lenders pursuant to the
        terms of SECTION 13.1. Upon the request of Administrative Agent, the
        Lenders will confirm in writing Administrative Agent's authority to
        release particular types or items of Collateral pursuant to this SECTION
        12.1(b).



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        12.2 DELEGATION OF DUTIES. Administrative Agent may execute any of its
duties hereunder or under the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of legal counsel, accountants,
and other professionals selected by Administrative Agent concerning all matters
pertaining to such duties. Administrative Agent shall not be responsible to any
Lender for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care, nor shall it be liable for any action taken
or suffered in good faith by it in accordance with the advice of such Persons.

        12.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be liable to any Lender for any action lawfully taken or omitted to be
taken by it or such Person under or in connection herewith or in connection with
any of the other Loan Documents (except for its or such Person's own gross
negligence or willful misconduct) or responsible in any manner to any of the
Lenders for any recitals, statements, representations or warranties made by any
of the Borrower Parties contained herein or in any of the other Loan Documents
or in any certificate, report, document, financial statement or other written or
oral statement referred to or provided for in, or received by Administrative
Agent under or in connection herewith or in connection with the other Loan
Documents, or enforceability or sufficiency therefor of any of the other Loan
Documents, or for any failure of a Borrower Party to perform its obligations
hereunder or thereunder. Administrative Agent shall not be responsible to any
Lender for the effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Credit Agreement, or any of the other Loan
Documents or for any representations, warranties, recitals or statements made
herein or therein or made by any Borrower Party in any written or oral statement
or in any financial or other statements, instruments, reports, certificates or
any other documents in connection herewith or therewith furnished or made by
Administrative Agent to the Lenders or by or on behalf of the Borrower Parties
to the Administrative Agent or any Lender or be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or of the existence or
possible existence of any Potential Default or Event of Default or to inspect
the properties, books or records of the Borrower Parties. Administrative Agent
is not a trustee for the Lenders and owes no fiduciary duty to the Lenders. Each
Lender recognizes and agrees that Administrative Agent shall not be required to
determine independently whether the conditions described in SECTIONS 7.2(a) or
7.2(b) have been satisfied and, when Administrative Agent disburses funds to
Borrower or a Qualified Borrower, causes Letters of Credit to be issued or
accepts any Borrower Guaranties, it may rely fully upon statements contained in
the relevant requests by Borrower or a Qualified Borrower.

        12.4 RELIANCE ON COMMUNICATIONS. Administrative Agent shall be entitled
to rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to any of
the Borrower Parties, independent accountants and other experts selected by
Administrative Agent with reasonable care). Administrative Agent may deem and
treat each Lender as the owner of its interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent in accordance with SECTION
13.11(c). Administrative Agent shall be fully justified in failing or refusing
to take any action under this Credit Agreement or under any of the other Loan
Documents unless it shall first receive such advice or concurrence of the
Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and



                                       64


expense which may be incurred by it by reason of taking or continuing to take
any such action. Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder or under any of the other Loan
Documents in accordance with a request of the Required Lenders (or to the extent
specifically required, all the Lenders) and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders (including
their successors and assigns).

        12.5 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default hereunder unless Administrative Agent has received notice from a Lender
or a Borrower Party referring to the Loan Document, describing such Potential
Default or Event of Default and stating that such notice is a "notice of
default." In the event that Administrative Agent receives such a notice,
Administrative Agent shall give prompt notice thereof to the Lenders.
Administrative Agent shall take such action with respect to such Potential
Default or Event of Default as shall be reasonably directed by the Required
Lenders and as is permitted by the Loan Documents.

        12.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND LENDERS. Each Lender
expressly acknowledges that neither Administrative Agent, BAS nor any of their
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent or any affiliate thereof hereinafter taken, including any review of the
affairs of any Borrower Party, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent and BAS that it has, independently and without reliance
upon the Administrative Agent or BAS or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, assets, operations, property, financial
and other conditions, prospects and creditworthiness of the Borrower Parties and
made its own decision to make its Loans hereunder and enter into this Credit
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Administrative Agent or BAS or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Credit Agreement, and to make such investigation as
it deems necessary to inform itself as to the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of the
Borrower Parties. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent and BAS shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Borrower Parties which may come into the possession of
the Administrative Agent, BAS or any of their officers, directors, employees,
agents, attorneys-in-fact or affiliates.

        12.7 INDEMNIFICATION. The Lenders agree to indemnify Administrative
Agent in its capacity as such (to the extent not reimbursed by the Credit
Parties and without limiting the obligation of the Credit Parties to do so),
ratably according to their respective Pro Rata Shares, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including without limitation at any time following payment in full of the
Obligation) be imposed on, incurred by or asserted against Administrative Agent
in its capacity as such in any way relating to or arising out of this Credit
Agreement or the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by Administrative Agent under or in connection
with any of the foregoing; provided



                                       65


that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of Administrative Agent. If any indemnity furnished to Administrative
Agent for any purpose shall, in the opinion of Administrative Agent, be
insufficient or become impaired, Administrative Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this SECTION 12.7
shall survive the payment of the Obligation.

        12.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to
the Loans made and Letters of Credit issued and all obligations owing to it,
Administrative Agent acting in its individual capacity shall have the same
rights and powers under this Credit Agreement as any Lender and may exercise the
same as though it were not an agent, and the terms "LENDER" and "LENDERS" shall
include Administrative Agent in its individual capacity. Administrative Agent
acting in its individual capacity and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with Borrower or any
other Borrower Party as though Administrative Agent were not an agent hereunder
and without any duty to account therefor to the other Lenders.

