-----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, HF0J+94cgLpHTPphZNNHYu4AQkoEnmEITGfIp1ycq+KO3g7uQ8GEKmZcWfnO1lUk m078bzwMU0MOA1WeQMqFdg== 0000910079-98-000002.txt : 19980330 0000910079-98-000002.hdr.sgml : 19980330 ACCESSION NUMBER: 0000910079-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE SROS: PCX 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-K SEC ACT: SEC FILE NUMBER: 001-12222 FILM NUMBER: 98576071 BUSINESS ADDRESS: STREET 1: 270 LAFAYETTE CIRCLE STREET 2: P. O. BOX 1058 CITY: LAFAYETTE STATE: CA ZIP: 94549 BUSINESS PHONE: 510-283-89 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 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 (I.R.S. Employer of incorporation or organization) Identification No.) 270 Lafayette Circle, Lafayette, CA 94549 (Address of principal executive offices) Registrant's telephone number, including area code (925) 283-8910 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $0.02 per share New York Stock Exchange Pacific Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of Registrant as of March 13, 1998 was approximately $425,368,000. The number of shares of Registrant's Common Stock, par value $0.02 per share, outstanding as of March 13, 1998 was 22,583,867. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement to be mailed to stockholders in connection with the Registrant's annual meeting of stockholders, scheduled to be held on May 13, 1998, are incorporated by reference in Part III of this report. Except as expressly incorporated by reference, the Registrant's Proxy Statement shall not be deemed to be part of this report. PART I When used in this annual report, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the section entitled "Potential Factors Affecting Future Operating Results" below. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS The Company Bedford Property Investors, Inc. is a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties proximate to metropolitan areas primarily in the Western United States. As of December 31, 1997, the Company owned and operated, either directly or through one of its wholly-owned subsidiaries, 75 properties aggregating approximately 6.2 million rentable square feet and comprised of 55 industrial properties (the "Industrial Properties") and 20 suburban office properties (the "Suburban Office Properties" and, together with the Industrial Properties, the "Properties"). This portfolio of properties includes 4 industrial properties which were developed by the Company in 1997 and 71 existing properties. In addition, the portfolio includes 7 parcels of land held for future development. As of December 31, 1997, the existing Properties were approximately 99% leased by over 440 tenants and the development properties were approximately 44% leased by 14 tenants. The Properties are located in Northern and Southern California, Oregon, Washington, Arizona, Nevada, Utah, Colorado, Texas and Kansas. The Company seeks to grow its asset base through the acquisition of industrial and suburban office properties and portfolios of such properties, as well as through the development of new industrial and suburban office properties. The Company's strategy is to operate in suburban markets that are experiencing, or are expected by the Company to experience, superior economic growth that are subject to limitations on the development of similar properties. The Company believes that employment growth is a reliable indicator of future demand for both industrial and suburban office space. In addition, the Company believes that certain supply-side constraints, such as limited availability of undeveloped land in a market, increase a market's potential for higher average rents over time. The Company is currently targeting selected markets in which the Properties are located as well as selected markets in which the Company has expertise. The Company believes that due to recent economic improvements in these markets, and related improvements in the commercial property markets, an investment in industrial or suburban office properties in these markets provides the potential for attractive returns through increased occupancy levels, rents and real estate values. Business Objectives and Growth Plan Business Objectives The Company's business objective is to increase stockholders' long-term total return through the appreciation in value of the common stock. To achieve this objective, the Company seeks to (i) increase cash flow from our existing Properties, (ii) acquire quality industrial and suburban office properties and/or portfolios of such properties, and (iii) develop new industrial and suburban office properties. Internal Growth The Company seeks to increase cash flow from existing Properties through (i) the lease-up of vacant space, (ii) the reduction of costs associated with tenant turnover through the retention of existing tenants, (iii) the negotiation of increases in rental rates and of contractual periodic rent increases when market conditions permit, and (iv) the strict containment of operating expenses and capital expenditures. During 1997, leases for 946,920 square feet expired with a weighted average base rental rate of $8.25 per square foot. Approximately 76% of this space has been re-leased, and the weighted average base rental rate of the new leases is $9.10 per square foot, an increase of 10.3%. Changes in average rental rate do not reflect changes in expense recovery rates, if any. In addition, past performance is not necessarily indicative of results that will be obtained in the future, and no assurance can be given in that regard. Acquisitions The Company seeks to acquire quality industrial and suburban office properties and/or portfolios of such properties. The Company believes that (i) the experience of its management team, (ii) its conservative capital structure and its existing $175 million credit facility, (iii) its relationships with private and institutional real estate owners, (iv) its strong relationships with real estate brokers, and (v) its integrated asset management program enable it to effectively identify and capitalize on acquisition opportunities. Each acquisition opportunity is reviewed to evaluate whether it meets the following criteria: (i) potential for higher occupancy levels and/or rents as well as for lower turnover and/or operating expenses, (ii) ability to generate returns in excess of the Company's weighted average cost of capital, taking into account the estimated costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy), and (iii) availability for purchase at a price at or below estimated replacement cost. The Company has, however, acquired and may in the future acquire properties which do not meet one or more of these criteria. This may be particularly true with the acquisition of a portfolio of properties, which may include individual properties that do not meet one or more of the foregoing criteria. Following completion of an initial review, the Company may make a purchase offer, subject to satisfactory completion of its due diligence process. The due diligence process enables the Company to refine its original estimate of a property's potential performance and typically includes a complete review and analysis of the property's physical structure, systems, environmental status and projected financial performance, as well as an evaluation of the local market and competitive properties and of relevant economic and demographic information. Mr. Bedford (the Chief Executive Officer) and at least one other member of the Board of Directors typically visit each proposed acquisition property before the purchase is closed. The Company's activities relating to the acquisition of new properties, including the due diligence process, are conducted on an exclusive basis by Bedford Acquisitions, Inc. (BAI), a California corporation wholly- owned by Mr. Bedford. BAI receives a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount raised in financings or the aggregate purchase price of property acquisitions, or (ii) an amount equal to (a) the aggregate amount of approved expenses funded by BAI through the time of such acquisition or financing minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional one year terms. The current agreement will expire January 1, 1999. Development The Company seeks to develop properties in markets where (i) strong demand for space has caused or is expected to cause occupancy rates to remain high, and (ii) there is a limited supply of land available for new development. The Company's management team has experience in all phases of the development process, including market analysis, site selection, zoning, design, pre-development leasing, construction and permanent financing and construction management. The Company believes that a general decrease in competition in development activity as well as higher occupancy rates in most of the Company's markets will lead to additional attractive development opportunities. The Company is currently in the process of developing properties in Northern California, Arizona, and Kansas and is considering developing additional properties in Northern California, Southern California, Arizona, Colorado and Washington. The Company's management team has significant development experience in each of these markets. In 1997 the shell construction of 4 properties was completed, representing 365,000 square feet of industrial space. These properties are now in the lease up phase and were 44% leased by year end. Corporate Strategies In pursuing its business objectives and growth plans, the Company intends to: 1. Pursue a Market Driven Strategy. The Company's strategy is to operate in suburban markets which are experiencing, or are expected by the Company to experience, economic growth, and which are, ideally, subject to supply-side constraints. The Company believes that the metropolitan areas in which it operates have multiple suburban "cores" and that the potential for growth in these metropolitan areas is generally greatest in and around these suburban cores. The Company believes that such suburban cores emerge as jobs move to the suburbs and typically offer a well-trained and well-educated work force, high quality of life and, in many cases, a diversified economic base. The Company focuses on owning, managing, acquiring and developing properties in these suburban cores. Additionally, the Company seeks out real estate markets that are subject to supply-side constraints such as limited availability of undeveloped land and/or geographic, topographic, regulatory and/or infrastructure restrictions. The Company believes that such restrictions limit the supply of new commercial space, which, when combined with a growing employment and population base, enhances the long-term return potential for an investment in real estate assets. 2. Focus its Efforts in the Western United States. The Company is currently targeting selected suburban markets in the Western United States, including markets in which the Company's Properties are located as well as selected new markets. The Company believes that due to continued economic improvements in these markets, and related improvements in the commercial property markets, an investment in industrial or suburban office properties in these markets provides the potential for attractive returns through increased occupancy levels, rents and real estate values. The Company believes that this geographic focus, combined with management's market experience, contributes to a more thorough understanding of these industrial and suburban office property markets and allows the Company to anticipate trends and therefore to better identify investment opportunities. 3. Acquire and Develop "Service Center/Flex" Industrial Properties. One of the Company's targeted property types is "service center/flex" industrial properties. These properties are generally smaller than other industrial buildings and are divisible into units ranging from approximately 1,500 square feet to approximately 20,000 square feet in order to accommodate multiple tenants of various sizes and needs. The buildings generally range in size from 8,000 to 80,000 square feet, have a clear height of 12 to 18 feet and are built using concrete tilt construction with store fronts incorporated in the front elevation and grade level service doors in the back elevation. The Company believes that these properties require more management expertise than other types of industrial properties and that it has developed such expertise. The Company also believes that many potential buyers do not wish or are not well-positioned to undertake such active management. As a result, the Company believes that it often faces fewer competitors for this product and is generally able to acquire these properties at above average yields. 4. Plan for Future Anticipated Expenses Associated with Tenant Turnover. The cash flow of a real estate asset can vary significantly from year to year depending on tenant turnover. When a lease expires and a tenant renews or vacates its space, costs associated with tenant improvements, lease commissions and lost income due to vacancy or construction down- time can significantly reduce property cash flow. Due to the capital intensive nature of suburban office properties, and to a lesser degree, industrial properties, the Company believes that planning and budgeting for future costs associated with tenant turnover is a prudent component of managing the cash flow of the Properties. For its existing portfolio, the Company estimates the future costs for tenant improvements, lease commissions and lost income due to vacancy and construction down-time on a property by property basis. Although these future costs are not accrued for financial reporting purposes, the Company incorporates these estimates in its annual budgets and longer-term forecasts and seeks to maintain cash and/or availability under the Credit Facility adequate to cover these budgeted expenditures. The Company believes that its ability to commit capital to fund tenant improvements and pay lease commissions helps to retain and attract tenants. To the extent that a vacancy in one of the Properties does occur, the Company believes that its policy of budgeting ahead for anticipated tenant improvement costs and leasing commissions enables it to compete effectively for new tenants. 5. Utilize In-House Asset and Property Management. The Company believes that the long-term value of its Properties is enhanced through in-house asset management and currently manages 68 of its 75 properties from its seven regional property management offices and its corporate headquarters. The Company conducts its Northern California property management activities out of its headquarters office in Lafayette, California; its Southern California property management activities out of its regional office in Tustin, California; its Kansas City property management activities out of its regional office in Lenexa, Kansas; its Arizona property management activities out of its regional office in Phoenix, Arizona; its Washington property management activities out of its regional office in Seattle, Washington; its Colorado property management activities out of its regional office in Denver, Colorado; and its Texas property management activities out of its regional office in Dallas, Texas. The Company's three Properties in Utah and Oregon are currently managed for the Company by third parties. The Company intends to open additional property management offices in those regions as its portfolios grow to a point where it becomes economically justified. The Company's asset management team develops and monitors a comprehensive asset management plan for each Property in an effort to ensure its efficient operation. The Company's Senior Vice President of Property/Asset Management works directly with the Company's internal finance and accounting staff to develop and monitor detailed budgets and financial reports for each Property. He also works with each property manager to identify and implement opportunities to improve cash flow from each Property and to maximize each Property's long-term investment value. The Company's property management staff is generally responsible for leasing activities, ordinary maintenance and repairs, financial record keeping on income and expenses, rent collection, payment of operating expenses and property operations. The Company's property management philosophy is based on the belief that the long-term value of the Properties is enhanced by attention to detail and hands-on service provided by professional in-house property managers. The Company believes that a successful leasing program starts by servicing existing tenants first. Costs associated with tenant turnover (i.e., tenant improvements, leasing commissions and the loss of income due to vacancy) can be significant and, by addressing and attending to existing tenants' needs, the Company believes that it can increase its retention of existing tenants and simultaneously make its properties more attractive to tenants. 6. Cooperate with Local Real Estate Brokers. The Company seeks to develop strong relationships with local real estate brokers, who can provide access to tenants as well as general market intelligence and research. The Company believes that these relationships have enhanced the Company's ability to attract and retain tenants. 7. Maximize its Capital Structure. As of December 31, 1997 the Company's total market capitalization was $565 million. With a debt to total market capitalization ratio of 12%, the Company is well positioned for future growth. Funding of new acquisitions and development is expected to be provided by a combination of debt and equity. The Company currently intends to take advantage of the low interest rates available today by locking in long term debt financing on a portion of its portfolio. At the same time, the Company intends to preserve its financing flexibility through the use of short term debt facilities such as its existing $175 million bank line of credit as well as other means of managing interest rate risk. The Company plans to access the equity markets from time to time to balance its overall capital structure. Transactions and Significant Events During 1997 Acquisitions and Development During the year, the Company acquired 26 Properties, including 13 Industrial Properties and 13 Suburban Office Properties aggregating approximately 2.3 million rentable square feet, for a total investment of approximately $206 million. At acquisition, the Company estimated that these Properties would provide an initial weighted average unleveraged return on cost (computed as annualized property NOI at the date of acquisition divided by total acquisition cost) of 9.4%. The Company estimates that the purchase price of acquisitions completed in 1997 is approximately 84% of the replacement cost. In addition, the Company completed shell construction of four industrial properties aggregating approximately 365,000 square feet, for a total investment to date of approximately $18 million. The Company also acquired 6 parcels of land aggregating approximately 21 acres for a total investment of approximately $5 million, 5 of which are adjacent to existing Properties. The Company plans to develop industrial or office properties on each of these parcels. Property Dispositions In 1997, the Company sold three properties aggregating approximately 297,000 square feet. On July 31, 1997, two of its Southern California office properties were sold for a sale price of approximately $25.8 million, which resulted in a gain of approximately $10.8 million. The properties were 1000 Town Center Drive in Oxnard, California and Mariner Court in Torrance, California. On October 22, 1997, Academy Place Shopping Center in Colorado Springs, Colorado was sold for a sale price of approximately $7.5 million, which resulted in a gain of approximately $748,000. Common Stock Offerings and Credit Facility The Company completed the sale of 4,600,000 shares of common stock at $17 3/8 per share in February 1997 and 7,245,000 shares of common stock at $19 5/8 per share in November 1997. Net cash proceeds from these offerings were used to pay off the outstanding borrowings under the Company's credit facility. The facility was amended and expanded to $150 million in June 1997, and was further expanded to $175 million in September 1997. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a rate of LIBOR plus 1.50% and the unsecured loans bear interest at LIBOR plus 1.75%. The amended facility matures on June 1, 2000 and had an outstanding balance of $8 million at December 31, 1997. The Company was in compliance with the covenants and requirements of its revolving credit facility at December 31, 1997. Dividends The Company has made regular quarterly distributions to the holders of the Common Stock in each quarter since the second quarter of 1993, having increased the dividend eight times since that time from $0.10 per share in the second quarter of 1993 to $0.30 per share in each of the third and fourth quarters of 1997. In March 1998, the Company declared a dividend distribution for the first quarter 1998 to its stockholders in the amount of $0.30 per share of Common Stock, payable 15 days after the quarter- end. The Company paid dividends to the holders of the 8,333,334 shares of its Series A Convertible Preferred Stock par value $0.01 per share (the "Convertible Preferred Stock") in the amount of $.135 per share for each of the first two quarters of 1997 and $.15 per share for the third quarter of 1997. In October 1997, the Convertible Preferred stock was converted to 4,166,667 shares of common stock. Tenants Based on rentable square feet, as of December 31, 1997, the Suburban Office Properties and Industrial Properties were approximately 99% occupied by a total of 444 tenants, of which 94 were Suburban Office Property tenants and 350 were Industrial Property tenants. The Company's tenants include local, regional, national and international companies engaged in a wide variety of businesses. Financing The Company expects cash flow from operations to be sufficient to pay operating expenses, real estate taxes, general and administrative expenses, and interest on indebtedness and to make distributions to stockholders required to maintain the Company's REIT qualification. