SECURITIES AND EXCHANGE COMMISSION

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SyEOSld3vR2WJRXm897UPJf85be31w+ti40TtzGi0leSRQZlEj6snmVVZk5OGsI/ h+5OK/btMFCPhbOZQizgKw== 0000910079-02-000047.txt : 20021113 0000910079-02-000047.hdr.sgml : 20021113 20021113133600 ACCESSION NUMBER: 0000910079-02-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEDFORD PROPERTY INVESTORS INC/MD CENTRAL INDEX KEY: 0000910079 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 680306514 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12222 FILM NUMBER: 02819296 BUSINESS ADDRESS: STREET 1: 270 LAFAYETTE CIRCLE STREET 2: P. O. BOX 1058 CITY: LAFAYETTE STATE: CA ZIP: 94549 BUSINESS PHONE: 9252838910 10-Q 1 f10q3rdqtr2002.htm SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2002.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ________________ to _______________.

Commission File Number 1-12222

BEDFORD PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

MARYLAND

68-0306514

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

270 Lafayette Circle, Lafayette, CA

94549

(Address of principal executive offices)

(Zip Code)

(925) 283-8910

(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 x No___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.

Yes x No___

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding as of November 8, 2002

Common Stock, $0.02 par value

16,750,866

BEDFORD PROPERTY INVESTORS, INC.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STATEMENT

We have prepared the following unaudited interim financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission. In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations. These financial statements should be read in conjunction with the notes to consolidated financial statements appearing in our Form 10-K/A for the year ended December 31, 2001.

When used in this Form 10-Q, the words "believes," "expects," "intends," "anticipates" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties and actual results could differ materially from those expressed, expected or implied by the forward-looking statements. The risks and uncertainties that could cause our actual results to differ from management’s estimates and expectations are contained in our filings with the Securities and Exchange Commission, including our 2001 Annual Report on Form 10-K/A, and as set forth in the section below entitled “Potential Factor s Affecting Future Operating Results”. Readers are cautioned not to place undue reliance on these forward-looking statements since they only reflect information available as of the date of this filing. We do not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information.

BEDFORD PROPERTY INVESTORS, INC.

BALANCE SHEETS

AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001

(Unaudited)

(in thousands, except share and per share amounts)

	September 30, 2002	December 31, 2001
Assets: Real estate investments:
Industrial buildings	$373,095	$303,169
Office buildings	335,013	326,459
Operating properties held for sale	-	11,036
Properties under development	1,445	-
Land held for development	13,654	13,398
	723,207	654,062
Less accumulated depreciation	58,243	48,984
Total real estate investments	664,964	605,078
Cash and cash equivalents	2,104	5,512
Other assets	21,055	20,215
	$688,123	$630,805
Liabilities and Stockholders' Equity:
Bank loans payable	$135,095	$ 80,925
Mortgage loans payable	238,260	242,066
Accounts payable and accrued expenses	9,792	11,653
Dividend and distributions payable	8,375	7,962
Other liabilities	12,632	11,184
Total liabilities	404,154	353,790
Minority interest in consolidated partnership	-	1,135
Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares; issued and outstanding 16,750,783 shares in 2002 and 16,515,200 shares in 2001	335	330
Additional paid-in capital	296,461	292,731
Accumulated dividends in excess of net income	(12,827)	(16,871)
Accumulated other comprehensive loss	-	(310)
Total stockholders' equity	283,969	275,880
	$688,123	$630,805

See accompanying notes to financial statements.

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(Unaudited)

(in thousands, except share and per share amounts)

Three Months

Nine Months

2002

2001

2002

2001

(Restated, see Note 2)

Property operations:

Rental income

$25,655

$24,188

$73,782

$71,546

Rental expenses:

Operating expenses

4,339

3,958

12,443

11,636

Real estate taxes

2,382

2,238

6,727

6,635

Depreciation and amortization

4,403

3,819

12,231

11,331

Income from property operations

14,531

14,173

42,381

41,944

General and administrative expenses

(1,478)

(1,048)

(3,509)

(5,101)

Interest income

151

160

Interest expense

(5,087)

(5,224)

(14,896)

(16,217)

Income from continuing operations

before minority interest

8,032

7,958

24,127

20,786

Minority interest

(38)

(108)

Income from continuing operations

8,032

7,920

24,127

20,678

Discontinued operations:

Income from operating properties sold, net

227

432

766

1,203

Gain on sale of operating properties

1,777

3,575

Income from discontinued operations

2,004

432

4,341

1,203

Net income

$10,036

$ 8,352

$28,468

$21,881

Earnings per share – basic:

Income from continuing

operations

$ 0.49

$ 0.48

$ 1.48

$ 1.22

Income from discontinued

operations

0.12

0.02

0.27

0.07

Net income per share - basic

$ 0.61

$ 0.50

$ 1.75

$ 1.29

Weighted average number of shares - basic

16,327,406

16,571,487

16,258,442

16,948,064

Earnings per share – diluted:

Income from continuing operations

$ 0.48

$ 0.47

$ 1.45

$ 1.20

Income from discontinued operations

0.12

0.02

0.26

0.07

Net income per share - diluted

$ 0.60

$ 0.49

$ 1.71

$ 1.27

Weighted average number of shares

– diluted

16,626,201

17,006,453

16,624,449

17,314,610

See accompanying notes to financial statements.

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

(in thousands, except per share amounts)

Common

stock

Additional

paid-in

capital

Accumulated

dividends

in excess of

net income

Accumulated

other

comprehensive

loss

Total

stock-

holders’

equity

Balance, December 31, 2001

$330

$292,731

$(16,871)

$(310)

$275,880

Issuance of common stock

3,482

3,488

Repurchase and retirement of common stock

(1)

(1,309)

(1,310)

Amortization of deferred compensation

1,557

Dividends to common stockholders

($1.46 per share)

(24,424)

Subtotal

335

296,461

(41,295)

(310)

255,191

Net income

28,468

Other comprehensive income

310

Comprehensive income

28,468

310

28,778

Balance, September 30, 2002

$335

$296,461

$(12,827)

$ -

$283,969

See accompanying notes to financial statements.

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(Unaudited)

( in thousands)

	2002	2001
Operating Activities: Net income	$28,468	$21,881
Adjustments to reconcile net income to net cash provided by operating activities: Minority interest	-	108
Depreciation and amortization, including amortization of deferred loan costs	13,797	13,140
Gain on sale of real estate investments, net	(3,575)	-
Stock compensation amortization	1,557	1,282
Uncollectible accounts expense	296	207
Change in other assets	(2,801)	(491)
Change in accounts payable and accrued expenses	(1,327)	(4,067)
Change in other liabilities	1,758	329
Net cash provided by operating activities	38,173	32,389
Investing Activities: Investments in real estate	(98,691)	(19,182)
Proceeds from sales of real estate investments, net	31,472	-
Net cash used by investing activities	(67,219)	(19,182)
Financing Activities: Proceeds from bank loan payable, net of loan costs	109,995	41,861
Repayments of bank loan payable	(56,293)	(25,345)
Proceeds from mortgage loans payable, net of loan costs	-	17,749
Prepayment of loan costs	(740)	-
Repayments of mortgage loans payable	(3,806)	(2,958)
Issuance of common stock	2,005	993
Repurchase and retirement of common stock	(1,310)	(23,953)
Redemption of Operating Partnership Units	(202)	-
Payment of dividends and distributions	(24,011)	(23,748)
Net cash provided (used) by financing activities	25,638	(15,401)
Net decrease in cash and cash equivalents	(3,408)	(2,194)
Cash and cash equivalents at beginning of period	5,512	3,160
Cash and cash equivalents at end of period	$ 2,104	$ 966
Supplemental disclosure of cash flow information: Cash paid during the year for interest, net of amounts capitalized of $597 in 2002 and $998 in 2001	$ 14,409	$ 15,829
Non-cash investing and financing transactions: Redemption of Operating Partnership Units paid in common stock	$ (1,483)	$ -
Investment in real estate assets	$ 550	$ -
Minority interest in consolidated partnership	$ 933	$ -

BEDFORD PROPERTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2002

Note 1 - Organization and Summary of Significant Accounting Policies and Practices

The Company

Bedford Property Investors, Inc. is a real estate investment trust (“REIT”) formed in 1993 as a Maryland corporation. We are a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties concentrated in the western United States. Our common stock trades under the symbol "BED" on both the New York Stock Exchange and the Pacific Exchange.

Basis of Presentation

We have prepared the accompanying unaudited interim financial statements in accordance with the requirements of Form 10-Q as set forth by the Securities and Exchange Commission. Therefore, they do not include all information and footnotes necessary for a presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations. These unaudited financial statements should be read in conjunction with the Notes to the 2001 audited consolidated financial statements.

Real Estate Investments Held for Sale

We record real estate investments that are considered held for sale at the lower of carrying amount or fair value less costs to sell and such properties are no longer depreciated. We adopted Financial Accounting Standards Board’s Statement of Financial Accounting Standard (“FAS”) 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," on January 1, 2002. FAS 144 supersedes FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The primary objectives of FAS 144 are to develop one accounting model based on the framework established in FAS 121 for long-lived assets to be disposed of by sale, and to address significant implementation issues regarding impairment of long-lived assets held for use. In accordance with FAS 144, we classify real es tate assets as held for sale in the period in which all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Our adoption of FAS 144 resulted in: (i) the presentation of the net operating results of properties sold during the t hree and nine months ended September 30, 2002, less allocated interest expense, as income from discontinued operations for all periods presented and (ii) the presentation of the gain on sale of operating properties sold, net of sale costs, as income from discontinued operations for the three and nine months ended September 30, 2002. We allocated interest expense based on the percentage of the cost basis of properties sold to the total cost basis of real estate assets as of September 30, 2002, and pro-rated the allocated interest for the number of days prior to sale. Implementation of FAS 144 only impacted income statement classification but had no effect on results of operations.

Per Share Data

Per share data are based on the weighted average number of common shares outstanding during the year. We include stock options issued under our stock option plans, non-vested restricted stock, and the Operating Partnership (“OP”) Units of Bedford Realty Partners, L.P. (prior to their redemption on January 15, 2002) in the calculation of diluted per share data if, upon exercise or vestiture, they would have a dilutive effect.

Cash and Cash Equivalents

We consider all demand deposits, money market accounts and temporary cash investments to be cash equivalents. We maintain our cash and cash equivalents at financial institutions. The combined account balances at each institution periodically exceed the Federal Depository Insurance Corporation (“FDIC”) insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. We do not believe that this credit risk is significant as we do not anticipate their non-performance.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued FAS 143, “Accounting for Asset Retirement Obligations.” Under FAS 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 related long-lived asset. FAS 143 is effective for fiscal years beginning after June 15, 2002. We do not believe that FAS 143 will have a material impact on our financial position, cash flows, or results of operations.

In April 2002, the FASB issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FAS Statement No. 13, and Technical Correction.” FAS 145 eliminates extraordinary accounting treatment for reporting a loss on debt extinguishments, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, and describe applicability under changed conditions. The provisions of FAS 145 are effective for us with the beginning of fiscal year 2003; however, early application of FAS 145 is encouraged. Debt extinguishments reported as extraordinary items prior to scheduled or early adoption of FAS 145 would be reclassified in most cases following adoption. We do not anticipate a significant impact on our financial position, cash flows, or results of operations from adopting FAS 145.

In June 2002, the FASB issued FAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS 146 requires the recording of costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of FAS 146 is required for our fiscal year beginning January 1, 2003. We do not believe that the adoption of FAS 146 will have a significant impact on our financial position, cash flows, or results of operations.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation, with no effect on our financial position, cash flows, or net income.

Note 2 – Restatement

Effective July 2002, we corrected our accounting treatment for fees incurred under our contractual relationship with Bedford Acquisitions, Inc. (“BAI”) (see Note 8), commencing in the fourth quarter of 1997 and continuing through the quarter ended June 30, 2002. This new treatment was based on our independent auditors’ advice that they would no longer support the prior method of accounting for BAI. The Company has been advised by its independent auditors that the correction of the accounting treatment for fees paid to BAI has not arisen from any change in the operations of BAI or the Company or the discovery of any new facts relating to these operations. Effective October 1, 1997, fees charged by BAI should have been deemed internal costs that are to be expensed to the extent that such fees do not represent payments to BAI for direct and incremental development costs or for independent third party costs incurred by BAI on our behalf. We have restated our financial statements for all quarters commencing with the fourth quarter of 1997 through the first quarter of 2002 to correct the accounting for these services. Each of the prior period financial statements and accompanying footnotes presented in this quarterly report have been restated and previously reported in our Form 10-K/A for the year ended December 31, 2001 filed on August 23, 2002, our Form 10-Q/A for the quarter ended March 31, 2002 filed on August 23, 2002, and our Form 10-Q for the quarter ended June 30, 2002 filed on August 14, 2002. The individual quarters that comprise the results for the nine months ended September 30, 2001 represent the previously restated and reported results, however, this is the first filing which has required the presentation of the nine month period ended September 30, 2001. The previously reported amounts an d the restated amounts for this period

included in this quarterly report are as follows:

(Dollars in thousand, except per share amounts)

		Nine months ended September 30, 2001⁽¹⁾
Depreciation and amortization expenses:
As Reported		11,368
Restated		11,331
General and administrative expenses:
As Reported		3,114
Restated		5,101
Interest expense:
As Reported		16,576
Restated		16,217
Net income:
As Reported		23,472
Restated		21,881
Net income per share:
As Reported:
Basic		$1.38
Diluted		$1.36
Restated:
Basic		$1.29
Diluted		$1.27

⁽¹⁾Includes a reclassification to reflect the operations of eight properties sold in 2002 as discontinued operations.

Note 3 – Real Estate Investments

As of September 30, 2002, our real estate investments were diversified by property type as follows (dollars in

thousands):

	Number of Properties	Cost	Percent of Total
Industrial buildings	56	$373,095	52%
Office buildings	30	335,013	46%
Properties under development	1	1,445	*
Land held for development	11	13,654	2%
Total	98	$723,207	100%

* Represents less than 1% of the total cost.

The following table sets forth our real estate investments at September 30, 2002 (in thousands):

	Land	Building	Development In-Progress	Less Accumulated Depreciation	Total
Industrial buildings Northern California	$ 70,435	$141,199	$ -	$17,135	$194,499
Northwest	3,408	10,796	-	2,052	12,152
Southern California	16,345	38,717	-	5,467	49,595
Arizona	22,303	69,892	-	6,933	85,262
Total industrial buildings	112,491	260,604	-	31,587	341,508
Office buildings Northern California	6,073	25,175	-	2,579	28,669
Northwest	16,669	100,076	-	10,315	106,430
Southern California	9,340	22,060	-	2,783	28,617
Arizona	10,588	25,689	-	2,680	33,597
Colorado	13,706	92,615	-	6,881	99,440
Nevada	2,102	10,920	-	1,418	11,604
Total office buildings	58,478	276,535	-	26,656	308,357
Properties under development Southern California	-	-	1,445	-	1,445
Land held for development Northern California	5,733	-	-	-	5,733
Northwest	1,096	-	-	-	1,096
Southern California	2,243	-	-	-	2,243
Arizona	637	-	-	-	637
Colorado	3,945	-	-	-	3,945
Total land held for development	13,654	-	-	-	13,654
Total as of September 30, 2002	$184,623	$537,139	$1,445	$58,243	$664,964
Total as of December 31, 2001	$157,861	$496,201	$ -	$48,984	$605,078

Our personnel directly manage all but one of our properties from regional offices in Lafayette, California; Tustin, California; Phoenix, Arizona; Denver, Colorado; and Seattle, Washington. We have retained an outside manager to assist in some of the management functions for U.S. Bank Centre in Reno, Nevada. All financial record-keeping is centralized at our corporate office in Lafayette, California.

Income from property operations for operating properties sold in 2002 was $227,000 and $432,000 for the three months ended September 30, 2002 and 2001, respectively. Income from operating properties sold includes allocated interest expense of $76,000 and $259,000 for the three months ended September 30, 2002 and 2001, respectively.

Income from property operations for operating properties sold in 2002 was $766,000 and $1,203,000 for the nine months ended September 30, 2002 and 2001, respectively. Income from operating properties sold includes allocated interest expense of $403,000 and $797,000 for the nine months ended September 30, 2002 and 2001, respectively.

Note 4. Debt

Bank Loans Payable

In May 2001, we renewed our revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that gives us the option to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lender’s prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level as defined in the credit agreement. As of September 30, 2002, the $150 million facility was secured by our interests in 25 properties, which collectively accounted for approximately 30% of our annualized base rent and approximately 27% of our total real estate assets.

In September 2002, we obtained an additional $40 million unsecured bridge facility with a six-month term, two three-month options to extend, and an interest rate of LIBOR plus 1.55%.

As of September 30, 2002, these facilities had a total outstanding balance of $135,095,000 and an effective interest rate of 3.72%. The daily weighted average outstanding balance was $86,608,000 and $93,934,000 for the nine months ended September 30, 2002 and 2001, respectively. The weighted average annual interest rates under the credit facilities in each of these periods were 4.48% and 6.36%, respectively.

The credit facilities contain various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of our average Funds From Operations (“FFO”). We were in compliance with the various covenants and requirements of our credit facilities during the quarter ended September 30, 2002.

Mortgage Loans Payable

Mortgage loans payable at September 30, 2002 consist of the following (in thousands):

Maturity Date	Interest Rate as of September 30, 2002	Balance
March 15, 2003	7.02%	$18,258
November 19, 2004	4.02%⁽¹⁾	21,371
January 1, 2005	6.00%⁽²⁾	4,412
June 1, 2005	7.17%	25,911
August 1, 2005	3.21%⁽³⁾	22,392
August 1, 2005	3.21%⁽³⁾	3,472
July 31, 2006	8.90%	7,987
July 31, 2006	6.91%	19,212
December 1, 2006	7.95%	21,287
June 1, 2007	7.17%	35,243
June 1, 2009	7.17%	41,165
August 1, 2011	5.92%⁽⁴⁾	17,550
Total		$238,260

(1)

Floating rate based on LIBOR plus 1.60%. The LIBOR rate was locked for one year at 2.42% and will

expire on December 20, 2002.

(2)

Floating rate based on 3 month LIBOR plus 2.50% (adjusted quarterly).

(3)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly).

(4)

Floating rate based on a 12-month average of U.S. Treasury Security Yields plus 2.60% (adjusted semi-annually).

The mortgage loans are collaterized by our interests in 49 properties, which collectively accounted for approximately 62% of our annualized base rents and approximately 51% of our total real estate assets as of September 30, 2002. We were in compliance with the covenants and requirements of our various mortgages during the quarter ended September 30, 2002.

The following table presents scheduled principal payments on mortgage loans as of September 30, 2002 (in thousands):

Twelve month period ending September 30, 2003	$23,269
Twelve month period ending September 30, 2004	5,328
Twelve month period ending September 30, 2005	77,122
Twelve month period ending September 30, 2006	27,988
Twelve month period ending September 30, 2007	53,508
Total thereafter	51,045
	$238,260

Note 5. Derivative Instruments and Hedging Activities

In the normal course of business, we are exposed to the effects of interest rate changes. We limit these risks by following established risk management policies and procedures, including the occasional use of derivatives. For interest rate exposures, interest rate swaps are used primarily to hedge the cash flow risk of our variable rate borrowing obligations.

We do not use derivatives for trading or speculative purposes. Further, we have a policy of only entering into contracts with major financial institutions. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, we have not sustained a material loss from those instruments, and we do not anticipate any material adverse effect on our net income, cash flows, or financial position in the future from the use of derivatives.

Interest rate swaps that convert variable payments to fixed payments are cash flow hedges. Hedging relationships that are fully effective have no effect on net income or FFO. The unrealized gains and losses in the fair value of these interest rate swaps are reported on the balance sheet, as a component of other assets or other liabilities as appropriate, with a corresponding adjustment to accumulated other comprehensive income (loss).

On June 18, 2001, we entered into interest swap agreements with United California Bank. The swap agreements allowed us to hedge our exposure to variable interest rates on two mortgages with remaining principal balances totaling $30,522,000 at the date of inception, by effectively paying a fixed rate of interest over the term of the swap agreement. Interest rate pay differentials that arose under these swap agreements were recognized in interest expense over the term of the contracts, which matured on July 1, 2002. Interest paid as a result of these swap agreements totaled $455,000 over the term of the contracts, $298,000 of which was paid during 2002. These interest rate swap agreements were considered to be fully effective in hedging the variable rate risk associated with the two mortgages.

Note 6. Segment Disclosure

We have five reportable segments organized by the region in which they operate: Northern California (Northern California and Nevada), Arizona, Southern California, Northwest (greater Seattle, Washington and Portland, Oregon) and Colorado.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based upon income from real estate from the combined properties in each segment.

For the nine months ended September 30, 2002 (in thousands, except percentages)

Northern

California

Arizona

Southern

California

Northwest

Colorado

Corporate

& Other

Consolidated

Rental income

$ 26,927

$ 11,306

$ 10,121

$ 14,373

$ 11,055

$ -

$ 73,782

Operating expenses

and real

estate taxes

5,721

3,295

1,944

4,210

4,000

19,170

Depreciation and

amortization

3,748

2,192

1,489

2,814

1,988

12,231

Income from

property

operations

17,458

5,819

6,688

7,349

5,067

42,381

Percent of income

from property

operations

41%

14%

16%

17%

12%

100%

General and

administrative

expenses

(3,509)

Interest income⁽¹⁾

105

151

Interest expense

(14,896)

Income (loss) from

continuing

operations

17,487

5,819

6,688

7,366

5,067

(18,300)

24,127

Discontinued

operations:

Income from

operating

properties sold,

net

370

120

276

766

Gain on sale of

operating

properties

1,777

1,475

323

3,575

Income from

discontinued

operations

2,147

1,595

599

4,341

Net income (loss)

$ 19,634

$ 7,414

$ 7,287

$ 7,366

$ 5,067

$(18,300)

$ 28,468

Real estate

investments

$261,635

$129,109

$ 90,152

$132,045

$110,266

$ -

$723,207

Additions

(dispositions) of

real estate

investments

$ 53,682

$ 20,219

$ (8,874)

$ 1,279

$ 2,839

$ -

$ 69,145

Total assets

$263,430

$120,124

$104,624

$119,297

$ 78,640

$ 2,008

$688,123

(1)

The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable.

For the nine months ended September 30, 2001 (in thousands, except percentages)

Northern

California

Arizona

Southern

California

Northwest

Colorado

Corporate

& Other

Consolidated

Rental income

$ 25,055

$ 11,924

$ 9,546

$ 13,903

$ 11,118

$ -

$ 71,546

Operating expenses

and real estate

taxes

5,111

3,320

1,870

4,018

3,952

18,271

Depreciation and

amortization⁽²⁾

3,541

2,142

1,284

2,710

1,654

11,331

Income from property

operations⁽²⁾

16,403

6,462

6,392

7,175

5,512

41,944

Percent of income

from property

operations

39%

16%

15%

17%

13%

100%

General and

administrative

expenses⁽²⁾

(5,101)

Interest income ⁽¹⁾

131

160

Interest expense⁽²⁾

(16,217)

Income (loss) before

minority interest⁽²⁾

16,423

6,462

6,392

7,184

5,512

(21,187)

20,786

Minority interest

(108)

Income (loss) from

continuing

operations⁽²⁾

16,423

6,462

6,392

7,184

5,512

(21,295)

20,678

Discontinued

operations -

income from

operating

properties sold,

net⁽²⁾

563

176

464

1,203

Net income (loss)⁽²⁾

$ 16,986

$ 6,638

$ 6,856

$ 7,184

$ 5,512

$(21,295)

$ 21,881

(1)

The interest income in the Northern California and Northwest segments represents interest earned from tenant notes receivable.

(2)

As restated, see Note 2.

Note 7. Earnings Per Share (Restated, see Note 2)

Following is a reconciliation of earnings per share (in thousands, except share and per share amounts):

Three Months Ended Sept. 30,

Nine Months Ended Sept. 30,

2002

2001

2002

2001

Basic:

Income from continuing operations

$ 8,032

$ 7,920

$ 24,127

$ 20,678

Income from discontinued operations

2,004

432

4,341

1,203

Net income for basic earnings per share

$ 10,036

$ 8,352

$ 28,468

$ 21,881

Weighted average number of shares – basic

16,327,406

16,571,487

16,258,442

16,948,064

Earnings per share:

Income from continuing operations

$ 0.49

$ 0.48

$ 1.48

$ 1.22

Income from discontinued operations

0.12

0.02

0.27

0.07

Earnings per share – basic

$ 0.61

$ 0.50

$ 1.75

$ 1.29

Diluted:

Income from continuing operations

$ 8,032

$ 7,920

$ 24,127

$ 20,678

Income from discontinued operations

2,004

432

4,341

1,203

Add: minority interest

108

Net income for diluted earnings per share

$ 10,036

$ 8,390

$ 28,468

$ 21,989

Weighted average number of shares – basic

16,327,406

16,571,487

16,258,442

16,948,064

Weighted average shares of dilutive stock

options using average period stock price

under the treasury stock method

166,061

96,796

194,500

61,375

Weighted average shares issuable upon the

conversion of Operating Partnership Units

77,992

3,695

77,992

Weighted average shares of non-vested

restricted stock using average period

stock price under the treasury stock method

132,734

260,178

167,812

227,179

Weighted average number of shares – diluted

16,626,201

17,006,453

16,624,449

17,314,610

Earnings per share:

Income from continuing operations

$ 0.48

$ 0.47

$ 1.45

$ 1.20

Income from discontinued operations

0.12

0.02

0.26

0.07

Earnings per share – diluted

$ 0.60

$ 0.49

$ 1.71

$ 1.27

Note 8. Related Party Transactions

Our activities relating to the acquisition of new properties, sales of real estate, development of real property, and financing arrangements were previously performed by Bedford Acquisitions, Inc. (“BAI”), a corporation wholly-owned by Peter Bedford, our Chairman of the Board and Chief Executive Officer. We used the services of BAI for our acquisition, disposition, financing and development activities because we incurred expenses relating only to those transactions that were successfully completed.

This arrangement provided that BAI earned a success fee in an amount equal to 1½% of the purchase price of property acquisitions, 1½% of the sale price of dispositions, up to 1½% of the amount of any loans secured (less third-party commissions), and up to 7% of the development costs incurred. The total amount of such fees payable to BAI by us was limited to the lesser of: (i) the aggregate amount of such fees earned, or (ii) the aggregate amount of approved expenses incurred by BAI through the time of such acquisition, disposition, financing or development activity.

As discussed in Note 2, BAI fees incurred and reported as capitalized costs during the period from October 1, 1997 through March 31, 2002 have been restated on the prior periods and accompanying financial statements as expenses. Such activities were also expensed for the quarter ended June 30, 2002. Effective July 1, 2002, we terminated the agreement with BAI and hired its former employees.

For the nine months ended September 30, 2002 and 2001, we paid BAI an aggregate amount of approximately $2,375,000 and $2,339,000, respectively, for acquisition, disposition, financing, and development activities performed pursuant to this contractual arrangement. As of December 31, 2001, we had an accrued liability of $1,945,000 for fees earned by BAI in excess of the amounts paid to BAI by us under the agreement. During the quarter ending September 30, 2002, we paid approximately $590,000 to BAI for fees earned prior to the termination of the agreement on June 30, 2002.

At September 30, 2002 and 2001, we did not have any other relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

Note 9. Commitments and Contingencies

As of September 30, 2002, we had outstanding contractual construction commitments of approximately $1,985,000 relating to development in progress and tenant improvements on recently developed properties. We had outstanding undrawn letters of credit against our credit facility of approximately $4,796,000 as of September 30, 2002.

From time to time, we are subject to legal claims in the ordinary course of business. As of September 30, 2002, we have reserved on our balance sheet an accrued liability for potential uninsured losses. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, financial condition, operating results or cash flows.

Note 10. Subsequent Event

In October 2002, we obtained a $22,600,000 new mortgage from Nationwide Life Insurance Company. The loan has a nine-year term and carries a fixed interest rate of 4.61% for the first three years, with resets in years three and six. At the time of each reset, we have the option to pay off the loan without penalty. Proceeds from the loan were used to pay down a portion of the outstanding balance of our $150 million line of credit.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to valuation of real estate investments, income recognition, allowance for doubtful accounts, and deferred assets. These estimates are made based on the information that is currently available as well as various other assumptions believed to be reasonable under the circumstances and are evaluated on an on-going basis. Actual results could vary from those estimates and those estimates could be d ifferent under different assumptions or conditions.

Real estate investments are recorded at cost less accumulated depreciation. The cost of real estate includes acquisition costs and fees, and development costs and fees (including interest, insurance, and real estate taxes). Expenditures for maintenance and repairs that do not add to the value or prolong the useful life of the property are expensed. Expenditures for asset replacements or significant improvements that extend the life or increase the property’s value are capitalized. Real estate properties are depreciated using the straight-line method over estimated useful lives. When circumstances such as adverse market conditions indicate an impairment of a property, we will recognize a loss to the extent that the carrying value exceeds the fair value of the property.