        12.9 SUCCESSOR AGENT. Administrative Agent may, at any time, resign upon
twenty (20) days written notice to the Lenders and the Credit Parties. Upon any
such resignation of the Administrative Agent, the Required Lenders shall have
the right to appoint a successor Administrative Agent (subject, except when an
Event of Default exists, to the consent of the Borrower, not to be unreasonably
withheld). If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within sixty
(60) days after the notice of resignation, then the retiring Administrative
Agent shall select a successor Administrative Agent (subject, except when an
Event of Default exists, to the consent of Borrower, not to be unreasonably
withheld); provided such successor is an Eligible Assignee (or if no Eligible
Assignee shall have been so appointed by the retiring Administrative Agent and
shall have accepted such appointment, then the Lenders shall perform all
obligations of the retiring Administrative Agent hereunder until such time, if
any, as a successor Administrative Agent shall have been appointed and shall
have accepted such appointment as provided for above). Upon the acceptance of
any appointment as an Administrative Agent hereunder by a successor, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and shall assume the duties and obligations of such retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations as Administrative Agent under this Credit
Agreement and the other Loan Documents and the provisions of this SECTION 12.9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Credit Agreement.

        12.10 RELIANCE BY CREDIT PARTIES. The Credit Parties and any Qualified
Borrower shall be entitled to rely upon, and to act or refrain from acting on
the basis of, any notice, statement, certificate, waiver or other document or
instrument delivered by Administrative Agent to Borrower or such other Person so
long as Administrative Agent is purporting to act in its respective capacity as
Administrative Agent pursuant to this Credit Agreement, and the Credit Parties
and the Qualified Borrowers shall not be responsible or liable to any Lender (or
to any Participant, as defined in SECTION 13.11(b) hereof or to any Assignee, as
defined in SECTION 13.11(c) hereof), or as a result of any action or failure to
act (including actions or omissions which would otherwise constitute defaults
hereunder) which is based upon such reliance upon Administrative Agent. The
Credit Parties and the Qualified Borrowers shall be entitled to treat
Administrative Agent as the properly



                                       66


authorized Administrative Agent pursuant to this Credit Agreement until Borrower
shall have received notice of resignation, and such Persons shall not be
obligated to recognize any successor Administrative Agent until Borrower shall
have received written notification satisfactory to it of the appointment of such
successor.

SECTION 13. MISCELLANEOUS

        13.1 AMENDMENTS. Neither this Credit Agreement nor any other Loan
Document, nor any of the terms hereof or thereof, may be amended, waived,
discharged or terminated, unless such amendment, waiver, discharge, or
termination is in writing and signed by Administrative Agent (based upon the
approval of the Required Lenders), or the Required Lenders, on the one hand, and
the Credit Parties on the other hand; provided that no such amendment, waiver,
discharge, or termination shall, without the consent of:

                (a) each Lender affected thereby:

                        (i) reduce or increase the amount or alter the term of
                the Commitment of such Lender, or alter the provisions relating
                to any fees (or any other payments) payable to such Lender;

                        (ii) extend the time for payment for the principal of or
                interest on the Obligation, or fees or costs, or reduce the
                principal amount of the Obligation (except as a result of the
                application of payments or prepayments), or reduce the rate of
                interest borne by the Obligation (other than as a result of
                waiving the applicability of the Default Rate), or otherwise
                affect the terms of payment of the principal of or any interest
                on the Obligation or fees or costs hereunder;

                        (iii) release any liens granted under the Collateral
                Documents, except as otherwise contemplated herein or therein,
                and except in connection with the transfer of interests in
                Borrower permitted hereunder; and

                (b) all Lenders:

                        (i) permit the cancellation, excuse or reduction of the
                Capital Commitment of any Included Investor;

                        (ii) amend the definition of "AVAILABLE COMMITMENT";

                        (iii) change the percentages specified in the definition
                of Required Lenders herein;

                        (iv) consent to the assignment or transfer by any Credit
                Party of any of its rights and obligations under (or in respect
                of) the Loan Documents; or

                        (v) amend the terms of this SECTION 13.1.



                                       67


        Notwithstanding the above: (A) no provisions of SECTION 12 may be
amended or modified without the consent of Administrative Agent; (B) no
provisions of SECTION 2.8 may be amended or modified without the consent of the
Letter of Credit Issuer; and (C) SECTIONS 9 and 10 specify the requirements for
waivers of the Affirmative Covenants and Negative Covenants listed therein, and
any amendment to a provision of SECTION 9 or SECTION 10 shall require the
consent of the Lenders that are specified therein as required for a waiver
thereof.

        Notwithstanding the fact that the consent of all the Lenders is required
in certain circumstances as set forth above and in SECTION 10: (1) each Lender
is entitled to vote as such Lender sees fit on any reorganization plan that
affects the Loans or the Letters of Credit, and each Lender acknowledges that
the provisions of Section 1126(c) of the Bankruptcy Code supersede the unanimous
consent provisions set forth herein; (2) the Required Lenders may consent to
allow a Borrower Party to use cash collateral in the context of a bankruptcy or
insolvency proceeding; and (3) Administrative Agent may, in its sole discretion,
agree to the modification or waiver of any of the other terms of this Credit
Agreement or any other Loan Document or consent to any action or failure to act
by Borrower, if such modification, waiver, or consent is of an administrative
nature.

        If Administrative Agent shall request the consent of any Lender to any
amendment, change, waiver, discharge, termination, consent or exercise of rights
covered by this Credit Agreement, and not receive such consent or denial thereof
in writing within ten (10) Business Days of the making of such request by
Administrative Agent, as the case may be, such Lender shall be deemed to have
given its consent to the request.