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The Company does not anticipate that cash flow from operations will be sufficient to enable it to repay amounts then outstanding under the credit facility when it becomes due in 2000. The Company expects to make such payment by refinancing or extending the credit facility or by raising funds through the sale of equity securities or properties. Insurance The Company carries commercial general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as a $20 million umbrella liability policy. This coverage protects the Company against liability claims as well as the cost of defense. The Company carries property insurance on a replacement value basis covering both the cost of direct physical damage and the loss of rental income. Separate flood and earthquake insurance is provided with an annual aggregate limit of $12.5 million subject to a deductible of 5-10% of total insurable value per building with respect to the earthquake coverage. The Company also carries director and officer liability insurance with an aggregate limit of $10 million. This coverage protects the Company's directors and officers against liability claims as well as the cost of defense. Competition, Regulation, and Other Factors The success of the Company depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws. The Company's real estate investments are located in markets in which they face significant competition for the rental revenues they generate. Many of the Company's investments, particularly the office buildings, are located in markets in which there is a significant supply of available space, resulting in intense competition for tenants and low rents. Government Regulations The Company's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes its properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at its properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. The Company does not anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. Other Information The Company currently employs 46 full time employees. The Company is not dependent upon a single tenant or a limited number of tenants. The Company has conducted a comprehensive review of its computer systems to identify "Year 2000" issues. The Year 2000 problem is a result of computer programs being written using two digits rather than four to define the applicable year. The Company purchased and implemented a new computer information system in January 1997 in order to increase efficiencies related to asset management and reporting. The new computer information system is Year 2000 compliant. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company and the Company does not anticipate material expenditures related to this issue. ITEM 2. PROPERTIES Real Estate Summary As of December 31, 1997, the Company's real estate investments (net of accumulated depreciation) were diversified by property type as follows: Number of Investment Properties Amount % of Total Industrial Buildings 51 $230,890,000 55 Office Buildings 20 168,326,000 40 Properties Under Development 4 18,158,000 4 Land Held for Development 7 5,712,000 1 Total 82 $423,086,000 100 As of December 31, 1997, the Company's real estate investments (net of accumulated depreciation) were diversified by geographic region as follows: Number of Investment Properties Amount % of Total Industrial Northern California 28 132,735,000 31 Southern California 8 43,276,000 10 Denver, Colorado 2 5,014,000 1 Arizona 4 20,486,000 5 Greater Portland Area 2 10,596,000 3 Greater Kansas City Area 6 16,039,000 4 Dallas, Texas 1 2,744,000 1 Total Industrial 51 230,890,000 55 Suburban Office Northern California 4 17,394,000 4 Southern California 3 25,028,000 6 Salt Lake City 1 6,093,000 1 Greater Kansas City Area 1 6,361,000 2 Greater Seattle Area 2 44,871,000 11 Reno, Nevada 1 12,387,000 3 Austin, Texas 1 9,750,000 2 Arizona 6 31,382,000 7 Denver, Colorado 1 15,060,000 4 Total Suburban Office 20 168,326,000 40 Industrial Properties Under Development Northern California 2 10,484,000 2 Arizona 1 4,407,000 1 Greater Kansas City Area 1 3,267,000 1 Total Industrial Properties Under Development 4 18,158,000 4 Land Held for Development Northern California 2 1,752,000 * Southern California 2 981,000 * Arizona 2 1,334,000 * Denver, Colorado 1 1,645,000 * Total Land held for Development 7 5,712,000 1 Total 82 423,086,000 100 * Less than 1%. Percentage Leased and 10% Tenants The following table sets forth the occupancy rates for each of the last five years, the number of tenants occupying 10% or more of the developed square feet at the Property as of the end of the year and the principal business of the tenants in the Company's properties at December 31, 1997. Percentage Occupied/Number of Tenants Occupying 10% or more 1993 1994 1995 1996 1997 Property % # % # % # % # % # Principal Business at December 31, 1997 INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Production and assembly of robotic parts and machines. Building #8 at Contra Costa Diablo Ind. Park, Concord 100% 1 100% 1 100% 1 100% 1 100% 1 Warehouse and storage of medical supplies. Building #18 at Mason Ind. Park, Concord 100% 2 90% 2 83% 2 83% 2 100% 2 Warehouse of scaffolding materials and construction supplies. 115 Mason Circle, Concord N/A N/A N/A 100% 5 100% 5 Mechanical systems insulation and acoustical contractor, pipeline servicing co., wholesale distributor of computer peripherals and software, distributor of fluid celing products, manufacturer and welder of pipes. Auburn Court, Fremont N/A N/A 100% 4 100% 4 100% 4 Manufacturing of computer equipment, assembly of cable items, lab engineering, and marketing design. 47650 Westinghouse Drive, Fremont N/A N/A 100% 1 100% 1 100% 1 Electronic personal computer board assembly. 47600 Westinghouse Drive, Fremont N/A N/A N/A 100% 1 100% 1 Research and development assembly and testing related to the semi-conductor/ electronics industry. 47633 Westinghouse Drive, Fremont N/A N/A N/A 100% 1 100% 1 Design and manufacture chemical vapor equipment for semi-conductors. 6500 Kaiser Drive, Fremont N/A N/A N/A N/A 100% 1 Office, research and development, manufacturing of computers. Bedford Fremont Business Center, Fremont N/A N/A N/A N/A 100% 1 Administration and testing of samples for kidney dialysis facilities. Spinnaker Court, Fremont N/A N/A N/A N/A 100% 2 Warehouse and assembly of computer products and general industrial, warehouse research and development. Fourier Avenue, Fremont N/A N/A N/A 100% 1 100% 1 Manufacturer of testers and equipment for semi-conductors. Milpitas Town Center, Milpitas N/A 100% 4 100% 4 100% 4 100% 4 Manufacturing of blood glucose meters, assembly and repair of accelerator systems, light manufacturing of OEM's and assembly and manufacturing of vacuum components. 598 Gibraltar Drive, Milpitas N/A N/A N/A 100% 1 100% 1 Manufacturing of personal computers. Doherty Avenue, Modesto N/A N/A N/A 100% 1 100% 1 Storing canned goods. 860-870 Napa Valley Corporate Way, Napa N/A N/A N/A 96% 3 86% 3 Winery, engineering company and software developer. The Mondavi Building, Napa N/A N/A N/A N/A 100% 1 Wine storage and administration. 350 East Plumeria Drive, San Jose N/A N/A 100% 1 100% 1 100% 1 Developer of data transmission technology. Lundy Avenue, San Jose N/A N/A N/A 100% 2 100% 2 Distributor of electronic components, manufacturer and distributor of high quality personal computers. INDUSTRIAL PROPERTIES (continued) O'Toole Business Center, San Jose N/A N/A N/A 94% 0 90% 0 N/A 301 East Grand, South San Francisco N/A N/A 71% 2 100% 3 100% 3 Freight forwarding, furniture wholesale, and distributor of MRI Equipment. 342 Allerton, South San Francisco N/A N/A 100% 4 100% 4 100% 4 Freight forwarding. 400 Grandview, South San Francisco N/A N/A 100% 5 100% 5 100% 4 Radiology research and developer, freight forwarding, manufacturing and distribution of point-of-sale marketing products. 410 Allerton, South San Francisco N/A N/A 100% 1 100% 1 100% 1 Candy manufacturer and distributor. 417 Eccles, South San Francisco N/A N/A 100% 2 100% 2 53% 1 Storage/distribution of food products. 2277 Pine View Way, Petaluma N/A N/A N/A N/A 100% 1 Manufacturer and distributor of plastic and glass eyeglass lenses for world-wide distribution. Monterey Commerce Center 2, Monterey N/A N/A N/A N/A 100% 1 Language interpretation - over seas calls. Monterey Commerce Center 3, Monterey N/A N/A N/A N/A 100% 3 Sales. INDUSTRIAL PROPERTIES (continued) Southern California Dupont Industrial Center, Ontario N/A 91% 1 100% 1 59% 0 100% 1 Distribution of swimming pool supplies. 3002 Dow Business Center, N/A N/A 83% 0 99% 0 100% 0 N/A Tustin Carroll Tech I, San Diego N/A N/A N/A 100% 1 100% 1 Bio-technology company. Vacated 12/31/97. Carroll Tech II, San Diego N/A N/A N/A 100% 1 100% 1 Bio-technology company. Signal Systems Building, San Diego N/A N/A N/A 100% 1 100% 1 Developer and manufacturer of avionic diagnostic equipment. Filed Chapter 11. Vista 1, Vista N/A N/A N/A 100% 1 100% 1 Manufacturer of heat sensitive film paper. Vacated 12/31/97. Company liquidated under statute per the general assignment for the benefit of creditors. Vista 2, Vista N/A N/A N/A 100% 1 100% 1 Manufacturer of graphite golf club shaft. 2230 Oak Ridge Way N/A N/A N/A N/A 100% 1 Manufacturer of equipment for circuit board assembly. Denver, Colorado Bryant Street Annex, Denver N/A N/A 100% 2 100% 2 100% 2 Office supplies distributor and automotive paint distributor. Bryant Street Quad, Denver N/A N/A 97% 3 100% 3 100% 3 Health care provider, photo processing lab, and radiator coating plant/distributor. INDUSTRIAL PROPERTIES (continued) Arizona Westech Business Center, Phoenix N/A N/A N/A 93% 0 96% 0 N/A 2601 W. Broadway, Tempe N/A N/A N/A N/A 100% 1 Wireless phone service provider. Phoenix Airport Center #3, Phoenix N/A N/A N/A N/A 100% 1 Cosmetic manufacturing and distribution. Butterfield Business Center, Tucson N/A N/A N/A N/A 100% 3 Sears call center, polish/wax research and development. Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton N/A N/A 81% 2 91% 3 96% 2 Software developer and telecommunications. Twin Oaks Business Park, Beaverton N/A N/A 94% 3 80% 4 81% 4 Electronic engineering, electronic equipment assembly, computer equipment distributor and postal service. Kansas City, Kansas Ninety-Ninth Street #1, Lenexa N/A N/A 100% 2 100% 2 100% 2 Tool distribution and surgical instrument manufacturing. Ninety-Ninth Street #2, Lenexa N/A N/A 100% 1 100% 1 100% 1 Drug testing clinic. Ninety-Ninth Street #3, Lenexa 100% 2 100% 2 100% 2 89% 2 100% 2 Warehouse for computer cables/wiring and storage of corporate records/supplies. Lackman Business Center, Lenexa N/A N/A 98% 2 91% 2 100% 2 Data document services and environmental testing and survey. 85th Street, Lenexa N/A N/A N/A N/A 100% 1 Manufacturing of plastic containers. INDUSTRIAL PROPERTIES (continued) Kansas City, Kansas (continued) Panorama Business Center, Kansas City N/A N/A N/A 100% 2 100% 2 Graphics and refrigeration companies. Dallas, Texas Ferrell N/A N/A N/A N/A 100% 5 Glass manufacturing (sub-tenant is telecommunications), medical products distribution, hardware distribution, and direct sales of nutritional products. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette N/A 82% 3 100% 2 100% 1 99% 1 Software developer. 100 View Street, Mountain View N/A N/A N/A 100% 4 100% 3 Architectural servicing (two tenants), designing and marketing of integrated circuits for semi-conductors, research and development of governmental devices. Monterey Commerce Center 1 Monterey N/A N/A N/A N/A 87% 4 Financial services, software development, telecommunications sales, electronic equipment sales. Canyon Park, San Ramon N/A N/A N/A N/A 100% 2 Medical administrative offices and geotechnical lab; soils testing, engineering services. Southern California Laguna Hills Square, Laguna N/A N/A N/A 86% 2 96% 4 Medical facility and securities brokerage firm. Carroll Tech III, San Diego N/A N/A N/A N/A 100% 1 Biomedical firm. Scripps Wateridge, San Diego N/A N/A N/A N/A 100% 2 Wireless communications. Denver, Colorado Oracle Building N/A N/A N/A N/A 100% 2 Software company. Salt Lake City Woodlands Tower II, Salt Lake City 96% 2 98% 2 95% 2 100% 2 100% 2 Insurance services and health care staffing. Greater Kansas City Area 6600 College Blvd., Overland Park N/A N/A 100% 1 98% 1 100% 1 Telecommunication. Greater Seattle Area Kenyon Center, Bellevue N/A N/A N/A 100% 1 100% 1 Manufacturer of aircraft. Orillia Office Park, Renton N/A N/A N/A N/A 100% 1 Manufacturer of aircraft. Reno U. S. Bank Centre, Reno N/A N/A N/A N/A 94% 1 Insurance services. Austin 9737 Great Hills Trail, Austin N/A N/A N/A N/A 100% 1 Home mortgage business. Arizona Executive Center at Southbank, Phoenix N/A N/A N/A N/A 98% 3 Appliance sales, travel agency, and customer credit call center. Troika Building, Tucson N/A N/A N/A N/A 100% 1 Architectural Services Phoenix Airport Center #1, Phoenix N/A N/A N/A N/A 100% 5 Electronics, customer service, and sales office. Phoenix Airport Center #2, Phoenix N/A N/A N/A N/A 100% 1 Electronics and customer service. Phoenix Airport Center #4, Phoenix N/A N/A N/A N/A 100% 1 Package delivery/service call center. Phoenix Airport Center #5, Parking, Phoenix N/A N/A N/A N/A N/A
Lease Expirations - Real Estate Portfolio The following table presents lease expirations for each of the ten years beginning January 1, 1998. The table presents: (i) the number of leases that expire each year, (ii) the square feet covered by such expiring leases, (iii) the annualized base rent (the "Annualized Base Rent") represented by such expiring leases and (iv) the percentage of total Annualized Base Rent for expiring leases. Number of Percentage Leases Rentable Annualized of Annualized Year Expiring Square Feet Base Rent Base Rent 1998 118 905,135 7,146,108 14.5% 1999 86 664,328 5,819,472 11.8% 2000 102 839,316 8,766,924 17.8% 2001 51 953,514 8,022,576 16.3% 2002 53 507,664 5,138,448 10.4% 2003 8 235,997 3,325,836 6.8% 2004 5 585,359 5,267,640 10.7% 2005 3 127,203 1,400,148 2.9% 2006 4 413,327 1,862,940 3.8% 2007 and thereafter 5 478,168 2,447,544 5.0% Total 435 5,710,011 49,197,636 100.0% Principal Provisions of Leases The following table sets forth the principal provisions of leases which represent more than 10% of the gross leasable area ("GLA") of each of the Company's Properties and the realty tax rate for each Property for 1997. Annual # of Tenants Square Feet Contract Rent Realty with 10% or Project of Each ($/Sq/Yr) Lease Renewal Property Taxes/Rate More of GLA Square Feet Tenant At End of Year Expiration Options INDUSTRIAL PROPERTIES Northern California Building #3 at Contra Costa $14,829 1 21,840 21,840 $6.84 Aug. 98 None Diablo Ind. Park, Concord $1.03/100 Building #8 at Contra Costa $24,023 1 31,800 31,800 $6.00 Dec. 00 2-5 yr. Diablo Ind. Park, Concord $1.03/100 Building #18 at Mason $18,944 2 28,836 7,225 $6.75 Oct. 98 None Industrial Park, Concord $1.03/100 4,825 $7.70 Mar. 98 None 115 Mason Circle, Concord $18,293 5 35,000 5,833 $5.16 Jan. 00 None $1.03/100 5,832 $6.18 Dec. 98 1-3 yr. 8,154 $6.96 Aug. 02 None 7,296 $6.24 Nov. 98 1-3 yr. 7,885 $6.24 Apr. 99 None Auburn Court, Fremont $49,487 4 68,030 15,755 $10.20 Apr. 99 1-5 yr. $1.07/100 16,095 $6.00 Sep. 98 1-5 yr. 12,060 $9.00 Apr. 98 None 12,060 $7.20 Jul. 00 None 47650 Westinghouse Drive, $15,308 1 24,030 24,030 $9.00 Sep. 04 1-3 yr. Fremont $1.07/100 47600 Westinghouse Drive, $17,132 1 24,030 24,030 $10.20 Oct. 03 1-3 yr. Fremont $1.07/100 47633 Westinghouse Drive, $52,810 1 50,088 50,088 $11.60 Oct. 03 1-3 yr. Fremont $1.07/100 6500 Kaiser Drive, Fremont $134,912 1 78,611 78,611 $9.00 Sep. 04 2-5 yr. $1.07/100 Bedford Fremont Business Center, Fremont $132,082 1 146,509 27,750 $11.65 Jul. 98 1-3 yr. $1.07/100 Spinnaker Court, Fremont $73,380 2 98,500 69,230 $8.10 Feb. 98 None $1.07/100 29,270 $7.78 Mar. 00 None Fourier Avenue, Fremont $105,583 1 104,400 104,400 $8.99 Apr. 04 None $1.07/100 Milpitas Town Center, $65,950 4 102,620 23,924 $9.63 Sep. 99 1-2 yr. Milpitas $1.07/100 24,426 $11.04 Apr. 02 1-2 yr. 30,840 $7.68 Jul. 03 1-5 yr. 23,430 $7.52 Jan. 00 1-5 yr. 598 Gibraltar Drive, $58,448 1 45,090 45,090 $9.48 Apr. 01 1-5 yr. Milpitas $1.07/100 Doherty Avenue, Modesto $56,189 1 251,308 251,308 $1.88 Dec. 06 None $1.10/100 860-870 Napa Valley Corporate $82,094 3 67,775 13,111 $9.61 Dec. 00 1-5 yr. Way, Napa $1.03/100 7,558 $9.89 Sep. 01 None 8,474 $9.60 Dec. 99 None The Mondavi Building, Napa $124,256 1 120,157 120,157 $4.92 Sep. 12 1-5 yr. $1.03/100 350 East Plumeria Drive, $134,490 1 142,700 142,700 $8.40 Dec. 01 1-3 yr. San Jose $1.08/100 Lundy Avenue, San Jose $60,310 3 60,428 11,086 $7.14 Jul. 98 None $1.10/100 32,877 $7.80 Apr. 99 1-5 yr. 16,465 $5.64 Apr. 99 1-3 yr. O'Toole Business Center, $111,276 0 122,320 N/A N/A N/A N/A San Jose $1.10/100 301 East Grand, $32,333 3 57,846 26,240 $6.24 Jun. 98 None South San Francisco $1.03/100 14,400 $5.46 Oct. 99 None 17,206 $4.68 Aug. 98 None 342 Allerton, $51,485 4 69,312 19,751 $6.96 Mar. 00 None South San Francisco $1.03/100 9,720 $8.40 Mar. 02 None 30,953 $7.28 Feb. 99 None 8,888 $9.00 Aug. 02 None 400 Grandview, $75,734 4 107,004 21,841 $7.20 Dec. 98 None South San Francisco $1.03/100 43,642 $7.41 Jul. 02 1-5 yr. 18,789 $6.45 May 99 1-5 yr. 18,864 $6.00 Jan. 03 None 410 Allerton, $25,858 1 46,050 46,050 $5.16 Apr. 01 None South San Francisco $1.03/100 417 Eccles, $12,532 1 24,624 12,960 $6.36 Dec. 97 1-5 yr. South San Francisco $1.03/100 2277 Pine View Way, $24,607 1 120,480 120,480 $6.91 Mar. 07 2-5 yr. Petaluma $1.08/100 Monterey Commerce $22,627 1 28,020 28,020 $14.16 Dec. 00 None Center 2, Monterey $1.00/100 Monterey Commerce $22,347 3 24,240 3,817 $13.08 Jul. 01 None Center 3, Monterey $1.00/100 3,050 $12.96 Nov. 00 None 17,373 $15.36 Oct. 00 None Southern California Dupont Industrial Center, $205,346 1 451,192 183,244 $2.88 Jan. 07 2-5 yr. Ontario $1.01/100 3002 Dow Business Center, $195,932 0 192,125 N/A N/A N/A N/A Tustin $1.02/100 Carroll Tech I, $21,207 1 21,936 21,936 $11.93 Dec. 97 None San Diego $1.12/100 Carroll Tech II, $34,605 1 37,586 37,586 $11.52 Dec. 98 1-3 yr. San Diego $1.12/100 Signal Systems Building, $96,473 1 109,780 109,780 $8.11 Aug. 06 2-5 yr. San Diego $1.02/100 Vista 1, Vista $33,289 1 42,508 42,508 $0.00 Chapter 11, 12/31/97 $1.04/100 Vista 2, Vista $36,584 1 47,550 47,550 $6.61 Sep. 01 1-5 yr. $1.04/100 Denver, Colorado Bryant Street Annex, Denver $27,293 2 55,000 42,148 $4.25 Nov. 00 1-3 yr. $7.54/100 12,852 $3.55 Mar. 00 None Bryant Street Quad, Denver $77,203 3 155,536 17,440 $4.25 Apr. 02 None $7.54/100 20,726 $3.30 Feb. 01 1-5 yr. 16,055 $3.60 Feb. 99 1-3 yr. Arizona Westech Business Center, Phoenix $78,241 0 143,940 N/A N/A N/A N/A $12.69/100 2601 W. Broadway, Tempe $49,095 1 44,244 44,244 $7.14 Jan. 07 None $12.27/100 Phoenix Airport Center #3, $42,460 1 55,122 55,122 $6.36 Jul. 01 None Phoenix $12.69/100 Butterfield Business Center, $73,510 3 95,746 50,000 $7.92 Aug. 99 None Tucson $15.95/100 14,982 $2.60 Aug. 99 None 22,002 $8.37 Jun. 01 None Greater Portland Area Twin Oaks Technology Center, $54,684 2 95,173 11,460 $5.20 Nov. 98 None Beaverton $1.41/100 14,690 $7.56 Aug. 98 None Twin Oaks Business Park, $39,439 4 66,339 7,633 $9.60 Nov. 02 None Beaverton $1.41/100 6,702 $9.00 Feb. 00 None 14,522 $10.67 Jul. 99 1-3 yr. 11,686 $7.48 May 99 1-2 yr. Greater Kansas City Area Ninety-Ninth Street #1, $48,647 2 35,516 19,019 $8.09 Sep. 00 1-3 yr. Lenexa $1.13/100 13,305 $7.25 Oct. 02 None Ninety-Ninth Street #2, $26,397 1 12,974 12,974 $8.62 Oct. 99 None Lenexa $1.13/100 Ninety Ninth Street #3, $61,354 2 50,000 13,000 $7.10 Dec. 03 1 yr. Lenexa $1.13/100 31,250 $5.38 May 98 1-5 yr. Lackman Business Center, $61,235 3 45,956 5,510 $10.45 Jan. 98 None Lenexa $1.13/100 5,132 $9.68 May 98 None 5,320 $7.95 Jun. 99 None 85th Street, Lenexa $81,453 1 171,642 171,642 $3.11 Nov. 01 1-5 yr. $1.13/100 Panorama Business Center, $111,362 2 103,457 12,491 $5.95 Sep. 01 1-5 yr. Kansas City $9.23/100 12,951 $5.15 Feb. 01 None Dallas, Texas Ferrell $37,349 5 68,580 11,430 $4.50 Jan. 00 None $4.76/100 11,430 $4.50 Feb. 99 None 11,430 $4.20 Feb. 00 None 11,430 $4.50 Jul. 01 1 yr. 11,430 $4.50 Apr. 99 1-3 yr. SUBURBAN OFFICE PROPERTIES Northern California Village Green, Lafayette $25,176 4 16,895 2,119 $21.66 Aug. 99 None $1.14/100 3,675 $26.84 Mar. 05 None 1,798 $22.05 Mar. 05 None 2,516 $22.03 Mar. 05 None 100 View Street, $56,297 3 42,141 5,490 $20.28 Jul. 01 1-5 yr. Mountain View $1.06/100 12,112 $18.60 Mar. 99 1-3 yr. 9,875 $22.20 Oct. 00 None Monterey Commerce Center 1, $57,957 4 50,031 5,809 $20.04 Aug. 99 None Monterey $1.00/100 7,000 $18.96 Mar. 03 None 16,088 $20.92 Jul. 98 None 5,046 $19.62 Mar. 98 None Canyon Park, $67,261 2 57,667 43,415 $16.48 Feb. 00 None San Ramon $1.08/100 7,736 $18.60 Jan. 98 None Southern California Laguna Hills Square, Laguna $67,008 4 51,734 8,474 $33.60 Jun. 02 1-5 yr. $1.05/100 7,368 $25.24 Apr. 00 1-3 yr. 6,391 $24.24 Sep. 00 1-5 yr. 9,229 $17.64 Jun. 02 2-3 yr. Carroll Tech III, San Diego $22,829 1 29,307 29,307 $8.52 Dec. 98 1-5 yr. $1.12/100 Scripps Wateridge, San Diego $175,873 2 123,853 49,295 $9.62 Jul. 06 1-5 yr. $1.12/100 74,558 $12.60 Aug. 05 2-3 yr. Denver Oracle Building, $250,217 2 90,712 10,043 $18.00 Aug. 11 1-4 yr. Denver $12.76/100 74,265 $24.00 Sep. 03 1-2 yr. Salt Lake City Woodlands Tower II, $119,869 2 114,352 42,590 $15.74 Feb. 02 1-5 yr. Salt Lake City $1.27/100 22,599 $15.00 Jan. 01 None Greater Kansas City Area 6600 College Blvd., $167,955 1 79,316 62,441 $11.80 Dec. 99 None Overland Park $11.95/100 Greater Seattle Area Kenyon Center, Bellevue $171,902 1 94,840 94,840 $11.61 Feb. 00 1-5 yr. $1.16/100 Orillia Office Park, Renton $262,365 2 334,255 274,405 $9.35 Feb. 04 None $1.32/100 59,850 $9.35 Feb. 04 None Reno U.S. Bank Centre, Reno $109,333 1 104,324 35,361 $17.40 Apr. 00 2-5 yr. $3.35/100 Austin 9737 Great Hills Trail, Austin $168,973 1 82,680 82,680 $18.00 Dec. 01 1-5 yr. $2.48/100 Arizona Executive Center at Southbank, $151,381 4 140,157 38,106 $9.18 Apr. 02 1-5 yr. Phoenix $16.50/100 17,910 $7.96 Sep. 03 2-5 yr. 30,518 $10.00 Jun. 01 2-5 yr. 21,626 $10.00 Jul. 02 2-5 yr. Troika Building, Tucson $109,698 1 52,000 52,000 $9.00 Oct. 01 None $16.94/100 Phoenix Airport Center #1, $31,022 5 32,460 11,990 $10.95 Aug. 00 None Phoenix $12.69/100 4,527 $15.00 Mar. 01 None 4,449 $17.55 Dec. 02 None 4,041 $16.39 Jul. 01 None 4,502 $12.00 M-T-M None Phoenix Airport Center #2, $48,035 1 35,768 35,768 $7.20 Aug. 01 None Phoenix $12.69/100 Phoenix Airport Center #4, $25,100 1 30,504 30,504 $7.20 Jun. 00 None Phoenix $12.69/100 Phoenix Airport Center #5, $17,358 N/A N/A N/A N/A N/A N/A Parking, Phoenix $12.69/100