Base rental income is recognized on a straight-line basis over the terms of the respective lease agreements. Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to rent receivable. The amount of straight-line rent receivable is charged against income upon early termination of a lease or as a reduction of gain on sale of the property. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments, which results in a reduction to income. Management determines the adequacy of this allowance by continually evaluating individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditi ons.

Costs incurred for debt financing and property leasing are capitalized as deferred assets. Deferred loan costs include amounts paid to lenders and others to obtain financing. Such costs are amortized over the term of the related loan. Amortization of deferred financing costs is included in interest expense in our statements of income. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease. Deferred leasing costs are included with the basis when a property is sold and therefore reduce the gain on sale. Unamortized financing and leasing costs are charged to expense in the event of debt prepayment or early termination of the lease.

Restatement

Our financial statements for the year ended December 31, 2001 and the quarter ended March 31, 2002 have been restated as explained in Note 2 to Financial Statements. Management’s discussion and analysis below compares the restated 2002 results to the restated 2001 results.

Results of Operations

Our operations consist of developing, owning and operating industrial and suburban office properties located primarily in the western United States.

Variances in revenues, expenses, net income and cash flows for the nine months ended September 30, 2002 when compared with the same period in 2001 were due primarily to the acquisition, development, and sale of operating properties during the following periods:

Activities from January 1, 2001

to September 30, 2001

Activities from October 1, 2001

to September 30, 2002

Number of

Properties

Square

Feet

Number of

Properties

Square

Feet

Acquisitions

Industrial

544,426

Development

Industrial

36,885

41,726

Office

184,689

221,574

41,726

Sales

Industrial

604,192

Office

102,031

706,223

Three Months Ended September 30, 2002 Compared with Three Months Ended September 30, 2001

Income from Property Operations

Income from property operations (defined as rental income less rental expenses) increased $358,000 or 3% in 2002 compared with 2001. This increase is attributable to an increase in rental income of $1,467,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $1,109,000.

The net increase in rental income of $1,467,000 is primarily attributable to property acquisitions, development activities, and higher rental income on existing properties, partially offset by property sales. Acquired properties contributed an additional $1,034,000 to rental income in 2002 as compared to 2001. Development activities increased rental income by $682,000. Higher rental income due to increases in rental rates, expense recovery income, and early termination fees earned in 2002 contributed to an increase in rental income of an additional $374,000. These increases were offset by a decrease in rental income for properties sold in the fourth quarter of 2001 of $623,000.

The net increase in rental expenses of $1,109,000 is primarily attributable to property acquisitions, development activities, and increased operating expenses, partially offset by property sales. Acquired properties contributed an additional $238,000 to rental expenses in 2002 as compared to 2001. Development activities increased rental expenses by $565,000. Increases in depreciation and amortization, insurance, and non-reimbursable property expenses contributed to a net increase in operating expenses of an additional $493,000. Theses increases were offset by a decrease in rental expenses for properties sold in the fourth quarter of 2001 of $187,000.

Expenses

General and administrative expense increased $430,000 or 41% in 2002 compared with 2001, primarily as a result of increased compensation costs associated with restricted stock grants and the hiring of BAI employees, as well as an accrual of approximately $200,000 of state income tax. Interest expense, which includes amortization of loan fees, decreased $137,000 or 3% in 2002 compared with 2001. The decrease is attributable to lower interest rates on our variable rate debt, offset by an increase in amortization of loan fees. The amortization of loan fees was $341,000 and $268,000 in 2002 and 2001, respectively.

Discontinued Operations

In the third quarter 2002, we sold two industrial properties and one office property in Monterey, California for net sale prices totaling $12,800,000, which resulted in an aggregate gain of $1,777,000. Current and prior net operating income relating to these properties is classified as discontinued operations for all periods presented.

Dividends

Common stock dividends to stockholders declared for the third quarter of 2002 were $0.50 per share. Common stock dividends to stockholders and distributions to Operating Partnership (“OP”) Unitholders declared for the third quarter of 2001 were $0.48 per share or OP Unit. The outstanding OP Units were redeemed on January 15, 2002. Consistent with our policy, dividends and distributions were paid in the quarter following the quarter in which they were declared.

Nine Months Ended September 30, 2002 Compared with Nine Months Ended September 30, 2001

Income from Property Operations

Income from property operations (defined as rental income less rental expenses) increased $437,000 or 1% in 2002 compared with 2001. This increase is attributable to an increase in rental income of $2,236,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of $1,799,000.

The net increase in rental income of $2,236,000 is primarily attributable to property acquisitions, development activities, and higher rental income on existing properties, partially offset by property sales. Acquired properties contributed an additional $1,034,000 to rental income in 2002 as compared to 2001. Development activities increased rental income by $1,470,000. Higher rental income due to increases in rental rates, expense recovery income, and early termination fees earned in 2002 contributed to an increase in rental income of an additional $1,589,000. These increases were offset by a decrease in rental income for properties sold in the fourth quarter of 2001 of $1,857,000.

The net increase in rental expenses of $1,799,000 is primarily attributable to property acquisitions, development activities, and increased operating expenses, partially offset by property sales. Acquired properties contributed an additional $238,000 to rental expenses in 2002 as compared to 2001. Development activities increased rental expenses by $1,275,000. Increases in depreciation and amortization, insurance, and non-reimbursable property expenses contributed to a net increase in operating expenses of an additional $838,000. These increases were offset by a decrease in rental expenses for properties sold in the fourth quarter of 2001 of $552,000.

Expenses

General and administrative expense decreased $1,592,000 or 31% in 2002 compared with 2001, primarily as a result of $2,250,000 of BAI financing fees incurred and expensed in connection with the renewal of our $150 million credit facility in 2001, partially offset by increased compensation costs in 2002 associated with restricted stock grants and the hiring of BAI employees. Interest expense, which includes amortization of loan fees, decreased $1,321,000 or 8% in 2002 compared with 2001. The decrease is attributable to lower interest rates on our variable rate debt. The amortization of loan fees was $918,000 and $1,244,000 in 2002 and 2001, respectively.

Discontinued Operations

In the second quarter 2002, we sold four industrial properties in Vista, California and one industrial property in Scottsdale, Arizona for net sale prices totaling $19,081,000, which resulted in an aggregate gain of $1,798,000. Current and prior net operating income relating to these properties is classified as discontinued operations for all periods presented.

In the third quarter 2002, we sold two industrial properties and one office property in Monterey, California for net sale prices totaling $12,391,000, which resulted in an aggregate gain of $1,777,000. Current and prior net operating income relating to these properties is classified as discontinued operations for all periods presented.

Dividends

Common stock dividends to stockholders declared were $0.48 per share for the first and second quarters of 2002 and $0.50 for the third quarter of 2002. Common stock dividends to stockholders and distributions to OP Unitholders declared were $0.45 per share or OP Unit for the first and second quarters of 2001 and $0.48 for the third quarter of 2001. The outstanding OP Units were redeemed on January 15, 2002. Consistent with our policy, dividends and distributions were paid in the quarter following the quarter in which they were declared.

Liquidity and Capital Resources

We expect to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, share repurchases, development of properties, and dividends from (i) cash flow from operations, (ii) borrowings under our credit facility and, if available, other indebtedness which may include indebtedness assumed in acquisitions, and (iii) the sale of certain real estate investments.

Our cash and cash equivalents decreased to $2,104,000 at September 30, 2002, from $5,512,000 at December 31, 2001. This decrease is due to $38,173,000 of cash provided by operations and $25,638,000 provided by financing activities, offset by $67,219,000 used by investing activities.

Net cash of $38,173,000 provided by operating activities consisted primarily of $28,468,000 of net income and $12,075,000 of adjustments for non-cash items, offset by $2,370,000 used in working capital and other activities. Net cash used in working capital and other activities resulted from expenditures incurred in acquiring other assets and payments of accounts payable and accrued expenses, offset by an increase in other liabilities.

Net cash provided by financing activities of $25,638,000 consisted of net proceeds from bank borrowings of $109,995,000 and net proceeds from stock options exercised by employees and directors of $2,005,000, offset by repayments of bank borrowings and mortgage loans of $60,099,000, prepaid loan fees of $740,000 for loans expected to close in future quarters, payment of dividends and distributions of $24,011,000, the repurchase of 54,367 shares of our common stock for $1,310,000, and the redemption of 8,623 shares of OP Units for $202,000 in cash.

Net cash of $67,219,000 used by investing activities consisted of $98,691,000 of cash used for investments in real estate, offset by proceeds from the sale of 8 operating properties of $31,472,000. Investments in real estate consisted of $86,305,000 invested in acquired properties, $9,202,000 invested in developed properties, and $3,184,000 invested in our existing operating portfolio. Investments in real estate include the cost of land, buildings, building improvements, and tenant improvements. We expect to incur additional capital expenditures for our current portfolio of approximately $8,450,000 for the remainder of 2002.

Our ability to continue to finance operations is subject to several uncertainties. For example, our ability to obtain mortgage loans on income producing property is dependent upon our ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. Approximately 79% of our real estate investments served as collateral for our existing indebtedness as of September 30, 2002. Our ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at reasonable commercial rates.

In May 2001, we renewed our revolving credit facility with a bank group led by Bank of America. The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that allows us at our option to expand the facility to $175 million, if needed. Interest on the facility is at a floating rate equal to either the lender’s prime rate or LIBOR plus a margin ranging from 1.30% to 1.55% depending on our leverage level. In September 2002, we obtained an additional $40 million unsecured bridge facility with a six-month term, two three-month options to extend, and an interest rate of LIBOR plus 1.55%. As of September 30, 2002, the facilities had a total outstanding balance of $135,095,000 and an effective interest rate of 3.72%.

Mortgage loans payable at September 30, 2002 consist of the following (in thousands):

Maturity Date	Interest Rate as of September 30, 2002	Balance
March 15, 2003	7.02%	$18,258
November 19, 2004	4.02%⁽¹⁾	21,371
January 1, 2005	6.00%⁽²⁾	4,412
June 1, 2005	7.17%	25,911
August 1, 2005	3.21%⁽³⁾	22,392
August 1, 2005	3.21%⁽³⁾	3,472
July 31, 2006	8.90%	7,987
July 31, 2006	6.91%	19,212
December 1, 2006	7.95%	21,287
June 1, 2007	7.17%	35,243
June 1, 2009	7.17%	41,165
August 1, 2011	5.92%⁽⁴⁾	17,550
Total		$238,260

(1) Floating rate based on LIBOR plus 1.60%. The LIBOR rate was locked for one year at 2.42% and will expire

on December 20, 2002.

(2)

Floating rate based on 3 month LIBOR plus 2.50% (adjusted quarterly).

(3)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly).

(4)

Floating rate based on a 12-month average of U.S. Treasury Security Yields plus 2.60% (adjusted semi-annually).

We were in compliance with the various covenants and other requirements of our debt financing instruments during the quarter ended September 30, 2002. We anticipate that the cash flow generated by our real estate investments and funds available under the credit facility will be sufficient to meet our short-term liquidity requirements.

Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations and other commitments at September 30, 2002, and the effect such obligations could have on our liquidity and cash flow in future periods (in thousands):

Amount of Commitment Expiring by Period

Less

Than

1 Year

1-3

Years

4-5

Years

Over 5

Years

Total

Bank Loan Payable

$40,000

$ 95,095

$ -

$135,095

Mortgage Loans Payable

23,269

82,450

81,496

51,045

238,260

Construction Contract

Commitments

1,985

Standby Letters of Credit

4,796

Total

$70,050

$177,545

$81,496

$51,045

$380,136

Related Party Transactions

Our activities relating to the acquisition of new properties, sales of real estate, development of real property, and financing arrangements were previously performed by BAI, a corporation wholly-owned by Peter Bedford, Chairman of the Board and Chief Executive Officer of Bedford Property Investors, Inc. We used the services of BAI for our

acquisition, disposition, financing and development activities because we incurred expenses related only to those transactions that were successfully completed. These services were provided pursuant to written agreements (renewable annually since January 1, 1995), which provided that BAI was obligated to provide services to us with respect to our acquisition, disposition, financing and development activities, and that BAI was responsible for the payment of expenses incurred for these activities. BAI was required to submit to us a cost estimate for our approval relating to each activity, setting forth the estimated timing and amount of all projected BAI costs relating to such activities. Pursuant to the agreement, Mr. Bedford was obligated to pay BAI’s expenses described above if BAI failed to make any such payments in a timely fashion, pro vided that Mr. Bedford was not obligated to pay any such amounts exceeding $1 million or following a termination of BAI’s obligations based on the expiration or termination of the term of the agreement. On August 14, 2002, we announced that effective July 1, 2002, we terminated the agreement with BAI and hired its former employees.

Potential Factors Affecting Future Operating Results

Many factors affect our actual financial performance and may cause our future results to be different from past performance or trends. These factors include the following:

A significant portion of our base rent is generated by properties in California, and our business could be harmed by an economic downturn in the California real estate market.

As of September 30, 2002, approximately 54% of our total annualized base rent was generated by our properties located in the State of California. As a result of this geographic concentration, the performance of the commercial real estate markets and the local economies in various areas within California could affect the value of these properties and the rental income from these properties and, in turn, our results of operations. In addition, the geographic concentration of our properties in California in close proximity to regions known for their seismic activity exposes us to the risk that our operating results could be harmed by a significant earthquake.

Future declines in the demand for office and light industrial space in the San Francisco Bay Area could harm our results of operations and, consequently, our ability to make distributions to our stockholders.

Approximately 14% of our net operating income was generated by our office properties and flex industrial properties located in the San Francisco Bay Area. As a result, our business is somewhat dependent on the condition of the San Francisco Bay Area economy in general and the market for office space in the San Francisco Bay Area, in particular. The market for such space in the San Francisco Bay Area is in the midst of one of the most severe downturns of the past

several decades. This downturn has been precipitated by the unprecedented collapse of many technology and so-called “dot com” businesses, who during the past several years had been chiefly responsible for generating demand for and increased prices of local office properties. In the event this downturn continues or economic conditions in the San Francisco Bay Area worsen, it could harm the market value of our properties, the results derived therefrom, and our ability to make distributions to our stockholders.

Real estate investments are inherently risky, and many of the risks involved are beyond our ability to control.

Real property investments are subject to numerous risks. The yields available from an equity investment in real estate depend on the amount of income generated and costs incurred by the related properties. If properties in which we invest do not generate sufficient income to meet costs, including debt service, tenant improvements, third-party leasing commissions and capital expenditures, our results of operations and ability to make distributions to our stockholders will suffer. Revenues and values of our properties may also be harmed by a number of other factors, some of which are beyond our control, including:

•

the national economic climate;

•

the local economic climate;

•

local real estate conditions, such as an oversupply of space or a reduction in demand for real estate in an area;

•

the attractiveness of our properties to tenants;

•

competition from other available space;

•

our ability to provide adequate maintenance and insurance to cover other operating costs, government regulations and changes in real estate, zoning or tax laws, interest rate levels; and

•

the availability of financing and potential liabilities under environmental and other laws.

We have in the past, and may in the future, have tenants who are delinquent in their rental payments, which in the aggregate may adversely affect financial performance.

Historically, we have had tenants leasing space in our properties who occasionally have been delinquent in their payments. Although we have devoted significant resources to try to minimize these delinquencies, as recently as September 2002 approximately 3% of our rental payments were collected more than 10 days past their due date. As substantially all of our income is derived from rental income from real property, our results of operations and ability to make distributions to stockholders would suffer if a number of our tenants or one or more of our significant tenants were unable to meet their obligations to us or failed to renew their leases with us. In addition, if the rental rates upon reletting or renewal of leases were significantly lower than current rates, or if we were unable to lease a significant amount of space on economicall y favorable terms, or at all, our results of operations could suffer.

We could experience a reduction in rental income if we are unable to renew or relet space on expiring leases on current lease terms, or at all.

As of September 30, 2002, leases representing 2%, 12%, 23% and 26% of our total annualized base rent were scheduled to expire during 2002, 2003, 2004 and 2005, respectively. We are subject to the risk that, upon expiration, some of these or other leases will not be renewed, the space may not be relet, or the terms of renewal or reletting, including the costs of required renovations or concessions to tenants, may be less favorable than current lease terms. We could face difficulty in reletting our space on commercially acceptable terms when it becomes available. In addition, we expect to incur costs in making improvements or repairs to our properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the reletting of space. Similarly, our rental income could be reduced by vacancies resulting from lease expirations or by construction of tenant improvements required by renewing or new tenants. If we are unable to promptly renew leases or relet space or to fund expenses relating to tenant turnover, or if the expenses relating to tenant turnover are greater than expected, our financial results could be harmed.

Our leases with our 25 largest tenants generated approximately 45% of our base rent in the nine months of 2002, and the loss of one or more of these tenants could adversely affect our results of operations.

As of September 30, 2002, our 25 largest tenants accounted for approximately 45% of our total annualized base rent. If we were to lose any one or more of these tenants, or if any one or more of these tenants were to declare bankruptcy or to fail to make rental payments when due, our results of operations could be harmed and our ability to make distributions to our stockholders could be compromised.

If our tenants experience financial difficulty or seek the protection of bankruptcy laws, our funds from operations could suffer.

Our commercial tenants may, from time to time, experience downturns in their business operations and finances due to adverse economic conditions, which may result in their failure to make rental payments to us on a timely basis or at all. Missed rental payments, in the aggregate, could impair our funds from operations and subsequently, our ability to make distributions to our stockholders.

At any time, a tenant could seek the protection of the bankruptcy laws, which might result in the modification or termination of such tenant’s lease and cause a reduction in our cash flow. During the nine months ended September 30, 2002, three of our tenants representing less than 1% of our base rent, filed for bankruptcy. In the event of default by or bankruptcy of a tenant, we may experience delays in enforcing our rights as lessor and may incur substantial costs in protecting our investment. The default, bankruptcy or insolvency of a major tenant may have an adverse effect on us and our ability to pay dividends to our stockholders. Any failure of our tenants to affirm their leases following bankruptcy could reduce our funds from operations.

Our dependence on smaller businesses to rent office space could adversely affect our cash flow.

Many of the tenants in our properties operate smaller businesses that may not have the financial strength of larger corporate tenants. Smaller companies generally experience a higher rate of failure and are generally more susceptible to financial risks than large, well-capitalized enterprises. Dependence on these companies could create a higher risk of tenant defaults, turnover and bankruptcies, which could harm our ability to pay dividends.

The acquisition and development of real estate is subject to numerous risks, and the cost of bringing any acquired property to standards for its intended market position could exceed our estimates.

We may acquire industrial and suburban office properties and portfolios of these properties, which may include the acquisition of other companies and business entities owning the properties. Although we engage in due diligence for each new acquisition, we may not be aware of all potential liabilities and problems associated with a property. We may have limited contractual recourse, or no contractual recourse, against the sellers of a property. In the future, we expect the majority of our properties and portfolios of properties to be acquired on an “as is” basis, with limited recourse against the sellers. In addition, our investments may fail to perform in accordance with our expectations. Further, estimates of the costs of improvements to bring an acquired property up to standards established for the market position intend ed for that property may prove inaccurate. To the extent that we acquire properties with substantial vacancies, as we have in the past, we may be unable to lease vacant space in a timely manner or at all, and the costs of obtaining tenants, including tenant improvements, lease concessions and brokerage commissions, could prove more costly than anticipated.

Real estate development is subject to other risks, including the following:

•

the risks of difficult and complicated construction projects;

•

the risks related to the use of contractors and subcontractors to perform all construction activities;

•

the risk of development delays, unanticipated increases in construction costs, environmental issues and regulatory approvals; and

•

financial risks relating to financing and construction loan difficulties.

Additionally, the time frame required for development, construction and lease-up of these properties means that we may have to wait a few years or more for a significant cash return to be realized.

Our uninsured or underinsured losses could result in a loss in value of our properties.

We currently maintain general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as a $40 million umbrella liability policy. This coverage protects us against liability claims as well as the cost of defense. We carry property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $10 million, subject to varying deductibles of 2% to 10% of total insurable value per building with respect to earthquake coverage. Additional flood and earthquake coverage with an aggregate limit of $20 million is provided for property located in California. Some losses, however, such as losses due to acts of war, nuclear accidents, pollution, or terrorism may be either uninsurable or not economically insurable, and we do not presently carry any insurance for such losses.

In addition, some losses could exceed the limits of our insurance policies or could cause us to bear a substantial portion of those losses due to deductibles under those policies. If we suffer an uninsured loss, we could lose both our invested capital in and anticipated cash flow from the property while being obligated to repay any outstanding indebtedness incurred to acquire the property. In addition, a majority of our properties are located in areas that are subject to earthquake activity. Although we have obtained earthquake insurance policies for all of our properties, if one or more properties sustain damage as a result of an earthquake, we may incur substantial losses up to the amount of the deductible under the earthquake policy and, additionally, to the extent that the damage exceeds the policy’s maximum coverage. Altho ugh we have obtained owner’s title insurance policies for each of our properties, the title insurance may be in an amount less than the current market value of some of the properties. If a title defect results in a loss that exceeds insured limits, we could lose all or part of our investment in, and anticipated gains, if any, from the property.

We cannot assure you that we will be able to pay dividends regularly although we have done so in the past.

Our ability to pay dividends in the future is dependent on our ability to operate profitably and to generate cash from our operations. Although we have done so in the past, we cannot guarantee that we will be able to pay dividends on a regular quarterly basis in the future. Further, any new shares of common stock issued will substantially increase the cash required to continue to pay cash dividends at current levels. Any common stock or preferred stock that may in the future be issued to finance acquisitions, upon exercise of stock options or otherwise, would have a similar effect. In addition, our existing credit facility limits our ability to pay quarterly dividends to stockholders.

Our ability to pay dividends is further limited by the requirements of Maryland law.

Our ability to pay dividends on the common stock is further limited by the laws of Maryland. Under the Maryland General Corporation Law (the “MGCL”), a Maryland corporation may not make a distribution if, after giving effect to such distribution, either (i) the corporation would not be able to pay indebtedness of the corporation as such indebtedness becomes due in the usual course of business or (ii) the corporation’s total assets would be less than the sum of the corporation’s total liabilities plus (unless the corporation’s charter provides otherwise, which our charter does with respect to dividends but does not with respect to distributions by redemption or other acquisition of shares or otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferent ial rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we cannot make a distribution, except by dividend, on our common stock if, after giving effect to the distribution, our total assets would be less than the sum of our liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of preferred stock then outstanding if we were to be dissolved at the time of the distribution.

If we fail to maintain our qualification as a REIT, we could experience adverse tax and other consequences, including the loss of deductibility of dividends in calculating our taxable income and the imposition of federal income tax at regular corporate rates.

We have elected to qualify as a REIT under the Code. We believe that we have satisfied the REIT qualification requirements since 1985. However, the IRS could challenge our REIT qualification for taxable years still subject to audit and we may fail to qualify as a REIT in the future.

Qualification as a REIT involves the application of highly technical and complex tax code provisions and the determination of various factual matters and circumstances not entirely within our control may have an impact on our ability to maintain our qualification as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources and we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, excluding net capital gains. In addition, we cannot assure you that new legislation, Treasury Regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to our qualification as a REIT or the federal income tax consequences of such qualification. We are not aware of any proposa l to amend the tax laws that would significantly and adversely affect our ability to continue to operate as a REIT.

If we fail to maintain our qualification as a REIT, or are found not to have qualified as a REIT for any prior year, we would not be entitled to deduct dividends paid to our stockholders and would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. In addition, unless entitled to statutory relief, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This treatment would reduce amounts available for investment or distribution to stockholders because of any additional tax liability for the year or years involved. In addition, we would no longer be required by the Code to make any distributions. As a result, disqualification as a REIT would adversely affect us and our abi lity to make distributions to our stockholders. To the extent that distributions to stockholders have been made in anticipation of our qualification as a REIT, we might be required to borrow funds or to liquidate investments to pay the applicable tax.

We must comply with strict income distribution requirements to maintain favorable tax treatment as a REIT. If our cash flow is insufficient to meet our operating expenses and the distribution requirements, we may need to incur additional borrowings or otherwise obtain funds to satisfy these requirements.

To maintain REIT status, we are required each year to distribute to our stockholders at least 90% of our taxable income, excluding net capital gains. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income and 95% of our capital gain net income for the calendar year plus any amount of such income not distributed in prior years. Although we anticipate that cash flow from operations will be sufficient to pay our operating expenses and meet the distribution requirements, we cannot assure you that this will occur and we may need to incur borrowings or otherwise obtain funds to satisfy the distribution requirements associated with maintaining REIT qualification. In addition, differences in timing between the re ceipt of income and payment of expenses in arriving at our taxable income could require us to incur borrowings or otherwise obtain funds to meet the distribution requirements necessary to maintain qualification as a REIT. We cannot assure you that we will be able to borrow funds or otherwise obtain funds if and when necessary to satisfy these requirements.

As a REIT, we are subject to complex constructive ownership rules that limit any holder to 5% of our outstanding stock. Any shares transferred in violation of this rule are subject to redemption by us and any such transaction is voidable.

To maintain REIT qualification, our charter provides that no holder is permitted to own more than 5% in value of our outstanding common stock. In addition, no holder is permitted to own any shares of any class of our stock if that ownership would cause more than 50% in value of our outstanding stock to be owned by five or fewer individuals, would result in our stock being beneficially owned by less than 100 persons or would otherwise result in our failure to qualify as a REIT. Acquisition or ownership of our stock in violation of these restrictions results in automatic transfer of

the stock to a trust for the benefit of a charitable beneficiary or, under specified circumstances, the violative transfer may be deemed void or we may choose to redeem the violative shares. Peter B. Bedford is subject to higher ownership limitations than our other stockholders. Specifically, Mr. Bedford is not permitted to own more than 15% of the lesser of the number or value of the outstanding shares of our common stock.

The constructive ownership rules are complex and may cause common stock owned beneficially or constructively by a group of related individuals and/or entities to be constructively owned by one individual or entity. As a result, the acquisition of less than 5% of our outstanding common stock or the acquisition of an interest in an entity which owns our common stock by an individual or entity could cause that individual or entity or another individual or entity to constructively own common stock in excess of the limits and subject that stock to the ownership restrictions in our charter.

We rely on the services of our key personnel, particularly our Chief Executive Officer, and their knowledge of our business and expertise would be difficult to replace.

We are highly dependent on the efforts of our senior officers, and in particular Peter B. Bedford, our chairman and Chief Executive Officer. While we believe that we could find suitable replacements for these key personnel, the loss of their services could harm our business. In addition, our credit facility provides that it is an event of default if Mr. Bedford ceases for any reason to be our chairman or Chief Executive Officer and a replacement reasonably satisfactory to the lenders has not been appointed by our Board of Directors within six months. We have entered into an amended employment agreement with Mr. Bedford pursuant to which he will serve as chairman of the board and Chief Executive Officer on a substantially full-time basis until the agreement is terminated by the Board of Directors.

The commercial real estate industry is highly competitive, and we compete with substantially larger companies, including REITs, for the acquisition, development and operation of properties, and we may not be able to compete effectively with other properties to attract tenants.

Many real estate companies, including other REITs, compete with us in making bids to acquire new properties. Many of these companies are larger and have substantially greater financial resources than we do. The activities of these competitors could cause us to pay a higher purchase price for a new property than we otherwise would have paid, or may prevent us from purchasing a desired property at all. Numerous industrial and suburban office properties compete with our properties in attracting tenants. Some of these competing properties are newer, better located or better capitalized than our properties. Many of our investments are located in markets that have a significant supply of available space, resulting in intense competition for tenants and lower rents. We believe the oversupply of available space relative to deman d is likely to increase in the near to intermediate term due to the softening U.S. economy. The number of competitive properties in a particular area could adversely affect our ability to lease space in the properties or at newly acquired or developed properties.

We could incur costs from environmental liabilities even though we did not cause, contribute to or know about them.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of hazardous or toxic substances released on, above, under or in a property. These laws often impose liability regardless of whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. In addition, environmental laws often impose liability on a previous owner of property for hazardous or toxic substances present during the prior ownership period. A transfer of the property does not relieve an owner of any liability. Accordingly, we could be liable for properties and joint venture interests previously sold or otherwise divested. The costs of removal or remediation could be substantial. Additionally, the presence of the subst ances, or the failure to properly remove them, may harm our ability to borrow using the real estate as collateral.

All of our properties have had Phase I environmental site assessments, which involve inspection without soil sampling or groundwater analysis, by independent environmental consultants and have been inspected for hazardous materials as part of our acquisition inspections. None of the Phase I assessments has revealed any environmental problems requiring material costs for clean up. The Phase I assessment for Milpitas Town Center, however, indicates that the groundwater

under that property either has been or may in the future be, impacted by the migration of contaminants originating off-site. According to information available to us, the responsible party for this offsite source has been identified and has begun clean up. We do not believe that this environmental matter will impair the future value of Milpitas Town Center in any significant respect, or that we will be required to fund any portion of the cost of remediation, although we cannot assure you that these Phase I assessments or our inspections have revealed all environmental liabilities and problems relating to our properties.

We believe that we are in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances. To date, compliance with federal, state and local environmental protection regulations has not had a material effect on us. However, we cannot assure you that costs of investigating and remediating environmental matters for properties currently or previously owned by us or properties which we may acquire in the future, or other expenditures or liabilities (including claims by private parties) resulting from hazardous substances present in, on, under or above the properties or resulting from circumstances or other actions or claims relating to environmental matters, will not harm us and our ability to pay dividends to our stockholders.