        13.2 SHARING OF OFFSETS. Each Lender and Administrative Agent agrees
that if it shall, through the exercise of any right of counterclaim, offset,
banker's lien or otherwise, receive payment of a portion of the aggregate amount
of principal, interest and fees due to such Lender hereunder which constitutes a
greater proportion of the aggregate amount of principal, interest and fees then
due to such Lender hereunder or under its Note than the proportion received by
any other Lender in respect of the aggregate amount of principal, interest and
fees due with respect to such other Lender's Note or the Obligation to such
Lender under this Credit Agreement, then such Lender shall purchase
participations in the Obligation under this Credit Agreement held by such other
Lenders so that all such recoveries of principal, interest and fees with respect
to this Credit Agreement, the Notes and the Obligation thereunder held by
Lenders shall be pro rata according to each Lender's Commitment (determined as
of the date hereof and regardless of any change in any Lender's Commitment
caused by such Lender's receipt of a proportionately greater or lesser payment
hereunder).

        13.3 SHARING OF COLLATERAL. To the extent permitted by applicable law,
each Lender and Administrative Agent, in its capacity as a Lender, agrees that
if it shall, through the receipt of any proceeds from a Capital Call or the
exercise of any remedies under any Collateral Documents, receive or be entitled
to receive payment of a portion of the aggregate amount of principal, interest
and fees due to it under this Credit Agreement which constitutes a greater
proportion of the aggregate amount of principal, interest and fees then due to
such Lender under this Credit Agreement or its Note than the proportion received
by any other Lender in respect of the aggregate amount of principal, interest
and fees due with respect to any other Lender's Note or the Obligation to such
Lender under this Credit Agreement, then such Lender or Administrative Agent, in
its capacity as a Lender, as the case may be, shall purchase participations in
the



                                       68


Obligation under this Credit Agreement held by such other Lenders so that all
such recoveries of principal, interest and fees with respect to this Credit
Agreement, the Notes and the Obligation thereunder held by Lenders shall be pro
rata according to each Lender's Commitment (determined as of the date hereof and
regardless of any change in any Lender's Commitment caused by such Lender's
receipt of a proportionately greater or lesser payment hereunder). Each Lender
hereby authorizes and directs Administrative Agent to coordinate and implement
the sharing of collateral contemplated by this SECTION 13.3 prior to the
distribution of proceeds from Capital Calls or proceeds from the exercise of
remedies under the Collateral Documents prior to making any distributions of
such proceeds to each Lender or Administrative Agent, in their respective
capacity as Lenders.

        13.4 WAIVER. No failure to exercise, and no delay in exercising, on the
part of Agents or Lenders, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other
further exercise thereof or the exercise of any other right. The rights of
Agents and Lenders hereunder and under the Loan Documents shall be in addition
to all other rights provided by law. No modification or waiver of any provision
of this Credit Agreement, the Notes or any of the other Loan Documents, nor
consent to departure therefrom, shall be effective unless in writing and no such
consent or waiver shall extend beyond the particular case and purpose involved.
No notice or demand given in any case shall constitute a waiver of the right to
take other action in the same, similar or other instances without such notice or
demand. Subject to SECTION 13.1, Administrative Agent acting on behalf of all
Lenders, and the Credit Parties may from time to time enter into agreements
amending or changing any provision of this Credit Agreement or the rights of
Lenders or the Credit Parties hereunder, or may grant waivers or consents to a
departure from the due performance of the obligations of the Credit Parties
hereunder, any such agreement, waiver or consent made with such written consent
of Administrative Agent being effective to bind all Lenders, except as provided
in SECTION 13.1.

        13.5 PAYMENT OF EXPENSES; INDEMNITY.

                (a) Borrower agrees to pay (within five (5) days after the
        receipt of written notice from Administrative Agent) all out-of-pocket
        costs and expenses of Administrative Agent (including without limitation
        the reasonable fees and expenses of Administrative Agent's legal
        counsel) reasonably incurred by it in connection with the negotiation,
        preparation, execution and delivery of this Credit Agreement, the Notes,
        and the other Loan Documents and any and all amendments, modifications
        and supplements thereof or thereto, and, if an Event of Default exists,
        all out-of-pocket costs and expenses of Administrative Agent and Lenders
        (including, without limitation, the reasonable attorneys' fees of
        Administrative Agent's and Lenders' legal counsel) reasonably incurred
        by them in connection with the presentation and enforcement of, and
        Administrative Agents' and Lenders' rights under, this Credit Agreement,
        the Notes, and the other Loan Documents.

                (b) Borrower agrees to indemnify Administrative Agent and each
        of Lenders and their respective directors, officers, employees,
        attorneys and agents (each such Person, including without limitation
        Agent and each of Lenders, being called an "INDEMNITEE") against, and to
        hold each Indemnitee harmless from, any and all losses, claims, actions,
        judgments, suits, disbursements, penalties, damages (other than
        consequential damages), liabilities and related expenses, including
        reasonable counsel fees and expenses, incurred by or asserted against
        any Indemnitee arising out of, in any way connected with, or as a result
        of:



                                       69


                        (i) the execution and delivery of this Credit Agreement
                or any other Loan Document or any agreement or instrument
                contemplated thereby,

                        (ii) the use or misuse of the proceeds of the Loans,

                        (iii) the fraudulent actions or misrepresentations of
                any Credit Party or its Affiliates in connection with the
                transactions contemplated by this Credit Agreement and the other
                Loan Documents, or

                        (iv) any claim, litigation, investigation or proceeding
                relating to any of the foregoing, whether or not any Indemnitee
                is a party thereto;

        provided, however, that such indemnity shall not, as to any Indemnitee,
        apply to any such losses, claims, actions, judgments, suits,
        disbursements, penalties, damages, liabilities or related expenses
        arising from gross negligence or willful misconduct of such Indemnitee.