Average Effective Rent The following table sets forth for each of the Properties the average rent at the end of each year for the last five years. Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo 47650 Westinghouse Drive 1993 $8.35 1993 N/A 1994 $8.35 1994 N/A 1995 $4.95 1995 $5.52 1996 $6.64 1996 $5.52 1997 $6.84 1997 $9.00 Building #8 at Contra Costa Diablo 47600 Westinghouse Drive 1993 $7.43 1993 N/A 1994 $7.81 1994 N/A 1995 $6.00 1995 N/A 1996 $6.00 1996 $5.94 1997 $6.00 1997 $10.20 Building #18 at Mason Industrial Park 47633 Westinghouse Drive 1993 $7.03 1993 N/A 1994 $6.95 1994 N/A 1995 $6.63 1995 N/A 1996 $6.78 1996 $11.37 1997 $6.88 1997 $11.60 115 Mason Circle 6500 Kaiser Drive 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $6.05 1996 N/A 1997 $6.22 1997 $9.00 Auburn Court Bedford Fremont Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $6.54 1995 N/A 1996 $6.78 1996 N/A 1997 $7.80 1997 $11.93 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES(continued): Spinnaker Court The Mondavi Building 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $8.01 1997 $4.92 Fourier Avenue 350 East Plumeria Drive 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $7.80 1996 $8.99 1996 $7.80 1997 $8.99 1997 $8.40 Milpitas Town Center Lundy Avenue 1993 N/A 1993 N/A 1994 $7.11 1994 N/A 1995 $7.35 1995 N/A 1996 $8.03 1996 $7.09 1997 $8.90 1997 $7.09 598 Gibraltar Drive O'Toole Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $9.48 1996 $8.75 1997 $9.48 1997 $10.31 Doherty Avenue 301 East Grand 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $5.92 1996 $1.87 1996 $5.57 1997 $1.88 1997 $5.58 860-870 Napa Valley Corporate 342 Allerton 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 $6.88 1996 $9.44 1996 $7.18 1997 $8.86 1997 $7.57 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES(continued): 400 Grandview 410 Allerton 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.49 1995 $5.16 1996 $7.53 1996 $5.16 1997 $7.03 1997 $5.16 417 Eccles 2277 Pine View Way 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $5.71 1995 $5.16 1996 $6.01 1996 $5.16 1997 $6.36 1997 $5.16 Monterey Commerce Center 2 Monterey Commerce Center 3 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $14.16 1997 $14.70 Southern California Dupont Industrial Center Carroll Tech II 1993 N/A 1993 N/A 1994 $3.07 1994 N/A 1995 $3.17 1995 N/A 1996 $3.53 1996 N/A 1997 $3.40 1997 $11.52 3002 Dow Business Center Signal Systems Building 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $8.88 1995 N/A 1996 $8.55 1996 $7.80 1997 $8.32 1997 $8.11 Carroll Tech I Vista 1 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $10.35 1996 $5.16 1997 $11.93 1997 $0.00** **Bankruptcy Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES (continued): Vista 2 1993 N/A 1994 N/A 1995 N/A 1996 $6.36 1997 $6.61 Denver Bryant Street Annex Bryant Street Quad 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $4.02 1995 $3.09 1996 $3.93 1996 $3.39 1997 $4.09 1997 $3.82 Arizona Westech Business Center Phoenix Airport Center #3 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $8.85 1996 N/A 1997 $9.44 1997 $6.36 2601 W. Broadway Butterfield Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $7.14 1997 $7.08 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year INDUSTRIAL PROPERTIES (continued): Greater Portland Area, Oregon Twin Oaks Technology Center Twin Oaks Business Park 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.27 1995 $7.75 1996 $7.32 1996 $8.35 1997 $7.67 1997 $8.86 Greater Kansas City Area Ninety-Ninth Street #1 Ninety-Ninth Street #2 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 $7.96 1995 $7.56 1996 $8.32 1996 $8.62 1997 $7.72 1997 $8.62 Lackman Business Center Ninety-Ninth Street #3 1993 N/A 1993 $5.86 1994 N/A 1994 $5.86 1995 $8.36 1995 $5.86 1996 $8.59 1996 $5.30 1997 $8.77 1997 $6.08 85th Street, Lenexa Panorama Business Center 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 $6.54 1997 $3.11 1997 $6.70 Dallas, Texas Ferrell 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $4.55 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES: Northern California Village Green 100 View Street 1993 N/A 1993 N/A 1994 $20.85 1994 N/A 1995 $18.23 1995 N/A 1996 $19.99 1996 $18.82 1997 $23.24 1997 $20.10 Monterey Commerce Center 1 Canyon Park 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $20.12 1997 $15.92 Southern California Laguna Hills Square Scripps Wateridge 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 $25.38 1996 N/A 1997 $23.90 1997 $11.41 Carroll Tech III 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $8.52 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES(continued): Denver, Colorado Reno Oracle Building U.S. Bank Centre 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $23.37 1997 $18.59 Salt Lake City Austin Woodlands Tower II 9737 Great Hills Trail 1993 $13.02 1993 N/A 1994 $14.47 1994 N/A 1995 $14.25 1995 N/A 1996 $14.58 1996 N/A 1997 $15.86 1997 $18.00 Greater Kansas City Area 6600 College Boulevard 1993 N/A 1994 N/A 1995 $12.01 1996 $11.99 1997 $12.28 Greater Seattle Area Kenyon Center 1993 N/A 1994 N/A 1995 N/A 1996 $11.61 1997 $11.61 Orillia Office Park 1993 N/A 1994 N/A 1995 N/A 1996 N/A 1997 $9.35 Net Effective Rent Net Effective Rent ($/Sq/Yr) ($/Sq/Yr) Properties At End of Year Properties At End of Year SUBURBAN OFFICE PROPERTIES(continued): Arizona Executive Center at Southbank Phoenix Airport Center #2 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $9.23 1997 $7.20 Troika Building Phoenix Airport Center #4 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $9.00 1997 $7.20 Phoenix Airport Center #1 Phoenix Airport Center #5 1993 N/A 1993 N/A 1994 N/A 1994 N/A 1995 N/A 1995 N/A 1996 N/A 1996 N/A 1997 $13.81 1997 $7.21 Tax Information The following table sets forth tax information of the Company's real estate investments at December 31, 1997, as follows: (i) Federal tax basis, (ii) annual rate of depreciation, (iii) method of depreciation, and (iv) life claimed, with respect to each property or component thereof for purposes of depreciation (in thousands): Federal Annual Rate of Depreciation Life Depreciable assets Tax Basis Depreciation Method In Years INDUSTRIAL PROPERTIES Northern California 3,789 3.18% Straight Line 31.5 91,871 2.56% Straight Line 39.0 95,660 Southern California 31,067 2.56% Straight Line 39.0 Denver, Colorado 3,256 2.56% Straight Line 39.0 Greater Phoenix Area, Arizona 13,688 2.56% Straight Line 39.0 Tucson, Arizona 4,231 2.56% Straight Line 39.0 Greater Portland Area 8,404 2.56% Straight Line 39.0 Greater Kansas City Area 2,132 3.18% Straight Line 31.5 13,888 2.56% Straight Line 39.0 16,020 Dallas, Texas 1,639 2.56% Straight Line 39.0 Total depreciable assets for industrial properties 173,965 SUBURBAN OFFICE PROPERTIES Northern California 13,138 2.56% Straight Line 39.0 Southern California 18,075 2.56% Straight Line 39.0 Salt Lake City 6,472 2.56% Straight Line 39.0 Greater Kansas City Area 4,046 2.56% Straight Line 39.0 Greater Seattle Area 30,225 2.56% Straight Line 39.0 Reno, Nevada 10,438 2.56% Straight Line 39.0 Austin, Texas 7,075 2.56% Straight Line 39.0 Phoenix, Arizona 17,645 2.56% Straight Line 39.0 Tucson, Arizona 2,666 2.56% Straight Line 39.0 Denver, Colorado 13,248 2.56% Straight Line 39.0 Total depreciable assets for suburban office properties 123,028 296,993
For additional information on the Company's real estate portfolio, see Note 2 to the Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company trades on the New York Exchange and the Pacific Exchange under the symbol "BED." As of December 31, 1997 the Company had 518 stockholders of record. A significant number of these stockholders are also nominees holding stock in street name for individuals. The following table shows the high and low sale prices per share reported on the New York Stock Exchange and the dividends declared per share by the Company on the Common Stock for each quarterly period during 1996 and 1997. All of the following quotations have been adjusted to reflect the one-for-two reverse stock split of the Common Stock effected on March 29, 1996. Dividend High Low Per Share 1996 First Quarter $15 1/4 $14 $.24 Second Quarter $16 $12 3/8 $.24 Third Quarter $14 5/8 $12 3/4 $.26 Fourth Quarter $17 1/2 $14 1/8 $.26 1997 First Quarter $21 1/4 $16 5/8 $.26 Second Quarter $20 1/8 $17 $.27 Third Quarter $22 $19 $.30 Fourth Quarter $22 7/8 $19 3/16 $.30 Credit Facility Effective January 13, 1997, the Company's existing credit facility (the "Credit Facility") was amended to lower the interest rate from LIBOR plus 2.00% to LIBOR plus 1.75%. On June 13, 1997, the Company further reduced this interest rate to LIBOR plus 1.50% and increased the size of the Credit Facility to $150 million. On September 24, 1997 the Company again increased the size of the Credit Facility from $150 million to $175 million. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. The Company is currently under negotiations to restructure its Credit Facility as an unsecured line and to further lower the interest rate thereunder. No assurance can be given that the Credit Facility will be restructured or that the interest rate will be further reduced. ITEM 6. SELECTED FINANCIAL DATA Following is a table of selected financial data of the Company for the last five years (which should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto contained herein): (in thousands of dollars, except per share data) 1997 1996 1995 1994 1993 Operating Data: Rental income $ 46,377 $ 27,541 $ 11,695 $ 9,154 $ 7,207 Net income 31,291 11,021 2,895 3,609 3,147 Net income applicable to common stockholders 27,791 6,516 1,607 3,609 3,147 Net income per common share - assuming dilution $ 1.94 $ 1.14 $ 0.52 $ 1.17 $ 1.04 Balance Sheet Data: Real estate investments $ 423,086 $ 224,501 $ 128,964 $ 55,053 $ 35,962 Bank loan payable 8,216 46,097 43,250 22,400 3,621 Mortgage loans payable 60,323 51,850 - - - Redeemable preferred shares - 50,000 50,000 - - Common and other stockholders' equity 346,426 73,756 32,435 36,932 35,441 Other Data: Net cash provided by operating activities $ 25,041 $ 14,378 $ 4,898 $ 2,716 $ 1,220 Net cash (used) provided by investing activities (180,358) (96,964) (73,259) (19,720) 10,085 Net cash provided (used) by financing activities 155,350 82,887 64,655 16,807 (6,550) Funds From Operations (1) 25,582 13,645 5,021 3,622 1,964 Dividends declared per share $ 1.13 $ 1.00 $ 0.82 $ 0.71 $ 0.36
(1) Management considers Funds From Operations to be one measure of the performance of an equity REIT. Funds From Operations 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. Funds From Operations generally is defined by NAREIT as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructurings and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Funds From Operations was computed by the Company in accordance with this definition. Funds From Operations does not represent cash generated by operating activities in accordance with generally accepted accounting principles; 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 the Company's operating performance or as an alternative to cash flow as a measure of liquidity. Further, Funds from Operations as disclosed by other Reit's may not be comparable to the Company's calculation of Funds from Operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes thereto, all of which are included herein. When used in this annual report, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the section entitled "Potential Factors Affecting Future Operating Results" below. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Results of Operations The Company's operations consist of owning and operating industrial and suburban office properties located primarily in the Western United States. Increases in revenues, expenses, net income and cash flows in the years compared below were due primarily to the acquisition, development and sale of operating property as follows: 1997 1996 1995 Number of Square Number of Square Number of Square Properties Feet Properties Feet Properties Feet Acquisitions Industrial 13 1,091,000 13 1,251,000 18 1,384,000 Office 13 1,199,000 3 189,000 1 79,000 Retail - - - - 1 84,000 26 2,290,000 16 1,440,000 20 1,547,000 Development Industrial 4 365,000 1 45,000 - - Sales Industrial - - 2 186,000 1 38,000 Office 2 213,000 - - 1 88,000 Retail 1 84,000 - - - - 3 297,000 2 186,000 2 126,000
Comparison of 1997 to 1996 Income from Property Operations Income from property operations (defined as rental income less rental expenses) increased $13,268,000 or 80% in 1997 compared with 1996. This is due to an increase in rental income of $18,836,000 offset by an increase in rental expenses (which include operating expenses, real estate taxes and depreciation and amortization) of $5,568,000. The increase in rental income and expenses is primarily attributable to the acquisition of real estate investments during 1997 and 1996. This acquisition activity increased rental income and rental expenses by $21,545,000 and $7,055,000, respectively. This was partially offset by the sales of two office properties and one retail property in 1997 and two industrial properties in 1996, which generated a reduction in rental income and rental expenses of $3,256,000 and $1,779,000, respectively. Expenses Interest expense, which includes amortization of loan fees, increased $3,571,000 or 82.1% in 1997 compared with 1996. The increase is attributable to the Company's higher level of borrowings to finance the acquisition of properties in 1997, and higher financing costs incurred in connection with its credit facility and mortgage loans. The amortization of loan fees was $816,000 and $650,000 for 1997 and 1996, respectively. General and administrative expenses increased $585,000 or 33.4% in 1997 compared with 1996, a result of managing a larger real estate portfolio. Gain on Sale In July 1997, the Company sold two of its Southern California office properties for a sale price of approximately $25,800,000, which resulted in a gain of $10,785,000. In October 1997, the Company sold Academy Place Shopping Center in Colorado Springs, Colorado for a sale price of approximately $7,500,000, which resulted in a gain of approximately $748,000. Net operating loss carryforward was utilized to offset substantially all of the 1997 taxable income remaining after the deduction of dividends paid in 1997. Retention and reinvestment of gains on property sales generated alternative minimum tax expense of approximately $250,000 which is included in 1997 general and administrative expense. In April 1996, the Company sold 3.6 acres of land adjacent to its suburban office property in Utah for $1,000,000, receiving $950,000 in cash and a $50,000 note. The 10% interest bearing note was paid in April 1997. The sale resulted in a gain of $359,000. In December 1996, the Company sold two industrial properties in St. Paul, Minnesota for a cash price of $6,705,000. The sale resulted in a gain of $47,000. Dividends 1997 quarterly dividend declared for each share of common stock was $0.26 for the first quarter, $0.27 for the second quarter, and $0.30 for the third and fourth quarters. Consistent with the Company's policy, dividends are paid in the quarter after declared. In addition, the Company declared a quarterly dividend of $1,125,000 in each of the first two quarters of 1997 and $1,250,000 for the third quarter of 1997 on the Series A Convertible Preferred Stock. The preferred shares were converted into 4,166,667 shares of common stock on October 15, 1997. Comparison of 1996 to 1995 Income from Property Operations Income from property operations increased $10,202,000 or 160% in 1996 compared with 1995. This is due to an increase in rental income of $15,846,000 offset by an increase in rental expenses of $5,644,000. The increase in rental income and expenses is primarily attributable to the acquisition and development of real estate investments. This acquisition and development activity increased rental income and rental expenses by $16,684,000 and $5,445,000, respectively. This was partially offset by the sale of an office property and an industrial property in 1995 which generated a reduction in rental income and rental expenses of $1,078,000 and $687,000, respectively. Expenses Interest expense, which includes amortization of loan fees, increased $2,753,000 or 173% in 1996 compared with 1995. The increase is attributable to the Company's higher level of borrowings to finance the acquisition of properties in 1996, and higher financing costs incurred in connection with its credit facility and mortgage loans. The amortization of loan fees was $650,000 and $277,000 for 1996 and 1995, respectively. General and administrative expenses increased $295,000 or 20% in 1996 compared with 1995, a result of managing a larger real estate portfolio. Gain on Sale In April 1996, the Company sold 3.6 acres of land adjacent to its suburban office property in Salt Lake City, Utah for $1,000,000, receiving $950,000 in cash and a $50,000 note due in April 1997, with 10% interest payable monthly. The sale resulted in a gain of $359,000. In December 1996, the Company sold two industrial properties in St. Paul, Minnesota for a cash sale price of $6,705,000. The sale resulted in a gain of $47,000. In 1995, the Company sold an office property located in Mississippi and an industrial property located in Kansas for $8,000,000 cash. The sales resulted in a loss of $642,000. Dividends Quarterly dividends declared for the first and second quarters of 1996 were $0.24 per share of common stock, and $0.26 per share of common stock for the third and fourth quarters of 1996. Consistent with the Company's policy, dividends are paid in the quarter after declared. In addition, the Company declared a quarterly dividend of $1,125,000 on the Series A Convertible Preferred Stock in each of the four quarters of 1996. The preferred stock dividends are due and payable 45 days after the quarter end. Financial Condition Total assets of the Company at December 31, 1997 increased by $202,079,000 compared with December 31, 1996, primarily as a result of an increase in real estate investments (net of depreciation) of $198,585,000. Total liabilities at December 31, 1997 decreased by $20,379,000 compared with December 31, 1996, primarily as a result of the paydown of the Company's credit facility. Liquidity and Capital Resources During the year ended December 31, 1997, the Company's operating activities provided net cash flow of $25,041,000. Investing activities provided cash flow of $31,909,000 from the sale of properties and utilized $212,267,000 to acquire and improve real estate investments. Financing activities provided net cash flow of $155,350,000 consisting of the proceeds from bank borrowings of $167,559,000 and net proceeds from the sale of common stock of $210,953,000, offset by repayment of bank borrowings and mortgage loans of $207,245,000, payment of dividends of $15,660,000, and redemption of partnership units of $257,000. The Company's mortgage loans, obtained in 1997 and 1996, totaled $60,323,000 at December 31, 1997. They are secured by 17 properties (which Properties collectively accounted for approximately 26% of the Company's Annualized Base Rent and 20% of the Company's total assets as of December 31, 1997). The loans bear interest at rates ranging from 7.02% to 8.9% per annum and have terms ranging from two to nine years. Interest is due and payable monthly. In February 1998, the Company secured a mortgage loan of $20,900,000 which bears interest at 6.9% and has an eight year term. The proceeds of the mortgage loans were used to pay down a portion of the outstanding borrowings under the credit facility. The Company completed the sale of 3,350,000 shares of common stock at $13 per share in April 1996. In February 1997, the Company completed the sale of 4,600,000 shares of the common stock at $17 3/8 per share and in November 1997 sold an additional 7,245,000 shares of common stock at $19 5/8 per share. Net cash proceeds from each of these offerings was used to pay off the outstanding borrowings under the Company's credit facility. The facility was amended and expanded to $150 million in June 1997, and was further expanded to $175 million in September 1997. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a rate of LIBOR plus 1.50% and the unsecured loans bear interest at LIBOR plus 1.75%. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. At December 31, 1997 the Company was in compliance with the covenants and requirements of the credit facility. The Company anticipates that the cash flow generated by its real estate investments will be sufficient to meet its short-term liquidity requirements. The Company expects to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, and development of properties from (i) cash flow from operations, (ii) borrowings under the credit facility and, if available, other indebtedness (which may include indebtedness assumed in acquisitions), (iii) the sale of real estate investments, and (iv) the sale of equity securities and, possibly, the issuance of equity securities in connection with acquisitions. The ability to obtain mortgage loans on income-producing properties is dependent upon the ability to attract and retain tenants and the economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. The ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at commercially reasonable rates. Potential Factors Affecting Future Operating Results At the present time, borrowings under the Company's credit facility bear interest at a floating rate. Results from operations in 1998 may be negatively impacted if interest rates increase in the future. While the Company has historically been successful in renewing and reletting space, the Company will be subject to the risk that certain leases expiring in 1998 may not be renewed or the terms of renewal may be less favorable than current lease terms. However, the Company expects to release the vacant spaces without any material adverse impact on 1998 operations. In addition, the Company expects to incur costs in making improvements or repairs to its portfolio of properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the reletting of space. Many other factors affect the Company's actual financial performance and may cause the Company's future results to be markedly outside of the Company's current expectations. Government Regulations The Properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Company believes that the Properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at Properties may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances released on, above, under, or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of such removal or remediation could be substantial. Additionally, the presence of such substances or the failure to properly remediate such substances may adversely affect the owner's ability to borrow using such real estate as collateral. The Company believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances, and the Company has not been notified by any governmental authority of any non-compliance or other claim in connection with any of its present or former properties. The Company does not anticipate that compliance with federal, state and local environmental protection regulations will have any material adverse impact on the financial position, results of operations or liquidity of the Company. Accounting Developments In June 1997, the FASB issued Financial Accounting Standard No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130 is effective with the year-end 1998 financial statements; however, the total comprehensive income is required in the financial statements for interim periods beginning in 1998. In June 1997, the FASB issued Financial Accounting Standard No. 131, Disclosure About Segments of An Enterprise and Related Information. SFAS 131 is effective with the year-end 1998 financial statements. Management believes that the adoption of these statements will not have a material impact on the Company's financial statements. General Litigation The Company is involved in various legal matters in the ordinary course of business. In the opinion of management, none of these matters could have a material impact on the Company's financial statements. Inflation Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Inflation, however, could result in increases in the Company's borrowing costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedule Covered by Reports of Independent Public Accountants Report of Independent Public Accountants 48 Consolidated Balance Sheets as of December 31, 1997 and 1996 49 For the Years Ended December 31, 1997, 1996 and 1995: - - Consolidated Statements of Income 50 - - Consolidated Statements of Stockholders' Equity 51 - - Consolidated Statements of Cash Flows 52 Notes to Consolidated Financial Statements 53 Financial Statement Schedule: - - Schedule III - Real Estate and Accumulated Depreciation 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Items 10 through 13 of Part III is incorporated by reference from the Registrant's Proxy Statement which will be mailed to stockholders in connection with the Registrant's annual meeting of stockholders scheduled to be held on May 13, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Report of independent public accountants. The following consolidated financial statements of the Company and its subsidiaries are included in Item 8 of this report: Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation All other schedules have been omitted as they are not applicable, or not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements. 