We could incur unanticipated costs to comply with the Americans With Disabilities Act, and any non-compliance could result in fines.

Under the Americans with Disabilities Act (the “ADA”), all public accommodations and commercial facilities are required to meet federal requirements related to access and use by disabled persons. Compliance with the ADA requires removal of access barriers, and any non-compliance may result in the imposition of fines by the U. S. government or an award of damages to private litigants. Although we believe that our properties are substantially in compliance with these requirements, we may in the future incur costs to comply with the ADA with respect to both existing properties and properties acquired in the future, which could have an adverse effect on our ability to make distributions to stockholders.

We are subject to numerous federal, state and local regulatory requirements, and any changes to existing regulations or new laws may result in significant, unanticipated costs.

Our properties are, and any properties we may acquire in the future will be, subject to various other federal, state and local regulatory requirements including local building codes. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. We believe that our properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at properties owned by us may be necessary to comply with changes in these laws. Although no material expenditures are contemplated at this time to comply with any laws or regulations, we cannot assure you that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us, which cou ld harm us and our ability to make distributions to our stockholders. Similarly, changes in laws increasing the potential liability for environmental conditions existing on our properties could result in significant unanticipated expenditures.

Our $150 million credit agreement and some of our mortgage loans are collateralized by approximately 78% of our total real estate assets, and in the event of default under these debt instruments, our lenders could foreclose on the collateral securing this indebtedness.

As of September 30, 2002, our $150 million credit facility had an outstanding balance of $95.1 million and we had other floating rate loans and a $40 million bridge facility totaling $109.2 million. Borrowings under our credit facility bear interest at a floating rate and we may from time to time incur or assume other indebtedness also bearing interest at a floating rate. In that regard, our results of operations for the last year have benefited from low levels of interest rates that are currently at or near historic lows. Should this trend in interest rates reverse itself, our operating results would be harmed. As of September 30, 2002, our $150 million credit facility was secured by mortgages on 25 properties that accounted for approximately 30% of our annualized base rent, along with the rental proceeds from such properties. &nbs p;As of September 30, 2002, these 25 properties comprised approximately 27% of our total real estate assets. While the $40 million bridge facility is unsecured, we have assigned all sale or refinancing proceeds on four properties that account for approximately 8% of our annualized base rent and 10% of our total real estate assets. In addition, our fixed rate mortgage loans were in the aggregate principal amount of approximately $169.1 million as of September 30, 2002. All

of our mortgage loans were collateralized by 49 properties that accounted for approximately 62% of our annualized base rent and approximately 51% of our total real estate assets. If we fail to meet our obligations under the credit facility or the mortgage loans, or any other debt instruments we may enter into from time to time, including failure to comply with financial covenants, the holders of this indebtedness generally would be entitled to demand immediate repayment of the principal and to foreclose upon any collateral securing this indebtedness. In addition, default under or acceleration of any debt instrument could, pursuant to cross-default clauses, cause or permit the acceleration of other indebtedness. Any default or acceleration could adversely affect us and jeopardize our qualification as a REIT and threaten our continued viabi lity. Further, default under or acceleration of any debt instrument could, pursuant to cross-default clauses, cause or permit the acceleration of other indebtedness. Any default or acceleration could adversely affect us, jeopardize our qualification as a REIT and threaten our continued viability.

Our credit facility limits our ability to repurchase and retire shares of our common stock, and the discontinuation of our share buy back program could result in a decrease of our stock price.

Since November 1998, we have repurchased a total of 7,187,222 shares of our common stock for a total of approximately $129 million, at an average price of $17.95 per share. This represents approximately 32% of the shares outstanding since November 1998 when we began implementing our share buy back program. However, our credit facility limits our ability to continue to repurchase such shares by imposing a minimum net worth requirement of $255 million. As of September 30, 2002, our net worth was approximately $284 million. If we are forced to discontinue our share buy back program as a result of these limitations, one of the primary drivers behind our historical increases in our stock price will be removed.

We use borrowings to finance the acquisition, development and operation of properties and to repurchase our common stock, and we cannot be certain that financing will be available on commercially reasonable terms, or at all, in the future.

We borrow money to pay for the acquisition, development and operation of our properties, to repurchase our common stock and for other general corporate purposes. Our credit facility currently expires on June 1, 2004, when the principal amount of all outstanding borrowings must be paid. Since the term of our credit facility is limited, our ability to fund acquisitions and provide funds for working capital and other cash needs following the expiration or utilization of the credit facility will depend primarily on our ability to obtain additional private or public equity or debt financing.

A downturn in the economy could make it difficult for us to borrow money on favorable terms. If we are unable to borrow, we may need to sell some of our assets at unfavorable prices in order to pay our loans. We could encounter several problems, including:

•

insufficient cash flow necessary to meet required payments of principal and interest;

•

an increase on variable interest rates on indebtedness; and

•

an inability to refinance existing indebtedness on favorable terms or at all.

Our leverage could harm our ability to operate our business and fulfill our debt obligations.

We have significant debt service obligations. As of September 30, 2002, we had total liabilities of approximately $404.2 million, excluding unused commitments under our credit facility, and total stockholders’ equity of approximately $284.0 million. Payments to service this debt totaled approximately $19.7 million during the first nine months of 2002. Our debt level increases the possibility that we could be unable to generate cash sufficient to pay the principal of, interest on or other amounts due in respect of our indebtedness. In addition, we may incur additional debt from time to time to fund our stock buy back program, finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in our indebtedness documents.

An increase in market interest rates could also have an adverse effect on the price of our common stock.

One of the factors that may influence the market price of the shares of common stock in public markets will be the annual dividend yield on the price paid for shares of common stock as compared to yields on other financial instruments. An increase in market interest rates may lead prospective purchasers of the common stock to seek a higher annual yield from their investments, which may adversely affect the market price of the common stock. As of September 30, 2002, interest rates in the U.S. were at or near their historic lows.

We have not used derivatives extensively to mitigate our interest rate risks.

Historically, we have not used interest rate swaps, caps and floors or other derivative transactions to help us mitigate our interest rate risks because we have determined that the cost of these transactions outweighed their potential benefits and could have, in some cases, jeopardized our status as a REIT. In 2001, we entered into two swap agreements to hedge our exposure to variable interest rates on two mortgages with remaining principal balances totaling approximately $30.5 million at the date of inception. These agreements matured on July 1, 2002, and we currently are not involved in any swap agreements. Even if we were to use derivative transactions more extensively, it would not fully insulate us from the prepayment and interest rate risks to which we are exposed. However, we do not have any policy that prohibits us from usin g derivative transactions or other hedging strategies more extensively in the future. If we do engage in additional derivative transactions in the future, we cannot assure you that a liquid secondary market will exist for any instruments purchased or sold in those transactions, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Our Board of Directors has opted out of the business combination provisions of the MGCL, thereby exempting us from the five year prohibition and the supermajority vote requirements for a business combination with an interested stockholder.

Under the MGCL, “business combinations,” including issuances of equity securities, between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation’s shares or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an “Interested Stockholder”) or an affiliate of the Interested Stockholder are prohibited for five years after the most recent date on which the Interested Stockholder becomes an Interested Stockholder. A person is not an Interested Stockholder under the “business combination” provisions of the MGCL if our Board of Directors approves in advance the transaction by which the Interested Stockholder otherwise would have become an Interested Stockholder. Thereafter, all business combinations must be approved by two super majority votes of the stockholders unless, among other conditions, the corporation’s common stockholders receive a minimum price, as defined in the MGCL, for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its common shares. However, as permitted by the MGCL, our Board of Directors has elected to exempt any business combination with any person from these provisions of the MGCL. Consequently, unless this exemption is amended or repealed by our Board of Directors, the five-year prohibition and the super majority vote requirements imposed by the MGCL will not apply to any business combination between any Interested Stockholder and us. As a result, we may enter into business combinations with Mr. Bedford or other Interested Stockholders, without requiring a supe r majority vote or compliance with the other statutory provisions. The exemption from these provisions may be amended or repealed by our Board of Directors at any time. Such action by our Board of Directors would impose the “business combination” restrictions of the MGCL on Interested Stockholders, which could delay, defer or prevent a transaction or change in control involving a premium price for our stock or otherwise be in the best interests of the stockholders or that could otherwise adversely affect the interests of the stockholders.

The provisions of our charter documents may inhibit potential acquisition bids that a stockholder may believe are desirable, and the market price of our common stock may be lower as a result.

Our charter authorizes our Board of Directors to cause us to issue additional shares of common stock, preferred stock and convertible preferred stock and to set the preferences, conversion or other rights, voting process, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of preferred stock without the

approval of the holders of the common stock. In addition, our Board of Directors may classify or reclassify any unissued shares of preferred stock and may set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, or terms or conditions of redemption of the classified or reclassified shares. Although our Board of Directors has no current intention to issue any shares of preferred stock, it may establish one or more series of preferred stock that could, depending on their terms, delay, defer or prevent a change in control or other transaction that may be in the best interests of the stockholders. As a result, these provisions may prevent the market price of our common stock from increasing substantially in response to actual or rumored take-over attempts. In addit ion, these provisions may prevent changes in our management.

We may change our policies without stockholder approval.

Our major policies, including those concerning our qualification as a REIT and with respect to dividends, acquisitions, debt and investments, are established by our Board of Directors. Although it has no present intention to do so, the Board of Directors may amend or revise these and other policies from time to time without a vote of or advance notice to our stockholders. Accordingly, holders of the shares of common stock will have no control over changes in our policies, including any policies relating to the payment of dividends or to maintaining qualification as a REIT. In addition, policy changes could adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends.

Financial Performance

Management considers Funds From Operations, or FFO, to be one measure of the performance of an equity REIT. FFO during the three and nine months ended September 30, 2002 was $12,662,000 and $37,569,000, respectively. During the same period in 2001, FFO was $12,296,000 and $33,634,000, respectively. FFO is used by financial analysts in evaluating REITs and can be one measure of a REIT's ability to make cash distributions. Presentation of this information provides the reader with an additional measure to compare the performance of REITs. FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America), excluding extraordinary items and gains (losses) from sales of property, plus depreci ation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We computed FFO in accordance with this definition. FFO does not represent cash generated by operating activities in accordance with accounting principles generally accepted in the United States of America; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. Further, FFO as disclosed by other REITs may not be comparable to our presentation.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
Funds From Operations (in thousands, except share amounts):
Net income	$10,036	$ 8,352	$28,468	$21,881
Adjustments: Depreciation and amortization: Continuing operations	4,403	3,819	12,231	11,331
Discontinued operations	-	87	445	314
Minority interest	-	38	-	108
Gain on sale of operating properties	(1,777)	-	(3,575)	-
Funds From Operations	$12,662	$12,296	$37,569	$33,634
Weighted average number of shares – diluted	16,626,201	17,006,453	16,624,449	17,314,610

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes primarily as a result of our line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we balance our borrowings between fixed and variable rate debt. While we have entered into interest swap agreements to minimize our exposure to interest rate fluctuations, we do not enter into derivative or interest rate transactions for speculative purposes.

Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average annual interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollars in thousands):

Twelve Month Period Ending September 30,

2003

2004

2005

2006

2007

Thereafter

Total

Fair

Value

Variable

rate

LIBOR

debt

$41,947

$97,126

$49,323

$ 620

$ 658

$14,617

$204,291

Weighted

average

interest

rate

3.75%

3.73%

3.81%

5.92%

3.93%

Fixed rate

debt

$21,322

$ 3,297

$27,799

$27,368

$52,850

$36,428

$169,064

$183,026

Weighted

average

interest

rate

7.07%

7.35%

7.19%

7.47%

7.46%

7.17%

7.30%

5.00%

As the table incorporates only those exposures that existed as of September 30, 2002, it does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time, and interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of our design and operation of disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of such evaluation.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are not presently subject to material litigation. Moreover, to our knowledge, we are not aware of any threatened litigation against us, other than routine actions for negligence, other claims and proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse impact on our liquidity, results of operations, business or financial position.

Item 2. CHANGES IN SECURITIES

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit No.

Exhibit

3.1(a)

Articles of Incorporation of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 4.2 of our Registration Statement on Form S-2 (File No. 333-00921) filed on February 14, 1996.

3.1(b)

Charter of Bedford Property Investors, Inc., as amended, is incorporated herein by reference to Exhibit 4.2 of our Amendment No. 1 to our Registration Statement on Form S-2 (File No. 333-00921) filed on March 29, 1996.

3.1(c)

Articles of Amendment of Charter of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 1997.

3.2

Amended and Restated Bylaws of Bedford Property Investors, Inc. is incorporated herein by reference to Exhibit 3.2 to our Form 10-K for the year ended December 31, 2000.

10.46*

Credit Agreement dated September 6, 2002 among Bedford Property Investors, Inc., Bank of America, N.A., and the several additional financial institutions from time to time party to this Agreement, Bank of America, N.A., as Administrative Agent for the Banks, and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager.

10.47*

Note dated as of October 7, 2002 between Bedford Property Investors, Inc. as Borrower and Nationwide Life Insurance Company as Lender.

99.6*

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbares-Oxley Act of 2002.

99.7*

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbares-Oxley Act of 2002.

* Filed herewith

Reports on Form 8-K

On August 14, 2002, we filed a report on Form 8-K announcing that our independent auditors had advised the Board of Directors that the independent auditors would no longer continue their support of our prior accounting treatment for services provided by Bedford Acquisitions, Inc. As a result of a change in the accounting treatment for transactions with Bedford Acquisitions, Inc., a restatement of our financial statements for 1997, 1998, 1999, 2000, 2001 and the first three months of 2002 was required.

On August 23, 2002, we furnished pursuant to Item 9 a report on Form 8-K announcing the delivery of the Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for our Quarterly Report on Form 10-Q/A for the period ended March 31, 2002 as correspondence to the Securities and Exchange Commission accompanying the filing of such Quarterly Report.

On August 23, 2002, we furnished pursuant to Item 9 a report on Form 8-K announcing the delivery of the Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for our Annual Report on Form 10-K/A for the period ended December 31, 2001 as correspondence to the Securities and Exchange Commission accompanying the filing of such Annual Report.

On September 24, 2002, we filed a report on Form 8-K announcing the acquisition of 544,426 square feet of industrial properties at an aggregate purchase price, including closing costs, of approximately $86,583,000 since July 25, 2002.

On November 12, 2002, we filed a report on Form 8-K/A providing historical and pro forma financial information for the property acquisitions which were announced on Form 8-K filed on September 24, 2002.

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.

Dated: November 13, 2002

BEDFORD PROPERTY INVESTORS, INC.

(Registrant)

By:

/s/ HANH KIHARA

Hanh Kihara

Senior Vice President and

Chief Financial Officer

By:

/s/ KRISTA K. ROWLAND

Krista K. Rowland

Vice President and Controller

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K

I, Peter Bedford, certify that:

I have reviewed this quarterly report on Form 10-Q of Bedford Property Investors, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Bedford Property Investors, Inc. as of, and for the periods presented in this quarterly report;

Bedford Property Investors, Inc.'s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Bedford Property Investors, Inc. and we have:

designed such disclosure controls and procedures to ensure that material information relating to Bedford Property Investors, Inc., is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

evaluated the effectiveness of Bedford Property Investors, Inc.'s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

Bedford Property Investors, Inc.'s other certifying officers and I have disclosed, based on our most recent evaluation, to Bedford Property Investors, Inc.'s auditors and the audit committee of Bedford Property Investors, Inc.'s board of directors:

all significant deficiencies in the design or operation of internal controls which could adversely affect Bedford Property Investors, Inc.'s ability to record, process, summarize and report financial data and have identified for Bedford Property Investors, Inc.'s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in Bedford Property Investors, Inc.'s internal controls; and

Bedford Property Investors, Inc.'s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

November 13, 2002

/s/ Peter Bedford

Peter Bedford
Chief Executive Officer

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Item 307 of Regulation S-K

I, Hanh Kihara, certify that:

I have reviewed this quarterly report on Form 10-Q of Bedford Property Investors, Inc.;

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in Bedford Property Investors, Inc.'s internal controls; and

November 13, 2002

/s/ Hanh Kihara

Hanh Kihara
Chief Financial Officer

EX-10 3 f40munsecuredcreditfacilityv.htm FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

CREDIT AGREEMENT

This CREDIT AGREEMENT is entered into as of September 6, 2002, among BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation (the “Company”), BANK OF AMERICA, N.A., a national banking association (“Bank of America”), and the several additional financial institutions from time to time party to this Agreement (collectively, the “Banks”; each individually, a “Bank”), BANK OF AMERICA, N.A., as Administrative Agent for the Banks, and BANC OF AMERICA SECURITIES, LLC, as Sole Lead Arranger and Sole Book Manager.

FACTUAL BACKGROUND

WHEREAS, Bank of America and the Banks have agreed to make available to the Company a credit facility upon the terms and subject to the conditions set forth herein;

AGREEMENT

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows:

DEFINITIONS

1.1

Defined Terms

In addition to the terms defined elsewhere in this Agreement, the following terms have the following meanings:

“Acquisition Cost” means, for any Approved Parcel at any time, the gross purchase price paid by the Company for such Approved Parcel, as determined without regard to any credits or other adjustments thereto or any closing costs, attorney’s fees, due diligence costs or similar expenses.

“Administrative Agent” means Bank of America in its capacity as administrative agent for the Banks hereunder, and any successor administrative agent designated under Section .

“Affiliate” means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. In no event shall any of the Banks be deemed an “Affiliate” of the Company or of any Subsidiary of the Company.

“Agent-Related Persons” means Bank of America and any successor administrative agent designated under Section , together with their respective Affiliates and the officers, directors, employees and agents of such Persons.

“Agent’s Payment Office” means the address for payments set forth herein for the Administrative Agent, or such other address as the Administrative Agent may from time to time specify.

“Agreement” means this Credit Agreement, as amended, amended and restated, supplemented or modified from time to time.

“Amortized Debt Service” means, at any time, the total amount of principal and interest that would be required to be paid to the Administrative Agent with respect to the Loans during a twelve (12) month period if the aggregate principal amount of the Loans outstanding at such time were amortized on the basis of level payments of principal and interest over a period of twenty-five (25) years at an annual interest rate of 8.5%.

“Applicable Default Margin” means (a) with respect to Prime Rate Loans, 300 basis points; and (b) with respect to LIBOR Loans, 455 basis points.

“Applicable Margin” means (a) with respect to Prime Rate Loans, zero (0) basis points; and (b) with respect to LIBOR Loans, 155 basis points.

“Appraisal” means, for any Parcel, a real estate appraisal of such Parcel conducted in accordance with the Uniform Standards of Professional Appraisal Practice (as promulgated by the Appraisal Standards Board of the Appraisal Foundation), all Requirements of Law applicable to the Banks and all applicable internal policies of the Banks, prepared by the Administrative Agent or undertaken by an independent appraisal firm satisfactory to the Administrative Agent, and providing an assessment of fair market value of such Parcel, taking into account any and all Estimated Remediation Costs.

“Approved Parcel” means, at any time, any of the Potential Approved Parcels which satisfies all of the conditions set forth in Section and has not ceased to be an Approved Parcel pursuant to the provisions of Section .

“Approved Parcel Value” means: (i) for Carneros Commons at any time, the Capitalized Value of Carneros Commons at such time; and (ii) for any other Approved Parcel at any time, the Acquisition Cost of such Approved Parcel.

“Assignee” has the meaning specified in subsection .

“Attorney Costs” means and includes all reasonable fees and disbursements of any law firm or other external legal counsel, the allocated cost of internal legal services and all disbursements of internal counsel.

“Availability” means, at any time, the lesser of (i) fifty-five percent (55%) of the Total Approved Parcel Value at such time, or (ii) the Maximum Commitment Amount.

“Bank” has the meaning specified in the introductory sentence of this Agreement; Bank of America in its capacity as a lender hereunder is one of the Banks.

“Bank of America” has the meaning specified in the introductory sentence of this Agreement.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978, as amended from time to time (11 U.S.C. Section 101, et seq.).

“Borrowing” means a borrowing hereunder consisting of Loans of the same Type made to the Company on the same day by the Banks under Article and, other than in the case of Prime Rate Loans, having the same Interest Period, but does not include (a) a conversion of Loans of one Type to another Type or (b) a continuation of a Loan as a Loan of the same Type, but with a new Interest Period.

“Borrowing Notice” means a notice substantially in the form of Exhibit A given by the Company to the Administrative Agent pursuant to Section .

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in San Francisco, California, are authorized or required by law to close and, if the applicable Business Day relates to any LIBOR Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market.

“Capital Adequacy Regulation” means any guideline, request or directive of any Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any Bank or of any corporation controlling any Bank.

“Capitalization Rate” means, at any time, a rate of 9.50%, subject to increase annually based on then-current market conditions, on the anniversary of the date of this Agreement, by written notice from the Administrative Agent to the Company at the direction of the Majority Banks.

“Capitalized Value” means, with respect to Carneros Commons at any time, the amount obtained by dividing the Modified Reserve-Adjusted Net Operating Income for Carneros Commons at such time, by 10.5%.

“Capital Stock” means all classes or series of stock of the Company.

“Carneros Commons” means the Potential Approved Parcel listed as item 1 on Exhibit E attached hereto.

“CERCLA” means the Comprehensive Environmental Response Compensation and Liability Act of 1980.

“Closing Date” means the earliest date on which all conditions precedent set forth in Section are satisfied or waived by the Administrative Agent.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.

“Commitment” means the amount of the credit and the outstanding Loans for which each Bank is obligated.

“Contingent Obligation” means, as to any Person, (a) any Guaranty Obligation of that Person, and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person in respect of (i) any letter of credit or similar instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or (ii) any Swap Contract. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of “Guaranty Obligation”) be deemed equal to the maximum reasonably anticipated liability in respect thereof.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound.

“Controlled Group” means the Company and all Persons (whether or not incorporated) under common control or treated as a single employer with the Company pursuant to Section 414(b), (c), (m) or (o) of the Code.

“Conversion Date” means any date on which the Company elects to convert a Prime Rate Loan to a LIBOR Loan or a LIBOR Loan to a Prime Rate Loan.

“Conversion/Continuation Notice” means a notice substantially in the form of Exhibit B given by the Company to the Administrative Agent pursuant to Section .

“Default” means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied) constitute an Event of Default.

“Developed Parcel” means any Parcel that is subject to signed leases with third-party tenants having a remaining term of three (3) years or longer and covering more than eighty percent (80%) of the net rentable area of the improvements located on such Parcel.

“Development Parcel” means any Parcel other than a Developed Parcel.

“Disposition” means the sale, lease, conveyance, creation (or sufferance of the creation) of a Lien upon, or other disposition of any Approved Parcel, other than (i) leases of an Approved Parcel to third-party tenants in the ordinary course of business, provided that such leases are for occupancy of such Approved Parcel by such tenants, (ii) sales or other dispositions expressly permitted under Section , or (iii) the creation (or sufferance of the creation) of a Permitted Lien.

“Eligible Assignee” means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a Person that is primarily engaged in the business of commercial banking and is an Affiliate of a Bank, or (iii) any Person approved by Majority Banks and the Administrative Agent.

“Entitled Land” means unimproved real Property satisfying all of the following conditions: (a) the Company’s intended use of such real Property is permissible under the applicable general plan or its equivalent, (b) such intended use is permissible under any applicable specific plan, zoning classification and development agreement, (c) such real Property has access to roads and utilities adequate for the Company’s intended use, and (d) the Company intends to improve such real property within twenty-four (24) months of its acquisition.

“Environmental Claims” means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Laws or for injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in or from an Approved Parcel, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Laws.

“Environmental Laws” means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including CERCLA, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code.

“Environmental Permits” has the meaning specified in subsection .

“EBITDA” means, for any calendar quarter, an amount equal to the quarterly net income from Property operations for the Company and its consolidated Subsidiaries for such quarter, as determined in accordance with GAAP, plus (a) the following to the extent deducted in calculating such net income: (i) Interest Expense for such calendar quarter, (ii) the provision for federal, state, local and foreign income taxes payable by the Company or its consolidated Subsidiaries for such calendar quarter, (iii) the amount of depreciation and amortization expense deducted in determining such net income, and (iv) other expenses of the Company or its consolidated Subsidiaries reducing such net income which do not represent a cash item in such quarter or any future period, and minus (b) all non-cash items increasing net income for such quarter.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and regulations promulgated thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b), 414(c) or 414(m) of the Code.

“ERISA Event” means (a) a Reportable Event with respect to a Qualified Plan or a Multi-employer Plan; (b) withdrawal by the Company or any ERISA Affiliate from a Qualified Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA); (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multi-employer Plan; (d) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Qualified Plan or Multi-employer Plan subject to Title IV of ERISA; (e) failure by the Company or any member of the Controlled Group to make required contributions to a Qualified Plan or Multi-employer Plan; (f)&nbs p;an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Qualified Plan or Multi-employer Plan; (g) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate; (h) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Plan; (i) a non-exempt prohibited transaction occurs with respect to any Plan for which the Company or any Subsidiary of the Company may be directly or indirectly liable; or (j) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary or disqualified person with respect to any Plan for which the Company or any member of the Cont rolled Group may be directly or indirectly liable.

“Estimated Remediation Costs” means all costs associated with performing work to remediate contamination of real property or groundwater, including engineering and other professional fees and expenses, costs to remove, transport and dispose of contaminated soil, costs to “cap” or otherwise contain contaminated soil, and costs to pump and treat water and monitor water quality.

“Event of Default” means any of the events or circumstances specified in Section .

“Event of Loss” means, with respect to any Approved Parcel, any of the following: (a) any loss or damage to, or destruction of, such Approved Parcel; (b) any pending or threatened institution of any proceedings for the condemnation or seizure of such Approval Parcel or for the exercise of any right of eminent domain; or (c) any actual condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such Approved Parcel, or confiscation of such Approved Parcel or the requisition of the use of such Approved Parcel.

“Federal Funds Rate” means, for any day, the rate published by the Federal Reserve Bank of New York for the preceding Business Day as “Federal Funds (Effective)”; (or, if not published, the arithmetic mean of the rates for overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day quoted by three brokers of Federal Funds in New York City as determined by the Administrative Agent).

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any successor thereof.

“Fee Letter” has the meaning specified in Section .

“Fixed Charges” means, for any calendar quarter, the sum of (a) Interest Expense for such quarter, (b) the principal amount of Indebtedness of the Company and its consolidated Subsidiaries payable during such quarter, and (c) dividends and distributions payable during such quarter on the Company’s preferred stock (whether or not declared), as evidenced by the most recently delivered consolidated financial statements of the Company.

“Funds From Operations” means, for any fiscal quarter, the net income of the Company for such quarter, excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, after adjustments for unconsolidated ventures.

“GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

“Gross Asset Value” means, at any time, the sum of (a) the amount obtained by dividing (i) the amount equal to four (4) times the EBITDA for the most recent calendar quarter, less the Net Operating Income for all Development Parcels, by (ii) the Capitalization Rate, (b) the cost basis of all construction in process of the Company and its consolidated Subsidiaries as of the end of such calendar quarter (taking into account any downward adjustment of such cost basis reflected on the Company’s balance sheet), (c) the cost of all unimproved real Property of the Company and its consolidated Subsidiaries as of the end of such calendar quarter (taking into account any downward adjustment of such cost reflected on the Company’s balance sheet), and (d) the book value as of the end of such calendar quarter of all other non-r eal Property assets of the Company and its consolidated Subsidiaries other than goodwill and other intangible assets, as evidenced by the most recently delivered consolidated financial statements of the Company.

“Guaranty Obligation” means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the “primary obligations”) of another Person. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof.

“Hazardous Materials” means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material or toxic substance, or petroleum or petroleum derived substance or waste.

“Indebtedness” of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services; (c) all reimbursement obligations with respect to surety bonds, letters of credit and similar instruments (in each case, to the extent material or non-contingent); (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (f) all indebtedness referred to in clauses (a) through (e) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (g) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (e) above.

“Indemnified Liabilities” has the meaning specified in Section .

“Indemnified Person” has the meaning specified in Section .

“Initial Maturity Date” means March 10, 2003.

“Initial Extended Maturity Date” means the Initial Maturity Date, as such date may be extended pursuant to Section .

“Insolvency Proceeding” means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors or other similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case (a) and (b) undertaken under U.S. federal, state or foreign law, including the Bankruptcy Code.

“Interest Expense” means, for any calendar quarter, all interest on Indebtedness of the Company and its consolidated Subsidiaries paid, accrued or capitalized during such quarter, as evidenced by the most recently delivered consolidated financial statements of the Company.

“Interest Payment Date” means the first day of each month following disbursement of the initial Loan.

“Interest Period” means, with respect to any LIBOR Loan, the period commencing on the Business Day the Loan is disbursed or continued or on the Conversion Date on which the Loan is converted to a LIBOR Loan and ending on the date that is one (1), two (2), three (3) or six (6) months thereafter (but in no event after the Maturity Date), as selected by the Company in its Borrowing Notice or Conversion/Continuation Notice; provided that:

(a)

if any Interest Period pertaining to a LIBOR Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; and

(b)

any Interest Period pertaining to a LIBOR Loan that begins on the last Business 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 end on the last Business Day of the calendar month at the end of such Interest Period.