                (c) In addition to and without limiting the foregoing, the
        Credit Parties hereby indemnify and hold the Indemnitees harmless from
        and against, and agree to reimburse any Indemnitee on demand for, and
        agree to defend the Indemnitees against, any and all Environmental
        Damages (as hereinafter defined), incurred by Administrative Agent or a
        Lender. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
        INDEMNITEE WITH RESPECT TO ENVIRONMENTAL DAMAGES WHICH IN WHOLE OR IN
        PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (OR ANY OTHER)
        INDEMNITEE. HOWEVER, SUCH INDEMNITY SHALL NOT APPLY TO A PARTICULAR
        INDEMNITEE TO THE EXTENT THAT THE SUBJECT OF THE INDEMNIFICATION IS
        CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
        THAT PARTICULAR INDEMNITEE.

                The term "ENVIRONMENTAL DAMAGES" means all claims, demands,
        liabilities (including strict liability), losses, damages (including
        consequential damages), causes of action, judgments, penalties, fines,
        costs and expenses (including reasonable fees, costs and expenses of
        attorneys, consultants, contractors, experts and laboratories), of any
        and every kind or character, contingent or otherwise, matured or
        unmatured, known or unknown, direct or indirect, foreseeable or
        unforeseeable, made, incurred, suffered or brought at any time and from
        time to time and arising in whole or in part from:

                        (i) The presence of any Hazardous Material on any
                Property, or any escape, seepage, leakage, spillage, emission,
                release, discharge or disposal of any Hazardous Material on or
                from any Property, or the migration or release or threatened
                migration or release of any Hazardous Material to, from or
                through any Property; or

                        (ii) Any act, omission, event or circumstance existing
                or occurring in connection with the handling, treatment,
                containment, removal, storage, decontamination, clean-up,
                transport or disposal of any Hazardous Material by Borrower, or
                any party for whose actions Borrower is liable or in connection
                with any Property; or



                                       70


                        (iii) The breach of any representation, warranty,
                covenant or agreement contained in SECTION 8.15 (to the extent
                such breach relates to Environmental Requirements), SECTION 8.16
                or SECTION 9.9 (to the extent such breach relates to
                Environmental Requirements), or SECTION 10.8 of this Credit
                Agreement; or

                        (iv) Any violation of any Environmental Requirement,
                regardless of whether any act, omission, event or circumstance
                giving rise to the violation constituted a violation at the time
                of the occurrence or inception of such act, omission, event or
                circumstance; or

                        (v) Any Environmental Liability with respect to any
                Property, or the filing or imposition of any Environmental Lien
                against any Property, because of, resulting from, in connection
                with, or arising out of any of the matters referred to in
                SUBSECTIONS (i) through (iv) preceding.

                (d) WITHOUT LIMITATION OF AND SUBJECT TO THE FOREGOING, EACH
        CREDIT PARTY INTENDS AND AGREES THAT THE FOREGOING INDEMNITIES SHALL
        APPLY TO EACH INDEMNITEE WITH RESPECT TO ALL CLAIMS, DAMAGES, LOSSES,
        LIABILITIES, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, THE REASONABLE
        FEES AND EXPENSES OF COUNSEL) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR
        ARISE OUT OF THE NEGLIGENCE OR CLAIMS OF NEGLIGENCE OF SUCH OR ANY OTHER
        INDEMNITEE OR ANY STRICT LIABILITY OR CLAIMS OF STRICT LIABILITY.

                (e) The provisions of this SECTION 13.5 shall remain operative
        and in full force and effect regardless of the expiration of the
        Commitment Period, the consummation of the transactions contemplated
        hereby, the repayment of the Loans, the occurrence of the Commitment
        Termination Date, the invalidity, illegality, or unenforceability of any
        term or provision of this Credit Agreement or any other Loan Document,
        or any investigation made by or on behalf of Lenders. All amounts due
        under this SECTION 13.5 shall be payable promptly on written demand
        therefor.

        13.6 NOTICE. Any notice, demand, request or other communication which
any party hereto may be required or may desire to give hereunder shall be in
writing (except where telephonic instructions or notices are expressly
authorized herein to be given) and shall be deemed to be effective: (a) if by
hand delivery, telecopy or other facsimile transmission, on the day and at the
time on which delivered to such party at the address or fax numbers specified
below; (b) if by mail, on the day which it is received after being deposited,
postage prepaid, in the United States registered or certified mail, return
receipt requested, addressed to such party at the address specified below; or
(c) if by FedEx or other reputable express mail service, on the next Business
Day following the delivery to such express mail service, addressed to such party
at the address set forth below; or (d) if by telephone, on the day and at the
time communication with one of the individuals named below occurs during a call
to the telephone number or numbers indicated for such party below:



                                       71


        If to Borrower or Guarantor:

                 Pier 1, Bay 1
                 San Francisco, CA 94111
                 Telephone:      415-394-9000
                 Fax:            415-394-9001
                 Attention:      Chief Financial Officer

        With a copy to:

                 Goodwin Procter, LLP
                 Exchange Place
                 Boston, MA 02109
                 Telephone:      617-570-1000
                 Fax:            617-227-8591
                 Attention:      David Watson, Esq.