3. Exhibits Exhibit No. List of Exhibits 3.1 Charter of the Company, as amended, is incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2, Registration No. 333- 921. 3.2 Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.1 The Company's Automatic Dividend Reinvestment and Share Purchase Plan, as adopted by the Company, is incorporated herein by reference to Exhibit 4.1 to Amendment No. 2 to Registration Statement No. 2-94354 of ICM Property Investors Incorporated. 10.4 Second Amended and Restated Credit Agreement dated as of June 26, 1996, by and between the Company, as Borrower, Bank of America National Trust and Savings Association and the several financial institutions (the "Banks") is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.5 Sale and Option Agreement dated as of August 26, 1995, by and between Kemper Investors Life Insurance Company, on behalf of itself and Participants (as defined therein), as Lender, the Company, as Purchaser, and Tustin Properties, as Owner, for 3002 Dow Business Center is incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.6 BPIA Agreement dated as of January 1, 1995, by and between Westminster Holdings, Inc., a California corporation and the Company is incorporated herein by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.7 Employment Agreement made as of February 17, 1993, by and between ICM Property Investors Incorporated and Peter B. Bedford is incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by Form 10-K/A filed on May 1, 1995, and Form 10-K/A-2 filed on August 8, 1995. 10.8 Amendment No. 1 to Employment Agreement dated as of September 18, 1995, by and between Peter B. Bedford and the Company is incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. 10.12 Purchase and Sale Agreement dated as of October 19, 1995, between Landsing Pacific Fund, Inc., a Maryland corporation as Seller, and the Company, the Buyer, as amended, is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on December 27, 1995. 10.13 Amended and Restated Promissory Note date May 24, 1996 executed by the Company and payable to the order of Prudential Insurance Company of America is incorporated herein by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.14 Loan Agreement dated as of December 24, 1996 between Bedford Property Investors, Inc. as Borrower and Union Bank of California, N.A. as Lender is incorporated herein by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1996. 10.15* Loan Agreement dated as of January 30, 1998 between Bedford Property Investors, Inc. as Borrower and Prudential Insurance Company of America as Lender. 10.16* The Company's Amended and Restated Employee Stock Plan. 10.17* Form of Employee Stock Plan Option Agreement between the Company and the Named Executive Officers under the Company's Amended and Restated Employee Stock Plan. 10.18* The Company's Amended and Restated 1992 Directors' Stock Option Plan. 10.19* Form of Retention Agreement. 10.20* Employment Agreement made as of August 4, 1997, by and between Bedford Property Investors Incorporated and Scott R. Whitney. 10.21* Employment Agreement made as of November 18, 1997, by and between Bedford Property Investors Incorporated and Dennis Klimmek. 12* Ratio of Earnings to Fixed Charges. 21.1* Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP, independent auditors. 27* Financial Data Schedule * Filed herewith B. Reports on Form 8-K During the quarter ended December 31, 1997 the Company filed on October 31, 1997, a report on Form 8-K dated September 16, 1997, reporting items 5 and 7 and announcing the acquisitions of the Mondavi Building, 2230 Oak Ridge Way and Oracle Center. The following financial statements were filed: (i) Historical Summary of Gross Income and Direct Operating Expenses for Oracle Center for the four months ended December 31, 1996 and (ii) pro forma financial statements showing the effect resulting from all the Company's acquisitions through October 16, 1997. Report of Independent Public Accountants To the Stockholders and the Board of Directors of Bedford Property Investors, Inc.: We have audited the consolidated financial statements of Bedford Property Investors, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bedford Property Investors, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP San Francisco, California February 2, 1998 BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (in thousands, except share and per share amounts) 1997 1996 Assets: Real estate investments: Industrial buildings $237,184 $164,674 Office buildings 170,948 53,071 Retail buildings - 6,281 Properties under development 18,227 5,388 Land held for development 5,712 - 432,071 229,414 Less accumulated depreciation 8,985 4,913 423,086 224,501 Cash 1,361 1,328 Other assets 9,456 5,995 $433,903 $231,824 Liabilities and Stockholders' Equity: Bank loan payable 8,216 46,097 Mortgage loans payable 60,323 51,850 Accounts payable and accrued expenses 6,026 2,214 Dividend and distribution payable 6,804 2,827 Other liabilities 4,611 3,371 Total liabilities 85,980 106,359 Redeemable preferred stock: Series A convertible preferred stock, par value $0.01 per share; authorized 10,000,000 shares, issued and outstanding none in 1997 and 8,333,334 shares in 1996; aggregate redemption amount $50,000; aggregate liquidation preference $52,500 - 50,000 Minority interest in consolidated partnership 1,497 1,709 Stockholders' equity: Common stock, par value $0.02 per share; authorized 50,000,000 shares in 1997 and 15,000,000 shares in 1996; issued and outstanding 22,583,867 shares in 1997 and 6,526,325 shares in 1996 452 131 Additional paid-in capital 408,209 147,622 Accumulated losses and distributions in excess of net income (62,235) (73,997) Total stockholders' equity 346,426 73,756 $433,903 $231,824
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 (in thousands, except share and per share amounts) 1997 1996 1995 Property operations: Rental income $46,377 $27,541 $11,695 Rental expenses: Operating expenses 6,852 5,352 2,744 Real estate taxes 3,977 2,595 1,105 Depreciation and amortization 5,716 3,030 1,484 Income from property operations 29,832 16,564 6,362 General and administrative expenses (2,337) (1,752) (1,457) Interest income 289 150 226 Interest expense (7,918) (4,347) (1,594) Income before gain (loss) on sales of real estate investments and minority interest 19,866 10,615 3,537 Gain (loss) on sales of real estate investments 11,533 406 (642) Minority interest (108) - - Net income $31,291 $11,021 $ 2,895 Net income applicable to common stockholders $27,791 $ 6,516 $ 1,607 Basic earnings per share $ 2.21 $ 1.21 $ 0.53 Weighted average number of shares 12,566,065 5,405,727 3,005,950 Earnings per share - assuming dilution $ 1.94 $ 1.14 $ 0.52 Weighted average number of shares - assuming dilution 16,166,454 9,702,552 3,089,549
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands, except share and per share amounts) Total Accumulated common losses and stock and Additional distributions other stock- Common paid-in in excess of holders' stock capital net income equity Balance, December 31, 1994 $ 60 $107,151 $(70,279) $ 36,932 Issuance of common stock 1 63 - 64 Costs of issuance of preferred stock - - (3,631) (3,631) Redemption of rights - - (60) (60) Net income - - 2,895 2,895 Dividends to common stockholders ($0.82 per share) - - (2,477) (2,477) Dividends to preferred stockholders - - (1,288) (1,288) Balance, December 31, 1995 $ 61 $107,214 $(74,840) $ 32,435 Issuance of common stock 70 43,778 - 43,848 Costs of issuance of preferred stock - - (2) (2) Costs of issuance of common stock - (3,370) - (3,370) Net income - - 11,021 11,021 Dividends to common stockholders ($1.00 per share) - - (5,671) (5,671) Distributions to limited partnership unit holders - - (5) (5) Dividends to preferred stockholders - - (4,500) (4,500) Balance, December 31, 1996 $ 131 $147,622 $(73,997) $73,756 Issuance of common stock 321 265,622 - 265,943 Costs of issuance of common stock - (4,990) - (4,990) Redemption of partnership units - (45) - (45) Net income - - 31,291 31,291 Dividends to common stockholders ($1.13 per share) - - (16,029) (16,029) Dividends to preferred stockholders - - (3,500) (3,500) Balance, December 31, 1997 $ 452 $408,209 $(62,235) $346,426
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (in thousands) 1997 1996 1995 Operating Activities: Net income $31,291 $11,021 $2,895 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 108 - - Depreciation and amortization 6,697 3,757 1,806 Loss (gain) on sale of real estate investments (11,533) (406) 642 Increase in other assets (4,655) (2,118) (1,679) Increase in accounts payable and accrued expenses 1,282 763 601 Increase in other liabilities 1,851 1,361 633 Net cash provided by operating activities 25,041 14,378 4,898 Investing Activities: Investments in real estate (212,267) (104,483) (81,173) Proceeds from sales of real estate investments 31,909 7,519 7,914 Net cash used by investing activities (180,358) (96,964) (73,259) Financing Activities: Proceeds from bank loan payable 167,559 101,189 47,100 Repayment of bank loan payable (206,804) (99,048) (26,250) Proceeds from mortgage loans payable - 49,384 - Repayment of mortgage loans payable (441) - - Issuance of common stock 210,953 40,476 64 Net proceeds from sale of preferred stock - - 46,369 Redemption of rights - - (60) Redemption of partnership units (257) - - Payment of dividends (15,660) (9,114) (2,568) Net cash provided by financing activities 155,350 82,887 64,655 Net increase (decrease) in cash 33 301 (3,706) Cash at beginning of year 1,328 1,027 4,733 Cash at end of year $ 1,361 $ 1,328 $1,027 Supplemental disclosure of cash flow information a) Non-cash investing and financing activities: Debt incurred with real estate acquired $ 8,914 $ 2,283 $3,000 Issuance of limited partnership units for real estate acquired - 1,709 - Note receivable from sale of real estate investment - 50 - b) Cash paid during the year for interest, net of amounts capitalized $ 7,291 $ 3,380 $1,283 c) Conversion of Preferred Stock (see footnote 9) $ 50,000 - -
See accompanying notes to consolidated financial statements. BEDFORD PROPERTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and Summary of Significant Accounting Policies and Practices The Company Bedford Property Investors Inc. (the Company) is a Maryland real estate investment trust with investments primarily in industrial and suburban office properties concentrated in the Western United States. The Company's Common Stock trades under the symbol "BED" on both the New York Exchange and Pacific Exchange. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its general partnership interest in Bedford Realty Partners, L.P. All significant inter-entity balances have been eliminated in consolidation. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Federal Income Taxes The Company has elected to be taxed as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended ("the Code"). A real estate investment trust is generally not subject to Federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its stockholders, provided that at least 95% of Taxable Income is distributed and other requirements are met. The Company believes it is in compliance with the Code. Taxable income differs from net income for financial reporting purposes primarily because of the different methods of accounting for depreciation. As of December 31, 1997, for Federal income tax purposes, the Company had an ordinary loss carry forward of approximately $32 million. As the Company does not expect to incur income tax liabilities, the asset value of these losses has been effectively fully reserved. Dividend distributions made for 1997 were classified 88% as ordinary income and 12% as capital gain for Federal income tax purposes. Real Estate Investments Buildings and improvements are carried at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 45 years. Upon the acquisition of an investment by the Company, acquisition related costs are added to the carrying cost of that investment. These costs are being depreciated over the useful lives of the buildings. Leasing commissions and improvements to tenants' space incurred subsequent to the acquisition are amortized over the terms of the respective leases. Expenditures for repairs and maintenance, which do not add to the value or prolong the useful life of a property, are expensed as incurred. When the Company concludes that the recovery of the carrying amount of a real estate investment is impaired, it reduces such carrying amount to the estimated fair value of the investment. Investments which have been classified as held for sale are carried at the lower of the carrying amount or fair value less costs to sell. Income Recognition Rental income from operating leases is recognized in income on a straight-line basis over the period of the related lease agreement. The aggregate rental income exceeded contractual rentals by $1,644,000, $573,000 and $377,000 for 1997, 1996 and 1995, respectively. Per Share Data Per share data are based on the weighted average number of common and common equivalent shares outstanding during the year. Per share data reflects the retroactive application of the one-for-two reverse stock split which took place on March 29, 1996. Stock options issued under the Company's stock option plans are included in the calculation of per share data if, upon exercise, they would have a dilutive effect. The diluted earnings per share calculation assumes conversion of the Series A Convertible Preferred Stock of the Company and the limited partnership units of Bedford Realty Partners, L.P., if such conversions would have dilutive effects, as of the beginning of the year. Dividends accrued on the Series A Convertible Preferred Stock and distributions accrued on the limited partnership units are deducted from net income for purposes of determining net income applicable to common stockholders. Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standard No. 128, Earnings per share (FAS 128). Earnings per share data for previous periods have been restated to conform to FAS 128. Note 2 - Real Estate Investments The following table sets forth the Company's real estate investments as of December 31, 1997 (in thousands): Less Accumulated Land Building Depreciation Total INDUSTRIAL PROPERTIES Northern California $ 42,941 $ 93,152 $ 3,358 $132,735 Southern California 13,551 31,130 1,405 43,276 Denver, Colorado 1,911 3,256 153 5,014 Arizona 6,248 14,502 264 20,486 Greater Portland Area 2,652 8,404 460 10,596 Greater Kansas City Area 3,398 13,295 654 16,039 Dallas, Texas 1,105 1,639 - 2,744 Total Industrial 71,806 165,378 6,294 230,890 SUBURBAN OFFICE PROPERTIES Northern California 4,313 13,357 276 17,394 Southern California 7,312 18,074 358 25,028 Salt Lake City 359 6,491 757 6,093 Greater Kansas City Area 2,518 4,046 203 6,361 Greater Seattle Area 15,116 30,225 470 44,871 Reno, Nevada 2,102 10,439 154 12,387 Austin, Texas 2,766 7,075 91 9,750 Arizona 11,416 20,230 264 31,382 Denver, Colorado 1,860 13,249 49 15,060 Total Suburban Office 47,762 123,186 2,622 168,326 PROPERTIES UNDER DEVELOPMENT Northern California 2,775 7,732 23 10,484 Arizona 1,033 3,407 33 4,407 Greater Kansas City Area 518 2,762 13 3,267 Total Properties Under Development 4,326 13,901 69 18,158 LAND HELD FOR DEVELOPMENT Northern California 1,752 - - 1,752 Southern California 981 - - 981 Arizona 1,334 - - 1,334 Denver, Colorado 1,645 - - 1,645 Total Land Held for Development 5,712 - - 5,712 Total $129,606 $302,465 $ 8,985 $423,086
The Company internally manages all but 7 of its properties from its regional offices in Lafayette, CA; Tustin, CA; Phoenix, AZ; Lenexa, KS; Denver, CO; Dallas, TX; and Seattle, WA. For the 7 properties located in markets not served by a regional office, the Company has subcontracted on-site management to local firms. All financial record-keeping is centralized at the Company's corporate office in Lafayette, CA. During 1997 and 1996, the Company capitalized interest costs relating to properties under development totaling $627,000 and $223,000, respectively. Note 3 - Consolidated Partnership In December, 1996 the Company formed Bedford Realty Partners, L.P. (the "Operating Partnership"), with the Company as the sole general partner, for the purpose of acquiring real estate. In exchange for contributing a property into the Operating Partnership, the owners of the property receive limited partnership units ("OP Units"). A limited partner can seek redemption of the OP Units at any time after 90 days. The Company, at its option, may redeem the OP Units by either (i) issuing common stock at the rate of one share of common stock for each OP Unit, or (ii) paying cash to a limited partner based on the average trading price of its common stock. Each OP Unit is allocated partnership income and cash flow at a rate equal to the dividend being paid by the Company on a share of common stock. Additional partnership income and cash flow is allocated 99% to the Company and 1% to the limited partners. This acquisition strategy is referred to as a "Down REIT" transaction; as long as certain tax attributes are maintained, the income tax consequences to a limited partner are generally deferred until such time as the limited partner redeems their OP Units. On December 17, 1996, the Company acquired a $3.6 million industrial property located in Modesto, California utilizing the Operating Partnership. The sellers of the property received 108,495 OP Units. A director of the Company was a 9% owner of the property, but did not participate in the approval of the acquisition. In March 1997, 13,446 OP Units were redeemed for cash. Note 4 - Leases Minimum future lease payments to be received as of December 31, 1997 are as follows (in thousands): 1998 $ 7,146 1999 5,819 2000 8,767 2001 8,023 2002 5,138 Thereafter 14,304 $49,197 The total minimum future lease payments shown above do not include tenants' obligations for reimbursement of operating expenses or taxes as provided by the terms of certain leases. Note 5 - Related Party Transactions Due to the Company's limited financial resources existing in prior years, its activities relating to the acquisition of new properties and debt and equity financings have been performed by Bedford Acquisitions, Inc. (BAI) pursuant to a written contract dated January 1, 1995. The contract provides that BAI is obligated to provide services to the Company with respect to the Company's acquisition and financing activities, and that BAI is responsible for the payment of its expenses incurred in connection therewith. The contract provides that BAI is to be paid a fee in an amount equal to the lesser of (i) 1 1/2% of the gross amount raised in financings or the aggregated purchase price of the property for acquisitions, or (ii) an amount equal to (a) the aggregate amount of expenses funded by BAI through the time of such acquisition or financing minus (b) the aggregate amount of fees previously paid to BAI pursuant to such arrangement. In no event will the aggregate amount of fees paid to BAI exceed the aggregate amount of costs funded by BAI. The agreement with BAI has a term of one year and is renewable at the option of the Company for additional one-year terms. The current agreement will expire on January 1, 1999. For 1997, 1996 and 1995, the Company paid BAI $3,156,000, $1,808,000 and $2,143,000, respectively for acquisition and financing activities performed pursuant to the foregoing arrangements. The Company believes that since the fees charged under the foregoing arrangements (i) have been and continue to be comparable to those charged by other sponsors of real estate investment entities or other third party service providers and (ii) have been and continue to be charged only for services on acquired properties or completed financings, such fees were and continue to be properly includable in direct acquisition costs and capitalized as part of the asset or financing activities. Note 6 - Stock Option Plans A total of 900,000 shares of the Company's Common Stock have been reserved for issuance under the Employee Stock Option Plan (the "Employee Plan"). The Employee Plan expires in 2003. The Employee Plan provides for non-qualified stock options and incentive stock options. The Employee Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms of options granted, including the exercise price, the number of shares subject to the option, and the exercisability of the options. Options granted to employees are exercisable upon vesting, and typically vest over a four-year period. The Employee Plan requires that the exercise price of incentive stock options be at least equal to the fair market value of such shares on the date of grant and that the exercise price of non-qualified stock options be equal to at least 85% of the fair market value of such shares on the date of the grant. The maximum term of options granted is ten years. Initially 250,000 shares of the Company's Common Stock were reserved for issuance under the Directors' Stock Option Plan (the "Directors' Plan"). On May 16, 1996 the shareholders approved an additional 250,000 shares. The Directors' Plan expires in 2002. The Directors' Plan provides for the grant of non-qualified stock options to directors of the Company. The Directors' Plan contains an automatic grant feature whereby a director receives a one-time "initial option" to purchase 25,000 shares upon a director's appointment to the Board of Directors and thereafter receives automatic annual grants of options to purchase 10,000 shares upon re-election to the Board of Directors. Options granted are generally exercisable six months from the date of grant. The Directors' Plan requires that the exercise price of options be equal to the fair market value of the underlying shares on the date of grant. The maximum term of options granted is ten years. In September 1995, the Company established a Management Stock Acquisition program. Under the program, options exercised by key members of management shortly after the grant date may be exercised either in cash or with a note payable to the Company. Such note bears interest at 7.5% or the Applicable Federal Rate as defined by the Internal Revenue Service, whichever is higher. The note is due in five years or within ninety days from termination of employment, with interest payable quarterly. During 1996 and 1995, options for 155,000 shares of Common Stock were exercised in exchange for notes payable to the Company. The notes bear interest at 7.5%. The unpaid balance of the notes is $1,466,000 and is included in the accompanying consolidated balance sheet as a reduction of additional paid-in capital. In addition, the Company may grant restricted stock to key employees. These shares generally vest over five years and are subject to forfeiture under certain conditions. In 1997, 42,500 shares were granted. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, compensation costs have not been recognized for either the Employee or Directors' Plan. Had compensation costs for the plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1997 1996 1995 Net income: As reported $31,291 $11,021 $2,895 Pro forma 31,045 10,831 2,821 Basic earnings per share: As reported $ 2.21 $ 1.21 $ 0.53 Pro forma 2.19 1.17 0.51 Earnings per share - assuming dilution: As reported $ 1.94 $ 1.14 $ 0.52 Pro forma 1.92 1.12 0.50 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield of 5.8%, 6.9% and 6.7%; expected volatility of 16.8%, 18.1% and 19.4%; risk-free interest rates of 5.7%, 6.3% and 5.3%; and expected lives of five years for each period. A summary of the status of the Company's plans as of December 31, 1997, 1996 and 1995 and changes during the years ended on those dates is presented below: 1997 1996 1995 Weighted Avg. Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price Employee Plan Outstanding at beginning of year 242,250 $12.94 93,750 $ 12.78 107,500 $ 13.04 Granted 483,000 18.25 267,000 13.00 86,000 11.50 Exercised (7,125) 13.37 (106,000) 12.96 (56,875) 11.14 Forfeited (29,375) 13.30 ( 12,500) 12.92 (42,875) 12.91 Outstanding at end of year 688,750 $16.64 242,250 $ 12.94 93,750 $ 12.78 Options exercisable 118,750 45,063 25,875 Weighted average fair value of options granted during the year $ 1.94 $ 1.37 $ 1.19 Directors' Plan Outstanding at beginning of year 295,000 $ 9.94 250,000 $ 8.28 175,000 $ 6.76 Granted 70,000 18.82 70,000 14.22 75,000 11.84 Exercised - - (25,000) 5.33 - - Outstanding at end of year 365,000 $11.65 295,000 $ 9.94 250,000 $ 8.28 Options exercisable 365,000 295,000 175,000 Weighted average fair value of options granted during the year $ 1.59 $ 1.06 $ 1.16