“Lending Office” means, as to any Bank, the office specified as its “Lending Office” opposite its name on the signature pages hereto, or such other office as such Bank may specify to the Company and the Administrative Agent from time to time.

“Leverage” means, at any time, the ratio of (a) the total consolidated liabilities of the Company (including as liabilities the aggregate amount of all Contingent Obligations of the Company and its consolidated Subsidiaries) at such time, to (b) Gross Asset Value at such time, as evidenced by the most recent certificate of a Responsible Officer of the Company delivered to the Administrative Agent pursuant to Section or Section , as applicable.

“LIBOR Borrowing” means a Borrowing consisting of LIBOR Loans.

“LIBOR Loan” means a Loan that bears interest based on the LIBOR Rate.

“LIBOR Rate” means, for each Interest Period in respect of any LIBOR Loan, a fluctuating rate of interest (carried out to the fifth decimal place) appearing on Telerate Page 3750 (or any successor page) equal to the London interbank offered rate for deposits in U.S. Dollars in amounts and for periods comparable to those of the applicable LIBOR Loan and Interest Period at approximately 11:00 a.m. (London, England, time) on the second preceding Business Day, as adjusted from time to time in the Administrative Agent’s sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. If for any reason such rate is not available, the term “LIBOR Rate” shall mean the fluctuating rate of interest equal to the rate of interest for the applicable Interest Period (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 U.S. Dollars in amounts and for periods comparable to those of the applicable LIBOR Loan and Interest Period at approximately 11:00 a.m. (London, England, time) on the second preceding Business Day, as adjusted from time to time in the Administrative Agent’s sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs; 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.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the lessor’s interest under a capital lease (determined in accordance with GAAP), any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement under the UCC or any comparable law naming the owner of the asset to which such lien relates as debtor) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease (determined in accordance with GAAP).

“Loan” means an extension of credit by a Bank to the Company pursuant to Article , and may be a Prime Rate Loan or a LIBOR Loan.

“Loan Documents” means this Agreement, the Notes, and all documents delivered to the Administrative Agent, on behalf of the Banks, in connection therewith.

“Major Tenant” means, with respect to any Parcel, a tenant occupying ten percent (10%) or more of the net rentable area of the improvements located on such Parcel.

“Majority Banks” means at any time at least two (2) Banks then holding at least sixty-six and two-thirds percent (66-2/3%) of the then aggregate unpaid principal amount of the Loans (or, if no principal amount is then outstanding, at least two (2) banks then having at least sixty-six and two-thirds percent (66-2/3%) of the unborrowed Commitments); provided, however, that if at any time there is only one Bank, then such one Bank shall constitute Majority Banks.

“Margin Stock” means “margin stock” as such term is defined in Regulation G, T, U or X of the Federal Reserve Board.

“Material Adverse Effect” means a material adverse change in, or a material adverse effect upon, any of (a) the operations, business, properties, condition (financial or otherwise) or prospects of the Company, or the Company and its Subsidiaries taken as a whole; (b) the ability of the Company to perform under any Loan Document and avoid any Event of Default; or (c) the legality, validity, binding effect or enforceability of any Loan Document.

“Maturity Date” means the Initial Maturity Date, as such date may be extended pursuant to Section , and as such date may be further extended pursuant to Section .

“Maximum Commitment Amount” means the amount of $40,000,000.00.

“Modified Net Operating Income” means, for Carneros Commons at any time, Net Operating Income for Carneros Commons at such time; provided, however, that for purposes of determining Modified Net Operating Income of Carneros Commons as of any date occurring before March 31, 2003, notwithstanding anything to the contrary in the definition of “Net Operating Income”, Gross Income for Carneros Commons shall be the annual gross income for Carneros Commons for the year in which the determination is made, as determined based on a pro forma cash flow statement which, promptly upon the Administrative Agent’s request at any time, shall be prepared by the Company and delivered to the Administrative Agent and shall be in form and detail satisfactory to the Majority Banks.

“Modified Reserve-Adjusted Net Operating Income” means, for Carneros Commons at any time, an amount equal to Modified Net Operating Income less Reserves for Carneros Commons at such time.

“Multi-employer Plan” means a “multi-employer plan” (within the meaning of Section 4001(a)(3) of ERISA) to which any member of the Controlled Group (i) makes, is making, or is obligated to make contributions, or (ii) during the preceding three calendar years has made, or has been obligated to make, contributions.

“Net Operating Income” means, for any Parcel at any time, an amount equal to Gross Income less Operating Expenses for such Parcel as of such time, where “Gross Income” for such Parcel is equal to:

either (a) if such Parcel has been owned by either the Company or any Subsidiary of the Company and has been generating rental income for at least four (4) consecutive calendar quarters for which quarterly operating statements have been delivered to the Banks, the gross income (before capital expenditures) for such Parcel, as evidenced by the most recently received quarterly operating statements for such Parcel, and the quarterly operating statements for the three (3) immediately preceding quarters,

or (b) if such Parcel has been owned by either the Company or any Subsidiary of the Company and has been generating rental income for at least one (1) calendar quarter for which quarterly operating statements have been delivered to the Banks but fewer than four (4) consecutive calendar quarters for which quarterly operating statements have been delivered to the Banks, the annualized gross income (before capital expenditures) for such Parcel as of the most recent calendar quarter for which quarterly operating statements have been delivered to the Banks, determined by multiplying the aggregate gross income (before capital expenditures) for such Parcel for the number of consecutive calendar months during which the Company or a Subsidiary of the Company has owned such Parcel and for which m onthly or quarterly operating statements have been delivered to the Banks by a fraction the numerator of which is twelve (12) and the denominator of which is the number of consecutive calendar months during which the Company or a Subsidiary of the Company has owned such Parcel and for which operating statements are available for such Parcel at such time,

or (c) if such Parcel has been owned by either the Company or any Subsidiary of the Company and has been generating rental income for fewer than one (1) full calendar quarter for which quarterly operating statements have been delivered to the Banks, the annual gross income for such Parcel for the year in which the determination is made, as determined (i) in the case of a Parcel for which a pro forma cash flow statement has been approved by the Administrative Agent pursuant to Section , based upon such pro forma cash flow statement, or (ii) in the case of a Parcel not covered by the preceding clause (i) and for which an Appraisal exists, based on the pro forma cash flow statement set forth in such Appraisal, or (iii) in the case of a Parcel not covered by either of the preceding clauses (i) or (ii), based on a pro forma cash flow statement which, promptly upon the Administrative Agent’s request at any time, shall be prepared by the Company and delivered to the Administrative Agent and shall be in form and detail satisfactory to the Administrative Agent; and

“Operating Expenses” for such Parcel are equal to:

either (d) if such Parcel has been owned by either the Company or any Subsidiary of the Company for at least four (4) consecutive calendar quarters for which quarterly operating statements have been delivered to the Banks, the aggregate amount of actual operating expenses other than capital expenditures relating to such Parcel for the immediately preceding four (4) consecutive calendar quarters, as evidenced by the most recently received quarterly operating statements for such Parcel and the quarterly operating statements for the three (3) immediately preceding quarters,

or (e) if such Parcel has been owned by either the Company or any Subsidiary of the Company for fewer than four (4) full calendar quarters for which quarterly operating statements have been delivered to the Banks, the aggregate amount of annual operating expenses other than capital expenditures relating to such Parcel for the year in which the determination is made, as determined (i) in the case of a Parcel for which a pro forma cash flow statement has been approved by the Administrative Agent pursuant to Section , based upon such pro forma cash flow statement, or (ii) in the case of a Parcel not covered by the preceding clause (i) and for which an Appraisal exists, based on the pro forma cash flow statement set forth in such Appraisal, or (iii) in the case of a Parcel n ot covered by either of the preceding clauses (i) or (ii), based on a pro forma cash flow statement which, promptly upon the Administrative Agent’s request at any time, shall be prepared by the Company and delivered to the Administrative Agent and shall be in form and detail satisfactory to the Administrative Agent.

“Net Proceeds” means proceeds in cash, checks or other cash equivalent financial instruments as and when received by the Person making a Disposition, net of: (a) the reasonable direct costs relating to such Disposition (excluding amounts payable to the Company or any Affiliate of the Company), (b) sale, use or other transaction taxes paid or payable as a result thereof, and (c) amounts required to be applied to repay principal, interest and prepayment premiums and penalties on Indebtedness secured by any Permitted Lien encumbering the asset that is the subject of such Disposition. “Net Proceeds” shall also include proceeds paid on account of any Event of Loss, net of (i) all money actually applied to repair or reconstruct the damaged property or property affected by the condemnation or taking, (ii) all of the costs and expenses reasonably incurred in connection with the collection of such proceeds, award or other payments, and (iii) any amounts retained by or paid to parties having superior rights to such proceeds, awards or other payments.

“Note” means a promissory note of the Company payable to the order of a Bank in substantially the form of Exhibit C, and any amendments, supplements, modifications, renewals, replacements, consolidations or extensions thereof, evidencing the aggregate indebtedness of the Company to a Bank resulting from Loans made by such Bank pursuant to this Agreement; “Notes” means, at any time, all of the Notes executed by the Company in favor of a Bank outstanding at such time.

“Notice of Lien” means any “notice of lien” or similar document intended to be filed or recorded with any court, registry, recorder’s office, central filing office or other Governmental Authority for the purpose of evidencing, creating, perfecting or preserving the priority of a Lien securing obligations owing to a Governmental Authority.

“Obligations” means all Loans and other Indebtedness, advances, debts, liabilities, obligations, covenants and duties owing from the Company to the Administrative Agent, any Bank or any other Person required to be indemnified under any Loan Document, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, and arising under this Agreement or under any other Loan Document, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired.

“Ordinary Course of Business” means, in respect of any transaction involving the Company or any Subsidiary of the Company, the ordinary course of such Person’s business, substantially as conducted by any such Person prior to or as of the Closing Date, and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Loan Document.

“Organization Documents” means, (a) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation, and (b) for any partnership, the partnership agreement, statement or certificate of partnership and any fictitious business name or other filing relating to such partnership.

“Parcel” means (a) a parcel of real property that is owned in fee by the Company and (b) any parcel of real property that is owned in fee by any wholly-owned Subsidiary of the Company.

“Participant” has the meaning specified in subsection .

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Encumbrances” means, with respect to any Parcel, all matters to which the Administrative Agent consents in writing as exceptions to the Title Policy covering such Parcel.

“Permitted Liens” has the meaning specified in Section .

“Person” means an individual, partnership, corporation, business trust, joint stock company, limited liability company, trust, unincorporated association, joint venture or Governmental Authority.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company or any member of the Controlled Group sponsors or maintains or to which the Company or any member of the Controlled Group makes, is making or is obligated to make contributions, and includes any Multi-employer Plan or Qualified Plan.

“Potential Approved Parcel” means any of the Parcels described on Exhibit E attached hereto.

“Prime Rate” means the per annum rate of interest publicly announced from time to time by the Administrative Agent at its principal office in Charlotte, North Carolina, as its “Prime Rate.” The Prime Rate is set by the Administrative Agent based on various factors, including the Administrative Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing loans. The Administrative Agent may price loans at, above or below the Prime Rate. Any change in the Prime Rate shall take effect on the day specified in the public announcement of such change.

“Prime Rate Borrowing” means a Borrowing consisting of Prime Rate Loans.

“Prime Rate Loan” means a Loan that bears interest based on the Prime Rate.

“Property” means any estate or interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible.

“Pro Rata Share” means, as to any Bank at any time, the percentage equivalent (expressed as a decimal rounded to the ninth decimal place) at such time of such Bank’s share of the credit and the outstanding Loans.

“Qualified Plan” means a pension plan (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the Code and which any member of the Controlled Group sponsors, maintains, or to which it makes, is making or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering at least five (5) plan years, but excluding any Multi-employer Plan.

“Reportable Event” means, as to any Plan, (a) any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC, (b) a withdrawal from a Plan described in Section 4063 of ERISA, or (c) a cessation of operations described in Section 4062(e) of ERISA.

“Requirement of Law” means, as to any Person, any law (statutory or common), treaty, rule or regulation, or any determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserve-Adjusted EBITDA” means, for any calendar quarter, an amount equal to the EBITDA for such quarter less one-fourth (1/4) of the Reserves for all Parcels owned by the Company or any consolidated Subsidiary as of the end of such quarter.

“Reserve-Adjusted Net Operating Income” means, for any Parcel at any time, an amount equal to Net Operating Income less Reserves for such Parcel at such time.

“Reserve Percentage” means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for “eurocurrency liabilities,” as defined in Federal Reserve Board Regulation D. The Reserve Percentage shall be expressed in decimal form and rounded upward, if necessary, to the nearest 1/100th of one percent, and shall include marginal, emergency, supplemental, special and other reserve percentages.

“Reserves” means, for any Parcel at any time:

(a) if the Administrative Agent has determined that the improvements located on such Parcel consist of office space, $1.00 per square foot of net rentable area of space in such Parcel, representing capital expenditures for office space,

or (b) if the Administrative Agent has determined that the improvements located on such Parcel consist of research and development (other than office) space, $0.30 per square foot of net rentable area of space in such Parcel, representing capital expenditures for research and development (other than office) space,

or (c) if the Administrative Agent has determined that the improvements located on such Parcel consist of bulk industrial or flexible industrial (other than research and development) space, $0.10 per square of net rentable area of space in such Parcel, representing capital expenditures for bulk industrial or flexible industrial (other than research and development) space,

in each case as evidenced by the most recently delivered consolidated financial statements of the Company.

“Responsible Officer” means the chief executive officer or the president of the Company, or any other officer having substantially the same authority and responsibility or, with respect to financial matters, the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility.

“SEC” means the Securities and Exchange Commission, or any successor thereto.

“Sole Lead Arranger” means Banc of America Securities LLC in its capacity as sole lead arranger and sole book manager for the Banks hereunder.

“Solvent” means, as to any Person at any time, that (a) the fair value of the Property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of the California Uniform Fraudulent Transfer Act and any other applicable fraudulent conveyance statute; (b) the present fair saleable value of the Property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its Property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they matu re in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“Subsidiary” of a Person means any corporation, limited liability company, partnership, joint venture, association or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof.

“Swap Contract” means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing.

“Tangible Net Worth” means, at any time, the total consolidated stockholders’ equity of the Company and its consolidated Subsidiaries at such time (valuing preferred stock at face value and excluding as assets (i) any loans to tenants for tenant improvements and (ii) goodwill and other intangible assets, and valuing all real property at the lower of book value or Market Value (as defined below), as evidenced by the Company’s most recently delivered consolidated financial statements. As used in this definition of Tangible Net Worth, “Market Value” means, at any time: (a) with respect to Carneros Commons, the Capitalized Value of Carneros Commons; (b) with respect to any Potential Approved Parcel other than Carneros Commons, the Acquisition Cost of such Parcel; and (c) with respect to any other Parcel, th e value set forth in the Appraisal for such Parcel.

“Telerate Page 3750” means the British Bankers Association LIBOR Rates (determined at 11:00 a.m. London, England, time) that are published by Bridge Information Systems, Inc.

“Title Policy” means any policy of title insurance required pursuant to this Agreement.

“Total Approved Parcel Value” means, at any time, the sum of the Approved Parcel Values for all of the Approved Parcels at such time.

“Transferee” has the meaning specified in subsection .

“Type” means, in connection with a Loan, the characterization of such loan as a Prime Rate Loan or a LIBOR Loan.

“UCC” means the Uniform Commercial Code as in effect in any jurisdiction, as the same may be amended, modified or supplemented from time to time.

“Unfunded Pension Liabilities” means the excess of a Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan’s assets, determined in accordance with the assumptions used by the Plan’s actuaries for funding the Plan pursuant to section 412 of the Code for the applicable plan year.

1.2

Other Interpretive Provisions

1.2.1

Use of Defined Terms

Unless otherwise specified herein or therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant to this Agreement. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. Terms (including uncapitalized terms) not otherwise defined herein and that are defined in the UCC shall have the meanings therein described.

1.2.2

Certain Common Terms

(a)

The Agreement. The words “hereof,” “herein,” “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule and exhibit references are to this Agreement unless otherwise specified.

(b)

Documents. The term “documents” includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced.

(c)

Including. The term “including” is not limiting, and means “including without limitation.”

(d)

Performance. Whenever any performance obligation hereunder (other than a payment obligation) shall be stated to be due or required to be satisfied on a day other than a Business Day, such performance shall be made or satisfied on the next succeeding Business Day. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including”. If any provision of this Agreement refers to any action taken or to be taken by any Person, or which such Person is prohibited from taking, such provision shall be interpreted to encompass any and all means, direct or indirect, of taking or not taking such action.

(e)

Contracts. Unless otherwise expressly provided in this Agreement, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document.

(f)

Laws. References to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

(g)

Captions. The captions and headings of this Agreement are for convenience of reference only, and shall not affect the construction of this Agreement.

(h)

Independence of Provisions. The parties acknowledge that this Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters, and that such limitations, tests and measurements are cumulative and must each be performed, except as expressly stated to the contrary in this Agreement.

(i)

Exhibits and Schedules. All of the exhibits and schedules attached to this Agreement are incorporated herein by this reference.

1.2.3

Accounting Principles

(a)

Accounting Terms. Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied.

(b)

Fiscal Periods. References herein to “fiscal year” and “fiscal quarter” refer to such fiscal periods of the Company.

THE CREDIT

2.1

Amount and Terms of Commitment

Each Bank severally agrees, on the terms and subject to the conditions hereinafter set forth, to make Loans to the Company from time to time on any Business Day during the period from the Closing Date to the Maturity Date for the purpose of facilitating the Company’s acquisition, development and operation of the Potential Approved Parcels listed as items 2 and 3 on Exhibit E attached hereto, in an aggregate amount not to exceed such Bank’s Pro Rata Share of the Availability; provided, however, that, notwithstanding any contrary provision of this Agreement: (a) the aggregate principal amount of all outstanding Loans shall not at any time exceed the lesser of (i) the Availability, or (ii) the aggregate principal amount of all Loans made to the Company on the date on which the initial Loan is made, and (b) any principal amount s that are repaid by the Company may not be reborrowed. Within the limits of the Availability, and subject to the other terms and conditions hereof, the Company may borrow under this Section prior to the Maturity Date and repay pursuant to Section .

2.2

Loan Accounts; Notes

(a)

The Loans made by each Bank shall be evidenced by one or more loan accounts or records maintained by such Bank and by the Administrative Agent in the ordinary course of business. The loan accounts or records maintained by the Administrative Agent and each Bank shall, absent manifest error, be conclusive of the amounts of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the Company’s obligations hereunder to pay any amount owing with respect to the Loans.

(b)

The Loans made by each Bank shall be evidenced by a Note payable to the order of such Bank in an amount equal to such Bank’s Pro Rata Share of the Maximum Commitment Amount on the Closing Date. Such Bank may endorse on the schedule annexed to its Note(s) the date, amount and maturity of each Loan that it makes, the amount of each payment of principal that the Company makes with respect thereto and the source of the funds from which each principal payment is made. The Company irrevocably authorizes each Bank to endorse its Note(s), and such Bank’s record shall be conclusive absent manifest error; provided, however, that any Bank’s failure to make, or its error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the Company’s obligations to such Bank hereunder or under its Note(s).

2.3

Procedure for Obtaining Credit

Each Borrowing shall be made upon the irrevocable written notice (including notice via facsimile confirmed immediately by a telephone call) of the Company in the form of a Borrowing Notice (which notice must be received by the Administrative Agent prior to 9:30 a.m., San Francisco time, (i) three (3) Business Days prior to the requested borrowing date, in the case of LIBOR Loans, or (ii) one (1) Business Day prior to the requested borrowing date, in the case of Prime Rate Loans, specifying:

(a)

the amount of the Borrowing, which in the case of a Borrowing shall be in an aggregate principal amount of (i) Two Hundred Fifty Thousand dollars ($250,000) and increments of Fifty Thousand dollars ($50,000) in excess thereof for Prime Rate Borrowings, and (ii) Five Hundred Thousand dollars ($500,000) and increments of One Hundred Thousand dollars ($100,000) in excess thereof for any LIBOR Borrowings;

(b)

the requested borrowing date, which shall be a Business Day;

(c)

in the case of a Borrowing, the Type of Loans comprising the Borrowing;

(d)

in the case of a LIBOR Borrowing, the duration of the Interest Period applicable to the Loans comprising such LIBOR Borrowing. If the Borrowing Notice fails to specify the duration of the Interest Period for the Loans comprising a LIBOR Borrowing, such Interest Period shall be thirty (30) days.

Unless the Majority Banks otherwise agree, during the existence of a Default or Event of Default, the Company may not elect to have a Loan made as, or converted into or continued as, a LIBOR Loan. After giving effect to any Loan, there shall not be more than four (4) different Interest Periods in effect.

2.4

Conversion and Continuation Elections

(a)

The Company may, upon irrevocable written notice to the Administrative Agent in accordance with subsection :

(i)

elect to convert, on any Business Day, any Prime Rate Loans (or any part thereof in an amount not less than $500,000.00 and increments of $100,000 in excess thereof) into LIBOR Loans;

(ii)

elect to convert on any Interest Payment Date any LIBOR Loans maturing on such Interest Payment Date (or any part thereof in an amount not less than $250,000.00) into Prime Rate Loans; or

(iii)

elect to renew on any Interest Payment Date any LIBOR Loans maturing on such Interest Payment Date (or any part thereof in an amount not less than $500,000.00 and increments of $100,000 in excess thereof);

provided, that if the aggregate amount of LIBOR Loans in respect of any Borrowing shall have been reduced, by payment, prepayment or conversion of part thereof, to less than $500,000.00, such LIBOR Loans shall automatically convert into Prime Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate.

(b)

The Company shall deliver by telex, cable or facsimile, confirmed immediately in writing, a Notice of Conversion/Continuation (which notice must be received by the Administrative Agent not later than 9:30 a.m. San Francisco time, (i) at least three (3) Business Days prior to the Conversion Date or continuation date, if the Loans are to be converted into or continued as LIBOR Loans, or (ii) on the Conversion Date, if the Loans are to be converted into Prime Rate Loans) specifying:

(i)

the proposed Conversion Date or continuation date;

(ii)

the aggregate amount of Loans to be converted or continued;

(iii)

the nature of the proposed conversion or continuation; and

(iv)

if the Company elects to convert a Prime Rate Loan into a LIBOR Loan or elects to continue a LIBOR Loan, the duration of the Interest Period applicable to such Loan. If the Conversion/Continuation Notice fails to specify the duration of the Interest Period for a LIBOR Loan, such Interest Period shall be thirty (30) days.

(c)

If upon the expiration of any Interest Period applicable to LIBOR Loans the Company has failed to select a new Interest Period to be applicable to LIBOR Loans, or if any Default or Event of Default shall then exist, the Company shall be deemed to have elected to convert LIBOR Loans into Prime Rate Loans effective as of the expiration date of such current Interest Period.

(d)

Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than four (4) different Interest Periods in effect.

2.5

Principal Payments

2.5.1

Optional Repayments

Subject to the provisions of Section , the Company may, at any time or from time to time, upon at least one (1) Business Day’s prior written notice to the Administrative Agent, ratably prepay Loans, either (a) in whole, or (b) in part in an amount not less than $250,000.00 for Prime Rate Loans or $500,000 for LIBOR Loans. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be repaid. The Administrative Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank’s Pro Rata Share of such prepayment. If the Company gives a prepayment notice to the Administrative Agent, such notice is irrevocable and the prepayment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on th e amount prepaid, if required by the Administrative Agent, and all amounts required to be paid pursuant to Section .

2.5.2

Mandatory Repayments

(a)

Availability Limit; Recalculation of Availability.

(i)

Should the aggregate principal amount of the outstanding Loans at any time exceed the Availability, the Company shall immediately repay such excess to the Administrative Agent, for the account of the Banks.

(ii)

The Company shall calculate the Availability, and provide to the Administrative Agent a written report of such calculation, at each of the following times: (i) on the date of disbursement of the initial Loan, as of the date of such disbursement; and (ii) not later than the date on which any Approved Parcel ceases to be an Approved Parcel pursuant to Section , as of such date; and (iii) at all other times at which this Agreement requires a recalculation of the Availability. Without limiting any other provision, the Company shall provide the Administrative Agent with whatever information the Majority Banks reasonably require in order to review and verify such calculations of the Availability, including, without limitation, all available Operating Statements for the Approved Parcels that are included within the applicable calculation. If the Majority Banks reasonably conclude that any such calculation by the Company is incorrect, the Company, upon written request by the Administrative Agent (which request shall include a reasonable description of the alleged flaw(s) in the Company’s calculation), shall promptly correct such calculation and deliver a written report of such correction to the Administrative Agent, and this process shall be repeated, if necessary, until the Majority Banks are reasonably satisfied with such calculation. The Administrative Agent shall promptly provide to the other Banks copies of all written reports of the Company’s calculations of the Availability received from the Company pursuant to this subparagraph.

(b)

Event of Loss. If the Company shall at any time suffer an Event of Loss in which the anticipated Net Proceeds exceed $250,000.00, then (i) the Company shall promptly notify the Administrative Agent of such Event of Loss (including the amount of the estimated Net Proceeds to be received by the Company in respect thereof) and (ii) promptly upon receipt by the Company of the actual Net Proceeds of such Event of Loss, the Company shall ratably repay the Loans in an aggregate amount equal to such actual Net Proceeds.

(c)

Application of Repayments. Any repayments pursuant to this subsection shall be (i) subject to Section , and (ii) applied first to any Prime Rate Loans then outstanding and then to LIBOR Loans with the shortest Interest Periods remaining.

2.5.3

Repayment at Maturity

The Company shall repay the principal amount of all outstanding Loans on the Maturity Date.

2.5.4

Options to Extend Maturity Date

(a)

On or before the date that is exactly thirty (30) days before the Initial Maturity Date, the Company may elect, at its sole option, to extend the Maturity Date by three (3) months by giving written notice to the Administrative Agent, provided that no Default or Event of Default exists as of the date of such written notice and as of the Initial Maturity Date. If the Company exercises such option to extend the Initial Maturity Date, then, not later than the Initial Maturity Date, the Company shall pay to the Administrative Agent, for the ratable account of the Banks in accordance with their respective Pro Rata Shares, in cash, an amount equal to five-hundredths of one percent (0.05%) of the aggregate outstanding principal amount of the Loans determined as of the first day of such extension period.

(b)

If the Company exercises the extension option pursuant to subsection , then, on or before the date that is exactly thirty (30) days before the Initial Extended Maturity Date, the Company may elect, at its sole option, to extend the Maturity Date by three (3) months by giving written notice to the Administrative Agent, provided that no Default or Event of Default exists as of the date of such written notice and as of the Initial Extended Maturity Date. If the Company exercises such option to extend the Maturity Date, then, not later than the Initial Extended Maturity Date, the Company shall pay to the Administrative Agent, for the ratable account of the Banks in accordance with their respective Pro Rata Shares, in cash, an amount equal to five-hundredths of one percent (0.05%) of the aggregate outstanding principal amount of the Loans determined as of the first day of such extension period.

2.6

Interest

2.6.1

Accrual Rate

Subject to the provisions of subsection , each Loan shall bear interest on the outstanding principal amount thereof from the date when made until it becomes due at a rate per annum equal to LIBOR or the Prime Rate, as the case may be, plus the Applicable Margin.

2.6.2

Payment

Interest on each Loan shall be payable in arrears on each Interest Payment Date. Interest shall also be payable on the date of any repayment of Loans pursuant to subsections or for the portion of the Loans so repaid, if required by the Administrative Agent, and upon payment (including prepayment) of the Loan in full. During the existence of any Event of Default, interest shall be payable on demand.

2.6.3

Default Interest

Commencing (i) ten (10) Business Days after the occurrence of any Event of Default under subsection or (ii) upon the occurrence of any other Event of Default, and continuing thereafter while such Event of Default remains uncured, or after maturity or acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all Obligations due and unpaid, at a rate per annum equal to LIBOR or the Prime Rate, as the case may be, plus the Applicable Default Margin.

2.6.4

Maximum Legal Rate

Notwithstanding any contrary provision this Agreement, the Company’s obligations to any Bank hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that such Bank’s contracting for or receiving such payment would be contrary to the provisions of any law applicable to such Bank limiting the highest rate of interest that such Bank may lawfully contract for, charge or receive, and in such event the Company shall pay such Bank interest at the highest rate permitted by applicable law.

2.7

Fees

The Company shall pay to the Administrative Agent, for its own account or for the account of the Banks, as applicable, such fees as required by the letter agreement of even date herewith (the “Fee Letter”) between the Company and the Administrative Agent.

2.8

Computation of Fees and Interest

All computations of interest and fees under this Agreement shall be made on the basis of a 360-day year and actual days elapsed, which results in more interest or fees being paid than if computed on the basis of a 365-day year. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. Any change in the interest rate on a Loan resulting from a change in the Prime Rate or the Reserve Percentage shall become effective as of the opening of business on the day on which such change in the Prime Rate or the Reserve Percentage becomes effective. Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Banks in the absence of manifest error.