        If to Administrative Agent:

                 Bank of America, N.A.
                 600 Montgomery Street
                 22(nd) Floor
                 San Francisco, CA 94111
                 Telephone:      415-913-3568
                 Fax:            415-913-3445
                 Attention:      Donald H. Moses

        If to Lenders:

                At the address and numbers set forth below the signature of such
                Lender on the signature page hereof or on the Assignment and
                Acceptance Agreement of such Lender.

        Any party may change its address for purposes of this Credit Agreement
by giving notice of such change to the other parties pursuant to this SECTION
13.6. With respect to any notice received by Administrative Agent from any
Credit Party, any Investor, or any Qualified Borrower not otherwise addressed
herein, Administrative Agent shall notify Lenders promptly of the receipt of
such notice, and shall provide copies thereof to Lenders. When determining the
prior days notice required for any Request for Borrowing, Request for Letter of
Credit, or other notice to be provided by a Credit Party, an Investor, or a
Qualified Borrower hereunder, the day the notice is delivered to Administrative
Agent (or such other applicable Person) shall not be counted, but the day of the
related Borrowing, issuance of Letter of Credit, or other relevant action shall
be counted.

        13.7 GOVERNING LAW. Pursuant to Section 5-1401 of the New York General
Obligations Law, the substantive laws of the State of New York applicable to
agreements made and to be performed entirely within such state, without regard
to the choice of law principles that might otherwise apply, except to the



                                       72


extent the laws of another jurisdiction govern the creation, perfection,
validity, or enforcement of Liens under the Collateral Documents, and the
applicable federal laws of the United States of America, shall govern the
validity, construction, enforcement and interpretation of this Credit Agreement
and all of the other Loan Documents.

        13.8 CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION;
WAIVER OF TRIAL BY JURY. Any suit, action or proceeding against Borrower, any
Qualified Borrower or General Partner with respect to this Credit Agreement, the
Notes or the other Loan Documents or any judgment entered by any court in
respect thereof, may be brought in the courts of the State of New York, or in
the United States Courts located in the Borough of Manhattan in New York City,
pursuant to Section 5-1402 of the New York General Obligations Law, as Lenders
in their sole discretion may elect and each of each Credit Party, General
Partner and each Qualified Borrower hereby submits to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding. Each Credit Party, General Partner and each Qualified Borrower
hereby agrees that service of all writs, process and summonses in any such suit,
action or proceeding brought in the State of New York may be brought upon its
process agent appointed below, and each Credit Party, General Partner and each
Qualified Borrower hereby irrevocably appoints Corporation Service Company, 80
State Street, Albany, NY 12207-2543, its process agent, as its true and lawful
attorney-in-fact in its name, place and stead to accept such service of any and
all such writs, process and summonses. Borrower, General Partner and each
Qualified Borrower hereby irrevocably consents to the service of process in any
suit, action or proceeding in said court by the mailing thereof by Lender by
registered or certified mail, postage prepaid, to Borrower's address set forth
in SECTION 13.6 hereof. Guarantor hereby irrevocably consents to the service of
process in any suit, action or proceeding in said court by the mailing thereof
by Lender by registered or certified mail, postage prepaid, to Guarantor's
address set forth in SECTION 13.6 hereof. Each Credit Party, General Partner and
each Qualified Borrower hereby irrevocably waives any objections which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Credit Agreement or the Notes brought in the
courts located in the State of New York, Borough of Manhattan in New York City,
and hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
EACH CREDIT PARTY, GENERAL PARTNER AND EACH QUALIFIED BORROWER HEREBY WAIVES
TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN CONNECTION WITH THIS
CREDIT AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, WHICH WAIVER IS
INFORMED AND VOLUNTARY.

        13.9 INVALID PROVISIONS. If any provision of this Credit Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Credit Agreement, such provision shall be
fully severable and this Credit Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Credit Agreement, and the remaining provisions of this Credit Agreement
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance from this Credit
Agreement, unless such continued effectiveness of this Credit Agreement, as
modified, would be contrary to the basic understandings and intentions of the
parties as expressed herein. If any provision of this Credit Agreement shall
conflict with or be inconsistent with any provision of any of the other Loan
Documents, then the terms, conditions and provisions of this Credit Agreement
shall prevail.



                                       73


        13.10 ENTIRETY AND AMENDMENTS. The Loan Documents embody the entire
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof, and
this Credit Agreement and the other Loan Documents may be amended only by an
instrument in writing executed by the Credit Parties and Administrative Agent,
on behalf of Lenders.

        13.11 PARTIES BOUND; ASSIGNMENT.

                (a) PARTIES BOUND. The provisions of this Credit Agreement shall
        be binding upon and inure to the benefit of the parties hereto and their
        respective successors and assigns, except that neither the Credit
        Parties nor any Qualified Borrower may assign or otherwise transfer any
        of their respective rights under this Credit Agreement without the prior
        written consent of all Lenders.

                (b) PARTICIPATIONS. Any Lender may at any time grant to one or
        more banks or other institutions (each a "PARTICIPANT") a participating
        interest in its Commitment or any or all of its Loans, provided that any
        such participation shall be in a minimum amount of $5,000,000, and, if
        in a greater amount, in integral multiples of $1,000,000. In the event
        of any such grant by a Lender of a participating interest to a
        Participant, such Lender shall remain responsible for the performance of
        its obligations hereunder, and the Credit Parties and Administrative
        Agent shall continue to deal solely and directly with such Lender in
        connection with such Lender's rights and obligations under this Credit
        Agreement. Any agreement pursuant to which any Lender may grant such a
        participating interest shall provide that such Lender shall retain the
        sole right and responsibility to enforce the Obligation including,
        without limitation, the right to approve any amendment, modification or
        waiver of any provision of this Credit Agreement. The Credit Parties
        agree that each Participant shall be entitled to the benefits of
        SECTIONS 4, and 5.3 hereof with respect to its participating interest,
        provided, however, that in no event shall Borrower be obligated to pay
        to such Participant amounts greater than those Borrower would have been
        required to pay to the granting Lender in the absence of such
        participation. An assignment or other transfer which is not permitted by
        SUBSECTION (c) below shall be given effect for purposes of this Credit
        Agreement only to the extent of a participating interest granted in
        accordance with this SUBSECTION (b).