The following table summarizes information about stock options outstanding on December 31, 1997: Options Outstanding Options Exercisable Weighted Avg. Range of Number Remaining Weighted Avg. Number Weighted Avg. Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price Employee Plan $ 8.50 2,750 0.4 $ 8.50 2,750 $ 8.50 13.75 to 14.00 49,750 2.5 13.93 47,750 13.95 11.50 34,500 7.7 11.50 17,250 11.50 13.00 120,750 8.3 13.00 51,000 13.00 $ 17.63 to 20.75 481,000 9.3 18.25 - - $ 8.50 to 20.75 688,750 8.5 $16.64 118,750 $ 13.06 Directors' Plan $ 5.33 100,000 0.9 $ 5.33 100,000 $ 5.33 7.71 25,000 0.9 7.71 25,000 7.71 12.97 25,000 1.8 12.97 25,000 12.97 11.82 to 11.85 75,000 3.2 11.84 75,000 11.84 14.22 70,000 8.8 14.22 70,000 14.22 $ 18.82 70,000 9.8 $18.82 70,000 $ 18.82 $ 5.33 to 18.82 365,000 4.7 $11.65 365,000 $ 11.65
Note 7 - Bank Loan Payable In June 1997, the Company expanded its secured revolving credit facility with Bank of America from $100 million to $150 million, maturing on June 1, 2000. In September 1997, the credit facility was further expanded to $175 million. Under this facility, the Company can borrow up to $25 million on an unsecured basis. The secured loans bear interest at a floating rate equal to either the lender's published "reference rate" or LIBOR plus 1.50%. The interest rate of the unsecured loans is 25 basis points higher than that of the secured loans. The credit facility is secured by mortgages on 35 properties (which properties collectively accounted for approximately 49% of the Company's Annualized Base Rent and approximately 47% of the Company's total assets as of December 31, 1997), together with the rental proceeds from such properties. The credit facility contains various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of average Funds From Operations for the immediately preceding two fiscal quarters. The daily weighted average amount owed to the bank was $45,642,000 and $10,997,000 in 1997 and 1996, respectively. The weighted average interest rates in these periods were 7.42% and 8.03%, respectively. The effective interest rate at December 31, 1997 was 7.50%. Note 8 - Mortgage Loans Payable Mortgage loans payable at December 31, 1997 consist of the following (in thousands): Floating rate note due December 15, 1999, current rate of 8.75% $ 1,823 7.5% note due January 1, 2002 24,677 7.02% note due March 15, 2003 25,000 8.9% note due July 31, 2006 8,823 $ 60,323 The mortgage loans are collaterized by 17 properties (which Properties collectively accounted for approximately 26% of the Company's Annualized Base Rent and approximately 20% of the Company's total assets as of December 31, 1997). The following table presents scheduled principal payments on mortgage loans as of December 31, 1997 (in thousands): 1998 $ 838 1999 2,768 2000 1,048 2001 1,130 2002 23,681 Thereafter 30,858 $ 60,323 Note 9 - Redeemable Preferred Stock On September 18, 1995, the Company issued and sold 8,333,334 shares of Series A Convertible Preferred Stock (the "Convertible Preferred Stock") for $6.00 per share. Holders of the Convertible Preferred Stock were entitled to cumulative quarterly dividends in cash in an amount equal to the greater of (i) $0.135 per share or (ii) the dividends payable in such quarter on the Common Stock into which the Convertible Preferred Stock is convertible plus, in both cases, the accumulated but unpaid dividends on the Convertible Preferred Stock. Dividends may be declared and paid on shares of Common Stock only if full cumulative dividends have been paid or authorized and set apart on all shares of Convertible Preferred Stock. Each share of Convertible Preferred Stock was convertible at any time after September 18, 1997 into one-half share of Common Stock. On October 14, 1997, the 8,333,334 shares of the Series A Convertible Preferred Stock were converted to 4,166,667 shares of common stock. Note 10 - Sales of Common Stock The Company completed the sale of 3,350,000 shares of common stock at $13 per share in April 1996. In February 1997, the Company completed the sale of 4,600,000 shares of the common stock at $17 3/8 per share and in November 1997 sold an additional 7,245,000 shares of common stock at $19 5/8 per share. Net cash proceeds from each of these offerings was used to pay off the outstanding borrowings under the Company's credit facility. Note 11 - Earnings per Share Following is a reconciliation of earnings per share: Year Ended December 31, 1997 1996 1995 Basic: Net income $ 31,291 $ 11,021 $ 2,895 Less:Dividends on the Series A Convertible Preferred Stock (3,500) (4,500) (1,288) Distributions to Operating Partnership Unit Holders - (5) - Net income applicable to common stockholders 27,791 6,516 1,607 Weighted average number of shares 12,566,065 5,405,727 3,005,950 Basic earnings per share $ 2.21 $ 1.21 $ 0.53 Diluted: Weighted average number of shares (from above) 12,566,065 5,405,727 3,005,950 Weighted average shares issuable upon conversion of the Series A Convertible Preferred Stock1 3,264,840 4,166,667 - Weighted average shares of dilutive stock options using average period stock price under the treasury stock method 237,185 125,711 83,599 Weighted average shares issuable upon the conversion of operating partnership units2 98,364 4,447 - Weighted average number of common shares - assuming dilution 16,166,454 9,702,552 3,089,549 Earnings per share - assuming dilution $ 1.94 $ 1.14 $ 0.52
Per share amounts and number of shares have been adjusted to reflect the one-for-two reverse stock split effective March 29, 1996. 1Not applicable before 1995. The Series A Convertible Preferred Stock was issued in September 1995. 2Not applicable before 1996. The Operating Partnership Units were issued in December 1996. Note 12 - Quarterly Financial Data-Unaudited The following is a summary of quarterly results of operations for 1997 and 1996 (in thousands of dollars, except per share data): 1997 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $9,056 $10,627 $12,789 $13,905 Income from property operations 5,642 6,929 8,295 8,966 Income before gain on sales of real estate investments and minority interest 3,680 4,886 5,022 6,278 Net income $3,655 $ 4,860 $15,781 $ 6,995 Net income applicable to common stockholders1 $2,530 $ 3,735 $14,531 $ 6,995 Basic earnings per share3 $ 0.28 $ 0.34 $ 1.30 $ 0.37 Earnings per share - assuming dilution3 $ 0.27 $ 0.31 $ 1.01 $ 0.35 1996 Quarters Ended 3/31 6/30 9/30 12/31 Rental income $5,709 $ 6,369 $ 7,090 $ 8,373 Income from property operations 3,347 3,857 4,230 5,130 Income before gain on sales of real estate investments 1,953 2,621 2,932 3,109 Net income $1,953 $ 2,980 $ 2,932 $ 3,156 Net income applicable to common stockholders2 $ 828 $ 1,855 $ 1,807 $ 2,026 Basic earnings per share3 $ 0.27 $ 0.33 $ 0.28 $ 0.31 Earnings per share - assuming dilution3 $ 0.26 $ 0.30 $ 0.27 $ 0.29
1Reflects reduction for dividends and distributions of $1,125 each for the first and second quarter of 1997 and $1,250 for the third quarter of 1997. 2Reflects reduction for dividends and distributions of $1,130 for the fourth quarter of 1996 and $1,125 each for the first, second and third quarter of 1996. 3Reflects the one-for-two reverse stock split effective March 29, 1996. BEDFORD PROPERTY INVESTORS, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (in thousands of dollars) Initial Cost Cost Gross Amount to Company Capital- Carried at Close Accumu- Build- ized Sub- of Period Accumu- Deprec- ings & sequent to lated De- Date iable Improve- Acquisi- precia- Con- Date Life Land ment tion Land Building Total tion structed Acquired (Years) INDUSTRIAL PROPERTIES: Northern California Building #3 at Contra Costa Diablo Industrial Park, Concord $ 495 $ 1,159 $ 89 $ 495 $ 1,248 $ 1,743 $ 235 1983 12/90 45 Building #8 at Contra Costa Diablo Industrial Park, Concord 877 1,548 143 877 1,691 2,568 300 1981 12/90 45 Building #18 at Mason Industrial Park, Concord 610 1,265 60 610 1,325 1,935 237 1984 12/90 45 115 Mason Circle, Concord 697 854 36 697 890 1,587 27 1971 9/96 45 Auburn Court, Fremont 1,391 2,473 232 1,416 2,680 4,096 119 1983 12/95 45 47650 Westinghouse Drive, Fremont 267 893 60 271 949 1,220 42 1982 12/95 45 47600 Westinghouse Drive, Fremont 356 1,067 43 356 1,110 1,466 32 1982 9/96 45 47633 Westinghouse Drive, Fremont 1,051 3,239 142 1,051 3,381 4,432 92 1983 10/96 45 Fourier Avenue, Fremont 2,120 7,018 - 2,120 7,018 9,138 247 1982 5/96 45 Milpitas Town Center, Milpitas 1,400 4,421 86 1,400 4,507 5,907 339 1983 8/94 45 598 Gibraltar Drive, Milpitas 535 2,522 - 535 2,522 3,057 145 1996 5/96 45 Doherty Avenue, Modesto 464 3,178 266 470 3,438 3,908 76 1963-71 12/96 45 860-870 Napa Valley Corporate Way, Napa 933 3,515 219 933 3,734 4,667 107 1984 9/96 45 350 E. Plumeria Drive, San Jose 3,621 4,704 166 3,683 4,808 8,491 240 1983 9/95 45 Lundy Avenue, San Jose 2,055 2,184 190 2,055 2,374 4,429 78 1982 7/96 45 O'Toole Business Center, San Jose 3,934 5,748 204 3,934 5,952 9,886 131 1984 12/96 45 301 East Grand, South San Francisco 2,036 959 160 2,070 1,085 3,155 60 1974 12/95 45 342 Allerton, South San Francisco 2,516 1,542 324 2,558 1,824 4,382 81 1969 12/95 45 400 Grandview, South San Francisco 3,246 3,517 227 3,300 3,690 6,990 169 1976 12/95 45 410 Allerton, South San Francisco 1,333 889 40 1,356 906 2,262 41 1970 12/95 45 417 Eccles, South San Francisco 649 510 28 661 526 1,187 24 1964 12/95 45 6500 Kaiser Drive, Fremont 1,556 6,411 29 1,556 6,440 7,996 143 1990 1/97 45 Bedford Fremont Business Center, Fremont 3,598 9,004 97 3,598 9,101 12,699 176 1990 3/97 45 Spinnaker Court, Fremont 2,548 5,989 32 2,548 6,021 8,569 89 1986 5/97 45 2277 Pine View Way, Petaluma 1,861 7,074 2 1,861 7,076 8,937 92 1989 6/97 45 Mondavi Building, Napa 1,315 5,214 - 1,315 5,214 6,529 29 1985 9/97 45 Building #2 at Monterey Commerce Center, Monterey 611 1,833 - 611 1,833 2,444 3 1990 12/97 45 Building #3 at Monterey Commerce Center, Monterey 604 1,812 - 604 1,812 2,416 3 1990 12/97 45 Southern California Dupont Industrial Center, Ontario 3,588 6,162 185 3,588 6,347 9,935 579 1989 5/94 45 3002 Dow Business Center, Tustin 4,209 7,291 665 4,305 7,860 12,165 452 1987-89 12/95 45 Building #1 at Carroll Tech Center, San Diego 511 1,372 - 511 1,372 1,883 38 1984 10/96 45 Building #2 at Carroll Tech Center, San Diego 1,022 2,129 - 1,022 2,129 3,151 59 1984 10/96 45 Signal Systems Building, San Diego 2,228 7,264 - 2,228 7,264 9,492 161 1990 12/96 45 Building #1 at Oak Ridge Business Center, Vista 646 2,135 - 646 2,135 2,781 55 1990 10/96 45 Building #2 at Oak Ridge Business Center, Vista 566 1,832 - 566 1,832 2,398 47 1990 10/96 45 2230 Oak Ridge Way, Vista 684 2,191 - 684 2,191 2,875 13 1997 10/97 45 Denver Metropolitan Area Bryant Street Annex, Denver 487 866 105 495 963 1,458 40 1968 12/95 45 Bryant Street Quad, Denver 1,394 2,181 135 1,416 2,294 3,710 113 1971-73 12/95 45 Greater Phoenix Area, Arizona Westech Business Center, Phoenix 3,531 4,422 257 3,531 4,679 8,210 197 1985 4/96 45 2601 W. Broadway, Tempe 1,127 2,348 80 1,127 2,428 3,555 22 1977 7/97 45 Building #3 at Phoenix Airport Center, Phoenix 682 3,163 - 682 3,163 3,845 29 1990 7/97 45 Greater Portland Area, Oregon Twin Oaks Technology Center, Beaverton 1,444 4,836 438 1,469 5,249 6,718 305 1984 12/95 45 Twin Oaks Business Center, Beaverton 1,163 2,847 328 1,183 3,155 4,338 155 1984 12/95 45 Greater Kansas City Area Panorama Business Center, Kansas City 675 3,098 177 675 3,275 3,950 81 1984 12/96 45 Ninety-Ninth Street #3, Lenexa 360 2,167 179 360 2,346 2,706 361 1990 12/90 45 Ninety-Ninth Street #1, Lenexa 404 1,547 40 408 1,583 1,991 79 1988 9/95 45 Ninety-Ninth Street #2, Lenexa 180 555 14 183 566 749 28 1988 9/95 45 Lackman Business Center, Lenexa 619 1,631 182 628 1,804 2,432 106 1985 9/95 45 Continental Can, Lenexa 1,144 3,722 - 1,144 3,722 4,866 - 1972 12/97 45 Tucson, Arizona Butterfield Business Center, Tucson 909 4,230 1 909 4,231 5,140 16 1986 11/97 45 Dallas, Texas Ferrell Drive, Dallas 1,105 1,639 - 1,105 1,639 2,744 - 1984 12/97 45 SUBURBAN OFFICE PROPERTIES: Southern California Laguna Hills Square, Laguna 2,436 3,655 546 2,436 4,201 6,637 180 1983 3/96 45 Building #3 at Carroll Tech Center, San Diego 716 1,400 - 716 1,400 2,116 39 1984 10/96 45 Scripps Wateridge, San Diego 4,160 12,472 - 4,160 12,472 16,632 139 1990 6/97 45 Salt Lake City, Utah Woodlands II, Salt Lake City 359 5,805 686 359 6,491 6,850 757 1990 8/93 45 Kansas City, Kansas 6600 College Blvd., Overland Park 2,480 3,880 204 2,518 4,046 6,564 203 1982-83 10/95 45 Northern California Village Green, Lafayette 547 1,245 508 743 1,557 2,300 140 1983 7/94 45 100 View Street, Mountain View 1,020 3,144 254 1,020 3,398 4,418 121 1985 5/96 45 Canyon Park, San Ramon 1,933 3,098 - 1,933 3,098 5,031 6 1971-72 12/97 45 Building #1 at Monterey Commerce Center, Monterey 616 5,302 - 616 5,302 5,918 10 1990 12/97 45 Greater Seattle Area, Washington Kenyon Center, Bellevue 5,095 7,250 - 5,095 7,250 12,345 215 1987 9/96 45 Orillia Office Park, Renton 10,021 22,975 - 10,021 22,975 32,996 255 1986 7/97 45 Phoenix, Arizona Executive Center at Southbank, Phoenix 4,943 7,134 - 4,943 7,134 12,077 133 1989 3/97 45 Building #1 at Phoenix Airport Center, Phoenix 944 1,541 16 944 1,557 2,501 14 1990 7/97 45 Building #2 at Phoenix Airport Center, Phoenix 723 3,278 - 723 3,278 4,001 30 1990 7/97 45 Building #4 at Phoenix Airport Center, Phoenix 517 1,732 - 517 1,732 2,249 16 1990 7/97 45 Building #5 at Phoenix Airport Center, Phoenix 1,507 3,860 3 1,507 3,863 5,370 36 1990 7/97 45 Phoenix Airport Center Parking, Phoenix 1,450 - - 1,450 - 1,450 1 1990 7/97 45 Tucson, Arizona Troika Building, Tucson 1,332 2,631 35 1,332 2,666 3,998 34 1985 6/97 45 Reno, Nevada U.S. Bank Centre, Reno 2,102 10,264 175 2,102 10,439 12,541 154 1989 5/97 45 Austin, Texas 9737 Great Hills Trail, Austin 2,766 7,028 47 2,766 7,075 9,841 91 1984 5/97 45 Denver Metropolitan Area, Colorado Oracle Building, Denver 1,860 13,249 - 1,860 13,249 15,109 49 1996 10/97 45 INDUSTRIAL PROPERTIES UNDER DEVELOPMENT 99th Street Building #4, Lenexa, KS 519 - 2,762 519 2,762 3,281 13 N/A 6/96 45 Westech Business Center II, Phoenix, AZ 1,033 - 3,407 1,033 3,407 4,440 33 N/A 7/96 45 Westinghouse Land, Fremont, CA 1,624 - 2,629 1,624 2,629 4,253 - N/A 10/96 45 Bordeaux Centre, Napa, CA 1,151 - 5,102 1,151 5,102 6,253 23 N/A 12/96 45 LAND HELD FOR DEVELOPMENT Napa Lot 10A, Napa, CA 961 - 13 974 - 974 - N/A 12/96 Scripps Land, San Diego, CA 622 - - 622 - 622 - N/A 6/97 Oak Ridge Way Lot, Vista, CA 359 - - 359 - 359 - N/A 10/97 Oracle Land, Denver, CO 1,645 - - 1,645 - 1,645 - N/A 10/97 Butterfield Land, Tucson, AZ 102 - - 102 - 102 - N/A 11/97 Canyon Park Land, San Ramon, CA 778 - - 778 - 778 - N/A 12/97 Eaton Freeway Land, Tempe, AZ 1,232 - - 1,232 - 1,232 - N/A 12/97 $128,910 $281,113 $22,048 $129,606 $302,465 $432,071 $8,985 (A) (B)
NOTES TO SCHEDULE III (in thousands of dollars) (A) An analysis of the activity in real estate investments for the years ended December 31, 1997, 1996 and 1995 is presented below: Investment Accumulated Depreciation 1997 1996 1995 1997 1996 1995 BALANCE AT BEGINNING OF PERIOD $229,414 $131,183 $ 58,203 $4,913 $2,219 $3,150 Add (deduct): Acquisition of Lackman Business Center - - 2,250 - - - Acquisition of 350 E. Plumeria Drive - - 8,325 - - - Sale of Cody Street Park, Building 6 (C) - - (1,639) - - (203) Acquisition of Ninety-Ninth Street, Building 1 - - 1,951 - - - Acquisition of Ninety-Ninth Street, Building 2 - - 735 - - - Sale of IBM Building (D) - - (8,325) - - (2,024) Acquisition of 6600 College Boulevard - - 6,360 - - - Acquisition of 3002 Dow Business Center - - 11,500 - - - Acquisition of Landsing Pacific Portfolio - - 49,708 - - - Acquisition of Laguna Hills Square - 6,091 - - - - Acquisition of Westech Business Center - 7,953 - - - - Acquisition of 100 View Street - 4,164 - - - - Acquisition of Fourier Avenue - 9,138 - - - - Acquisition of 598 Gibraltar - 1,743 - - - - Acquisition of Lundy Avenue - 4,239 - - - - Acquisition of Kenyon Center - 12,345 - - - - Acquisition of 47600 Westinghouse Drive - 1,423 - - - - Acquisition of 860-870 Napa Valley Corp. Way - 4,448 - - - - Acquisition of 115 Mason Circle - 1,551 - - - - Acquisition of Oak Ridge Business Center - 5,179 - - - - Acquisition of Carroll Tech Center - 7,151 - - - - Acquisition of 47633 Westinghouse Drive - 4,290 - - - - Acquisition of Panorama Business Center - 3,774 - - - - Acquisition of Signal Systems Building - 9,492 - - - - Acquisition of O'Toole Business Center - 9,681 - - - - Acquisition of Doherty Avenue - 3,642 - - - - Acquisition of Westinghouse Land - 1,625 - - - - Acquisition of Napa Lot 10A - 961 - - - - Acquisition of Napa Lots 12J & K - 1,151 - - - - Acquisition of Lenexa Land - 518 - - - - Acquisition of Phoenix Land - 1,033 - - - - Sale of Woodland Land (E) - (614) - - - - Sale of St. Paul East (F) - (2,792) - - (45) - Sale of St. Paul West (F) - (3,839) - - (36) - Acquisition of 6500 Kaiser Drive 7,967 - - - - - Acquisition of Bedford Fremont Business Center 12,602 - - - - - Acquisition of Spinnaker Court 8,537 - - - - - Acquisition of 2277 Pine View Way 8,935 - - - - - Acquisition of Mondavi Building 6,529 - - - - - Acquisition of Building #2 at Monterey Commerce Center 2,444 - - - - - Acquisition of Building #3 at Monterey Commerce Center 2,416 - - - - - Acquisition of 2230 Oak Ridge Way 2,875 - - - - - Acquisition of 2601 W. Broadway 3,475 - - - - - Acquisition of Building #3 at Phoenix Airport Center 3,845 - - - - - Acquisition of Continental Can 4,866 - - - - - Acquisition of Butterfield Business Center 5,139 - - - - - Acquisition of Ferrell Drive 2,744 - - - - - Acquisition of Scripps Wateridge 16,632 - - - - - Acquisition of Canyon Park 5,031 - - - - - Acquisition of Building #1 at Monterey Commerce Center 5,918 - - - - - Acquisition of Orillia Office Park 32,996 - - - - - Acquisition of Executive Center At Southbank 12,077 - - - - - Acquisition of Building #1 at Phoenix Airport Center 2,485 - - - - - Acquisition of Building #2 at Phoenix Airport Center 4,001 - - - - - Acquisition of Building #4 at Phoenix Airport Center 2,249 - - - - - Acquisition of Building #5 at Phoenix Airport Center 5,367 - - - - - Acquisition of Phoenix Airport Center Parking 1,450 - - - - - Acquisition of Troika Building 3,963 - - - - - Acquisition of U.S. Bank Centre 12,366 - - - - - Acquisition of 9737 Great Hills Trail 9,794 - - - - - Acquisition of Oracle Building 15,109 - - - - - Acquisition of Scripps Land 622 - - - - - Acquisition of Oak Ridge Way Lot 359 - - - - - Acquisition of Oracle Land 1,645 - - - - - Acquisition of Butterfield Land 102 - - - - - Acquisition of Canyon Park Land 778 - - - - - Acquisition of Eaton Freeway Land 1,232 - - - - - Sale of 1000 Town Center Drive (G) (6,622) - - (780) - - Sale of Mariner Court (G) (7,864) - - (419) - - Sale of Academy Place Shopping Center (H) (6,281) - - (110) - - Capitalized costs 16,874 3,884 2,115 - - - Depreciation - - - 5,381 2,775 1,296 BALANCE AT END OF PERIOD $432,071 $229,414 $131,183 $8,985 $4,913 $2,219
(B) The aggregate cost for Federal income tax purposes is $296,993. (C) In the third quarter 1995, the Company decided to sell the Cody Street Park, Building 6. The property was sold on September 20, 1995. (D) During 1995, the Company continued to offer for sale the IBM Building located in Jackson, Mississippi. This property was first offered for sale in 1991, at which time the Company's investment in the property was written down by $2,113,000. The property sold on October 2, 1995. (E) The property was sold in April 1996. (F) The properties were sold in December 1996. (G) The properties were sold in July 1997. (H) The property was sold in October 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BEDFORD PROPERTY INVESTORS, INC. By: /s/ Peter B. Bedford Peter B. Bedford Chairman of the Board and Chief Executive Officer Dated: March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacity and on the date indicated. /s/ Peter B. Bedford March 27, 1998 Peter B. Bedford, Chairman of the Board and Chief Executive Officer /s/ Claude M. Ballard March 27, 1998 Claude M. Ballard, Director /s/ Anthony Downs March 27, 1998 Anthony Downs, Director /s/ Anthony M. Frank March 27, 1998 Anthony M. Frank, Director /s/ Martin I. Zankel March 27, 1998 Martin I. Zankel, Director /s/ Thomas H. Nolan, Jr. March 27, 1998 Thomas H. Nolan, Jr., Director /s/ Thomas G. Eastman March 27, 1998 Thomas G. Eastman, Director /s/ Scott R. Whitney March 27, 1998 Scott R. Whitney Senior Vice President and Chief Financial Officer /s/ Hanh Kihara March 27, 1998 Hanh Kihara, Vice President Controller Exhibit 12 Bedford Property Investors, Inc. Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends and Limited Partner Distributions (in thousands, except for ratio) Year Ended December 31, 1997 1996 1995 1994 1993 Net income $31,291 $ 11,021 $ 2,895 $3,609 $3,147 Fixed charges - interest and amortization of loan fees 7,918 4,347 1,594 955 716 Fixed charges - interest capitalized 627 - - - - Net income including fixed charges 39,836 15,368 4,489 4,564 3,863 Preferred dividends and limited partner distributions 3,608 4,505 1,288 - - Net income including fixed charges, preferred dividends and limited partner distributions $43,444 $19,873 $ 5,777 $4,564 $3,863 Ratio of earnings to fixed charges, including preferred dividends and limited partner distributions 3.57 2.25 2.00 4.78 5.40 Ratio of earnings to fixed charges, excluding preferred dividends and limited partner distributions 4.66 3.54 2.82 4.78 5.40