2.9

Payments by the Company

(a)

All payments (including prepayments) to be made by the Company on account of principal, interest, fees and other amounts required hereunder shall be made without set off or counterclaim and shall, except as otherwise expressly provided herein, be made to the Administrative Agent for the account of the Banks at the Administrative Agent’s Payment Office, in dollars and in immediately available funds, no later than 10:00 a.m. San Francisco time on the date specified herein. The Administrative Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received. Any payment received by the Administrative Agent later than 10:00 a.m. San Francisco time shall be deemed to have been received on the immediately succeeding Business Day and any applicable in terest or fee shall continue to accrue.

(b)

Subject to the provisions set forth in the definition of the term “Interest Period,” whenever any payment hereunder is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

(c)

Unless the Administrative Agent receives notice from the Company prior to the date on which any payment is due and payable to the Banks that the Company will not make such payment in full as and when required, the Administrative Agent may assume that the Company has made such payment in full to the Administrative Agent on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such date an amount equal to the amount then due and payable to such Bank. If and to the extent the Company has not made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent on demand the amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed t o such Bank until the date repaid.

2.10

Payments by the Banks to the Administrative Agent

(a)

With respect to any Borrowing, unless the Administrative Agent receives notice from a Bank at least one (1) Business Day prior to the date of such Borrowing, that such Bank will not make available to the Administrative Agent, for the account of the Company, the amount of that Bank’s Pro Rata Share of the Borrowing as and when required hereunder, the Administrative Agent may assume that each Bank has made such amount available to the Administrative Agent in immediately available funds on the borrowing date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made availab le to the Company such amount, that Bank shall, on the Business Day following such borrowing date, make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Administrative Agent submitted to any Bank with respect to amounts owing under this Section shall be conclusive absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Bank’s Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the Business Day following the Borrowing Date, the Administrative Agent will notify the Company of such failure to fund and, upon demand by the Administrative Agent, the Company shall pay such amount to the Administrative Agent for the Administrative Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing.

(b)

The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any borrowing date.

2.11

Sharing of Payments, Etc

If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Obligations owing to it any payment (whether voluntary, involuntary, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded, and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank’s ratable share (acco rding to the proportion of (i) the amount of such paying Bank’s required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (other than the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments.

TAXES, YIELD PROTECTION AND ILLEGALITY

3.1

Taxes

If any taxes (other than taxes on a Bank’s net income) are at any time imposed on any payments under or in respect of this Agreement or any instrument or agreement required hereunder, including payments made pursuant to this Section , the Company shall pay all such taxes and shall also pay to the Administrative Agent, for the account of the applicable Bank, at the time interest is paid, all additional amounts which such Bank specifies as necessary to preserve the yield, after payment of such taxes, that such Bank would have received if such taxes had not been imposed.

3.2

Illegality

(a)

If any Bank determines that (i) the introduction of any Requirement of Law, or any change in any Requirement of Law or in the interpretation or administration thereof, has made it unlawful, or (ii) any central bank or other Governmental Authority has asserted that it is unlawful, for such Bank or its applicable Lending Office to make LIBOR Loans, then, on notice thereof by such Bank to the Company and the Administrative Agent, the obligation of such Bank to make LIBOR Loans shall be suspended until such Bank shall have notified the Company and the Administrative Agent that the circumstances giving rise to such determination no longer exist.

(b)

If any Bank determines that it is unlawful to maintain any LIBOR Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Administrative Agent), prepay in full all LIBOR Loans of that Bank then outstanding, together with interest accrued thereon and any amounts required to be paid in connection therewith pursuant to Section , either on the last day of the Interest Period thereof, if such Bank may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Bank may not lawfully continue to maintain such LIBOR Loans.

(c)

Notwithstanding any contrary provision of Section , if the Company is required to prepay any LIBOR Loan immediately as provided in subsection , then concurrently with such prepayment the Company shall borrow a Prime Rate Loan from the affected Bank in the amount of such repayment.

(d)

If the obligation of any Bank to make or maintain LIBOR Loans has been terminated, the Company may elect, by giving notice to such Bank through the Administrative Agent, that all Loans which would otherwise be made by such Bank as LIBOR Loans shall instead be Prime Rate Loans.

(e)

Before giving any notice to the Administrative Agent or the Company pursuant to this Section , the affected Bank shall designate a different Lending Office with respect to its LIBOR Loans if such designation would avoid the need for giving such notice or making such demand and would not, in the judgment of such Bank, be illegal or otherwise disadvantageous to such Bank.

3.3

Increased Costs and Reduction of Return

(a)

If any Bank determines that, due to either (i) the introduction of, or any change (other than a change by way of imposition of, or increase in, reserve requirements included in the Reserve Percentage) in or in the interpretation of, any law or regulation or (ii) the compliance by such Bank (or its Lending Office) or any Corporation controlling such Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any LIBOR Loans, then the Company shall be liable for, and shall from time to time, upon demand therefor by such Bank with a copy to the Administrative Agent, pay to the Administrative Agent for the account of such Bank such additional amounts as are sufficient to compensate su ch Bank for such increased costs.

(b)

If any Bank determines that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Bank (or its Lending Office), or any corporation controlling such Bank, with any Capital Adequacy Regulation affects or would affect the amount of capital that such Bank or any corporation controlling such Bank is required or expected to maintain, and such Bank (taking into consideration such Bank’s or such corporation’s policies with respect to capital adequacy and such Bank’s desired return on capital) determines that the amount of such capital is increased as a conseq uence of any of its loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Administrative Agent, the Company shall immediately pay to the Administrative Agent, for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank for such increase.

3.4

Funding Losses

The Company agrees to pay to the Administrative Agent, from time to time, for the account of the Banks, any amount that would be necessary to reimburse the Banks for, and to hold the Banks harmless from, any loss or expense which the Banks may sustain or incur as a consequence of:

(a)

the failure of the Company to make any payment or prepayment of principal of any LIBOR Loan (including payments made after any acceleration thereof);

(b)

the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Borrowing Notice or a Conversion/Continuation Notice;

(c)

the prepayment (including pursuant to Section ) of a LIBOR Loan on a day which is not the last day of the Interest Period with respect thereto;

(d)

the conversion pursuant to subsection of any LIBOR Loan to a Prime Rate Loan on a day that is not the last day of the respective Interest Period;

including any such loss or expense arising from the liquidation or reemployment of funds obtained to maintain the LIBOR Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Solely for purposes of calculating amounts payable by the Company to the Administrative Agent, for the account of the Banks, under this Section , each LIBOR Loan (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the LIBOR Rate for such LIBOR Loan by a matching deposit or other borrowing in the applicable offshore dollar interbank market for a comparable amount and for a comparable period, whether or not such LIBOR Loan is in fact so funded.

3.5

Inability to Determine Rates

If any Bank determines that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Loan or that the LIBOR Rate applicable pursuant to subsection for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to such Bank of funding such Loan, such Bank will forthwith give notice of such determination to the Company through the Administrative Agent. Thereafter, the obligation of such Bank to make or maintain LIBOR Loans hereunder shall be suspended until such Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Borrowing Notice or Conversion/Continuation Notice then submitted by it. If the Company does not revoke such notice, the affected Bank shall make, co nvert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans.

3.6

Certificate of Bank

Any Bank, if claiming reimbursement or compensation pursuant to this Article , shall deliver to the Company through the Administrative Agent a certificate setting forth in reasonable detail the amount payable to such Bank hereunder, and such certificate shall be conclusive and binding on the Company in the absence of manifest error.

3.7

Survival

The agreements and obligations of the Company in this Article shall survive the payment and performance of all other Obligations.

CONDITIONS PRECEDENT

4.1

Conditions to Approving Parcels

Subject to the provisions of Section , a Parcel shall be considered an Approved Parcel for purposes of this Agreement upon satisfaction of all of the following conditions precedent:

4.1.1

Fee Ownership

The Company owns fee title to such Parcel.

4.1.2

Satisfactory Parcel

Such Parcel either (a) is satisfactory to Majority Banks in their sole and absolute discretion or (b) satisfies all of the following conditions: (1) the Parcel is improved, and the improvements located on such Parcel are and will be used solely for office, research and development, bulk industrial or flexible industrial purposes, (2) more than eighty percent (80%) of the net rentable area of the improvements located on such Parcel is covered by signed leases with third-party tenants having remaining terms of three (3) years or longer, and (3) the Administrative Agent has received evidence in form and substance satisfactory to the Administrative Agent of such Parcel’s compliance with the foregoing conditions.

4.1.3

No Hazardous Materials

Such Parcel is free from all Hazardous Materials, including asbestos, other than commercially reasonable quantities of Hazardous Materials typically used in properties similar to such Parcel and permitted by all applicable Environmental Laws, and the Administrative Agent shall have received evidence in form and substance satisfactory to the Majority Banks of such Parcel’s compliance with this condition.

4.1.4

Pro Forma Cash Flow Statement

A pro forma cash flow statement for such Parcel has been provided by the Company to the Administrative Agent and approved by the Administrative Agent.

4.1.5

No Liens

Such Parcel and all related personal property is free and clear of all Liens other than Permitted Liens.

4.1.6

Deliveries to the Administrative Agent

The Administrative Agent shall have received each of the following in form and substance satisfactory to the Administrative Agent:

(a)

a current ALTA survey of such Parcel and Surveyor’s Certification, including a complete legal description;

(b)

copies of all exceptions to title with respect to such Parcel;

(c)

at the Administrative Agent’s request, copies of any available plans and specifications for any improvements located on such Parcel;

(d)

an environmental site assessment for such Parcel, dated not more than twelve (12) months prior to the date the Company submits the Parcel to the Administrative Agent for approval by the Banks, prepared by a qualified firm acceptable to the Administrative Agent, stating, among other things, that such Parcel is free from Hazardous Materials other than commercially reasonable quantities of Hazardous Materials typically used in properties similar to such Parcel, and that any such Hazardous Materials located thereon and all operations conducted thereon are in compliance with all Environmental Laws and showing any Estimated Remediation Costs;

(e)

at the Administrative Agent’s request, copies of all leases and contracts not cancelable on thirty (30) days’ notice and a rent roll relating to all or any portion of such Parcel;

(f)

At the Administrative Agent’s request, financial statements for any Major Tenant that are available to the Company;

(g)

an operating report for such Parcel for not less than the four (4) most recent consecutive quarters, together with a projection of the operating results for such Parcel for the following twelve (12) months;

(h)

if such Parcel has been owned by the Company for more than one (1) calendar month but fewer than four (4) consecutive calendar quarters, monthly operating statements for such Parcel for each full calendar month that the Company has owned such Parcel;

(i)

at the Administrative Agent’s request, a cost budget for any anticipated renovation of such Parcel;

(j)

certificates of insurance and loss payable endorsements for all policies required pursuant to Section , showing the same to be in full force and effect with respect to such Parcel;

(k)

a certificate that such Parcel satisfies the conditions set forth in subsections , and and in clauses (b)(1) and (b)(2) of subsection ; and

(l)

all other documents reasonably required by the Administrative Agent.

4.1.7

Title Insurance

The Company shall, at its sole expense, have delivered to the Administrative Agent a true and correct copy of an ALTA form extended coverage owner’s policy of title insurance, or evidence of a commitment therefor satisfactory to the Administrative Agent, in form, substance and amount, and issued by one or more insurers, reasonably satisfactory to the Administrative Agent, together with all indorsements and binders thereto reasonably required by the Administrative Agent, naming the Company as the insured, insuring the fee interest in such Parcel to be vested in the Company, and showing such Parcel subject only to the Permitted Encumbrances.

4.1.8

Tax Reporting Service

The Company shall, at its sole expense, have delivered to the Administrative Agent evidence of a contract with a property tax reporting service for such Parcel for a period of not less than thirty (30) years.

4.1.9

Costs

The Company shall have paid to the Administrative Agent all amounts payable pursuant to Section in connection with such Parcel.

4.1.10

Expenses

The Administrative Agent shall have received satisfactory evidence that the Company has paid all title insurance premiums, tax service charges, documentary stamp or intangible taxes and recording fees payable in connection with such Parcel or the issuance of the Title Policy.

4.2

Conditions of Initial Loan

The obligation of the Banks to make the initial Loan after the Closing Date is subject to the satisfaction of all of the following conditions precedent:

4.2.1

Deliveries to the Administrative Agent

The Administrative Agent shall have received, on or before the Closing Date, all of the following in form and substance satisfactory to the Administrative Agent and its counsel:

(a)

this Agreement, the Notes and the Fee Letter executed by the Company;

(b)

copies of the resolutions of the board of directors of the Company approving and authorizing the execution, delivery and performance by the Company of this Agreement and the other Loan Documents to be delivered hereunder, and authorizing the borrowing of the Loans, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company;

(c)

a certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver, as applicable, this Agreement and all other Loan Documents to be delivered hereunder;

(d)

the articles or certificate of incorporation of the Company certified by the Secretary of State of the state of incorporation of the Company as of a recent date and by the Secretary or Assistant Secretary of the Company as of the Closing Date;

(e)

a good standing certificate for the Company as in effect on the Closing Date from the Secretary of State of (i) its state of incorporation and (ii) each state in which an Approved Parcel is situated, evidencing that the Company is qualified to do business as a foreign corporation in said state as of a recent date, together with bringdown certificates by telex or telefacsimile dated the Closing Date;

(f)

an opinion of counsel to the Company acceptable to the Administrative Agent, addressed to the Administrative Agent, substantially in the form of Exhibit D;

(g)

a certificate signed by a Responsible Officer, dated as of the Closing Date, stating that (i) the representations and warranties contained in Article are true and correct on and as of such date, as though made on and as of such date; (ii) the calculation of the Availability as of August 31, 2002, is true and correct on and as of such date; (iii) no Default or Event of Default exists or would result from the initial Loan; and (iv) there has occurred since December 31, 2001, no event or circumstance that could reasonably be expected to result in a Material Adverse Effect;

(h)

a certified copy of financial statements of the Company and its Subsidiaries referred to in Section ;

(i)

such other approvals, opinions or documents as the Administrative Agent may request; and

(j)

an environmental site assessment for each Approved Parcel performed not more than five (5) years prior to the date of this Agreement, prepared by a qualified firm acceptable to the Administrative Agent, stating, among other things, that such Parcel is free from Hazardous Materials other than commercially reasonable quantities of Hazardous Materials typically used in properties similar to such Parcel, and that any such Hazardous Materials located thereon and all operations conducted thereon are in compliance with all Environmental Laws and showing any Estimated Remediation Costs.

4.2.2

Payment of Expenses

The Company shall have paid all costs, accrued and unpaid fees and expenses incurred by the Administrative Agent, to the extent then due and payable, on the Closing Date, including Attorney Costs incurred by the Administrative Agent, to the extent invoiced prior to or on the Closing Date, together with such additional amounts of Attorney Costs as shall constitute a reasonable estimate of Attorney Costs incurred or to be incurred through the closing proceedings, provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Administrative Agent, including any such costs, fees and expenses arising under or referenced in Section .

4.2.3

Payment of Fees

Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date.

4.3

Conditions to All Borrowings

The obligation of the Banks to make any Loan (including the initial Loan) is subject to the satisfaction of all of the following conditions precedent on the relevant borrowing date:

4.3.1

Minimum Number of Approved Parcels

All three (3) of the Potential Approved Parcels shall be Approved Parcels.

4.3.2

Notice of Borrowing

The Administrative Agent shall have received a Borrowing Notice.

4.3.3

Continuation of Representations and Warranties

The representations and warranties made by the Company contained in Article shall be true and correct on and as of such borrowing date with the same effect as if made on and as of such borrowing date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date).

4.3.4

No Existing Default

No Default or Event of Default shall exist or shall result from such Loan.

4.3.5

Further Assurances

The Company shall have executed and acknowledged (or caused to be executed and acknowledged) and delivered to the Administrative Agent all documents and taken all actions, reasonably required by the Administrative Agent or the Banks from time to time to confirm the rights created or now or hereafter intended to be created by the Loan Documents, or otherwise to carry out the purposes of the Loan Documents and the transactions contemplated thereunder.

Each Borrowing Notice submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such Borrowing Notice and as of the date of each Loan, that the conditions in Section are satisfied.

4.4

Disposition of Approved Parcel

In the event of a Disposition of any Approved Parcel, such Approved Parcel shall immediately cease to be an Approved Parcel.

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants to the Administrative Agent and each of the Banks that:

5.1

Existence and Power

The Company and each of its Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and (b) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification. The Company and each of its Subsidiaries (c) has the power and authority, and has obtained all governmental licenses, authorizations, consents and approvals needed, to own its assets, to carry on its business and to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and (d) is in compliance with all Requirements of Law; except, in each case referred to in clause (b) or clause (d), to the exte nt that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.2

Corporate Authorization; No Contravention

The execution, delivery and performance by the Company of this Agreement and any other Loan Document have been duly authorized by all necessary corporate action, and do not and will not:

(a)

contravene the terms of any of the Company’s Organization Documents;

(b)

conflict with or result in any breach or contravention of, or the creation of any Lien under, any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its Property is subject; or

(c)

violate any Requirement of Law.

5.3

Governmental Authorization

No approval, consent, exemption, authorization or other action by, or notice to or filing with, any Governmental Authority (except for recordings or filings in connection with the Liens granted to the Administrative Agent under the Collateral Documents) is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of this Agreement or any other Loan Document to which the Company is a party.

5.4

Binding Effect

This Agreement and each other Loan Document constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability.

5.5

Litigation

Except as specifically disclosed in Schedule 5.5, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, any of its Subsidiaries or any of their respective Properties, which (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby, or (b) if determined adversely to the Company or one or more of its Subsidiaries would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided.

5.6

No Default

No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. Neither the Company nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect.

5.7

ERISA Compliance

Each Plan and Multi-employer Plan is in full compliance with applicable Requirements of Law, including ERISA, and no ERISA Events or accumulated funding deficiencies within the meaning of ERISA have occurred with respect to any Qualified Plan or Multi-employer Plan that, in the aggregate, could result in a Material Adverse Effect.

5.8

Use of Proceeds; Margin Regulations

The proceeds of the Loans are intended to be and shall be used solely for the purposes set forth in and permitted by Section , and are intended to be and shall be used in compliance with Section .

5.9

Title to Properties

The Company and each of its Subsidiaries has good record and marketable title in fee simple to all real Property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the Property of the Company and each of its Subsidiaries is subject to no Liens that are not disclosed in the most recent financial statements delivered to the Administrative Agent other than (i) Permitted Liens, (ii) Liens securing the performance of obligations under recorded covenants, conditions and restrictions, easements or other agreements among adjoining landowners, and (iii) Liens securing purchase money financing of fixtures and equipment, or securing other indebtedness that in the aggregate does not exceed $100,000.

5.10

Taxes

The Company and its Subsidiaries have filed all federal and other material tax returns and reports required to be filed, and have paid all federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their Properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP, and no Notice of Lien has been filed or recorded. There is no proposed tax assessment against the Company or any of its Subsidiaries that would, if the assessment were made, have a Material Adverse Effect.

5.11

Financial Condition

(a)

The audited consolidated financial statements of the Company dated December 31, 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year ended on that date:

(i)

were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein;

(ii)

are complete, accurate and fairly present the financial condition of the Company and its consolidated Subsidiaries as of the date thereof and results of operations for the period covered thereby; and

(iii)

except as specifically disclosed in Schedule 5.11, show all material Indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations.

(b)

Since December 31, 2001, there has been no Material Adverse Effect.

5.12

Environmental Matters

(a)

Except as specifically disclosed in Schedule 5.12, to the best knowledge of the Company the on-going operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except such non-compliance that would not (if enforced in accordance with applicable law) result in liability in excess of $50,000 in the aggregate.

(b)

Except as specifically disclosed in Schedule 5.12, the Company and each of its Subsidiaries has obtained all licenses, permits, authorizations and registrations required under any Environmental Law (“Environmental Permits”) and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and the Company, each of its Subsidiaries is in compliance with all material terms and conditions of such Environmental Permits.

(c)

Except as specifically disclosed in Schedule 5.12, none of the Company, any of its Subsidiaries or any of their respective present Property or operations is subject to any outstanding written order from, or agreement with, any Governmental Authority, or subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material.

(d)

Except as specifically disclosed in Schedule 5.12, to the best knowledge of the Company there are no Hazardous Materials or other conditions or circumstances existing with respect to any Parcel, or arising from operations of the Company or any of its Subsidiaries prior to the Closing Date, that would reasonably be expected to give rise to Environmental Claims with a potential liability of the Company and its Subsidiaries in excess of $50,000 in the aggregate for any such condition, circumstance or Parcel. In addition, (i) neither the Company nor any of its Subsidiaries has any underground storage tanks (x) that are not properly registered or permitted under applicable Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials off-site, and (ii) the Company and its Subsidiaries have notified all of their employees of the exis tence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws.

5.13

Regulated Entities

Neither the Company nor any Person controlling the Company is (a) an “Investment Company” within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute or regulation limiting its ability to incur Indebtedness.

5.14

No Burdensome Restrictions

The Company is not a party to, or bound by, any Contractual Obligation, or subject to any charter or corporate restriction or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect.

5.15

Solvency

The Company is Solvent, and each of its Subsidiaries is Solvent.

5.16

Subsidiaries; Equity Investments

As of the Closing Date, the Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 5.16, and has no equity investments in any corporation, partnership or other entity other than those specifically disclosed in part (b) of Schedule 5.16.

5.17

Brokers; Transaction Fees

Neither the Company nor any of its Subsidiaries has any obligation to any Person in respect of any finder’s, broker’s or investment banker’s fee in connection with the transactions contemplated hereby.

5.18

Insurance

The Properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar Properties in localities where the Company or such Subsidiary operates.

5.19

Full Disclosure

None of the representations or warranties made by the Company or any of its Subsidiaries in the Loan Documents, as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any of its Subsidiaries in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading.

AFFIRMATIVE COVENANTS

The Company covenants and agrees that, so long as any Bank shall have any obligation hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Administrative Agent, on behalf of the Majority Banks, waives compliance in writing:

6.1

Financial Statements

The Company shall deliver to each of the Banks, in form and detail satisfactory to the Administrative Agent:

(a)

as soon as publicly available, but not later than 120 days after the end of each calendar year, a copy of the audited consolidated balance sheets of the Company as at the end of such year and the related consolidated statements of income, shareholders’ equity and cash flows for such calendar year, setting forth in each case in comparative form the figures for the previous year, and accompanied by the opinion of a nationally recognized independent public accounting firm stating that such consolidated financial statements present fairly the financial positions of the Company for the periods indicated in conformity with GAAP applied on a basis consistent with prior years;

(b)

as soon as publicly available, but not later than 60 days after the end of each of the first three (3) calendar quarters of each year, a copy of the unaudited consolidated balance sheets of the Company as of the end of such quarter and the related consolidated statements of income, shareholders’ equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, certified by an appropriate Responsible Officer as being complete and correct and fairly presenting the financial position and results of operations of the Company in accordance with GAAP;

(c)

as soon as available, but not later than 60 days after the end of each calendar quarter of each year, operating statements and rent rolls for each Property securing the Loans, certified by an appropriate Responsible Officer as being complete and correct and fairly presenting the financial position and the results of operations of the Approved Parcel to which it relates, together with any additional information relating to any such Property reasonably requested by the Administrative Agent;

(d)

as soon as available, but not later than 120 days after the end of each calendar year, rolling two-year consolidated balance sheet, income statement and cash flow projections for the Company, together with a copy of the annual business plan approved by the Company’s board of directors, in each case certified by an appropriate Responsible Officer of the Company as being complete and correct in all material respects; and

(e)

not later than 60 days after the end of each calendar quarter of each year, a report in form and substance satisfactory to the Administrative Agent concerning the status of all development activity of the Company and each of its Subsidiaries, certified by an appropriate Responsible Officer of the Company as being complete and correct in all material respects.

6.2

Certificates; Other Information

The Company shall furnish to the Administrative Agent, with sufficient copies for each Bank:

(a)

concurrently with the delivery of the financial statements referred to in subsections and , a certificate of a Responsible Officer in form and detail substantially similar to the certificates previously delivered to the Administrative Agent, (i) stating that, to the best of such officer’s knowledge, the Company, during such period, has observed and performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified (by applicable subsection reference) in such certificate, (ii) showing in detail the calculations supporting such statement in respect of Sections , , , , , , , , , and and (iii) showing in detail the calculations suppor ting the calculations of Leverage and Total Approved Parcel Value;

(b)

promptly after the same are sent, copies of all financial statements and reports which the Company sends to its shareholders; and promptly after the same are filed (but in the case of the Company’s (i) Form 10-K filing, in no event later than 120 days after the end of the calendar year to which it relates, and (ii) Form 10-Q filing, in no event later than 60 days after the end of the calendar quarter to which it relates), copies of all financial statements and regular, periodical or special reports which the Company may make to, or file with, the SEC or any successor or similar Governmental Authority; and

(c)

not later than the date of any Disposition of any Approved Parcel, a certificate of a Responsible Officer, dated as of the date of such Disposition and in form and detail satisfactory to the Administrative Agent, certifying that, after giving effect to such Disposition, the Company will be in compliance with Section , and showing in detail the calculations supporting the calculation of its Leverage;

(d)

promptly, such additional business, financial, corporate affairs and other information as the Administrative Agent may from time to time reasonably request.

6.3

Notices

The Company shall promptly notify the Administrative Agent:

(a)

upon, but in no event later than ten (10) days after, becoming aware of (i) the occurrence of any Default or Event of Default, and (ii) the occurrence or existence of any event or circumstance that foreseeable will become a Default or Event of Default;

(b)

of (i) any breach or non-performance of, or any default under, any Contractual Obligation of the Company or any of its Subsidiaries which could result in a Material Adverse Effect; and (ii) any dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority;

(c)

of the commencement of, or any material development in, any litigation or proceeding affecting the Company or any Subsidiary of the Company (i) in which the amount of damages claimed is $500,000 or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement or any Loan Document;

(d)

upon, but in no event later than ten (10) days after, becoming aware of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company, any Subsidiary of the Company or any of their respective Properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of any real Property of the Company or any Subsidiary of the Company that could reasonably be anticipated to cause such Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such Property under any Environmental Laws;

(e)

of any of the following ERISA events affecting the Company or any member of its Controlled Group (but in no event more than ten (10) days after such event), together with a copy of any notice with respect to such event that may be required to be filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any member or its Controlled Group with respect to such event:

(i)

an ERISA Event;

(ii)

the adoption of any new Plan that is subject to Title IV of ERISA or section 412 of the Code by any member of the Controlled Group;

(iii)

the adoption of any amendment to a Plan that is subject to Title IV of ERISA or section 412 of the Code, if such amendment results in a material increase in benefits or Unfunded Pension Liabilities; or

(iv)

the commencement of contributions by any member of the Controlled Group to any Plan that is subject to Title IV of ERISA or section 412 of the Code;

(f)

any Material Adverse Effect subsequent to the date of the most recent audited financial statements of the Company delivered to the Administrative Agent pursuant to subsection ;

(g)

of any change in accounting policies or financial reporting practices by the Company or any of its Subsidiaries within ten (10) days of their adoption; and

(h)

of any notice of redemption given with respect to any or all of the Company’s preferred shares, within ten (10) days of the date of such notice.

Each notice pursuant to this Section shall be accompanied by a written statement by a Responsible Officer of the Company setting forth details of the occurrence referred to therein, and stating what action the Company proposes to take with respect thereto and at what time. Each notice under subsection shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been breached or violated.

6.4

Preservation of Corporate Existence, Etc

Subject to the provisions of Section , the Company shall, and shall cause each of its Subsidiaries to:

(a)

preserve and maintain in full force and effect its corporate or partnership existence and good standing under the laws of its state or jurisdiction of incorporation;

(b)

preserve and maintain in full force and effect all rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business; and

(c)

use its reasonable efforts, in the Ordinary Course of Business, to preserve its business organization.

6.5

Maintenance of Property

The Company shall maintain, and shall cause each of its Subsidiaries to maintain, and preserve all of its Property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

6.6

Insurance

The Company shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable independent insurers, insurance with respect to its Properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including workers’ compensation insurance, public liability insurance, property and casualty insurance and rental interruption insurance, the amount of which shall not be reduced by the Company or any Subsidiary of the Company in the absence of thirty (30) days’ prior notice to the Administrative Agent. Upon request of the Administrative Agent, the Company shall furnish the Administrative Agent at reasonable intervals (but not more often than once per calendar year) a certificate of a Responsible Officer of the Company (and, if requested by the Administrative Agent any insurance broker for the Company) setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries in accordance with this Section or any Collateral Documents (and which, in the case of a certificate of a broker, were placed through such broker).

6.7

Payment of Obligations

The Company shall, and shall cause its Subsidiaries to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including:

(a)

all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the imposition of a Lien on, or the forfeiture or sale of, any Property of the Company or any of its Subsidiaries) and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary;

(b)

all lawful claims which, if unpaid, would by law become a Lien upon its Property unless the same are being contested in good faith by appropriate proceedings (which proceedings have the effect of preventing the imposition of a Lien on, or the forfeiture or sale of, any Property of the Company or any of its Subsidiaries) and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and

(c)

all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

6.8

Compliance with Laws

The Company shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business or any of its Property, except such as may be contested in good faith or as to which a bona fide dispute may exist.