                (c) ASSIGNMENTS. Any Lender may (at its expense, except for
        assignments to or from Administrative Agent, which shall be at the
        expense of Borrower pursuant to the terms of this Credit Agreement),
        and, following a demand by Borrower (following a demand by such Lender
        for payment of any amounts under SECTION 4.6) shall, at any time assign
        to one or more Eligible Assignees (an "ASSIGNEE") all, or a
        proportionate part of all (in a constant, not varying percentage), of
        its rights and obligations under this Credit Agreement and its Note, and
        such Assignee shall assume such rights and obligations, pursuant to an
        Assignment and Acceptance Agreement; provided, however, that:

                        (i) this SECTION 13.11(c) shall not restrict an
                assignment or other transfer by any Lender to a Federal Reserve
                Bank, but no such assignment to a Federal Reserve Bank shall
                release the assigning Lender from its obligations hereunder;

                        (ii) except in the case of an assignment to another
                Lender, or the assignment of all of a Lender's rights and
                obligations under this Credit Agreement, any assignment shall



                                       74


                be in a minimum amount of $5,000,000, and, if in a greater
                amount, in integral multiples of $1,000,000;

                        (iii) if the assignee is not incorporated under the laws
                of the United States of America or a state thereof, it shall
                deliver to Borrower and Administrative Agent certification as to
                exemption from deduction or withholding of Taxes in accordance
                with SECTION 4.6;

                        (iv) the parties to each such assignment shall execute
                and deliver to Administrative Agent an Assignment and Acceptance
                Agreement, the Assignee shall pay to the transferor Lender an
                amount equal to the purchase price agreed between such
                transferor Lender and such Assignee, and the transferor Lender
                shall deliver payment of a processing and recordation fee of
                $3,500 to Administrative Agent (except in the case of a transfer
                at the demand of Borrower, in which case either Borrower or the
                transferee Lender shall pay such fee);

                        (v) each assignment made as a result of a demand by
                Borrower shall be arranged by Borrower after consultation with
                Administrative Agent and shall be either an assignment of all of
                the rights and obligations of the assigning Lender under this
                Credit Agreement or an assignment of a portion of such rights
                and obligations made concurrently with another assignment or
                assignments that together constitute an assignment of all of the
                rights and obligations of the assigning Lender; and

                        (vi) Bank of America shall retain a Commitment equal to
                or exceeding the Commitment of the Lender with the otherwise
                highest Commitment.

                (d) CONSEQUENCES OF ASSIGNMENT. Upon execution and delivery of
        such Assignment and Acceptance Agreement and payment by such Assignee to
        such transferor Lender of an amount equal to the purchase price agreed
        between such transferor Lender and such Assignee, such Assignee shall be
        a Lender party to this Credit Agreement and shall have all the rights
        and obligations of a Lender with a Commitment as set forth in such
        Assignment and Acceptance Agreement, and the transferor Lender shall be
        released from its obligations hereunder to a corresponding extent, and
        no further consent or action by any party shall be required. Upon the
        consummation of any assignment pursuant to this SECTION 13.11(c), the
        transferor Lender, Administrative Agent and Borrower shall make
        appropriate arrangements so that, if required, new Notes are issued to
        such Assignee and the transferor Lender.

                (e) REGISTER OF LENDERS. Administrative Agent shall maintain at
        its principal offices in San Francisco or at such other location as
        Administrative Agent shall designate in writing to each Lender and
        Borrower, a copy of each Assignment and Acceptance Agreement delivered
        to and accepted by it and a register for the recordation of the names
        and addresses of Lenders, the amount of each Lender's Pro Rata Share of
        the Commitments and the Loans, and the name and address of each Lender's
        agent for service of process in New York City (the "REGISTER"). The
        entries in the Register shall be conclusive and binding for all
        purposes, absent manifest error, and Credit Party, Administrative Agent
        and Lenders shall treat each person or entity whose name is recorded in
        the



                                       75


        Register as a Lender hereunder for all purposes of this Credit
        Agreement. The Register shall be available for inspection and copying by
        Borrower or any Lender during normal business hours upon reasonable
        prior notice to Administrative Agent. A Lender may change its address
        and its agent for service of process upon written notice to
        Administrative Agent, which notice shall be effective upon actual
        receipt by Administrative Agent, which receipt will be acknowledged by
        Administrative Agent upon request. Upon receipt of any Assignment and
        Acceptance Agreement Administrative Agent shall, if such Assignment and
        Acceptance Agreement has been completed, fully-executed and is
        substantially in the form of EXHIBIT O hereto: (i) accept such an
        Assignment and Acceptance Agreement; (ii) record the information
        contained therein in the Register and (iii) give prompt notice thereof
        to Borrower.

                (f) DISCLOSURE OF INFORMATION. Any Lender may furnish any
        information concerning the Credit Parties, General Partner, or any
        Investor in the possession of such Lender from time to time to assignees
        and participants (including prospective assignees and participants),
        subject, however, to the provisions of SECTION 13.17 hereof.