Exhibit 21.1 Subsidiaries of Bedford Property Investors, Inc. Name Under Subsidiary Which Subsidiary is Name State ofIncorporation doing Business 1. ICMPI (Concord Diablo 3), Inc. Delaware ICMPI (Concord Diablo 3), Inc. 2. ICMPI (Concord Diablo 8), Inc. Delaware ICMPI (Concord Diablo 8), Inc. 3. ICMPI (Concord Mason 18), Inc. Delaware ICMPI (Concord Mason 18), Inc. 4. ICMPI (Overland Park), Inc. Delaware ICMPI (Overland Park), Inc. 5. ICMPI (Lenexa), Inc. Delaware ICMPI (Lenexa), Inc. 6. ICMPI (Jackson), Inc. Delaware ICMPI (Jackson), Inc. Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Bedford Property Investors, Inc.: We consent to incorporation by reference in the registration statements on Form S-3 (No.'s 33-15233 and 333-23687) and the registration statement on Form S-8 (No. 333-18215) of Bedford Property Investors, Inc. of our report dated February 2, 1998, relating to the consolidated balance sheets of Bedford Property Investors, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and the related financial statement schedule as of December 31, 1997, which report appears in the December 31, 1997 annual report on Form 10-K of Bedford Property Investors, Inc. KPMG Peat Marwick LLP San Francisco, California March 27, 1998 EX-27 2
5 EXHIBIT 27 FINANCIAL DATA SCHEDULE (in thousands except per share amounts) 12-MOS DEC-31-1997 DEC-31-1997 $1,361 0 0 0 0 2,416 432,071 8,985 433,903 15,839 68,539 0 0 452 345,974 433,903 0 46,666 0 0 18,882 0 7,918 31,291 0 31,291 0 0 0 31,291 2.21 1.94
EX-10 3 EXHIBIT 10.15 PROMISSORY NOTE $20,900,000 Loan Nos.: 6-102-104 January 30, 1998 6-102-291 6-102-324 FOR VALUE RECEIVED, the undersigned, BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Maker"), having an address at 270 Lafayette Circle, Lafayette, California 94549, PROMISES TO PAY TO THE ORDER OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential"), a New Jersey corporation authorized to do business in the State of California (Prudential and its successors and assigns who become holders of this Amended and Restated Promissory Note (the "Note") are hereinafter collectively referred to as "Holder"), by electronic funds transfer to Prudential at Bank of New York, located in New York, New York, ABA Routing Number 021-000-018, Account No. 890-0304-766, referencing Loan Nos. 6-102-104, 6-102-291 and 6-102-234, or at such other place as Holder, may from time to time designate, the principal sum of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), together with interest on the amount advanced from the date funds are first disbursed hereunder until paid at a rate per annum equal to the Interest Rate (as hereinafter defined). For the first payment due under the Loan or any additional advance hereunder, interest shall be calculated on the basis of a 365-day year and the actual number of days in each month. Thereafter, interest shall be calculated on the basis of a 360-day year and 30-day month; except with respect to partial months in which case interest shall be calculated on the basis of the actual number of days in the year and the actual number of days elapsed in the period during which it accrues, in accordance with the terms and conditions set forth below. 1. Definitions. For the purpose of this Note, the following terms shall have the meanings set forth below; certain other terms are defined where they appear in this Note: (a) "Deeds of Trust" means, collectively, that certain (i) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements (Dupont Industrial Center, Ontario), dated as of March 20, 1996, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of San Bernardino County, California, (ii) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements (Tustin Business Park), dated as of March 20, 1996, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Orange County, California, (iii) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements (Woodlands II), dated as of March 20, 1996, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Salt Lake County, Utah, (iv) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements (Milpitas Town Center), dated as of May 24, 1996, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Santa Clara County, California, (v) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements (Nevada), dated as of May 9, 1997, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Washoe County, Nevada, (vi) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Maricopa County, Arizona (the "Arizona Deed of Trust"), (vii) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of Alameda County, California (the "Fremont Deed of Trust"), and (viii) Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Maker as "Trustor" to the benefit of Prudential as "Beneficiary" and recorded in the Official Records of San Mateo County, California (the "South San Francisco Deed of Trust"), in each case as the same have been modified, if at all, by those certain First Modifications of Deed of Trust and Other Loan Documents dated as of May 24, 1996, those certain First Modification of Deed of Trust and Other Loan Documents or Second Modifications of Deed of Trust and Other Loan Documents dated as of May 9, 1997 and those certain First Modification of Deed of Trust and Other Loan Documents, Second Modifications of Deed of Trust and other Loan Documents or Third Modifications of Deed of Trust and Other Loan Documents dated as of even date herewith. B. "Discount Rate" means the interest rate, which when compounded monthly, is equivalent to the Treasury Rate, when compounded semi-annually. C. "Interest Rate" means a rate of interest per annum of six and ninety-one hundredths percent (6.91%). D. "Loan Documents" means this Note, the Deeds of Trust, and all other documents, with the exception of each of the eight (8) documents entitled "Hazardous Substances Remediation and Indemnification Agreement" each executed by Maker in favor of Holder with respect to the land secured by the Deeds of Trust (collectively, the "Remediation and Indemnification Agreements") now or hereafter governing, securing or executed in connection with the indebtedness evidenced by this Note or any portion of such indebtedness. E. "Loan" means the loan evidenced by this Note. F. "Maturity Date" means July 31, 2006. G. "Prepayment Amount" means the amount of the Principal Balance prepaid on a Prepayment Date. H. "Prepayment Date" means any date, prior to the Maturity Date, upon which all or any portion of the Principal Balance is prepaid. I. "Prepayment Premium" shall have the meaning set forth in Paragraph 6(a) hereof. J. "Present Value of the Loan" means the present value, discounting from the Prepayment Date at the Discount Rate, of all payments of principal and interest which would have been payable on the Prepayment Amount from the Prepayment Date through and including the Maturity Date. K. "Principal Balance" means the outstanding principal balance of this Note from time to time outstanding. L. "Secondary Interest Rate" means a rate of interest equal to the greater of (i) eighteen percent (18%) per annum, or (ii) a per annum rate equal to five percent (5%) over the prime rate (for corporate loans at large United States money center commercial banks) published in the Wall Street Journal on the first business day of each month in which such default occurs or continues. M. "Treasury Rate" means the interest rate, conclusively determined by Holder on the Prepayment Date equal to the semi-annual yield on the Treasury Constant Maturity Series with maturity equal to the remaining weighted average life of the Loan for the week prior to the Prepayment Date, as reported in Federal Reserve Statistical Release H.15 - Selected Interest Rates ("Release H.15"). The rate will be determined by linear interpolation between the yields reported in Release H.15, if necessary. In the event Release H.15 is no longer published, Holder shall select a comparable publication to determine the Treasury Rate. 2 Payments. A. Commencing on the fifteenth (15th) day of March, 1998 and continuing on the fifteenth (15th) day of each calendar month thereafter through and including the fifteenth (15th) day of July, 2006, monthly installments of principal and interest in the amount of $146,519.08 shall be due and payable, with the entire unpaid Principal Balance plus accrued interest and other amounts payable under the Loan Documents being due and payable on the Maturity Date. B. In addition, on February 15, 1998 Maker shall pay to Holder an amount equal to all accrued interest, at the Interest Rate, on the Principal Balance for the period from the date of first disbursement of funds under the Loan through and including February 14, 1998. 3 Treatment of Payments. All payments due under this Note or the Loan Documents shall be paid by Maker in lawful money of the United States of America on the date such payment is due. All such payments shall be made without deduction for any present or future taxes, levies, imposts, deductions, charges or withholdings (including U.S., state or local income taxes), which amounts shall be paid by Maker. Payments from Maker to Holder under this Note shall be applied first to the payment of any expense reimbursements under the Loan Documents, any Per Diem Late Charges or Late Charges (each as hereinafter defined) and any Prepayment Premium due thereon, in such order as Holder shall determine, then to accrued and unpaid interest, with the remainder to be applied to the Principal Balance. 4 Per Diem Late Charges, Late Charges and Secondary Interest. A. If Maker fails timely to pay any sum due and payable under this Note on or before the date due, a late charge equal to Three Hundred Dollars ($300) per day (the "Per Diem Late Charge") shall be assessed for each day that such payment is not paid from and including the first day following the date such payment was due to and including the date upon which such payment is made; provided, however, that notwithstanding the foregoing, if such payment, together with all accrued Per Diem Late Charges, is not made on or before the fifteenth (15th) day following the date due, a late charge equal to four cents ($.04) for each dollar ($1.00) of each such late payment (the "Late Charge") shall be immediately due and payable. The Late Charge shall be in lieu of the Per Diem Late Charges that shall have accrued during the immediately preceding fifteen (15) day period. Maker acknowledges and agrees that its failure to make timely payments will result in Holder incurring additional expense in servicing the Loan, and that it is extremely difficult and impractical to ascertain the extent of such damages and that the Per Diem Late Charges and the Late Charge represent fair and reasonable estimates, considering all of the circumstances existing on the date of the execution of this Note, of the costs that Holder will incur by reason of such late payment. Holder agrees to comply with Section 2954.5 of the California Civil Code with respect to the giving of notice prior to imposing a Per Diem Late Charge or Late Charge, as such Section or any successor Section may now or hereafter be in effect. Acceptance of any Per Diem Late Charge or Late Charge shall not constitute a waiver of the default with respect to the late payment, and shall not prevent Holder from exercising any of the other rights or remedies available hereunder or at law or in equity. B. Maker further acknowledges and agrees that during the time that any payment of principal, interest or other amount due under this Note shall be delinquent, Holder will incur additional costs and expenses attributable to its loss of use of money due to and to the adverse impact on Holder's ability to meet its other obligations and avail itself of other opportunities. Maker agrees that it is extremely difficult and impractical to ascertain the extent of such expenses, and Maker therefore agrees that interest at the Secondary Interest Rate shall accrue on any delinquent payments of principal, interest or other amounts due under this Note or any Loan Document from the date such payments were due and for so long as non-payment continues, regardless of whether or not there has been an acceleration of the maturity of the indebtedness evidenced by this Note. 5 Event of Default and Secondary Interest. A. The occurrence of an "Event of Default" under any Loan Document shall constitute an Event of Default under this Note. Upon the occurrence of an Event of Default (including without limitation the failure of the Maker to observe the provisions of Paragraph 4.2 of each of the Deeds of Trust), Holder, at its option may cause the Principal Balance together with all unpaid accrued interest, any Prepayment Premium (as hereinafter defined) and any other sums evidenced or secured by this Note or any Loan Document, to be immediately due and payable, without further presentment, demand, protest or notice of any kind, by so notifying Maker in writing ("Acceleration Notice"). B. Maker agrees that from and after the delivery of an Acceleration Notice pursuant to Paragraph 5(a) hereof, interest at the Secondary Interest Rate shall accrue on the Principal Balance and all unpaid accrued interest and other sums evidenced or secured by this Note or any Loan Documents. 6 Prepayment. A. If for any reason the Principal Balance or any portion thereof is prepaid (whether by operation of law, acceleration or otherwise) on a date prior to the Maturity Date, Maker shall pay to Holder as liquidated damages, immediately upon demand, together with the related principal prepayment and any unpaid accrued interest, a prepayment charge (the "Prepayment Premium") equal to the greater of: (1) the product of (x) one percent (1%) of the Prepayment Amount multiplied by (y) a fraction, the numerator of which is the number of full months remaining until the Maturity Date as of the Prepayment Date and the denominator of which is the number of full months comprising the term of the Loan; or (2) the Present Value of the Loan less the sum of (x) the Prepayment Amount, and (y) unpaid accrued interest, if any. B. Maker shall have the right voluntarily to prepay all or any portion of the Principal Balance, together with accrued interest thereon, provided that Maker gives Holder not less than thirty (30) days prior written notice of its intention to prepay, and delivers to Holder, on or before the Prepayment Date, the Prepayment Premium as calculated above, together with the Prepayment Amount and all accrued interest and other sums due under the Loan Documents. C. Maker agrees that such Prepayment Premium represents the reasonable estimate of Holder and Maker of a fair average compensation for the loss that may be sustained by Holder due to the payment of any of the Principal Balance prior to the Maturity Date; and by initialing this provision in the space provided below, Maker hereby declares that Holder's agreement to enter into this transaction on the terms set forth in this Note and in the other Loan Documents constitutes adequate and valuable consideration, given individual weight by Maker for this agreement. Such Prepayment Premium shall be paid without prejudice to the right of Holder to collect any other amount provided to be paid hereunder. Holder shall not be obligated to actually reinvest the Prepayment Amount in any Treasury obligations as a condition to receiving the Prepayment Premium. INITIALS OF MAKER: /s/ S. W. D. Notwithstanding anything to the contrary contained in this Paragraph 6, Maker shall have a right to prepay in full the entire outstanding balance due under this Note on or after June 30, 2006 without payment of the Prepayment Premium. 7 Security. This Note is secured, among other security, by the Deeds of Trust and the other Loan Documents, which contain provisions for the acceleration of the maturity of this Note upon the occurrence of certain described events. 8 Holder's Rights; No Waiver by Holder. The rights, powers and remedies of Holder under this Note shall be in addition to all rights, powers and remedies given to Holder under the Loan Documents and any other agreement or document securing or evidencing the indebtedness evidenced hereby or by virtue of any statute or rule of law, including, but not limited to, the Arizona Uniform Commercial Code, the California Uniform Commercial Code, the Nevada Uniform Commercial Code and the Utah Uniform Commercial Code. All such rights, powers and remedies shall be cumulative and may be exercised successively or concurrently in Holder's sole discretion without impairing Holder's security interest, rights or available remedies. Any forbearance, failure or delay by Holder in exercising any right, power or remedy shall not preclude further exercise thereof, and every right, power or remedy of Holder shall continue in full force and effect until such right, power or remedy is specifically waived in a writing executed by Holder. Maker waives any right to require the Beneficiary (as defined in each of the Deeds of Trust) to proceed against any person or to pursue any remedy in Holder's power. 9 Maker's Waivers. A. Maker and any endorsers of this Note, and each of them, hereby waive diligence, demand, presentment for payment, notice of non-payment, protest and notice of protest, and specifically consent to and waive notice of any renewals or extensions of this Note, whether made to or in favor of Maker or any person or persons. Maker and any endorsers of this Note expressly waive all right to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, extension, redemption, or appraisement now or hereafter provided by the Constitution or the laws of the United States or of any state thereof, as a defense to any demand against Maker or any such endorsers, to the fullest extent permitted by law. B. Maker hereby waives any right to trial by jury with respect to any action or proceeding brought by Maker, Holder or any other person relating to (i) the indebtedness evidenced by this Note, or (ii) the Loan Documents. Maker hereby agrees that this Note constitutes a written consent to waiver of trial by jury pursuant to the provisions of California Code of Civil Procedure Section 631 and Maker does hereby constitute and appoint Holder its true and lawful attorney-in-fact, which appointment is coupled with an interest, and Maker does hereby authorize and empower Holder, in the name, place and stead of Maker, to file this Note with the clerk or judge of any court of competent jurisdiction as statutory written consent to waiver of trial by jury. C. Maker hereby expressly waives any right it may have under California Civil Code Section 2954.10 to prepay this Note, in whole or in part, without prepayment charge, upon acceleration of the Maturity Date of this Note, and agrees that if for any reason, a prepayment of any or all of this Note is made, whether voluntarily or upon or following any acceleration of the Maturity Date of this Note by the Holder, then Maker shall pay, concurrently therewith, a Prepayment Premium calculated pursuant to Paragraph 6 hereof. By initialling this provision in the space provided below, Maker hereby declares that Holder's agreement to make the Loan at the Interest Rate and for the term set forth in this Note constitutes adequate consideration, given individual weight by Maker, for this waiver and agreement. INITIALS OF MAKER: /s/ S. W. 10 Transfers by Holder. This Note or any interest in this Note and the Loan Documents may be hypothecated, transferred or assigned by Holder without the prior consent of Maker. 11 Amendment. This Note may be amended or modified only by an instrument in writing which by its express terms refers to this Note and which is duly executed by the party sought to be bound thereby. 12 Successors and Assigns. This Note shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. 13 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California. 14 Authority. Each individual executing this Note on behalf of a partnership, corporation or other entity states that he or she is duly authorized to execute and deliver this Note on behalf of said entity, in accordance with duly and regularly adopted existing authority and, if necessary, resolution of the governing body of such organization, and that this Note is binding upon said entity in accordance with its terms. 15 Time. Time is of the essence with respect to each and every term and provision of this Note. 16 Usury. Notwithstanding any provision herein, the total liability for payments in the nature of interest shall not exceed the applicable limits imposed by any applicable state or federal interest rate laws. If any payments in the nature of interest, additional interest, and other charges made hereunder are held to be in excess of the applicable limits imposed by any applicable state or federal laws, it is agreed that any such amount held to be in excess shall be considered payment of principal and the indebtedness evidenced thereby shall be reduced by such amount in the inverse order of maturity so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable limits imposed by any applicable state or federal interest rate laws in compliance with the desires of Holder and Maker. 17 Notices. All notices, consents and other communications required or permitted by this Note shall be in writing and shall be given in the manner set forth in the Deeds of Trust. 18 Attorneys' Fees. The undersigned agrees to pay all costs, including reasonable attorneys' fees and expenses, incurred by Holder in enforcing payment or collection of this Note or the terms of any Loan Document, whether or not suit is filed. 