6.9

Inspection of Property and Books and Records

The Company shall maintain, and shall cause each of its Subsidiaries to maintain, proper books of record and account in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiaries. The Company shall permit, and shall cause each of its Subsidiaries to permit, representatives of the Administrative Agent or any Bank to visit and inspect any of their respective Properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers and independent public accountants, all at the expense of the Company (which shall include all internal or outside legal and other consultant f ees and other out-of-pocket expenses incurred by the Administrative Agent or any of the Banks in connection with any such inspection, but shall not include the Administrative Agent’s or any Bank’s normal overhead or employee costs of administering the Loans) and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, that when an Event of Default exists the Administrative Agent or any Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. No actions by the Administrative Agent or any Bank pursuant to this Section shall unreasonably interfere with (a) the performance by the Company’s employees of their duties or (b) the occupancy of any of the Company’s tenants.

6.10

Environmental Laws

The Company shall, and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in compliance with all Environmental Laws whose violation could, individually or in the aggregate, result in liability in excess of $250,000. Upon the written request of the Administrative Agent or any Bank, the Company shall submit, and cause each of its Subsidiaries to submit, to the Administrative Agent, with sufficient copies for each Bank, at the Company’s sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report required pursuant to subsection , that could, individually or in the aggregate, result in liability in excess of $250,000.

6.11

Use of Proceeds

Subject to the provisions of Section , the Company shall use the proceeds of the Loans solely for the purpose of facilitating the Company’s acquisition, development and operation of the Potential Approved Parcels listed as items 2 and 3 on Exhibit E attached hereto.

6.12

Solvency

The Company shall at all times be, and shall cause each of its Subsidiaries to be, Solvent.

6.13

Further Assurances

Promptly upon request by the Administrative Agent, the Company shall (and shall cause any of its Subsidiaries to) do such further acts, and execute, acknowledge and deliver any and all certificates, assurances and other instruments, as the Administrative Agent may reasonably require from time to time in order to (i) carry out more effectively the purposes of this Agreement or any other Loan Document and (ii) better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Administrative Agent and the Banks the rights granted or now or hereafter intended to be granted to the Administrative Agent or the Banks under any Loan Document or under any other document executed in connection therewith.

6.14

Registration of Capital Stock

At least one class or series of outstanding shares of the Company’s Capital Stock shall be listed on the New York Stock Exchange or another nationally recognized stock exchange.

NEGATIVE COVENANTS

The Company hereby covenants and agrees that, so long as any Bank shall have any obligation hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Administrative Agent, on behalf of the Majority Banks, waives compliance in writing:

7.1

Limitation on Liens

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any Approved Parcel, other than the following (“Permitted Liens”):

(a)

Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section , provided that no Notice of Lien has been filed or recorded; or

(b)

carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other similar Liens arising in the Ordinary Course of Business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto.

7.2

Consolidations and Mergers

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except:

(a)

any Subsidiary of the Company may merge with (i) the Company, provided that the Company shall be the continuing or surviving Person, or (ii) any one or more Subsidiaries of the Company, provided that if any transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving Person; and

(b)

any Subsidiary of the Company may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or a wholly-owned Subsidiary of the Company;

provided, however, that so long as the continuing or surviving Person remains liable for all of the Company’s obligations to the Banks under the Loan Documents, the Administrative Agent and the Banks shall not unreasonably withhold their consent to any merger or consolidation of the Company or any of its Subsidiaries with or into any other Person.

7.3

Loans and Investments

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, make any advance, loan, extension of credit or capital contribution to any Person, including any Affiliate of the Company, or enter into any partnership, joint venture, limited liability company or similar entity with any non-Affiliate of the Company, except for (a) advances, loans, extensions of credit or capital contributions to partnerships, limited liability companies or joint ventures whose assets, in the aggregate, do not at any time exceed ten percent (10%) of the Gross Asset Value of the Company and its consolidated Subsidiaries at such time, (b) loans to tenants for tenant improvements in a maximum principal amount of $1,500,000 for any such loan, and (c) loans to employees of the Company to finance their purchase of Company stock, where such employee loans are reported on the Company’s financial statements in a manner that does not affect the Company’s total assets, total liabilities or net worth; provided, however, that at any time the aggregate amount of (i) advances, loans, extensions of credit or capital contributions that the Company and its consolidated Subsidiaries have made to partnerships, limited liability companies or joint ventures, (ii) the acquisition, development and construction costs, determined on a GAAP basis before depreciation, of development projects with which the Company or its consolidated Subsidiaries are then involved, and (iii) the value of undeveloped land then owned by the Company and its consolidated Subsidiaries, shall not exceed twenty percent (20%) of the Gross Asset Value of the Company and its consolidated Subsidiaries at such time.

7.4

Limitation on Indebtedness

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to any unsecured Indebtedness in an aggregate principal amount in excess of $2,500,000.00, except (a) accounts payable to trade creditors for goods and services and current operating liabilities (not the result of the borrowing of money) incurred in the Ordinary Course of Business of the Company or such Subsidiary in accordance with customary terms and paid within the specified time, and (b) the Loans.

7.5

Transactions with Affiliates

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, enter into any transaction with any Affiliate of the Company or of any such Subsidiary, except (a) as expressly permitted by this Agreement, or (b) in the Ordinary Course of Business and pursuant to the reasonable requirements of the business of the Company or such Subsidiary; in each case (a) and (b), upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm’s-length transaction with a Person not an Affiliate of the Company or such Subsidiary.

7.6

Use of Proceeds

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin Stock (other than shares of the Company’s common or preferred stock), (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock (other than shares of the Company’s common or preferred stock), (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Securities and Exchange Act of 1934 or any regulations promulgated thereunder.

7.7

Contingent Obligations

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Contingent Obligations except endorsements for collection or deposit in the Ordinary Course of Business.

7.8

Compliance with ERISA

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, (i) terminate any Plan subject to Title IV of ERISA so as to result in any material (in the opinion of the Administrative Agent) liability to the Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event, or any other event or condition, which presents the risk of a material (in the opinion of the Administrative Agent) liability to any member of the Controlled Group, (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multi-employer Plan so as to result in any material (in the opinion of the Administrative Agent) liability to the Company or any ERISA Affiliate, (iv) enter into any new Plan or modify any existing Plan so as to increase its obligations thereunder which could result in any material (in t he opinion of the Administrative Agent) liability to any member of the Controlled Group, or (v) permit the present value of all nonforfeitable accrued benefits under any Plan (using the actuarial assumptions utilized by the PBGC upon termination of a Plan) materially (in the opinion of the Administrative Agent) to exceed the fair market value of Plan assets allocable to such benefits, all determined as of the most recent valuation date for each such Plan.

7.9

Leverage

The Company shall not at any time permit its Leverage to exceed 0.55.

7.10

Interest Coverage Ratio

The Company shall not permit the ratio of (a) its EBITDA for any calendar quarter to (b) its Interest Expense for such quarter, to be less than 2.00 at any time.

7.11

Fixed Charge Coverage Ratio

The Company shall not permit the ratio of (a) its Reserve-Adjusted EBITDA for any calendar quarter to (b) its Fixed Charges for such quarter, to be less than 1.75 at any time.

7.12

Change in Business

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it on the date hereof.

7.13

Accounting Changes

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any of its consolidated Subsidiaries.

7.14

Limitation on Dividends

The Company shall not, during any fiscal quarter, declare or pay dividends to its shareholders (including the holders of any of its preferred shares) in an amount that would cause the aggregate amount of dividends paid to such shareholders during such fiscal quarter and the three (3) immediately preceding fiscal quarters to exceed ninety-five percent (95%) of the Company’s Funds From Operations during the four (4) consecutive fiscal quarters immediately preceding the declaration date of any such dividend; provided, however, that the Company may declare or pay dividends to its shareholders (including the holders of any of its preferred shares) in any fiscal quarter in an amount that exceeds ninety-five percent (95%) of the Company’s Funds From Operations during the fiscal quarter immediately preceding the declaration date of such dividend only to the extent necessary to preserve the Company’s status as a real estate investment trust for federal income tax purposes; and provided further, however, that for the calendar quarter in which any equity offering is completed and the next two (2) consecutive calendar quarters, the Company may pay dividends to its shareholders that exceed, in the aggregate, the foregoing limitations so long as (i) the portion of such dividend payments that relate to the Company’s common and preferred shares issued and outstanding prior to such equity offering satisfy the foregoing limitations, (ii) such dividend payments on any new issue of common stock do not exceed the rate at which the Company pays dividends on its other common stock and (iii) such dividend payments on any new issue of preferred stock do not exceed the minimum amount needed to pay the required dividend on such preferred stock; provided, however, that when an Event of Default has occurred that remains uncure d, the Company shall not pay dividends to its shareholders that exceed the minimum required for the Company to maintain its status as a “Real Estate Investment Trust” under Section 857 of the Code.

7.15

Development Activity

The Company shall not, and shall not permit any of its Subsidiaries to, engage in real estate development activity other than projects involving at any time aggregate acquisition, development and construction costs, determined on a GAAP basis before depreciation, not to exceed at any time an amount equal to fifteen percent (15%) of the Gross Asset Value of the Company and its consolidated Subsidiaries at such time; provided, however, that no individual project shall involve at any time aggregate acquisition, development and construction costs, determined on a GAAP basis before depreciation, in excess of five percent (5%) of the Gross Asset Value of the Company and its consolidated Subsidiaries; and provided further, however, that at any time the aggregate amount of (i) advances, loans, extensions of credit or capital contributions that the Company and its consolid ated Subsidiaries have made to partnerships, limited liability companies or joint ventures, (ii) the acquisition, development and construction costs, determined on a GAAP basis before depreciation, of development projects with which the Company or its consolidated Subsidiaries are then involved, and (iii) the value of undeveloped land then owned by the Company and its consolidated Subsidiaries, shall not exceed twenty percent (20%) of the Gross Asset Value of the Company and its consolidated Subsidiaries at such time. For purposes of this Section , real estate development activity begins when the Company or any Subsidiary first incurs costs relating to a project, and ends when (x) such project has received a certificate of occupancy or equivalent approval for the shell and core and (y) more than eighty percent (80%) of the net rentable area of such project is covered by signed leases with third-party tenants having remaining terms of three (3) years or longer.

7.16

Undeveloped Land

The Company will not, and will not permit any of its Subsidiaries to, purchase undeveloped land, whether it is excess land adjacent to a Parcel or otherwise, that (a) is not Entitled Land, or (b) causes the aggregate value of undeveloped land owned by the Company and its Subsidiaries, determined on a GAAP basis, to exceed ten percent (10%) of the Gross Asset Value of the Company; provided, however, that at any time the aggregate amount of (i) advances, loans, extensions of credit or capital contributions that the Company and its consolidated Subsidiaries have made to partnerships, limited liability companies or joint ventures, (ii) the acquisition, development and construction costs, determined on a GAAP basis before depreciation, of development projects with which the Company or its consolidated Subsidiaries are then involved, and (iii)& nbsp;the value of undeveloped land then owned by the Company or its consolidated Subsidiaries, shall not exceed twenty percent (20%) of the Gross Asset Value of the Company at such time.

7.17

Joint Ventures

The Company will not permit the aggregate amount of any advances, loans, extensions of credit or capital contributions made by the Company or its consolidated Subsidiaries to partnerships, limited liability companies or joint ventures to exceed ten percent (10%) of the Gross Asset Value of the Company; provided, however, that at any time the aggregate amount of (i) advances, loans, extensions of credit or capital contributions that the Company and its consolidated Subsidiaries have made to partnerships, limited liability companies or joint ventures, (ii) the acquisition, development and construction costs, determined on a GAAP basis before depreciation, of development projects with which the Company or its consolidated Subsidiaries are then involved, and (iii) the value of undeveloped land then owned by the Company or its consolidated Subsidia ries, shall not exceed twenty percent (20%) of the Gross Asset Value of the Company at such time.

7.18

Tangible Net Worth

The Company shall not at any time permit its Tangible Net Worth to be less than the sum of (a) Two Hundred Fifty-Five Million Four Hundred Four Thousand Six Hundred Dollars ($255,404,600.00) plus (b) eighty-five percent (85%) of the proceeds of any equity offering of the Company (net of the reasonable expenses of such equity offering) occurring after December 31, 2001.

7.19

Debt Service Coverage Ratio

The Company shall not permit the ratio of (a) the Reserve-Adjusted Net Operating Income for all Approved Parcels to (b) the Amortized Debt Service, to be less than 1.50 at any time.

EVENTS OF DEFAULT AND REMEDIES

8.1

Event of Default

Any of the following shall constitute an Event of Default:

8.1.1

Non-Payment

The Company fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within five (5) Business Days after the same shall become due, any interest, fee or any other amount payable hereunder or pursuant to any other Loan Document; or

8.1.2

Representation or Warranty

Any representation or warranty by the Company or any of its Subsidiaries made or deemed made in this Agreement or any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, any of its Subsidiaries, or their respective Responsible Officers, furnished at any time under this Agreement or in or under any other Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or

8.1.3

Specific Defaults

The Company fails to perform or observe any term, covenant or agreement contained in Sections , , , , , , , , , , , , , , or or

8.1.4

Other Defaults

The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of twenty (20) days after the earlier of (i) the date upon which a Responsible Officer of the Company knew of such failure or (ii) the date upon which written notice thereof is given to the Company by the Administrative Agent; or

8.1.5

Cross-Default

The occurrence of any default or event of default under any agreement of the Company that, either by itself or together with any other such defaults or events of default, relates to (i) recourse Indebtedness in an aggregate principal amount in excess of $10,000,000, or (ii) nonrecourse Indebtedness in an aggregate principal amount in excess of $20,000,000; or

8.1.6

Insolvency; Voluntary Proceedings

The Company or any of its Subsidiaries (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or

8.1.7

Insolvency; Involuntary Proceedings

(i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary of the Company, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company’s or any of its Subsidiaries’ Properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, within sixty (60) days after commencement, filing or levy; (ii) the Company or any of its Subsidiaries admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any of its Subsidiaries acquiesces in the ap pointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its Property or business; or

8.1.8

ERISA Plans

The occurrence of any one or more of the following events with respect to the Company, provided such event or events could reasonably be expected, in the judgment of the Administrative Agent, to subject the Company to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Company with respect to a Plan:

(a)

A Reportable Event shall occur with respect to a Plan which is, in the reasonable judgment of the Administrative Agent likely to result in the termination of such Plan for purposes of Title IV of ERISA; or

(b)

Any Plan termination (or commencement of proceedings to terminate a Plan) or the Company’s full or partial withdrawal from a Plan; or

8.1.9

Monetary Judgments

One or more final (non-interlocutory) judgments, orders or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not fully covered by insurance) as to any single or related series of transactions, incidents or conditions of $1,000,000 or more, and the same shall remain unvacated and unstayed pending appeal for a period of sixty (60) days after the entry thereof; or

8.1.10

Adverse Change

There shall occur, or be reasonably likely to occur, a Material Adverse Effect that continues unremedied for a period of thirty (30) days after the earlier of (i) the date upon which a Responsible Officer of the Company knew or should have known of such Material Adverse Effect or (ii) the date upon which written notice thereof is given to the Company by the Administrative Agent; or

8.1.11

Management Changes

Peter B. Bedford for any reason ceases to be the Chairman of the Board or the chief executive officer of the Company and is not replaced in such positions with a person reasonably satisfactory to the Majority Banks within six (6) months after he ceases to hold such positions.

8.1.12

Preferred Dividend Defaults

The Company fails to pay in full any two (2) consecutive quarterly dividend payments owing to holders of the Company’s preferred shares.

8.2

Remedies

If any Event of Default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the Majority Banks:

8.2.1

Termination of Commitment to Lend

Declare the commitment of each Bank to make Loans to be terminated, whereupon such commitment shall forthwith be terminated; and

8.2.2

Acceleration of Loans

Declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and

8.2.3

Exercise of Rights and Remedies

Exercise all rights and remedies available to it under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsections or (in the case of clause (i) of subsection upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans shall automatically terminate, and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Bank. Notwithstanding any contrary provision of any Loan Document, upon the occurrence of an Event of Default under Section , the Administrative Agent may not exercise any of its remedies under Section until the earlier of (i) the first date on which a notice of redemption is given with respect to any or all of the Company’s preferred shares and (ii) ninety (90) days after the occurrence of such Event of Default, unless the Company cures such Event of Default during such ninety (90) day period.

8.3

Rights Not Exclusive

The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising.

THE ADMINISTRATIVE AGENT

9.1

Appointment and Authorization of the Administrative Agent

Each Bank hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document, and to exercise such powers and perform such duties, as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto and as further provided in the Co-Lender Agreement described below.

9.2

The Administrative Agent’s Powers

Subject to the limitations set forth in the Loan Documents and the Co-Lender Agreement, the Administrative Agent’s powers include but are not limited to the power: (a) to administer, manage and service the Loans; (b) to enforce the Loan Documents; (c) to make all decisions under the Loan Documents in connection with the day-to-day administration of the Loans, any inspections required by the Loan Documents, and other routine administration and servicing matters; (d) to collect and receive from the Company or any third persons all payments of amounts due under the terms of the Loan Documents and to distribute the amounts thereof to the Banks; (e) to collect and distribute or disburse all other amounts due under the Loan Documents; (f) to grant or withhold consents, approvals or waivers, and make any other determinations in con nection with the Loan Documents; and (g) to exercise all such powers as are incidental to any of the foregoing matters. The Administrative Agent shall furnish to the Banks copies of material documents, including confidential ones, received from the Company regarding the Loans, the Loan Documents, and the transactions contemplated thereby. The Administrative Agent shall have no responsibility with respect to the authenticity, validity, accuracy or completeness of the information provided.

9.3

Limitation on the Administrative Agent’s Duties

Notwithstanding any contrary provision of any Loan Document, the Administrative Agent shall not have any duties or responsibilities except those expressly set forth in the Loan Documents or the Co-Lender Agreement, nor shall the Administrative Agent have any fiduciary relationship with any Bank, and no implied covenants, responsibilities, duties, obligations or liabilities shall be read into this Agreement, any other Loan Document or the Co-Lender Agreement against the Administrative Agent.

9.4

Acknowledgment of Co-Lender Agreement

The Company acknowledges that the Banks have executed a Co-Lender Agreement to supplement the Loan Documents with respect to the relationship of the Banks and the Administrative Agent among themselves in connection with the Loans. The Co-Lender Agreement is not a Loan Document.

9.5

Successor Administrative Agent

The Administrative Agent may, and at the request of the Majority Banks shall, resign as Administrative Agent upon thirty (30) days’ notice to the Banks. If the Administrative Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor administrative agent. If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Banks, a successor administrative agent that would qualify as an Eligible Assignee. Upon its acceptance of the appointment as successor administrative agent, such successor shall succeed to all of the rights, powers and duties of the retiring Administrative Agent, the term “Administrative Agent”, shall mean such successor, and the appointment, powe rs and duties of such retiring Administrative Agent, shall terminate. After any retiring Administrative Agent’s resignation hereunder as administrative agent, the provisions of this Agreement regarding payment of costs and expenses and indemnification of the Administrative Agent shall inure to its benefit as to any actions that such retiring Administrative Agent took or omitted to take while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date that is thirty (30) days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Banks shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Majority Banks appoint a successor administrative agent in the manner set forth above. Upon replacement of the Administrative Agent as prov ided in this Agreement, the former Administrative Agent shall promptly deliver to the new Administrative Agent copies of any books, records and documents related to the Loans to which the Banks are entitled and which is then in the former Administrative Agent’s possession.

10.

MISCELLANEOUS

10.1

Amendments and Waivers

No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company or any of its Subsidiaries therefrom, shall be effective unless the same shall be in writing and signed by the Administrative Agent at the written request of the Majority Banks, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided however, that no such amendment or waiver shall do any of the following unless it is in writing and signed by the Administrative Agent at the written request of all the Banks:

(a)

Increase the Commitment of any Bank;

(b)

Postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any one of them) hereunder or under any other Loan Document;

(c)

Reduce the rate of interest or any fees or other amounts payable in connection with the Loan;

(d)

Change the voting percentage of the Commitments or of the aggregate unpaid principal amount of the Loans that is required for the Banks, or any of them, to take any action hereunder;

(e)

Amend this or any provision requiring consent of all Banks for action by the Banks or the Administrative Agent;

(f)

Discharge the Company or any guarantor except as otherwise may be provided in the Loan Documents or except where the consent of only the Majority Banks is expressly required by any Loan Document;

(g)

Amend the definition of the term “Approved Parcel Value” as set forth in Section of this Agreement.

10.2

Notices

(a)

All notices, requests and other communications provided for hereunder shall be in writing (including, unless the context expressly otherwise provides, facsimile transmission) and mailed (by certified mail, postage prepaid, return receipt requested), delivered or telecopied to the address or number specified for notices on the applicable signature page hereof, or to such other address as shall be designated by such party in a written notice to the other parties.

(b)

All such notices and communications shall, when transmitted by overnight delivery or telecopied by facsimile, be effective when delivered for overnight delivery or transmitted by telecopier, respectively, or if delivered, upon delivery, except that notices pursuant to Article shall not be effective until actually received by the Administrative Agent. All notices and communications telecopied by facsimile will also be mailed by ordinary first class mail, postage prepaid. All such notices and communications delivered by mail shall be effective upon the earlier of (i) two (2) Business Days after deposit in the United States mail, or (ii) actual receipt, as evidenced by the return receipt.

(c)

The Company acknowledges and agrees that any agreement of the Administrative Agent at Article herein to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Company. The Administrative Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice, and the Administrative Agent and the Banks shall not have any liability to the Company or any other Person on account of any action taken or not taken by the Administrative Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Administrative Agent or the Banks to receive written confirmation of any telephonic or facsimile notice or the rec eipt by the Administrative Agent or the Banks of a confirmation which is at variance with the terms understood by the Administrative Agent or the Banks to be contained in the telephonic or facsimile notice.

10.3

No Waiver; Cumulative Remedies

No failure on the part of the Administrative Agent or any Bank in exercising, and no delay in its exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

10.4

Costs and Expenses

The Company shall, whether or not the transactions contemplated hereby shall be consummated:

(a)

pay or reimburse the Administrative Agent within fifteen (15) Business Days after demand (subject to subsections and ) for all costs and expenses (including due diligence expenses) incurred in connection with the development, preparation, delivery, administration (other than normal overhead costs of administering the Loans), syndication and execution of, and any amendment, supplement, waiver or modification to, this Agreement, any other Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including Attorney Costs incurred by Bank of America (including in its capacity as the Administrative Agent) with respect thereto;

(b)

pay or reimburse the Administrative Agent within fifteen (15) Business Days after demand (subject to subsections and ) for all costs and expenses incurred in connection with the enforcement, attempted enforcement or preservation of any rights or remedies (including in connection with any workout or restructuring regarding the Loans) under this Agreement, any other Loan Document, and any such other documents, including Attorney Costs incurred by the Administrative Agent; and

(c)

pay or reimburse Bank of America (including in its capacity as the Administrative Agent) within thirty (30) days after demand (subject to subsections and ) for all appraisal (including the allocated cost of internal appraisal services), audit, environmental, inspection and review (including the allocated cost of such internal services), travel, search and filing costs, fees and expenses incurred or sustained by Bank of America (including in its capacity as the Administrative Agent) in connection with the matters referred to under paragraphs and of this Section.

10.5

Indemnity

Whether or not the transactions contemplated hereby shall be consummated, the Company shall pay, indemnify, and hold the Agent-Related Persons, the Sole Lead Arranger and each Bank and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an “Indemnified Person”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever which may be incurred by or asserted against any such Indemnified Person arising out of relating to the execution, delivery, enforcement, performance or administration of this Agreement or any other Loan Documents, or the transactions contemplated hereby and thereby, and with respect to any investigation, litigation or proceeding related to th is Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising solely from the gross negligence or willful misconduct of such Indemnified Person. The obligations in this Section shall survive termination of any Commitment and payment or satisfaction of all other Obligations. At the election of any Indemnified Person, the Company shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person’s sole discretion, at the sole cost and expense of the Company. All amounts owing under this Section shall be paid within thirty (30) days after demand.

10.6

Marshaling; Payments Set Aside

Neither the Administrative Agent nor the Banks shall be under any obligation to marshal any assets in favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment or payments to the Administrative Agent or the Banks, or the Administrative Agent or the Banks enforce their Liens, and such payment or payments or the proceeds of such enforcement or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party in connection with any Insolvency Proceeding, or otherwise, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforce ment had not occurred.

10.7

Successors and Assigns

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Bank.

10.8

Assignments, Participations, Confidentiality

10.8.1

Assignments

Each Bank may at any time assign and delegate to one or more Eligible Assignees (each, an “Assignee”) with the written consent of the Company and the Administrative Agent, which consent shall not be unreasonably withheld (provided that no written consent of the Company shall be required (a) after the occurrence and during the continuance of an Event of Default or (b) in connection with any assignment and delegation to an Affiliate of such Bank), all or a portion of the Loans, the Commitment and the other rights and obligations of such Bank hereunder, under the other Loan Documents; provided, however, that any Bank that is or becomes a party to this Agreement from time to time shall at all times retain an interest in the Loans, the Commitment and the other rights and obligations of a Bank hereunder in an aggregate principal amount of not less than Te n Million Dollars ($10,000,000.00); and provided further, however, that any assignment of a Bank’s interest in the Loans, the Commitment and the other rights and obligations of such Bank hereunder and under the other Loan Documents shall be in the minimum amount of Ten Million Dollars ($10,000,000.00) and multiples of One Million Dollars ($1,000,000.00) in excess thereof; and provided further, however, that the Company may continue to deal solely and directly with the assignor Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, substantially in the form of Schedule 1 to the attached Exhibit H, shall have been given to the Company and the Administrative Agent by such Bank and the Assignee, (ii) such Bank and its Assignee shall have delivered to the Administrative Agent and the Company an Assignment and Assumption Agreement substantially in the form of the attached Exhibit H (the 47;Assignment and Assumption Agreement”) (together with any Note(s) subject to such assignment), and (iii) the Assignee shall have paid to the Administrative Agent a processing fee in the amount of $2,500.

10.8.2

Effect of Assignment

From and after the date on which the Administrative Agent notifies the assigning Bank that all conditions and requirements of the assignment have been met, then to the extent that rights and obligations hereunder have been assigned (a) the Assignee thereunder shall be a party hereto and shall have the rights and obligations of a Bank under the Loan Documents and the Co-Lender Agreement, (b) the assigning Bank shall relinquish such assigned rights and be released from such assigned obligations under the Loan Documents, (c) this Agreement shall be deemed to be amended to the extent necessary to reflect the addition of the Assignee and the resulting adjustment of the Pro Rata Shares of the Loans arising therefrom, and (d) the Pro Rata Share allocated to an Assignee shall reduce the Pro Rata Share of the assigning Bank.

10.8.3

Participations

Subject to the limitations set forth in Section , which apply equally to participations and assignments, any Bank (the “originating Bank”) may at any time sell to one or more Persons that are not Affiliates of the Company (each, a “Participant”) participating interests in any Loans, the Commitment and the other interests of such originating Bank hereunder and under the other Loan Documents; provided, however, that (a) the originating Bank’s obligations under this Agreement shall remain unchanged, (b) the originating Bank shall remain solely responsible for the performance of such obligations, (c) the Company and the Administrative Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank’s rights and obligations under this Agreement and the other Loa n Documents, (d) the Participant shall, together with the originating Bank, be entitled to the non-exclusive protections of Sections and as though it were also the originating Bank hereunder, and (e) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment, consent or waiver with respect to any Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks. A Participant shall not have any rights under the Loan Documents or the Co-Lender Agreement, and all amounts payable by the Company hereunder shall be determined as if the originating Bank had not sold such participation.

10.8.4

Pledge to Federal Reserve Bank

Notwithstanding any other provision, a Bank may pledge its interest in the Commitment, in the Loans and under the Loan Documents in favor of any Federal Reserve Bank in accordance with Federal law.

10.8.5

Confidentiality

Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to it by the Company or any Subsidiary of the Company in connection with this Agreement or any other Loan Document, and the Banks and any of its Affiliates shall not use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by such Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company (provided that such source is not bound by a confidentiality agreement with the Company known to such Bank); provided, however, that such Bank may disclose such information (A) at the reques t or pursuant to any requirement of any Governmental Authority to which such Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; and (D) to such Bank’s independent auditors and other professional advisors. Notwithstanding the foregoing, the Company authorizes each Bank to disclose to any Participant or Assignee (each, a “Transferee”), and to any prospective Transferee, such financial and other information in such Bank’s possession concerning the Company or its Subsidiaries which has been delivered to such Bank pursuant to this Agreement or which has been delivered to such Bank by the Company in connection with the Bank’s credit evaluation of the Company prior to entering into this Agreement; provided that, unless otherwise agreed by the Company, such Transferee agrees in wri ting with such Bank to keep such information confidential to the same extent required of such Bank hereunder.

10.9

Counterparts

This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument.