        13.12 LENDER DEFAULT. If for any reason any Lender shall fail or refuse
to abide by its obligations hereunder, and such Lender shall not have cured such
failure within five (5) Business Days of its occurrence (a "LENDER DEFAULT"),
then, in addition to the rights and remedies that may be available to Agents,
Lenders, or Borrower at law or in equity, such Lender's right to vote on matters
related to this Credit Agreement, and to participate in the administration of
the Loans, the Letters of Credit, and this Credit Agreement, shall be suspended
during the pendency of such failure or refusal. Administrative Agent shall have
the right, but not the obligation, in its sole discretion, to acquire at par all
of such Lender's Commitment, including its Pro Rata Share in the Obligation
under this Credit Agreement. In the event that Administrative Agent does not
exercise its right to so acquire all of such Lender's interests, then the other
Agents and each Lender that is not in Default (a "CURRENT PARTY") shall then,
thereupon, have the right, but not the obligation, in its sole discretion to
acquire at par (or if more than one Current Party exercises such right, each
Current Party shall have the right to acquire, pro rata) such Lender's
Commitment, including its Pro Rata Share in the outstanding Obligation under
this Credit Agreement.

        13.13 MAXIMUM INTEREST. Regardless of any provision contained in any of
the Loan Documents, Lenders shall never be entitled to receive, collect or apply
as interest on the Obligation any amount in excess of the Maximum Rate, and, in
the event that Lenders ever receive, collect or apply as interest any such
excess, the amount which would be excessive interest shall be deemed to be a
partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower or the applicable Qualified Borrower. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the Maximum Rate, Borrower and Lenders shall, to the maximum
extent permitted under applicable law: (a) characterize any nonprincipal payment
as an expense, fee or premium rather than as interest; (b) exclude voluntary
prepayments and the effects thereof; and (c) amortize, prorate, allocate and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of the Obligation so that the interest rate does not exceed
the Maximum Rate; provided that, if the Obligation is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
Lenders shall refund to Borrower or the applicable Qualified Borrower the amount
of such excess or credit the amount of such excess against the principal amount
of the Obligation and, in such event,



                                       76


Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest in excess of
the Maximum Rate.

        13.14 HEADINGS. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Credit Agreement.

        13.15 SURVIVAL. All representations and warranties made by the Credit
Parties and the Qualified Borrowers herein shall survive delivery of the Notes,
the making of the Loans and the issuance of the Letters of Credit.

        13.16 LIMITED LIABILITY OF PARTNERS. Except with respect to any losses
arising from Borrower's or General Partner's intentional misrepresentation
hereunder, fraud, or willful misapplication of proceeds in contravention of this
Credit Agreement, for which there shall be full recourse to General Partner,
none of the Partners, including the General Partner, shall have any personal,
partnership, corporate or trust liability for the payment or performance of the
Obligation. Nothing contained in this SECTION 13.16 or in any of the other
provisions of the Loan Documents shall be construed to limit, restrict, or
impede the obligations, the liabilities, and indebtedness of Borrower, or of any
Investor to make its Capital Contributions to Borrower or Guarantor, in
accordance with the terms of the Partnership Agreement, or the Articles of
Incorporation and Subscription Agreements, as applicable, or pursuant to the
terms of such Investor's Investor Letter. Nothing contained in this SECTION
13.16 shall be deemed to expressly or implicitly limit or modify the liability
of each Qualified Borrower to Lenders under the Qualified Borrower Notes;
provided, however, that such liability shall not extend beyond such Qualified
Borrower and its properties and assets. Notwithstanding anything contained in
this SECTION 13.16, the payment and performance of the Obligation shall be fully
recourse to Borrower (but not Borrower's General Partner) and its properties and
assets.

        13.17 AVAILABILITY OF RECORDS; CONFIDENTIALITY. Borrower acknowledges
and agrees that Administrative Agent may provide to Lenders, and that
Administrative Agent and each Lender may provide to any Participant or Assignee
or proposed Participant or Assignee, originals or copies of this Credit
Agreement, all Loan Documents and all other documents, certificates, opinions,
letters of credit, reports, and other material information of every nature or
description, and may communicate all oral information, at any time submitted by
or on behalf of any Credit Party, any Investor, or any Qualified Borrower or
received by any of Agents or a Lender in connection with the Loans, the Letter
of Credit Liability, the Commitments or a Credit Party; provided, however, that,
prior to any such delivery or communication, the Lender, Participant, or
Assignee, as the case may be, shall agree to preserve the confidentiality of all
data and information which constitutes Confidential Information. Anything herein
to the contrary notwithstanding, the provisions of this SECTION 13.17 shall not
preclude or restrict any such party from disclosing any Confidential
Information: (a) with the prior written consent of the appropriate Credit Party;
(b) upon the order of or pursuant to the rules and regulations of any
Governmental Authority having jurisdiction over such party; (c) in connection
with any audit by an independent public accountant of such party, provided such
auditor thereto agrees to be bound by the provisions of this SECTION 13.17; (d)
to examiners or auditors of any applicable Governmental Authority which examines
such party's books and records while conducting such examination or audit; or
(e) as otherwise specifically required by law.



                                       77


        13.18 MULTIPLE COUNTERPARTS. This Credit Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Credit
Agreement by signing any such counterpart.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW.



                                       78


     IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be duly executed as of the day and year first above written.

                                   BORROWER:

                                   AMB INSTITUTIONAL ALLIANCE FUND II, L.P.