19 Limitation on Personal Liabilities. A. Except as expressly set forth in Paragraphs 19(b), (c) and/or (d) below, the recourse of Holder with respect to the obligations evidenced by this Note shall be solely to the Property (which for the purposes of this Note shall mean, collectively, the properties defined as the "Property" in each of the Deeds of Trust). B. Notwithstanding anything to the contrary contained in this Note or in any Loan Document, nothing shall be deemed in any way to impair, limit or prejudice the rights of Holder: (i) in foreclosure proceedings or in any ancil- lary proceedings brought to facilitate Hol- der's foreclosure on the Property or any portion thereof; (ii) to recover from Maker damages or costs (including without limitation reasonable attorneys' fees) incurred by Holder as a result of waste to the Property by Maker; (iii) to recover from Maker any condemnation or insurance proceeds attributable to the Property which were not paid to Holder or used to restore the Property in accordance with the terms of the Deeds of Trust; (iv) to recover from Maker any rents, profits, security deposits, advances, rebates, prepaid rents or other similar sums attributable to the Property collected by or for Maker following an Event of Default and not properly applied to the reasonable fixed and operating expenses of the Property, including payments of the Loan; (v) to pursue the personal liability of Maker under the provisions of paragraph 9.26 of each of the Deeds of Trust, including any indemnification provisions under said paragraph; (vi) to exercise any other specific rights or remedies afforded Holder under any provisions of the Loan Documents or at law or in equity (or to recover under any guarantee given in connection with the Loan); (vii) to recover from Maker the amount of any unpaid taxes, assessments, and/or utility charges affecting the Property and to collect from Maker any sums expended by Holder in fulfilling the obligations of Maker, as lessor, under any leases affecting the Property, which obligations accrued prior to Holder's (or Holder's nominee's) acquisition of title to the Property; provided, however, that the cost of any obligations of Maker as lessor under any such leases which have been expressly approved by Holder shall not be a recourse liability of Maker; (viii) to pursue any personal liability of Maker under the Remediation and Indemnification Agreements (as defined in the Deeds of Trust); (ix) to recover from Maker damages or costs incurred by Holder as a result of any non- willful misrepresentation by Maker in connection with the Property, the Loan Documents or the Loan Applications, or any other aspect of the Loan; and/or (x) to recover from Maker damages or costs incurred by Holder as a result of Maker's failure to obtain and maintain in effect all the insurance required in the Loan Documents. C. The agreement contained in this Paragraph 19 to limit the personal liability of Maker shall become null and void and of no further force or effect in the event: (i) that the Property or any part thereof or any interest therein shall be further encumbered by a voluntary lien securing any obligation upon which Maker shall be personally liable for repayment; (ii) of any breach or violation of paragraph 4.2 of any of the Deeds of Trust; (iii) of any intentional fraud or willful and material misrepresentation by Maker in connection with the Property, the Loan Documents or the Loan Applications; (iv) that the Property or any part thereof shall become an asset a voluntary bankruptcy or insolvency proceeding or (ii) an involuntary bankruptcy or insolvency proceeding which is not dismissed within ninety (90) days of filing; provided however, that this clause shall not apply if an involuntary bankruptcy is filed by Holder or if notwithstanding any such proceeding Maker maintains a senior long term unsecured debt rating of "BBB-" from Standard & Poor's Rating Group ("S&P") and another rating at least equivalent to S&P's rating of "BBB-" from one other nationally recognized agency; or (v) any property encumbered by the Deeds of Trust is determined to be "environmentally impaired" as such term is defined in Section 40.503 of the Nevada Revised Statutes, Section 726.5 of the California Code of Civil Procedure, Section 78-37-1.5 of the Utah Code Annotated or any other similar statute, law or provision applicable to any Property; provided, however, that Holder's recovery hereunder due to such environmental impairment shall be limited to the Allocable Loan Amount(s) (as defined in the Deeds of Trust) attributable to such Property(ies) which is so environmentally impaired. D. The agreement contained in this Paragraph 19 to limit the personal liability of Maker shall become null and void and of no further force or effect in the event of the execution, modification, amendment and/or termination of any leases for the occupancy of space in any portion of the Property which remains encumbered by any of the Deeds of Trust, without Holder's prior written approval if such approval is required under the terms of the Loan Documents (such leases being hereinafter referred to as "Unapproved Leases"), such that the net rentable area covered by Unapproved Leases exceeds twenty percent (20%), in the aggregate, of the total net rentable area of all of the Property which remains encumbered by the Deeds of Trust. IN WITNESS WHEREOF, Maker and Holder have caused this Promissory Note to be executed and delivered effective as of the date first written above. "MAKER": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney Senior Vice President [11128.AGRE]H61142 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (Arizona) THIS DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (this "Deed of Trust") dated as of January 30, 1998 is made by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation, having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Trustor"), First American Title Insurance Company, having offices at 1850 Mount Diablo Boulevard, Suite 300, Walnut Creek, California 94596 ("Trustee"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Beneficiary"). WITNESSETH: Trustor HEREBY IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO Trustee, IN TRUST, WITH POWER OF SALE, all of Trustor's right, title and interest now owned or hereafter acquired in and to the following property, together with the Personalty (as hereinafter defined), all of which is hereinafter collectively defined as the "Property": (i) that certain real property (the "Land") located in the County of Maricopa, State of Arizona, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference; (ii) all Improvements (as hereinafter defined) and all appurtenances, easements, rights and privileges thereof, including all minerals, oil, gas and other hydrocarbon substances thereon or therein, air rights, water rights and development rights, and any land lying in the streets, roads or avenues adjoining the Land or any part thereof; (iii) all Fixtures (as hereinafter defined), whether now or hereafter installed, being hereby declared to be for all purposes of this Deed of Trust a part of the Land; and (iv) the rents, issues and profits of or from the Land, Improvements and Fixtures. FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary may determine: (i) payment of the Indebtedness (as hereinafter defined), and (ii) payment (with interest as provided) and performance by Trustor of the Obligations (as hereinafter defined). Notwithstanding the foregoing, or any other term contained herein or in the Loan Documents, none of Trustor's obligations under or pursuant to the Remediation and Indemnification Agreements (as hereinafter defined) shall be secured by the lien of this Deed of Trust. ARTICLE 20 Definitions As used in this Deed of Trust the following terms shall have the following meanings; other terms are defined where they appear in this Deed of Trust: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by this Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Application: Collectively, the Application dated December 5, 1995, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application dated January 5, 1996, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application executed by Trustor (referred to as "Borrower" therein) on April 13, 1996, which Application includes the exhibits attached thereto, and the Application executed by Trustor (referred to as "Borrower" therein) on October 31, 1997, which Application includes the exhibits attached thereto. Closing Date: The date this Deed of Trust is recorded in the Official Records of Maricopa County, Arizona. Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the preceding twelve- month period for the Remaining Properties, to (b) the sum of (i) the annual debt service payments (including principal and interest) for the preceding twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Combined Deeds of Trust: Collectively, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Fremont Deed of Trust, and the South San Francisco Deed of Trust. Combined Loan to Value Ratio: The ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of all encumbrances against the Remaining Properties, to (ii) the fair market value of the Remaining Properties, as determined by Beneficiary. Combined Properties: Collectively, the Property, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Fremont Deed of Trust, and the properties encumbered by the South San Francisco Deed of Trust. Event of Default: As defined in Paragraph 6.1 hereof. Fixtures: All fixtures located upon or within the Improvements or now or hereafter installed in, or used in connection with any of the Improvements, including boilers, furnaces, pipes, plumbing, elevators, cleaning and sprinkler systems, fire extinguishing apparatus and equipment, water tanks, heating, ventilating, air conditioning and air cooling equipment, whether or not permanently affixed to the Land or the Improvements. Fremont Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. Future Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the immediately upcoming twelve-month period for the Remaining Properties (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) for the same twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Future Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the next upcoming twelve-month period (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the same twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Impositions: All real estate and personal property and other taxes and assessments, water and sewer rates and charges levied or assessed upon or with respect to the Property, and all other governmental charges and any interest or costs or penalties with respect thereto, ground rent and charges for any easement or agreement maintained for the benefit of the Property, general and special, ordinary and extraordinary, foreseen or unforeseen, of any kind and nature whatsoever that at any time prior to or after the execution of the Loan Documents may be assessed, levied, imposed, or become a lien upon the Property or the rent or income received therefrom, or any use or occupancy thereof; and any and all other charges, expenses, payments, claims, mechanics' or material suppliers' liens or assessments of any nature, if any, which are or may become a lien upon the Property or the rent or income received therefrom. Impound Account: The account that Trustor may be required to maintain pursuant to Paragraph 3.4 hereof for the deposit of amounts required to pay Impositions and insurance premiums. Improvements: All buildings and other improvements and appurtenances located on the Land, including surface improvements, such as parking areas and landscaping structures and all improvements, additions and replacements thereof, and other buildings and improvements, at any time hereafter constructed or placed upon the Land. Indebtedness: The principal of and all other amounts, payments and premiums due under the Note (and each and every of them) and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Trustor to Beneficiary and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the preceding twelve- month period, to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the preceding twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Individual Loan to Value Ratio: For each individual Combined Property, the ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of the Allocable Loan Amount for such Combined Property and all other encumbrances (other than the Loan) against such Combined Property, to (ii) the fair market value of such Combined Property, as determined by Beneficiary. Inventory: The personal property Inventory attached hereto as Exhibit C. Laws and Restrictions: All federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, Leases and other rental agreements, relating to the development, occupancy, ownership, management, use, and/or operation of the Property or otherwise affecting all or any part of the Property or Trustor. Leases: Any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property. Loan: The loans from Beneficiary to Trustor evidenced by the Note. Loan Documents: The Note, the Application, the Owner's Affidavit, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, the Nevada Deed of Trust, the Fremont Deed of Trust, the South San Francisco Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases, the Post-Closing Agreement, and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Loan Parties: Trustor. Material Adverse Change: Any material and adverse change in (i) the financial condition of any of the Loan Parties, or (ii) the condition or operation of the Property. Milpitas Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Net Operating Income: For any period, gross income from operations of the Remaining Properties, for the purposes of determining Combined Debt Service Coverage or Future Combined Debt Service Coverage, or from operations of an individual Combined Property, for the purposes of determining the Individual Debt Service Coverage or Future Individual Debt Service Coverage for such Combined Property, in either case, derived from arm's length, market rate rents from leases with unaffiliated third parties in possession of the leased premises and paying rent on a current basis, service fees or charges, and addi- tional rent resulting from operating expense, common area maintenance, utilities and tax escalation pass through provisions (excluding capital gains income derived from the sale of assets and other items of income which Beneficiary reasonably determines are unlikely to occur in any subsequent period), less operating expenses (such as cleaning, utilities, administrative, landscaping, security and common area maintenance expenses, common area association fees, repairs and maintenance and less fixed expenses (such as insurance, real estate and other taxes), which expenses shall be related to the property producing such gross income, shall be for services from arm's length third party transactions or equivalent to the same, and shall exclude all expenses for capital improvements and replacements, debt service and depreciation or amortization of capital expenditures and other similar noncash items. Operating expenses shall include not less than 4.0% of gross income for the property encumbered by the Woodlands Deed of Trust and not less than 3.5% of gross income for each of the other Combined Properties and shall include reserves for replacements of not less than $31,000 for the Property encumbered by the Tustin Deed of Trust and not less than $23,000 for each of the other Combined Properties. Real estate taxes shall be calculated based upon the greater of (i) the current tax bill plus the next subsequent year's escalations as permitted under applicable law, or (ii) the estimated market value of such Combined Properties (as determined by Beneficiary) at the time of any reconveyance described in Paragraph 9.36 of this Deed of Trust multiplied by the then current tax rate. Gross income shall not be anticipated for any greater period than that approved by generally accepted accounting principles, nor shall operating expenses be prepaid. Nevada Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Obligations: Any and all of the covenants, promises and other obligations (including, without limitation, the Indebtedness) made or owing by Trustor to or due to Beneficiary under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Trustor to each and every other Person relating to the Property. Ontario Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Owner's Affidavit: That certain Owner's Affidavit dated as of even date herewith, executed by Trustor in favor of Beneficiary. Permitted Exceptions: All of those matters described on Exhibit B attached hereto. Person: Any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. Personalty: Trustor's right, title and interest in all personal property (other than Fixtures) now or hereafter located in, upon or about or collected or used in connection with the Property, together with all present and future attachments, accessions, replacements, substitutions and additions thereto or therefor, and the cash and noncash proceeds thereof, including all property listed in the Inventory, the Impound Account, all goods, documents, instruments and chattel paper, all drawings, plans and specifications, all causes of action and recoveries now or hereafter existing for any loss or diminution in value of the Property, all licenses, governmental authorizations or permits pertaining to the Property or the development, ownership, management or operation thereof, all trademarks, service marks, designs, logos, trade names, names or similar identifications pertaining to the Property, and all accounts, contract rights and general intangibles (including, without limitation, any insurance proceeds and condemnation awards or compensation) arising out of or incident to the ownership, development or operation of the Property owned by or in which Trustor has an interest including, without limitation, all personal property described in the UCC-1 Financing Statement executed by Trustor of even date herewith, which is incorporated herein by this reference, and all furniture, furnishings, equipment, machinery, construction materials and supplies, leasehold interests in personal property and the Leases. Notwithstanding the foregoing, Personalty shall not include any proprietary computer software developed by Trustor for the interpretation, manipulation or presentation of the information comprising the books and records of Trustor. Post-Closing Agreement: That certain Post-Closing Actions Agreement dated as of even date herewith, executed by Trustor in favor of Beneficiary. Property: As defined in the above granting paragraph of this Deed of Trust. Receiver: Any trustee, receiver, custodian, fiscal agent, liquidator or similar officer. Remaining Properties: Collectively, each of the Combined Properties which remain encumbered by any of the Combined Deeds of Trust following the requested reconveyance of this Deed of Trust pursuant to Paragraph 9.36 of this Deed of Trust and following the prior or concurrent reconveyance of any of the other Combined Deeds of Trust pursuant to Paragraph 9.36 of any of the other Combined Deeds of Trust. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the Property. Rents: All rents, royalties, revenues, issues, profits, proceeds and other income from the Property. Secondary Interest Rate: As defined in the Note. South San Francisco Deed of Trust: That certain Deed of Trust dated as of this date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. Tustin Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. ARTICLE 21 Representations and Warranties Trustor hereby represents and warrants to Beneficiary and Trustee that as of the date of this Deed of Trust and as of the date of any subsequent disbursement pursuant to the Loan Documents: 21.1 Title, Authorization and Organization. Trustor (i) is the lawful owner of the Property and holds good and marketable title to the Property free and clear of all defects, liens, encumbrances, easements, exceptions and assessments, except the Permitted Exceptions; (ii) has good, right and lawful authority to grant the Property as provided in and by this Deed of Trust; (iii) has the requisite power and authority to own, develop and operate the Property; (iv) is duly organized, validly existing and in good standing under the laws of the State of its organization and is duly qualified to do business in the State in which the Land is located; and (v) is in compliance with all Laws and Restrictions applicable to it. 21.2 Validity of Loan Documents. The execution, delivery and performance by Trustor of the Loan Documents and the borrowings evidenced by the Note are within the power of Trustor, have been authorized by all requisite corporate or partnership authority and will not violate any Laws and Restrictions or any agreement or other instrument. Each of the Loan Documents when executed and delivered to Beneficiary, will constitute a legal, valid and binding obligation of Trustor enforceable in accordance with its terms. 21.3 Financial Statements. All financial statements and data that have been given to Beneficiary with respect to the Property or any Loan Party are true, accurate, complete and correct and except as expressly noted to the contrary therein, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby. There has been no Material Adverse Change since the date of the most recent financial statement given to Beneficiary. 21.4 Other Information. All reports, papers, data and information given to Beneficiary with respect to Loan Parties and the Property are accurate, correct and complete. 21.5 Litigation. There is not now pending against or affecting any Loan Party or the Property, nor to the best of Trustor's knowledge is there threatened any action, suit or proceeding at law or in equity or by or before any administrative agency that, if adversely determined, would materially impair or affect (i) the financial condition or operations of such Loan Party, or (ii) the condition, use or operation of the Property. 21.6 Additional Representations and Warranties. (i) The Property is not used principally or primarily for agricultural or grazing purposes; (ii) each Loan Party has filed all federal, state, county and municipal income tax returns required to have been filed by it and has paid all taxes that have become due pursuant to such returns or pursuant to any assessments received by it (and no Loan Party knows of any basis for any additional assessment against it in respect of such taxes); (iii) all costs for labor and materials for the construction of the Improvements have been paid in full other than ongoing work for leasehold improvements under Leases approved in writing by Beneficiary; (iv) Trustor is not aware of any assessment for public improvements which is pending and which could become a lien upon the Property; (v) no event has occurred which with the giving of notice or the passage of time, or both, would constitute an Event of Default under any of the Loan Documents; (vi) Trustor is not a party to any agreement or instrument materially and adversely affecting its present or proposed business conducted on the Property or the Property itself, financial or otherwise; (vii) Trustor is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions set forth in any such agreement or instrument to which it is a party to the extent that the same would have a material and adverse effect on the Property or Trustor's ability to timely perform its Obligations under the Loan Documents; (viii) all Fixtures are permanently affixed to the Improvements and Trustor has not executed any financing statement or security agreements covering the Fixtures, or any of them, and the costs of all Fixtures due as of the date hereof have been paid; (ix) neither the Property, nor any part thereof, has sustained, incurred or suffered any material damage or destruction; and (x) subject to the Permitted Exceptions, the Personalty is owned by Trustor, free and clear of any liens, encumbrances, mortgages, security interests, claims and rights of others. 21.7 Compliance with Laws. The Property and the proposed and actual use thereof comply with all Laws and Restrictions and the Laws and Restrictions contain no unsatisfied conditions necessary for the actual use of the Property as it is currently used. Trustor has received no notices of violations of any Laws and Restrictions. 21.8 Bankruptcy. No petition in bankruptcy, petition or answer seeking assignment for the benefit of creditors or appointment of a Receiver with respect to Trustor has occurred or is contemplated, and no reorganization, arrangement, liquidation or dissolution or similar relief under the Federal Bankruptcy laws or any state laws have been instituted by or against Trustor, and none is contemplated. ARTICLE 22 Affirmative Covenants Trustor hereby covenants and agrees as follows: 22.1 Obligations of Trustor. Trustor will (i) timely perform, or cause to be timely performed, all the Obligations; (ii) maintain and preserve the lien of this Deed of Trust; and (iii) forever warrant and defend its grant made herein against any and all claims and demands whatsoever. 