10.10

Severability

The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

10.11

No Third Parties Benefited

This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Administrative Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person (other than an Indemnified Person under Section ) shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. The Administrative Agent shall have no obligation to any Person not a party to this Agreement or other Loan Documents.

10.12

Time

Time is of the essence as to each term or provision of this Agreement and each of the other Loan Documents.

10.13

Governing Law

This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of California (without regard to conflicts of law rules); provided that the Administrative Agent and the Banks shall retain all rights arising under federal law.

10.14

Arbitration; Reference

(a)

Mandatory Arbitration. Any controversy or claim between or among the parties, including those arising out of or relating to this Agreement or any agreements or instruments relating hereto or delivered in connection herewith and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association (“AAA”). The arbitrator(s) shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be ent ered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(b)

Judicial Reference. At the request of any party, a controversy or claim which is not submitted to arbitration as provided and limited in subparagraph shall be determined by a reference in accordance with California Code of Civil Procedure Section 638 et seq. If such an election is made, the parties shall designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

(c)

Provisional Remedies, Self-Help and Foreclosure. No provision of this Section shall limit the right of any party to this Agreement to exercise self-help remedies such as set-off, foreclosure against or sale of any real or personal property collateral or security, or obtaining provisional or ancillary remedies from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. At Bank’s option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of a power of sale under the deed of trust or mortgage or by judicial foreclosure.

10.15

Notice of Claims; Claims Bar

THE COMPANY HEREBY AGREES THAT IT SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE, AGAINST THE BANK, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR TO THE LOANS, OR ANY ACT OR OMISSION TO ACT BY THE ADMINISTRATIVE AGENT OR ANY BANK WITH RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH PROMPT NOTICE TO THE ADMINISTRATIVE AGENT OR SUCH BANK WITH REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING, SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL AGENCY.

10.16

Entire Agreement; Amendment and Restatement

This Agreement, together with the other Loan Documents, embodies the entire Agreement and understanding among the Company, on the one hand, and the Administrative Agent and the Banks, on the other, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof, except for any prior arrangements made with respect to the payment by the Company of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent or any of the Banks.

10.17

Interpretation

This Agreement is the result of negotiations between, and has been reviewed by counsel to, the Company and the Administrative Agent, and is the product of all parties hereto. Accordingly, this Agreement and the other Loan Documents shall not be construed against the Administrative Agent or the Banks merely because of their involvement in the preparation of such documents and agreements.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

	“Company” BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By /s/Peter B. Bedford Peter B. Bedford Chairman and Chief Executive Officer Notice Address: 270 Lafayette Circle Lafayette, California 94549 Attention: Peter B. Bedford Telephone No.: (510) 283-8910 Telecopier No.: (510) 283-5697
	“Administrative Agent” BANK OF AMERICA, N.A., as Administrative Agent By /s/Frank H. Stumpf Frank H. Stumpf, Principal Notice Address: 555 California Street, 12th Floor San Francisco, California 94104-1503 Attention: Frank H. Stumpf Telephone No.: (415) 622-6068 Telecopier No.: (415) 622-4585
Commitment: $20,000,000	“Banks” BANK OF AMERICA, N.A. By /s/Frank H. Stumpf Frank H. Stumpf, Principal Lending Office/Notice Address: 555 California Street, 12th Floor San Francisco, California 94104-1503 Attention: Frank H. Stumpf Telephone No.: (415) 622-6068 Telecopier No.: (415) 622-4585
Commitment: $20,000,000	UNION BANK OF CALIFORNIA, N.A. By /s/David B. Murphy David B. Murphy, Vice President Lending Office/Notice Address: 350 California Street, 7th Floor San Francisco, CA 94115 Attention: David B. Murphy Telephone No.: (415) 705-7329 Telecopier No.: (415) 433-7438

EXHIBIT

[Form of Borrowing Notice]

(Date)

Bank of America, N.A.,

as Administrative Agent

555 California Street, 12th Floor

San Francisco, California 94104-1503

Attention: Frank H. Stumpf

Re:

$40,000,000 Unsecured Loan to Bedford Property Investors, Inc.; Loan No. ____________________; Borrowing Notice No. ____________________

Gentlemen:

Bedford Property Investors, Inc. (the “Company”) hereby requests a Borrowing on the terms set forth below pursuant to Sections and of that certain Credit Agreement dated as of __________, 2002, among the Company, the Banks party thereto and Bank of America, N.A., as Administrative Agent for the Banks (the “Agreement”). Capitalized terms used herein and not defined herein shall have the meanings given to them in the Agreement.

The amount of the Borrowing is U.S.$__________ (minimum principal amount of $250,000 and increments of $50,000 in excess thereof for Prime Rate Borrowings, and minimum principal amount of $500,000 and increments of $100,000 in excess thereof for LIBOR Borrowings).

The borrowing date will be __________, 20__.

The Borrowing will be a [Prime Rate/LIBOR Rate] Loan.

[If the Borrowing is to consist of LIBOR Loans, the Interest Period will be _____ months, and will begin on __________, 20__, and will end on __________, 20__.]

The Company hereby represents and warrants to the Administrative Agent and the Banks that (i) the representations and warranties made by the Company contained in Article of the Agreement are true and correct on and as of the borrowing date with the same effect as if made on and as of such borrowing date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date); (ii) no Default or Event of Default has occurred and remains uncured and no Default or Event of Default shall result from the making of the requested Loan; and (iii) with respect to the requested Loan, all of the conditions of Section of the Agreement have been satisfied (and will be satisfied on the date such Loan is made).

BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation

[Printed Name and Title]

–#

sf-1340142

EXHIBIT

[Form of Conversion/Continuation Notice]

(Date)

Bank of America, N.A.,

as Administrative Agent

555 California Street, 12th Floor

San Francisco, California 94104-1503

Attention: Frank H. Stumpf

Re:

$40,000,000 Unsecured Loan to Bedford Property Investors, Inc.; Loan No. ____________________; Conversion/Continuation Notice No. ____________________

Gentlemen:

Pursuant to Section of that certain Credit Agreement dated as of __________, 2002, among Bedford Property Investors, Inc., a Maryland corporation (the “Company”), the Banks party thereto and Bank of America, N.A., as Administrative Agent for the Banks (the “Agreement”), the Company hereby elects to [convert the [Prime Rate Loan/expiring LIBOR Loan] described below into [a LIBOR Loan/a Prime Rate Loan] having the terms described below] [continue the expiring LIBOR Loan described below as a LIBOR Loan having the terms described below]. Capitalized terms used herein and not defined herein shall have the meanings given to them in the Agreement.

The [conversion/continuation] date is __________, 20__.

The aggregate amount of Loans to be [converted to [LIBOR Loans] [Prime Rate Loans]/continued as LIBOR Loans] is U.S.$__________.

The Company requests [conversion of U.S.$__________ of [Prime Rate Loans] [LIBOR Loans] to [a LIBOR Loan having an Interest Period of _____ months, beginning on __________, 20__, and ending on __________, 20__] [a Prime Rate Loan]] [continuation of U.S.$__________ of LIBOR Loans as a LIBOR Loan having an Interest Period of _____ months, beginning on __________, 20__, and ending on __________, 20__.]

BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation

[Printed Name and Title]

EXHIBIT

[Form of Note]

NOTE

$__________

San Francisco, California

__________, 20__

FOR VALUE RECEIVED, BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation (the “Company”), promises to pay to the order of ________________________________________ (the “Bank”), at the offices of Bank of America, N.A., Administrative Agent for the Bank, at 555 California Street, 12th Floor (Structured Debt Group), San Francisco, California 94104-1503, or at such other place as the Bank may designate from time to time, the sum of _______________ Dollars ($__________), or the aggregate unpaid principal amount outstanding hereunder, whichever may be the lesser, in immediately available funds and lawful money of the United States of America.

Interest shall accrue on amounts outstanding hereunder in accordance with that certain Credit Agreement dated as of __________, 2002 (the “Agreement”) among the Company, the Banks party thereto and Bank of America, N.A., as Administrative Agent for the Banks. (Capitalized terms used in this Note and not defined herein shall have the meanings given to them in the Agreement.) Pursuant thereto, interest shall accrue on amounts outstanding hereunder from time to time: (a) at a fluctuating per annum rate equal to the Prime Rate; or (b) at the Company’s option, subject to the terms of the Agreement, at a per annum rate equal to the LIBOR Rate plus the Applicable Margin. A change in the interest rate for Prime Rate Loans shall take effect on the day specified in the public announcement of the change in the Prime Rate. Inter est shall be computed on the basis of a 360-day year and actual days elapsed. Interest shall become due and payable in accordance with the terms of the Agreement.

All unpaid principal and interest outstanding hereunder shall be due and payable on the Maturity Date; provided that prepayments of principal shall be made as provided in the Agreement.

This Note is one of the Notes referred to in the Agreement, and is issued in conjunction with, and is entitled to all of the rights, benefits and privileges provided in, the Agreement, as now existing or as the same may from time to time be supplemented, modified or amended. The Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events.

The Bank may endorse on the schedule annexed to this Note the date, amount and maturity of each Loan that it makes pursuant to the Agreement, the amount of each payment of principal that the Company makes with respect thereto and the source of the funds from which each principal payment is made. The Company irrevocably authorizes the Bank to endorse this Note, and the Bank’s record shall be conclusive absent manifest error; provided, however, that the Bank’s failure to make, or its error in making, a notation on the attached schedule with respect to any Loan shall not limit or otherwise affect the Company’s obligations to the Bank hereunder or under the Agreement.

The Company waives presentment, demand, protest, notice of protest, notice of nonpayment or dishonor and all other notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. Time is of the essence hereof.

This Note has been executed by the undersigned in the State of California, and shall be governed by, and construed in accordance with, the laws of the State of California.

BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation

[Printed Name and Title]

EXHIBIT

[Form of Opinion of Counsel]

__________, 2002

The Banks Party to the Credit

Agreement Described Below

Bank of America, N.A.,

as Administrative Agent

555 California Street, 12th Floor

San Francisco, California 94104-1503

Attention: Frank H. Stumpf

Re:

$40,000,000 Unsecured Line of Credit (the “Credit Line”) from the several financial institutions from time to time party to the Credit Agreement (as defined below) (collectively, the “Banks”) to Bedford Property Investors, Inc., a Maryland corporation (the “Company”)

Gentlemen:

We have acted as counsel to the Company and to each of its subsidiaries listed on Schedule 1 attached hereto and incorporated herein by this reference (each, a “Subsidiary”) in connection with the negotiation and execution of the documents evidencing the Credit Line, and we are delivering this opinion to you at the Company’s request. In connection with our representation of the Company and the Subsidiaries, we have examined all of the following documents (collectively, the “Loan Documents”):

Credit Agreement dated as of __________, 2002, among the Company, the Banks, and Bank of America, N.A., as administrative agent for the Banks (in such capacity, the “Administrative Agent”) (the “Credit Agreement”);

Note made by the Company and payable to the order of Bank of America, N.A. in the maximum principal amount of $20,000,000.00;

Note made by the Company and payable to the order of UNION BANK OF CALIFORNIA, N.A. in the maximum principal amount of $20,000,000.00; and

Secretary’s Certificate executed by the Company’s secretary.

The documents referred to in numbered paragraphs 1 through 3 above are hereinafter collectively referred to as the “Credit Documents.”

We have also reviewed such other documents, certificates and instruments as we deemed relevant, appropriate or necessary in rendering the opinions contained herein. In rendering the opinions set forth below, we have assumed the truth of the facts stated in the foregoing documents, the genuineness of the signatures thereon and the completeness thereof.

Based upon the foregoing, but subject to the limitations and qualifications expressed below, we are of the opinion that:

The Company is a corporation duly organized, existing and in good standing under the laws of the State of Maryland, and is duly qualified to do business in the State of California. The Company has the full right, power and authority to execute, deliver and perform its obligations under the Credit Documents and all other documents and agreements it may execute concurrently with the Credit Documents.

The Company’s execution, delivery and performance of the Credit Documents (i) have been duly authorized by all necessary corporate action, (ii) do not conflict with any term or provision of the Company’s articles of incorporation or bylaws, and (iii) do not require the consent or approval of any governmental authority or any other person or entity to the extent such consent or approval is required by any provision of the Company’s articles of incorporation or bylaws.

There are no actions, suits, proceedings, claims or disputes pending or threatened, at law, in equity, in arbitration or before any governmental authority, against the Company which purport to affect or pertain to any of the transactions contemplated by the Credit Documents.

The Credit Documents constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

The opinions expressed herein are subject to the effect of bankruptcy, insolvency and other similar laws affecting the rights of creditors generally, and general principles of equity.

Very truly yours,

EXHIBIT

List of Potential Approved Parcels

Carneros Commons: Real property located at 851 Napa Valley Corporate Way and 2700 Napa Valley Corporate Drive, Napa, California (Napa County).

Ringwood Court: Real property located at 1110-1150 Ringwood Court, San Jose, California (Santa Clara County).

South San Francisco Business Center: Real property located at 800 to 890 Dubuque Avenue, South San Francisco, California (San Mateo County).

EXHIBIT

[INTENTIONALLY OMITTED]

EXHIBIT

[INTENTIONALLY OMITTED.]

EXHIBIT

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (this (“Assignment and Assumption”) dated as of __________, 20__ is made between (the “Assignor”) and _________________________ (the “Assignee”).

RECITALS

WHEREAS, the Assignor is party to that certain Credit Agreement dated as of __________, 2002 (as amended, amended and restated, modified, supplemented or renewed, the “Credit Agreement”), among Bedford Property Investors, Inc., a Maryland corporation (the “Company”), the several financial institutions from time to time party thereto (including the Assignor, the “Banks”), and Bank of America, N.A., as administrative agent for the Banks, (the “Administrative Agent”). Any capitalized terms defined in the Credit Agreement and not defined in this Assignment and Assumption are used herein as defined in the Credit Agreement;

WHEREAS, the Assignor is also a party to that certain Co-Lender Agreement dated as of __________, 2002 (as amended, amended and restated, modified, supplemented or renewed, the “Co-Lender Agreement”), between the Banks and the Administrative Agent;

WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans (the “Committed Loans”) to the Company in an aggregate amount not to exceed $__________ (the “Commitment”);

WHEREAS, [the Assignor has made Committed Loans in the aggregate principal amount of $__________ to the Company] [no Committed Loans are outstanding under the Credit Agreement]; and

WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, in an amount equal to $__________ (the “Assigned Amount”) on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

Assignment and Assumption.

1.1

Subject to the terms and conditions of this Assignment and Assumption, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Assumption) _____% (the “Assignee’s Percentage Share”) of (A) the Commitment of the Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement, the Loan Documents and the Co-Lender Agreement.

1.2

With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and the Co-Lender Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement and the Co-Lender Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which it is required to perform as a Bank under the Credit Agreement or the Co-Lender Agreement. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement and the Co-Lender Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Section of the Credit Agreement or Section 9.4 of the Co-Lender Agreement to the extent such rights relate to the time prior to the Effective Date.

1.3

After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor’s Commitment will be $__________.

1.4

After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee’s Commitment will be $__________.

Payments.

(a)

As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee’s Pro Rata Share of the Principal amount of all Committed Loans.

(b)

The [Assignor] [Assignee] further agrees to pay to the Administrative Agent a processing fee in the amount specified in Section of the Credit Agreement.

(c)

Notwithstanding anything to the contrary contained in Sections or of the Credit Agreement, for purposes of this Assignment and Assumption, the Administrative Agent shall remit interest payments on Committed Loans outstanding to the Company with respect to the Assignee’s Commitment on the basis of an interest rate whose Applicable Margin (as defined in the Credit Agreement) shall be defined as follows:

(i)

with respect to Prime Rate Loans, _____ basis points; and

(ii)

with respect to LIBOR Loans, _____ basis points.

The Administrative Agent shall retain all additional amounts paid by the Company as a commitment fee or as interest on the Committed Loans outstanding to the Company with respect to the Assignee’s Commitment.

Reallocation of Payments.

Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment shall be for the account of the Assignor. Subject to the provisions of Section 2(c) hereof, any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt.

Independent Credit Decision.

The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Assumption; (b) acknowledges its familiarity with, and approves of, each of the Approved Parcels (as defined in the Credit Agreement); and (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement or the Co-Lender Agr eement.

Effective Date; Notices.

(a)

As between the Assignor and the Assignee, the effective date for this Assignment and Assumption shall be __________, 20__ (the “Effective Date”); provided that the following conditions precedent have been satisfied on or before the Effective Date:

(i)

this Assignment and Assumption shall be executed and delivered by the Assignor and the Assignee;

(ii)

the consent of the Company and the Administrative Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date;

(iii)

the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and

(iv)

Acceptance;

(v)

the Assignee shall have complied with Section of the Credit Agreement (if applicable);

(vi)

the processing fee referred to in Section 2(b) hereof and in Section of the Credit Agreement shall have been paid to the Administrative Agent; and

(vii)

the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee’s Percentage Share of the rights and obligations of the Assignor under the Credit Agreement.

(b)

Promptly following the execution of this Assignment and Assumption, the Assignor shall deliver to the Company and the Administrative Agent for acknowledgment by the Administrative Agent, a Notice of Assignment substantially in the form attached hereto as Schedule 1.

Administrative Agent.

(a)

The Assignee hereby appoints and authorizes the Assignor to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement and the Co-Lender Agreement as are delegated to the Administrative Agent by the Banks pursuant to the terms of the Credit Agreement or the Co-Lender Agreement.

(b)

The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Administrative Agent under the Credit Agreement.

Withholding Tax.

The Assignee (a) represents and warrants to the Banks, the Administrative Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Banks with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any state thereof) to the Administrative Agent and the Company prior to the time that the Administrative Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax an all payments hereunder) and ag rees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption.

Representations and Warranties.

(a)

The Assignor represents and warrants to the Assignee that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Assumption and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Assumption and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Assumption, and apar t from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Assumption has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors’ rights and to general equitable principles.

(b)

The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith.

(c)

The Assignee represents and warrants to the Assignor that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Assumption and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Assumption, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Assumption; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such ex ecution, delivery or performance; (iii) this Assignment and Assumption has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors’ rights and to general equitable principles; and (iv) it is an Eligible Assignee.

Further Assurances.

The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and to take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Assumption, including the delivery of any notices or other documents or instruments to the Company or the Administrative Agent, which may be required in connection with the assignment and assumption contemplated hereby.

10.

Miscellaneous.

(a)

Any amendment or waiver of any provision of this Assignment and Assumption shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Assumption shall be without prejudice to any rights with respect to any other or further breach thereof.

(b)

All payments made hereunder shall be made without any set-off or counterclaim.

(c)

The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Assumption.

(d)

This Assignment and Assumption may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

(e)

THIS ASSIGNMENT AND ASSUMPTION SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO CONFLICTS OF LAW RULES). The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in California over any suit, action or proceeding arising out of or relating to this Assignment and Assumption and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such California State or Federal court. Each party to this Assignment and Assumption hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding.

(f)

THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ASSUMPTION, THE CREDIT AGREEMENT, THE CO-LENDER AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING OR STATEMENTS (WHETHER ORAL OR WRITTEN).

IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Assumption to be executed and delivered by their duly authorized officers as of the date first above written.

[ASSIGNOR]

Title

Address:

[ASSIGNEE]

Title

Address:

SCHEDULE 1
TO EXHIBIT

NOTICE OF ASSIGNMENT AND ASSUMPTION

__________, 20__

Bank of America, N.A.,
as Administrative Agent
555 California Street, 12th Floor
San Francisco, California 94104-1503
Attention: Frank H. Stumpf

Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, California 94549
Attention:

Gentlemen:

We refer to the Credit Agreement dated as of __________, 2002 (as amended, amended and restated, modified, supplemented or renewed from time to time the “Credit Agreement”), among Bedford Property Investors, Inc., a Maryland corporation (the “Company”), the Banks referred to therein and Bank of America, N.A., as administrative agent for the Banks (the “Administrative Agent”). Terms defined in the Credit Agreement are used herein as therein defined.

We hereby give you notice of, and request your consent to, the assignment by ____________________ (the “Assignor”) to ____________________ (the “Assignee”) of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitments of the Assignor and all outstanding Loans made by the Assignor) pursuant to the Assignment and Assumption Agreement attached hereto (the “Assignment and Assumption”). Before giving effect to such assignment the Assignor’s Commitment is $__________ [.] [and the aggregate amount of its outstanding Loans is $__________.]

The Assignee agrees that, upon receiving the consent of the Administrative Agent and, if applicable, the Company to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement.

The following administrative details apply to the Assignee:

(A)

Notice Address:

Assignee name:

Address:

Attention:

Telephone:

Telecopier:

(B)

Assignee’s Payment Instructions to the Administrative Agent:

Account Number:

At:

Reference:

Attention:

You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and the Assignee contained in the Assignment and Assumption.

IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Assumption to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned.

Very truly yours,

[NAME OF ASSIGNOR]

[Printed Name and Title]

[NAME OF ASSIGNEE]

[Printed Name and Title]

ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:

BEDFORD PROPERTY INVESTORS, INC.,
a Maryland corporation

[Printed Name and Title]

BANK OF AMERICA, N.A., as Administrative Agent

Frank H. Stumpf, Principal

SCHEDULE 5.5

LITIGATION

[None, outside of ordinary litigation related to the collection of delinquent rent.]

Schedule 5.5 — Page #

sf-1340142

SCHEDULE 5.11

MATERIAL INDEBTEDNESS NOT DISCLOSED
ON 12/31/01 FINANCIAL STATEMENTS

[None]

Schedule 5.11 — Page #

sf-1340142

SCHEDULE 5.12

ENVIRONMENTAL DISCLOSURES

[None]

Schedule 5.12 — Page #

sf-1340142

SCHEDULE 5.16

(A) LIST OF SUBSIDIARIES

[None]

(B) OTHER EQUITY INVESTMENTS

[None]

Schedule 5.16 — Page #

sf-1340142

CREDIT AGREEMENT

Among

BEDFORD PROPERTY INVESTORS, INC.,

THE BANKS PARTY HERETO,

BANK OF AMERICA, N.A.,
as Administrative Agent for the Banks, and

BANC OF AMERICA SECURITIES LLC,
as Sole Lead Arranger and Sole Book Manager

Dated as of September 6, 2002

sf-1340142

TABLE OF CONTENTS

Page

1.1

Defined Terms

1.2

Other Interpretive Provisions

1.2.1

Use of Defined Terms

1.2.2

Certain Common Terms

1.2.3

Accounting Principles

The Credit

2.1

Amount and Terms of Commitment

2.2

Loan Accounts; Notes

2.3

Procedure for Obtaining Credit

2.4

Conversion and Continuation Elections

2.5

Principal Payments

2.5.1

Optional Repayments

2.5.2

Mandatory Repayments

2.5.3

Repayment at Maturity

2.5.4

Options to Extend Maturity Date

2.6

Interest

2.6.1

Accrual Rate

2.6.2

Payment

2.6.3

Default Interest

2.6.4

Maximum Legal Rate

2.7

Fees

2.8

Computation of Fees and Interest

2.9

Payments by the Company

2.10

Payments by the Banks to the Administrative Agent

2.11

Sharing of Payments, Etc

Taxes, Yield Protection and Illegality

3.1

Taxes

3.2

Illegality

3.3

Increased Costs and Reduction of Return

3.4

Funding Losses

3.5

Inability to Determine Rates

3.6

Certificate of Bank

3.7

Survival

Conditions Precedent

4.1

Conditions to Approving Parcels

4.1.1

Fee Ownership

4.1.2

Satisfactory Parcel

4.1.3

No Hazardous Materials

4.1.4

Pro Forma Cash Flow Statement

4.1.5

No Liens

4.1.6

Deliveries to the Administrative Agent

4.1.7

Title Insurance

4.1.8

Tax Reporting Service

4.1.9

Costs

4.1.10

Expenses

4.2

Conditions of Initial Loan

4.2.1

Deliveries to the Administrative Agent

4.2.2

Payment of Expenses

4.2.3

Payment of Fees

4.3

Conditions to All Borrowings

4.3.1

Minimum Number of Approved Parcels

4.3.2

Notice of Borrowing

4.3.3

Continuation of Representations and Warranties

4.3.4

No Existing Default

4.3.5

Further Assurances

4.4

Disposition of Approved Parcel

Representations and Warranties

5.1

Existence and Power

5.2

Corporate Authorization; No Contravention

5.3

Governmental Authorization

5.4

Binding Effect

5.5

Litigation

5.6

No Default

5.7

ERISA Compliance

5.8

Use of Proceeds; Margin Regulations

5.9

Title to Properties

5.10

Taxes

5.11

Financial Condition

5.12

Environmental Matters

5.13

Regulated Entities

5.14

No Burdensome Restrictions

5.15

Solvency

5.16

Subsidiaries; Equity Investments

5.17

Brokers; Transaction Fees

5.18

Insurance

5.19

Full Disclosure

Affirmative Covenants

6.1

Financial Statements

6.2

Certificates; Other Information

6.3

Notices

6.4

Preservation of Corporate Existence, Etc

6.5

Maintenance of Property

6.6

Insurance

6.7

Payment of Obligations

6.8

Compliance with Laws

6.9

Inspection of Property and Books and Records

6.10

Environmental Laws

6.11

Use of Proceeds

6.12

Solvency

6.13

Further Assurances

6.14

Registration of Capital Stock

Negative Covenants

7.1

Limitation on Liens

7.2

Consolidations and Mergers

7.3

Loans and Investments

7.4

Limitation on Indebtedness

7.5

Transactions with Affiliates

7.6

Use of Proceeds

7.7

Contingent Obligations

7.8

Compliance with ERISA

7.9

Leverage

7.10

Interest Coverage Ratio

7.11

Fixed Charge Coverage Ratio

7.12

Change in Business

7.13

Accounting Changes

7.14

Limitation on Dividends

7.15

Development Activity

7.16

Undeveloped Land

7.17

Joint Ventures

7.18

Tangible Net Worth

7.19

Debt Service Coverage Ratio

Events of Default and Remedies

8.1

Event of Default

8.1.1

Non-Payment

8.1.2

Representation or Warranty

8.1.3

Specific Defaults

8.1.4

Other Defaults

8.1.5

Cross-Default

8.1.6

Insolvency; Voluntary Proceedings

8.1.7

Insolvency; Involuntary Proceedings

8.1.8

ERISA Plans

8.1.9

Monetary Judgments

8.1.10

Adverse Change

8.1.11

Management Changes

8.1.12

Preferred Dividend Defaults

8.2

Remedies

8.2.1

Termination of Commitment to Lend

8.2.2

Acceleration of Loans

8.2.3

Exercise of Rights and Remedies

8.3

Rights Not Exclusive

The Administrative Agent

9.1

Appointment and Authorization of the Administrative Agent

9.2

The Administrative Agent’s Powers

9.3

Limitation on the Administrative Agent’s Duties

9.4

Acknowledgment of Co-Lender Agreement

9.5

Successor Administrative Agent

10.

Miscellaneous

10.1

Amendments and Waivers

10.2

Notices

10.3

No Waiver; Cumulative Remedies

10.4

Costs and Expenses

10.5

Indemnity

10.6

Marshaling; Payments Set Aside

10.7

Successors and Assigns

10.8

Assignments, Participations, Confidentiality

10.8.1

Assignments

10.8.2

Effect of Assignment

10.8.3

Participations

10.8.4

Pledge to Federal Reserve Bank

10.8.5

Confidentiality

10.9

Counterparts

10.10

Severability

10.11

No Third Parties Benefited

10.12

Time

10.13

Governing Law

10.14

Arbitration; Reference

10.15

Notice of Claims; Claims Bar

10.16

Entire Agreement; Amendment and Restatement

10.17

Interpretation

Exhibit A

Form of Borrowing Notice

Exhibit B

Form of Conversion/Continuation Notice

Exhibit C

Form of Note

Exhibit D

Form of Opinion of Counsel

Exhibit E

List of Potential Approved Parcels

Exhibit F

Intentionally Omitted

Exhibit G

Intentionally Omitted

Exhibit H

Form of Assignment and Assumption Agreement

-#-

sf-1340142

EX-10 4 bedfordnote92602.htm NOTE

NOTE

$22,600,000.00

October 7, 2002

FOR VALUE RECEIVED, the undersigned, Bedford Property Investors, Inc., a Maryland corporation (“Borrower”), whose Federal Tax Identification Number is 68-0306514, promises to pay to the order of Nationwide Life Insurance Company, an Ohio corporation, its successors and assigns (“Lender”) the principal sum of $22,600,000.00, together with interest on the principal balance of this Note (the “Note”), from time to time remaining unpaid, from the date of disbursement by Lender at the applicable interest rate hereinafter set forth, together with all other sums due hereunder or under the terms of the Deed of Trust (as hereinafter defined) in lawful money of the United States of America which shall be legal tender in payment of all debts at the time of such payment (the “Loan”). Both principal and interest and all oth er sums due hereunder shall be payable at the office of Lender at One Nationwide Plaza, Columbus, Ohio 43215-2220, Attention: Real Estate Investment Department, 34T or at such other place as Lender may from time to time designate. Said principal and interest shall be paid over a term, at the times, and in the manner set forth below:

Payment Provisions.