                                   By:  AMB Property, L.P., its general
                                        partner


                                        By:  AMB Property Corporation, its
                                             general partner

                                             By:  /s/ GAYLE P. STARR
                                                --------------------------------
                                                  Name: Gayle P. Starr
                                                  Title: V.P. Capital Markets

                                   GUARANTOR:

                                   AMB INSTITUTIONAL ALLIANCE REIT II, INC.

                                   By:   /s/ ROBERT JOHNSON JR.
                                      -------------------------------------
                                         Name: Robert Johnson Jr.
                                         Title: Senior V.P.



                   Revolving Credit Agreement Signature Page




                                   ADMINISTRATIVE AGENT:

Commitment: $25,000,000            BANK OF AMERICA, N.A., as Administrative
                                   Agent and a Lender


                                   By: /s/ ROBERT N. ALLEN
                                       -----------------------------------------
                                       Name:   Robert N. Allen
                                       Title:  Principal


                                   600 Montgomery Street
                                   22nd Floor
                                   San Francisco, CA 94111
                                   Attention:  Donald H. Moses
                                   Telephone:  415-913-3568
                                   Fax:        415-913-3445
                                   Email:      donald.h.moses@bankofamerica.com

                                          SYNDICATION AGENT:

Commitment: $22,500,000                   DRESDNER BANK AG, NEW YORK AND
                                          GRAND CAYMAN BRANCHES, as Syndication
                                          Agent and a Lender


                                          By: /s/ TOM MALKASIAN
                                             ----------------------------------
                                              Name:  Tom Malkasian
                                              Title: Vice President


                                          By: /s/ GABE POTYONDY
                                             ----------------------------------
                                              Name:  Gabe Potyondy
                                              Title: Assistant Vice President


                                          75 Wall Street
                                          New York, NY 10005
                                          Attention:   Stephen Bae
                                          Telephone:   (212) 429-2952
                                          Fax:         (212) 429-2130
                                          Email:       sbae@dresdner.com

                                        DOCUMENTATION AGENT:

Commitment: $20,000,000                 BANK ONE, NA, as Documentation Agent and
                                        a Lender


                                        By: /s/ TIMOTHY J. CAREW
                                           -------------------------------------
                                           Name: Timothy J. Carew
                                           Title: Director, Capital Markets

                                        Mail Code IL1-0315
                                        1 Bank One Plaza, 14th Floor
                                        Chicago, IL 60670-0315
                                        Attention:  Timothy J. Carew
                                        Telephone:  (312) 732-5419
                                        Fax:        (312) 732-5939
                                        Email:      Timothy_Carew@bankone.com

                           LENDERS:

Commitment: $17,500,000    BANK HAPOALIM B.M.



                           By: /s/ LAURA ANNE RAFFA          /s/ SHAUN BREIDBART
                               -------------------------------------------------
                               Name:  Laura Anne Raffa        Shaun Breidbart
                               Title: Senior Vice President   Vice President
                                      Corporate Manager

                           1177 Avenue of the Americas
                           New York, NY 10036
                           Attention:  Gabriel Lubiner
                           Telephone:  (212) 782-2197
                           Fax:        (212) 782-2382
                           Email:      glubiner@hapoalimusa.com




Commitment: $17,500,000                 THE GOVERNOR AND COMPANY OF THE
                                        BANK OF IRELAND


                                        By: /s/ NIAMH O'FLYNN
                                           -------------------------------------
                                           Name: NIAMH O'FLYNN
                                           Title: MANAGER


                                        LaTouche House
                                        International Financial Services Centre
                                        Custom House Docks
                                        Dublin 1 Ireland
                                        Attention:  Kieran Rockett
                                        Telephone:  011 (3531) 609-3476
                                        Fax:        011 (3531) 829-0129
                                        Email:      kieran.rockett@boi.ie


Commitment: $17,500,000            PNC BANK, NATIONAL ASSOCIATION


                                   By: /s/ LOUIS A. STEMPKOWSKI
                                       -----------------------------------------
                                       Name:   Louis A. Stempkowski
                                       Title:  Vice President
                                   One PNC Plaza
                                   249 Fifth Avenue
                                   P1-POPP-19-2
                                   Pittsburgh, PA 15222
                                   Attention: Leo C. Beek
                                   Telephone: (412) 762-3125
                                   Fax: (412) 768-5754
                                   Email: Leo.Beck@PNCBank.com:

Commitment $15,000,000           CHANG HWA COMMERCIAL BANK, LTD.,
                                 NEW YORK BRANCH


                                 By:   /s/ MING-HSIEN LIN
                                    -----------------------------
                                    Name:  Ming-Hsien Lin
                                    Title: VP & General Manager

                                 One World Trade Center
                                 Suite 3211
                                 New York, NY 10048
                                 Attention:  Vivian Chen
                                 Telephone:  (212) 390-7040, Ext. 48
                                 Fax:        (212) 390-0120
                                 Email:      c.changhwa@worldnet.att.net




Commitment: $15,000,000                 ISRAEL DISCOUNT BANK OF NEW YORK


                                        By: /s/ BARRY SHIVAK
                                           -------------------------------------
                                           Name:  BARRY SHIVAK
                                           Title: VICE PRESIDENT


                                        By: /s/ MITCHELL BROTH
                                           -------------------------------------
                                           Name:  MITCHELL BROTH
                                           Title: VICE PRESIDENT

                                        511 Fifth Avenue
                                        New York, NY 10017
                                        Attention:  Laury M. Quiles
                                        Telephone:  (212) 551-8596
                                        Fax:        (212) 551-8872
                                        Email:      LQuiles@idbny.com

                                        Attention:  Barry Shivak
                                        Telephone:  (212) 551-8829
                                        Fax:        (212) 551-8567
                                        Email:      BShivak@idbny.com