(a)

Interest accrued on the unpaid principal balance of this Note from the date of disbursement hereof through and including October 31, 2002, at the rate of 4.61% per annum (the “Applicable Interest Rate”), shall be due and payable on the disbursement date of the Loan.

(b)

Thereafter, monthly installments of principal and interest on the unpaid principal balance of this Note at the Applicable Interest Rate, shall be due and payable in 36 consecutive monthly installments commencing on December 1, 2002, and continuing on the first day of each calendar month thereafter, with each such installment to be in the sum of $127,033.36, without deduction or set-off.

(c)

On or about July 1, 2005, Lender shall notify Borrower in writing of the reset interest rate that will become effective in accordance with this Note, which reset interest rate shall be either the annual interest rate then in effect under this Note or Lender’s then prevailing annual interest rate for loans with a term of 3 years then being originated by Lender on properties comparable to the Property (as hereinafter defined) as determined solely by Lender (such initial reset interest rate is hereinafter referred to as the “First Reset Rate”).

(d)

Borrower shall have 30 days from the date of receipt of such notification from Lender to accept or reject the First Reset Rate. Failure by Borrower to notify Lender of the acceptance or rejection of the First Reset Rate within such 30 day period shall be deemed to be a rejection of the First Reset Rate. If the First Reset Rate is rejected or deemed rejected by Borrower, the entire unpaid principal balance of this Note, all accrued unpaid interest hereon, and any other amounts payable hereunder or under the other Loan Documents (as hereinafter defined) shall be due and payable in full, at par, no later than November 1, 2005.

(e)

If Borrower accepts the First Reset Rate in order to extend the term of this Note an additional 36 months, the First Reset Rate shall become effective on November 1, 2005 (the “First Reset Rate Effective Date”), and monthly installments of principal and interest shall then be due and payable in an amount determined by Lender that will amortize the remaining unpaid principal balance of this Note at the First Reset Rate based upon a 22-year amortization schedule.

(f)

Thereafter, monthly installments of principal and interest on the unpaid principal balance of this Note at the First Reset Rate in the amount thus calculated shall be due and payable in 36 consecutive monthly installments commencing on December 1, 2005, and continuing on the first day of each calendar month thereafter, to and including the monthly installment of principal and interest due and payable on November 1, 2008.

(g)

On or about July 1, 2008, Lender shall notify Borrower in writing of the reset interest rate that will become effective in accordance with this Note, which reset interest rate shall be either the annual interest rate then in effect under this Note or Lender’s then prevailing annual interest rate for loans with a term of 3 years then being originated by Lender on properties comparable to the Property (as hereinafter defined) as determined solely by Lender (such second reset interest rate is hereinafter referred to as the “Second Reset Rate”).

(h)

Borrower shall have 30 days from the date of receipt of such notification from Lender to accept or reject the Second Reset Rate. Failure by Borrower to notify Lender of the acceptance or rejection of the Second Reset Rate within such 30 day period shall be deemed to be a rejection of the Second Reset Rate. If the Second Reset Rate is rejected or deemed rejected by Borrower, the entire unpaid principal balance of this Note, all accrued unpaid interest hereon, and any other amounts payable hereunder or under the other Loan Documents (as hereinafter defined) shall be due and payable in full, at par, no later than November 1, 2011.

(i)

If Borrower accepts the Second Reset Rate in order to extend the term of this Note an additional 36 months, the Second Reset Rate shall become effective on November 1, 2008, and monthly installments of principal and interest shall then be due and payable in an amount determined by Lender that will amortize the remaining unpaid principal balance of this Note at the Second Reset Rate based upon a 19-year amortization schedule.

(j)

Thereafter, monthly installments of principal and interest on the unpaid principal balance of this Note at the Second Reset Rate in the amount thus calculated shall be due and payable in 35 consecutive monthly installments commencing on December 1, 2008, and continuing on the first day of each calendar month thereafter, to and including the monthly installment of principal and interest due and payable on October 1, 2011.

Maturity.

If the First Reset Rate is rejected by Borrower (or deemed rejected by Borrower), the entire unpaid principal balance of this Note, all accrued and unpaid interest thereon, and any other amounts payable hereunder or under the Loan Documents shall be due and payable in full, on November 1, 2005 (the “Original Maturity Date”). If Borrower accepts the First Reset Rate, the unpaid principal balance of this Note and all accrued unpaid interest thereon, and any other amounts payable hereunder or under the Loan Documents, if not sooner paid, shall be due and payable in full on November 1, 2008 (the “First Reset Maturity Date”). If the Second Reset Rate is rejected by Borrower (or deemed rejected by Borrower), the entire unpaid principal balance, all accrued and unpaid interest thereon, and any other amounts payable hereunder or un der the Loan Documents shall be due and payable in full on the First Reset Maturity Date. If Borrower accepts the Second Reset Rate, the unpaid principal balance of this Note and all accrued unpaid interest thereon, and any other amounts payable hereunder or under the Loan Documents, if not sooner paid, shall be due and payable in full on November 1, 2011 (the “Second Reset Maturity Date”). The term “Maturity Date” shall mean the Original Maturity Date or, if the First Reset Rate is in effect, the First Reset Maturity Date, or, if the Second Reset Rate is in effect, the Second Reset Maturity Date.

Application of Payments. All payments shall be applied first to any late payment or other such charges as provided in this Note or in the Deed of Trust, then to accrued unpaid interest on this Note, and the balance, if any, shall be applied to the reduction of the outstanding principal balance of this Note (subject to the terms hereof). Interest due hereunder shall be calculated on the basis of a 360-day year (composed of twelve 30-day months) except the payment due under payment provision 1(a) above which shall be calculated on the actual number of days; provided, however, in no event shall the rate of interest payable under the terms of this Note exceed the maximum rate of interest permitted under applicable law.

Late Payment Charge. Prior to the acceleration or maturity of this Note, Lender may collect a late payment charge in an amount equal to 5% of any full monthly installment not received by the due date. Such late payment charge shall constitute liquidated damages for the purpose of covering the extra expenses involved in handling delinquent installments and Lender may collect such late payment charges even though it has not given any notice to Borrower of such late payment or a cure period, if any, has not passed; provided that such late payment charge shall not, together with other interest to be paid on the indebtedness evidenced by this Note or indebtedness arising under any instrument securing the payment hereof, exceed the maximum interest permitted under applicable law. Borrower acknowledges that the late payment charge is a f air and reasonable estimate, considering all of the circumstances existing on the date of execution of this Note, of the cost the Lender will incur by reason of such late payment.

Prepayment.

(a)

Except as hereinafter provided, Borrower shall not have the right to prepay all or any part of the Loan at any time. Borrower shall have the right to prepay, in full but, except in connection with a Permitted Partial Release (as defined in the Deed of Trust), not in part, the Loan evidenced by this Note, provided that, as conditions precedent, Borrower: (i) gives Lender not less than 30 days’ prior Written Notice (as defined in the Deed of Trust) of Borrower’s intention to so prepay this Note; and (ii) pays to Lender the Prepayment Premium (as hereinafter defined), if any, then due and payable to Lender as hereinafter provided. As used herein, the term “Prepayment Premium” shall mean a sum equal to the greater of either: (A) 1% of the outstanding principal balance of this Note at the time of prepayment; or ( B) an amount equal to the sum of (a) the present value of the scheduled monthly payments due under this Note from the date of prepayment to the Maturity Date, and (b) the present value of the amount of principal and interest due under this Note on the Maturity Date (assuming all scheduled monthly payments due prior to the Maturity Date were made when due), minus (c) the outstanding principal balance of this Note as of the date of prepayment. The present values described in (a) and (b) shall be computed on a monthly basis as of the date of prepayment discounted at the yield-to-maturity of the U. S. Treasury Note or Bond closest in maturity to the Maturity Date of this Note as reported in The Wall Street Journal (or, if The Wall Street Journal is no longer published, as reported in such other daily financial publication of national circulation which shall be designated by Lender) on the fifth business day preceding the date of prepayment. Borrower shall be obligated to prep ay this Note on the date set forth in the notice to Lender required hereinabove, after such notice has been delivered to Lender. Notwithstanding the foregoing or any other provision herein to the contrary, if Lender elects to apply insurance proceeds, condemnation awards, or any escrowed amounts, if applicable, to the reduction of the outstanding principal balance of this Note in the manner provided in the Deed of Trust, no Prepayment Premium shall be due or payable as a result of such application, and the monthly installments due and payable hereunder shall be reduced accordingly.

(b)

In the event the Maturity Date of the Loan evidenced by this Note is accelerated by Lender at any time due to a default by Borrower under this Note or any of the other Loan Documents (as hereinafter defined), then a tender of payment in an amount necessary to satisfy the entire outstanding principal balance of this Note together with all accrued unpaid interest hereon made by Borrower, or by anyone on behalf of Borrower, at any time prior to, at, or as a result of, a foreclosure sale or sale pursuant to power of sale, shall constitute a voluntary prepayment hereunder prior to the contracted Maturity Date of this Note thus requiring the payment to Lender of a Prepayment Premium equal to the applicable Prepayment Premium as set forth in paragraph (a) above; provided, however, that in the event such Prepayment Premium is construed to be interest under the la ws of the State of Arizona (the “State”) in any circumstance, such payment shall not be required to the extent that the amount thereof, together with other interest payable hereunder, exceeds the maximum rate of interest that may be lawfully charged under applicable law.

(c)

Notwithstanding anything contained herein to the contrary, during the 90-day period immediately preceding the Maturity Date of this Note, the entire outstanding principal balance and all accrued unpaid interest on this Note may be prepaid in full, but, except in connection with a Permitted Partial Release, not in part, at par, without incurring a Prepayment Premium.

Additional Conditions. This Note is secured by, among other things, a Deed of Trust, Security Agreement and Fixture Filing (the “Deed of Trust”) and by an Assignment of Leases, Rents and Profits (the “Assignment”) of even date herewith, encumbering certain property described therein (collectively, the “Property”). The Deed of Trust and the Assignment contain terms and provisions which provide grounds for acceleration of the Loan evidenced by this Note, together with additional remedies in the event of default hereunder or thereunder. Failure on the part of Lender to exercise any right granted herein or in the Deed of Trust or the Assignment or any other Loan Document shall not constitute a waiver of such right, or preclude Lender’s subsequent exercise and enforcement thereof. This Note, the Deed of Trust, the Assignment and all other documents and instruments executed as further evidence of, as additional security for, or executed in connection with, the Loan evidenced by this Note are hereinafter collectively referred to as the “Loan Documents.”

Except as otherwise provided herein, all parties to this Note, including endorsers, sureties and guarantors, if any, hereby jointly and severally waive presentment for payment, demand, protest, notice of protest, notice of demand, notice of nonpayment, notice of dishonor, notice of intent to accelerate the maturity of this Note, notice of acceleration of the maturity of this Note, and any and all other notices and demands whatsoever, and agree to remain bound hereby until the principal, interest and all other obligations arising under this Note are paid in full, notwithstanding any extensions of time for payment which may be granted by Lender, even though the period of extension be indefinite, and notwithstanding any inaction by, or failure to assert any legal rights available to Lender pursuant to the terms and conditions of this Note.

If the obligations evidenced by this Note, or any part thereof, are placed in the hands of an attorney or other person for collection, whether by suit or otherwise, at any time, or from time to time, Borrower shall be liable to Lender, in each instance, for all costs and expenses incurred in connection therewith, including, without limitation, Reasonable Attorneys’ Fees (as hereinafter defined).

Default. If Borrower defaults under this Note or under any of the other Loan Documents, then in any or all of such events, at the option of Lender, the entire outstanding principal balance of this Note, together with all accrued unpaid interest thereon and all other obligations arising under this Note or any of the other Loan Documents, may be accelerated by Lender and may become and be immediately due and payable then or thereafter (provided such default has not been cured previously) as Lender may elect, regardless of the Maturity Date hereof. All such amounts shall bear interest after maturity, by acceleration or otherwise, at the lesser of either: (a) the highest rate of interest then allowed by the laws of the State or, if controlling, the laws of the United States; or (b) the then applicable interest rate of this Note plus 500 bas is points per annum.

During the existence of any such default, Lender may apply any sums received, including but not limited to insurance proceeds or condemnation awards, to any amount then due and owing hereunder or under the terms of any of the other Loan Documents as Lender may determine. Neither the right nor the exercise of the right herein granted unto Lender to apply such proceeds as aforesaid shall serve to cure the default or preclude Lender from exercising its option to cause the entire Loan evidenced by this Note to become immediately due and payable by reason of Borrower’s default under the terms of this Note or any of the other Loan Documents.

Notwithstanding any provisions herein to the contrary, Lender’s right, power and privilege to accelerate the maturity of the indebtedness evidenced hereby shall be conditioned upon, with respect to any Non-Monetary Default (as hereinafter defined), Lender giving Borrower Written Notice of such Non-Monetary Default and a 30-day period, after the date of such notice, within which to cure such Non-Monetary Default, unless such Non-Monetary Default cannot be cured within said 30-day time period, in which event Borrower shall have a reasonable period of time to complete such cure, provided that action to cure such Non-Monetary Default has commenced within said 30-day period and Borrower is, in Lender’s sole judgment, not diminishing or impairing the value of the Property, and is diligently pursuing a cure to completion, but in no event longer than 90 days. Any notice required hereunder shall be given as provided in the Deed of Trust. Lender shall have no obligation to give Borrower notice of, or any period to cure, any Monetary Default or any Incurable Default (as hereinafter defined) prior to exercising Lender’s right, power and privilege to accelerate the maturity of the Loan evidenced hereby, to declare the same to be immediately due and payable, and to exercise all other rights and remedies herein granted or otherwise available to Lender at law or in equity. As used herein, the term “Monetary Default” shall mean any default which can be cured by the payment of money, including but not limited to, the payment of principal and/or interest due under this Note and the payment of taxes, assessments and insurance premiums when due as provided in the Deed of Trust. As used herein, the term “Non-Monetary Default” shall mean any default which is not a Monetary Default or an Incurable Default. As used herein, the term “Incurable Default” shall mean either: (i) any voluntary or involuntary sale, assignment, mortgaging or transfer of the Property or ownership interests in Borrower in violation of the covenants of the Deed of Trust; or (ii) if Borrower, or any person or entity comprising Borrower, should make an assignment for the benefit of creditors, become insolvent, or file (or have filed against it) a petition in bankruptcy (including but not limited to, a petition seeking a rearrangement or reorganization) which is not dismissed within 30 days after the filing of same.

Notwithstanding any provision of this Note to the contrary, during any period of default and regardless of any cure period applicable to such default, in each instance under this Note, the Deed of Trust, or any of the other Loan Documents in which either: (i) Borrower is permitted to take a material action without Lender’s consent; or (ii) Lender’s consent is to be exercised reasonably, Lender’s consent shall be required and shall be granted or withheld in Lender’s sole and absolute discretion.

Savings Clause; Severability. Borrower agrees to an effective rate of interest that is the rate stated above plus any additional rate of interest resulting from any other charges in the nature of interest paid or to be paid in connection with this Note. It is the intent of Borrower and Lender in the execution of this Note and all other instruments now or hereafter securing this Note to contract in strict compliance with applicable usury law. In furtherance thereof, Lender and Borrower stipulate and agree that none of the terms and provisions contained in this Note, or in any other instrument executed in connection herewith, shall ever be construed to create a contract to pay interest at a rate in excess of the maximum interest rate permitted to be charged by applicable law. Neither Borrower nor any guarantors, endorsers or o ther parties now or hereafter becoming liable for payment of this Note shall ever be required to pay interest on this Note at a rate in excess of the maximum interest that may be lawfully charged under applicable law, and the provisions of this section shall control over all other provisions of this Note and any other instruments now or hereafter executed in connection herewith which may be in apparent conflict herewith. Lender expressly disavows any intention to charge or collect excessive unearned interest or finance charges in the event the maturity of this Note is accelerated. If the maturity of this Note shall be accelerated for any reason or if the principal of this Note is paid prior to the end of the term of this Note, and as a result thereof the interest received for the actual period of existence of the Loan evidenced by this Note exceeds the maximum permitted by applicable law, Lender shall refund to Borrower the amount of such excess and thereby shall render inapplicable any and all p enalties of any kind provided by applicable law as a result of such excess interest. In the event that Lender shall collect monies which are deemed to constitute interest which would increase the effective interest rate on this Note to a rate in excess of that permitted to be charged by applicable law, all such sums deemed to constitute interest in excess of the lawful rate shall, upon such determination be immediately returned to Borrower, in which event any and all penalties of any kind under applicable law as a result of such excess interest shall be inapplicable. By execution of this Note, Borrower acknowledges that it believes the Loan evidenced by this Note to be non-usurious and agrees that if, at any time, Borrower should have reason to believe that such Loan is in fact usurious, it will give Lender notice of such condition and Borrower agrees that Lender shall have 90 days in which to make appropriate refund or other adjustment in order to correct such condition if in fact such exists. & nbsp;The term “applicable law” or “applicable usury law” as used in this Note shall mean the laws of the State or the laws of the United States, whichever laws allow the greater rate of interest and do not violate the laws of the State, as such laws now exist or may be changed or amended or come into effect in the future. If any clauses or provisions herein contained operate or would prospectively operate to invalidate this Note, then such clauses or provisions only shall be held for naught, as though not herein contained and the remainder of this Note shall remain operative and in full force and effect.

Exculpation. The liability of Borrower with respect to the payment of principal and interest hereunder shall be “non-recourse.” Except as hereinafter provided, Lender’s source of satisfaction of Borrower’s obligations under this Note and the other Loan Documents shall be limited to the Property and Lender’s receipt of the rents, issues and profits from the Property and any other security or collateral now or hereafter held by Lender, and Lender shall not seek to procure payment out of any other assets of Borrower, or any person or entity comprising Borrower, or to seek judgment (except as hereinafter provided) for any sums which are or may be payable under this Note or any of the other Loan Documents, as well as any claim or judgment (except as hereafter provided) for any deficiency remaining after foreclosur e of the Deed of Trust. Notwithstanding the foregoing, nothing herein contained shall be deemed to be a release or impairment of the Loan evidenced by this Note or the security therefor intended by the other Loan Documents, or be deemed to preclude Lender from exercising its rights to foreclose the Deed of Trust or to enforce any of its other rights or remedies under the Loan Documents.

Notwithstanding the foregoing, it is expressly understood and agreed that the aforesaid limitation on liability shall in no way affect or apply to the continued personal liability of Borrower for all sums due to:

(a)

fraud, willful misconduct or material misrepresentation made in or in connection with the Application for Mortgage Loan dated August 1, 2002, and any subsequent amendments thereto, this Note or any of the other Loan Documents;

(b)

the failure to pay taxes which accrue prior to Lender taking control of the Property or to pay assessments or any other governmental impositions, charges for labor, materials or any other charges which may create liens on any portion of the Property;

(c)

the misapplication or misappropriation of (i) proceeds of insurance covering any portion of the Property; (ii) proceeds of the sale, condemnation or transfer in lieu of condemnation of any portion of the Property; or (iii) rentals received by or on behalf of Borrower subsequent to the date on which Lender makes written demand therefor pursuant to any of the Loan Documents;

(d)

causing or permitting waste or causing arson to occur in, on or about the Property, and failing to maintain the Property, except for ordinary wear and tear;

(e)

the failure to return to Lender all unearned advance rentals and security deposits that have been paid by tenants of the Property to the extent that such amounts have not been refunded to or forfeited by such tenants;

(f)

the failure to pay any and all tenant improvement allowances owed to tenants leasing space in the Property;

(g)

the failure to pay to Lender any and all fees paid to Borrower by any tenant of the Property which fees permit the tenant to terminate its lease or otherwise abandon or vacate its leased premises;

(h)

loss by fire or any other casualty to the extent not compensated by insurance proceeds collected by or remitted to Lender, as a result of Borrower’s failure to comply with the insurance provisions of the Deed of Trust;

(i)

the failure to return to or reimburse Lender for all Fixtures and Personal Property (as defined in the Deed of Trust) owned by Borrower and taken from the Property by or on behalf of Borrower, out of the ordinary course of business, and not replaced by items with values equal to or greater than the original values of the Fixtures and Personal Property so removed;

(j)

all court costs and Reasonable Attorneys’ Fees actually incurred by Lender for which Borrower is liable pursuant to the terms of this Note or any of the other Loan Documents;

(k)

(i) the removal of any chemical, material or substance in excess of legal limits or which is required by any governmental entity, to which exposure is prohibited, limited or regulated by any federal, state, county or local authority, and which may or could pose a hazard to the health and safety of the occupants of the Property (which substances are also further defined in the Deed of Trust as “Hazardous Materials”), regardless of the source of origination (including sources off the Property which migrate onto the Property or its groundwater); (ii) the restoration of the Property to comply with all governmental regulations pertaining to Hazardous Materials found in, on or under the Property, regardless of the source of origination (including sources off the Property which migrate onto the Property or its groundwater); and (iii) any indemnity or o ther agreement to hold Lender harmless from and against any and all losses, liabilities, damages, injuries, costs and expenses of any and every kind arising as a result of the existence and/or removal of Hazardous Materials and from the violation of Hazardous Waste Laws (as defined in the Deed of Trust). Borrower shall not be liable hereunder if the Property becomes contaminated for reasons other than the acts or omissions of Borrower or subsequent to Lender’s acquisition of the Property by foreclosure or acceptance of a deed in lieu thereof, or subsequent to any transfer of ownership of the Property which was approved or authorized in writing by Lender pursuant to the Deed of Trust, provided that such transferee assumes in writing all obligations of Borrower under the Loan Documents pertaining to Hazardous Materials. Liability under this subsection (k) shall extend beyond repayment of the Loan through the applicable statute of limitations period and compliance with the terms of the N ote and compliance with the terms of the Deed of Trust unless Borrower at such time provides Lender with an environmental assessment report acceptable to Lender, in Lender’s sole discretion, showing the Property to be free of Hazardous Materials and not in violation of Hazardous Waste Laws. The burden of proof under this subsection with regard to establishing the date upon which such Hazardous Materials were placed or appeared in, on or under the Property shall be upon Borrower;

(l)

(i) any and all costs incurred in order to cause the Property to comply with any applicable Accessibility Laws (as defined in the Deed of Trust) and (ii) any indemnity or other agreements to hold Lender harmless from and against any and all losses, liabilities, damages, injuries, costs or expenses of any kind arising as a result of non-compliance with any applicable Accessibility Laws. Borrower shall not be liable hereunder for compliance with any applicable Accessibility Laws that first become effective, or for any violation of any applicable Accessibility Laws resulting from alterations or improvements to the Property that are performed subsequent to Lender’s acquisition of the Property by foreclosure or acceptance of a deed in lieu thereof or subsequent to any transfer of ownership of the Property which was approved or authorized in writing by Lender pursuant to the Deed of Trust, provided that such transferee assumes in writing all obligations of Borrower pertaining to any applicable Accessibility Laws pursuant to the terms of the Loan Documents. The burden of proof under this subsection with regard to establishing the date upon which such non-compliance with any Accessibility Laws occurred at the Property shall be upon Borrower;

(m)

failure to remit to Lender any amounts under any letter of credit (or any renewals and/or replacements thereof) supplied by Borrower to Lender in connection with the Loan, this Note or any of the other Loan Documents in the event that the bank issuing such letter of credit becomes insolvent, files or has filed against it any bankruptcy or similar proceeding or is closed (either temporarily or permanently), is placed in receivership, conservatorship or liquidation by the Federal Deposit Insurance Corporation, Resolution Trust Corporation or any other governmental or quasi-governmental entity, or otherwise fails or refuses to honor such letter of credit or otherwise fails to maintain certain criteria required by Lender; and

(n)

failure to timely pay any amounts payable for all state documentary stamp taxes and intangible personal property taxes, if any, which may be levied or assessed against the Loan, this Note, the Deed of Trust or any of the other Loan Documents, together with all interest penalties or charges in connection therewith.

The obligations of Borrower in subsections (a) through (n) above, except as specifically provided in subsections (k) and (l), shall survive the repayment of the Loan through the applicable statute of limitations period evidenced by this Note, and satisfaction of the Deed of Trust.

10.

Full Recourse. Notwithstanding any provisions in this Note to the contrary, including without limitation the provisions set forth in the section captioned “Exculpation” hereinabove, Borrower shall be personally liable, jointly and severally, for the entire indebtedness evidenced by this Note (including all principal, interest and other charges) in the event (a) Borrower violates the covenant governing the placing of subordinate financing on the Property as set forth in the Deed of Trust; (b) Borrower violates the covenant restricting transfers of interests in the Property or transfers of ownership interests in Borrower as set forth in the Deed of Trust; or (c) there is filed against Borrower or any guarantor or indemnitor of the Loan, a petition in bankruptcy or for the appointment of a receiver, or there commences under any bankrup tcy or insolvency law, proceedings for Borrower’s relief, or for the compromise, extension, arrangement or adjustment of Borrower’s obligations which is not dismissed within 30 days after the filing of same.

11.

Waiver of Jury Trial. BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES HEREBY THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, AGAINST LENDER, ITS SUCCESSORS AND ASSIGNS, BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS, THE LOAN OR ANY COURSE OF CONDUCT, ACT, OMISSION, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSON (INCLUDING, WITHOUT LIMITATION, LENDER’S DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER), IN CONNECTION WITH THE LOAN OR THE LOAN DOCUMENTS INCLUDING, WITHOUT LIMITATION, IN ANY CO UNTERCLAIM WHICH ANY PARTY MAY BE PERMITTED TO ASSERT THEREUNDER, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IN NO EVENT SHALL LENDER, ITS SUCCESSORS OR ASSIGNS BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER (INCLUDING WITHOUT LIMITATION LOSS OF BUSINESS PROFITS OR OPPORTUNITY) AND BY ITS EXECUTION HEREOF, BORROWER WAIVES ANY RIGHT TO CLAIM OR SEEK ANY SUCH DAMAGES.

12.

Captions. The captions set forth at the beginning of the various paragraphs of this Note are for convenience only, and shall not be used to interpret or construe the provisions of this Note.

13.

Attorneys’ Fees. As used herein, the phrase “Reasonable Attorneys’ Fees” shall mean fees charged by attorneys selected by Lender based upon such attorneys’ then prevailing hourly rates as opposed to any statutory presumption specified by any statute then in effect in the State.

14.

Applicable Laws. This Note and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the internal laws of the State, without regard to principles of conflicts of laws. The parties hereto irrevocably (a) agree that any suit, action or other legal proceeding arising out of or relating to this Note may be brought in a court of record in the State or in the courts of the United States of America located in such State, (b) consent to the non-exclusive jurisdiction of each such court in any suit, action or proceeding, and (c) waive any objection which it may have to the laying of venue of any such suit, action or proceeding in any of such courts and any claim that any such suit, action or proceeding has been brought in an inconvenient forum.

15.

Modifications. This Note may not be amended or modified except by an agreement in writing signed by the party against whom enforcement is sought.

16.

Time of the Essence. In connection with the Loan and this Note, time shall be of the essence.

17.

Successors and Assigns. The terms, conditions, obligations and liabilities of this Note shall be binding upon Borrower, its heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender, its successors and assigns. If Borrower is comprised of more than one person or entity, then the liability of each such person and entity hereunder shall be joint and several.

18.

Authorization. By its signature below, Borrower represents and warrants that the Loan transaction contemplated by this Note and any of the other Loan Documents have been properly authorized by Borrower’s governing or managing body, and that the person signing on behalf of Borrower has been duly authorized to sign for, and hereto bind Borrower.

19.

Transfer. Lender may, at any time, sell, transfer or assign this Note, the Deed of Trust, the Assignment and the other Loan Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement. Lender may forward to each purchaser, transferee, assignee, servicer, participant, investor in such securities or any credit rating agency rating such securities (collectively, the “Investor”) and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Loan and to Borrower, any guarantor and the Property, whether furnished by Borrower, any guarantor or otherwise, as Lender determines necessary or desirable. Borrower shall execute, acknowledge and deliver any and all instruments reasonably requested by Lender to satisfy such purchasers or participants that the unpaid indebtedness evidenced by this Note is outstanding upon the terms and provisions set out in this Note and the other Loan Documents. To the extent, if any, specified in such assignment or participation, such assignee(s) or participant(s) shall have the rights and benefits with respect to this Note and the other Loan Documents as such assignee(s) or participant(s) would have if they were the Lender hereunder.

IN WITNESS WHEREOF, Borrower has executed this Note as of the day and year first above written.

Bedford Property Investors, Inc, a Maryland corporation

By /s/ Hanh Kihara

Hanh Kihara, Senior Vice President and Chief Financial Officer

096473 000136 DALLAS 1466548.3

EX-99 5 bedfordcertification.htm Converted by FileMerlin

EXHIBIT 99.6

November 13, 2002

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re:

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

In connection with the Quarterly Report of Bedford Property Investors, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter B. Bedford, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Peter B. Bedford
Peter B. Bedford
Chairman and
Chief Executive Officer

11/12/02 9:39 AM

EX-99 6 kiharacertification.htm Converted by FileMerlin

EXHIBIT 99.7

November 13, 2002

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re:

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

In connection with the Quarterly Report of Bedford Property Investors, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hanh Kihara, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/Hanh Kihara
Hanh Kihara
Senior Vice President and
Chief Financial Officer

11/12/02 9:37 AM

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