22.2 Insurance. A. Trustor, at its sole cost and expense, will keep and maintain for the mutual benefit of Trustor and Beneficiary, the following policies of insurance: (1) Insurance against loss or damage to the Property by fire and other risks covered by insurance commonly known as the broad form of extended coverage, including losses sustained by reason of riot and civil commotion, vandalism, malicious mischief, burglary, theft and mysterious disappearance, flood (if the Property is located in a HUD designated special flood hazard area) and against such other risks or hazards as Beneficiary from time to time reasonably may designate, in an amount equal to one hundred percent (100%) of the then "full replacement cost" of the Improvements, the Fixtures and the Personalty, without deduction for physical depreciation. (2) Rental income insurance against loss of income in an amount not less than twelve (12) months rental and taxes and other operating expense reimbursements or payments at then-current income levels. (3) Commercial General Liability insurance including broad form property damage, contractual liability and personal injury or death coverage, with a combined single limit of at least $5,000,000. (4) "Builders Risk" insurance, during any material construction, repair, replacement, renovation or alteration of the Improvements, in such amounts as are reasonably approved by Beneficiary. (5) If applicable, boiler and machinery insurance covering boilers and other pressure vessels, the air conditioning system, high pressure piping and other machinery and equipment required for the operation of the Property. (6) Such other insurance, and in such amounts, as may from time to time be reasonably required by Beneficiary (but excluding earthquake insurance, unless earthquake insurance is required pursuant to the terms of any of the Leases). B. Trustor shall provide Beneficiary with satisfactory evidence of compliance with applicable requirements for Worker's Compensation insurance and of employee automobile coverage. C. All policies of insurance required by this Deed of Trust (i) shall be satisfactory in form and substance to Beneficiary and written with companies satisfactory to Beneficiary, (ii) shall name Beneficiary as an additional insured as its interests may appear, (iii) shall contain a Standard Lender's Loss Payable endorsement and other non-contributory standard mortgagee protection clauses acceptable to Beneficiary, and at Beneficiary's option, a waiver of subrogation rights by the insurer, (iv) shall contain an agreement by the insurer that such policy shall not be amended or canceled without at least thirty (30) days' prior written notice to Beneficiary, (v) shall be in the full replacement cost of the Improve- ments, without deduction for physical depreciation and (vi) shall contain such other provisions as Beneficiary deems reasonably necessary or desirable to protect its interests. Any policies containing a coinsurance clause shall include a replacement cost endorsement adequate to ensure that the coinsurance clause is rendered inoperative. D. In the event a blanket policy is submitted to satisfy Trustor's responsibilities under this Paragraph 3.2, in addition to such other requirements set forth herein, Trustor shall deliver to Beneficiary a certificate from such insurer indicating that Beneficiary is an insured under such policy and designating the amount of such insurance applicable to the Property. E. Trustor shall furnish evidence, satisfactory to Beneficiary, that (i) all insurance requirements (including, without limitation, provisions for waivers of subrogation) set forth in the Leases or any other agreements affecting the Property shall have been satisfied by each party thereto, and (ii) Trustor's insurance coverage is sufficient (assuming the total destruction of the Property) to permit Trustor to rebuild the Improvements (including basic tenant improvements) and to replace the Fixtures and Personalty in such manner as to enable the Property to be operable and rentable as it is currently rented and operated, and no tenant shall have the right to terminate its lease of any portion of the Property as a result of the failure of Trustor to rebuild above-standard tenant improvements. F. Self-insurance (other than the applicable deductibles approved by Beneficiary) shall not be employed to satisfy the requirements of this Paragraph 3.2. G. All of Trustor's right, title and interest in and to all policies of property insurance and any unearned premiums paid thereon are hereby assigned (to the fullest extent assignable) to Beneficiary who shall have the right, but not the obligation, to assign the same to any purchaser of the Property at any foreclosure sale. H. Not less than thirty (30) days prior to the expiration dates of any policy previously furnished pursuant to this Paragraph 3.2, Trustor shall provide Beneficiary with duplicate originals or certified copies of the renewal policies together with evidence satisfactory to Beneficiary of Trustor's payment of the applicable premiums. 22.3 Maintenance, Waste and Repair. Trustor will (i) maintain the Property in good order and condition, (ii) promptly make all necessary structural and non-structural repairs to the Property, (iii) not diminish or materially alter the Improvements, nor erect any new buildings, structures or building additions on the Property, without the prior written consent of Beneficiary, and (iv) not permit any waste of the Property or make any change in the use thereof, nor do or permit to be done thereon anything, that may in any way impair the security of this Deed of Trust. 22.4 Impositions; Impounds. Trustor will pay when due all Impositions. Upon an Event of Default, Trustor will pay monthly to Beneficiary an amount equal to one-twelfth (1/12th) of the annual cost of Impositions together with an amount equal to the estimated next hazard and other required insurance premiums. These funds will be held by Beneficiary (and may be commingled with other funds of Beneficiary) without interest and will be released to Trustor for payment of Impositions and insurance premiums, or directly applied to such costs by Beneficiary, as Beneficiary may elect. 22.5 Compliance with Law. Trustor will promptly and faithfully comply with all present and future Laws and Restrictions. 22.6 Books and Records. Trustor, without expense to Beneficiary, will maintain full and complete books of account and other records reflecting the results of the operations of the Property in accordance with generally accepted accounting principles consistently applied, and will furnish or cause to be furnished to Beneficiary such financial information concerning the condition of the Loan Parties and the Property as Beneficiary shall reasonably request. The following information will be furnished without request: A. As soon as available, and in any event within thirty (30) days after the close of each fiscal quarter of each fiscal year of Trustor, a statement of revenues and expenses relating to the rentals and operations of the Property for the applicable fiscal quarter just ended, certified by Trustor; B. As soon as available, and in any event within ninety (90) days after the end of each fiscal year of Trustor, an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary and a rent roll in the form delivered to Beneficiary in connection with the closing of the Loan certified by Trustor reflecting all the existing Leases; and C. As soon as available, and in any event within ninety (90) days after the end of Trustor's fiscal year, a balance sheet of Trustor, certified in a manner acceptable to Beneficiary. After the occurrence of an Event of Default, or in the event Trustor fails to deliver an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary within the time frame set forth in Paragraph 3.6.B, above, Beneficiary shall have the right, at all reasonable times and upon reasonable notice, to audit the books of account and records of any Loan Party, all of which shall be made available at Trustor's office during reasonable business hours to Beneficiary and Beneficiary's representatives for such purpose, from time to time. If such audit discloses a variance of three per- cent (3%) or more in income or expenses, the cost of such audit shall be paid by Trustor. 22.7 Further Assurances. Trustor, at any time upon the reasonable request of Beneficiary, will at Trustor's expense execute, acknowledge and deliver all such additional papers and instruments (including, without limitation, a declaration of no setoff) and all such further acts and things as may be reasonably necessary to carry out the purposes of the Loan Documents and to subject to the liens thereof any property intended by the terms thereof to be covered thereby and any renewals, additions, substitutions or replacements thereto. 22.8 Indemnity and Attorneys' Fees. Trustor will indemnify, defend, protect and hold Beneficiary harmless from any and all liability, loss, claims, damage, cost or expense (including, without limitation, reasonable attorneys' fees) that Beneficiary may or might incur hereunder, or in connection with the making or administering of the Loan, the enforcement of any of Beneficiary's rights or remedies hereunder or under the other Loan Documents, any action taken by Beneficiary hereunder or thereunder, whether or not suit is filed, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Beneficiary arising out of the Property, or any part thereof or interest therein, or as to which it becomes necessary to defend or uphold the lien of this Deed of Trust or other Loan Documents. Should Beneficiary incur any such liability, loss, claim, damage, cost or expense, the amount thereof with interest thereon at the Secondary Interest Rate shall be payable by Trustor immediately without demand, shall be secured by this Deed of Trust, and shall be part of the Indebtedness. 22.9 Litigation. Trustor will promptly give notice in writing to Beneficiary of any litigation which may reasonably be expected to result in a Material Adverse Change. 22.10 Inspection of Property. Trustor hereby grants to Beneficiary, its agents, employees, consultants and contractors, the right to enter upon the Property for the purpose of making any and all inspections, reports, tests (including, without limitation, soils borings, ground water testing, wells and/or soils analysis), inquiries and reviews as Beneficiary (in its sole and absolute discretion) may deem necessary to assess the then current condition of the Property; provided, however, that Beneficiary shall not conduct any such tests (including, without limitation, soil borings, ground water testing, wells and/or soils analysis) (i) unless Beneficiary becomes aware of, or reasonably suspects, an environmental event on or near the Property which could have a material adverse effect on any portion of the Property and Trustor refuses or fails to conduct such tests in a manner reasonably requested by Beneficiary, or (ii) until after the occurrence of an Event of Default under any of the Loan documents or the Remediation and Indemnification Agreements. Beneficiary shall provide Trustor with one (1) business day's notice of such entry; provided, however, that, subject to the preceding sentence, Trustor's consent shall not be required for such entry or for the performance of such tests. All costs, fees and expenses (including those of Benefi- ciary's legal counsel and consultants) incurred by Beneficiary with respect to such inspections, reports, tests, inquiries and reviews shall be paid by Trustor to Beneficiary upon demand, shall accrue interest at the Secondary Interest Rate until paid, and shall be secured by this Deed of Trust. Beneficiary shall make reasonable efforts in the exercise of its entry, inspection, and other rights under this Paragraph to avoid interference with the business operations of any tenant or licensee occupying space at the Property pursuant to Leases permitted by the Loan Documents, and, so long as no Event of Default has occurred, shall cooperate with Trustor in setting the time for such entry, inspections and tests. 22.11 Contest. Notwithstanding the provisions of Paragraphs 3.4 and 3.5 hereof, Trustor may, at its expense, contest the validity or application of any Impositions or Laws and Restrictions by appropriate legal proceedings promptly initiated and conducted in good faith and with due diligence, provided that (i) Beneficiary is reasonably satisfied that neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, or lost as a result of such contest, and (ii) Trustor shall have posted a bond or furnished such other security as may be reasonably required from time to time by Beneficiary. 22.12 Tax Receipts. Trustor will deliver to Beneficiary, within seven (7) days after the demand made therefor, bills showing the payment to the extent then due of all taxes, assessments (including, without limitation, those payable in periodic installments), and any Imposition that may have become a lien upon the Property or any part thereof. 22.13 Additional Information. Trustor will furnish to Beneficiary, within seven (7) days after written request therefor, any and all information that Beneficiary may reasonably request concerning the Property or the performance by Trustor of the Obligations. 22.14 Prepayment. Trustor may prepay the Loan only on the terms and conditions set forth in the Note and Trustor shall pay Beneficiary prepayment charges in respect of any prepayment, whether voluntary or involuntary, as required by and on the terms and conditions set forth in the Note. 22.15 FIRPTA Affidavit. In the event of any transfer by Trustor of its rights hereunder or of any interest in the Property otherwise permitted under this Deed of Trust, such transferee shall, as an additional condition to such transfer, under penalty of perjury, execute and deliver to Beneficiary an affidavit concerning the non- foreign status of such transferee substantially in the form required to be delivered by Trustor in connection with the funding of the Loan. Nothing in this Paragraph 3.15 shall be deemed a modification or waiver of any other provision of any of the Loan Documents limiting, prohibiting or otherwise relating to any transfer of any interest in the Property or Trustor. 22.16 Tax Service Contract. Throughout the term of the Loan, at Trustor's sole expense, Beneficiary shall be furnished tax service contracts issued by a tax reporting agency satisfactory to Beneficiary. 22.17 Reimbursement. Any amount paid by Beneficiary for any tax, stamp tax, assessment, water rate, sewer rate, insurance premium, repair, rent charge, debt, claim, inspection or lien having priority over this Deed of Trust or to in any way protect the security for the Loan, shall (i) bear interest at the Secondary Interest Rate from the date of payment by Beneficiary, (ii) constitute additional indebtedness secured by this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, (iii) be secured by this Deed of Trust, and (iv) be payable by Trustor to Beneficiary upon demand. 22.18 Plans and Specifications. Trustor agrees to keep at its offices at the Property, and to make available to Beneficiary during normal business hours, "As-Built Plans and Specifications", or, if unavailable, the final set of plans and specifications from which the Improvements were constructed ("As-Builts"), certified by a licensed architect or licensed contractor as true, correct and complete As-Builts for the Improvements. ARTICLE 23 Negative Covenants Trustor hereby covenants and agrees as follows: 23.1 Restrictive Uses. Trustor will not initiate, join in, or consent to any change in the current use of the Property or in any zoning ordinance, private restrictive covenant, assessment proceedings or other public or private restrictions limiting or restricting the uses that may be made of the Property or any part thereof without the prior written consent of Beneficiary. 23.2 Due on Sale or Encumbrance. A. Except as expressly otherwise provided in this Paragraph 4.2, in the event that Trustor, without the prior written consent of Beneficiary (which consent may be withheld for any reason or for no reason or given upon such terms and conditions as Beneficiary deems necessary or appropriate, all within Beneficiary's absolute discretion), shall sell, convey, assign, transfer, alienate or otherwise dispose of or be divested of its title to, or, shall mortgage, convey security title to, or otherwise encumber or cause to be encumbered, the Property or any part thereof or any interest therein in any manner or way, whether voluntary or involuntary, or in the event of (a) any merger, consolidation or dissolution involving, or the sale or transfer of all or substantially all of the assets of, Trustor or any general partner of Trustor, (b) the transfer (at one time or over any period of time) of ten percent (10%) or more of the voting stock of (i) a corporate Trustor or (ii) any corporate general partner of Trustor, (c) the transfer of any general partnership interest in Trustor or in any partnership which is a direct or indirect general partner of Trustor, or (d) the conversion of any such general partnership interest to a limited partnership interest, then the entire balance of the Indebtedness, plus the Prepayment Premium (as defined in the Note), shall become immediately due and payable at the option of Beneficiary. Trustor hereby covenants not to participate in, cause or permit any of the foregoing actions or events described in this Paragraph 4.2 without Beneficiary's prior written consent. Consent to one such transfer by Beneficiary shall not be deemed a waiver of the right to require such consent to further or future transfers. Any such transferee shall, as a condition of the effectiveness of any consent or waiver by Beneficiary hereunder, as a covenant of Trustor and such transferee, and in form and substance required by Beneficiary, assume all obligations under the Loan Documents and the assumption shall not, however, release Trustor, or any maker or guarantor of the Note, from any liability thereunder. This provision shall not apply to transfers of title or interest under any will or testament or applicable law of descent. B. Notwithstanding the foregoing, the provisions of this Paragraph 4.2 shall not apply to (i) the sale of stock on any recognized public stock exchange in the ordinary course of business, (ii) any merger or consolidation of Trustor where the surviving company has a Debt Ratio (as defined below) which does not exceed the Debt Ratio of Trustor as of the Closing Date, as shown by evidence reasonably satisfactory to Beneficiary, and (iii) a public tender offer by a Person unaffiliated with Trustor to purchase the stock of Trustor. Notwithstanding anything to the contrary contained herein, unless a change in the ownership of Trustor is the result of one or more of the acts described in the immediately preceding sentence (in which case the prior consent of Beneficiary is not required), Beneficiary's prior written consent shall be required in the event of a change in the ownership of Trustor (in a single transaction or cumulative transactions) such that in excess of 50% of Trustor's stock is owned or controlled by a sole shareholder or an affiliated group of shareholders ("Sale"). Notwithstanding the foregoing, a Sale shall specifically exclude: (a) the conversion ("Conversion") to common stock shares of some or all of the Series A convertible preferred stock of Trustor outstanding as of the Closing Date (the "Preferred Stock"), (b) any initial sale ("Initial Sale") of any of the Preferred Stock to a Person unaffiliated with Trustor which occurs either prior to and/or subsequent to any Conversion, and (c) any sale of any of the Preferred Stock subsequent to an Initial Sale of such Preferred Stock to a Person unaffiliated with Trustor which previously acquired some or all of the Preferred Stock in an Initial Sale. As used herein, "Debt Ratio" means the ratio of all indebtedness of Trustor and its subsidiaries to the sum of all assets of Trustor and it subsidiaries, before depreciation and less the sum of any intangible assets. 23.3 Replacement of Fixtures and Personalty. Trustor will not permit any of the Fixtures or Personalty to be removed at any time from the Property without the prior written consent of Beneficiary unless actually replaced by articles of equal suitability and value owned by Trustor free and clear of any lien or security interest. 23.4 No Cooperative or Condominium. Trustor shall not operate the Property or permit the Property to be operated, as a cooperative or condominium building or buildings in which the tenants or occupants participate in the ownership, control, or management of the Property or any part thereof, as tenant stockholders or otherwise. 23.5 Partnership Agreement. Trustor, if a partnership, will not terminate, alter, modify or amend or permit the termination, alteration, modification or amendment of its Partnership Agreement without Beneficiary's prior written consent. 23.6 Community Facilities District. Without obtaining the prior written consent of Beneficiary, Trustor shall not consent to, or vote in favor of, the inclusion of all or any part of the Property in any Community Facilities District formed pursuant to the Community Facilities District Act, A.R.S. Section 48-701, et seq., as amended from time to time. Trustor shall immediately give notice to Beneficiary of any notification or advice that Trustor may receive from any municipality or other third party of any intent or proposal to include all or any part of the Property in a Community Facilities District. Beneficiary shall have the right to file a written objection to the inclusion of all or any part of the Property in a Community Facilities District, either in its own name or in the name of Trustor, and to appear at, and participate in, any hearing with respect to the formation of any such district. ARTICLE 24 Casualties and Condemnation 24.1 Insurance and Condemnation Proceeds. A. Trustor will notify Beneficiary in writing promptly after loss or damage caused by fire or other casualty to all or any part of the Property resulting in damage in excess of $25,000 per occurrence, and prior to the making of any repairs thereto. Trustor will furnish to Beneficiary within sixty (60) days after such loss or damage (a) preliminary plans and specifications for the repair and reconstruction of the Property (the "Preliminary Plans and Specifications"); and (b) evidence satisfactory to Beneficiary (i) of the cost of repair or reconstruction in accordance with the Preliminary Plans and Specifications, (ii) that sufficient funds are available and/or committed for the benefit of Beneficiary, including insurance proceeds, funds provided by the Trustor, payment and performance bond, or otherwise, to complete such repair or reconstruction, and (iii) that such repair or reconstruction may be completed in accordance with all applicable Laws and Restrictions within the time frame described in Paragraph 5.1.C.(v) hereof and that all necessary permits and approvals have been or will be obtained. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under applicable law providing for the allocation of condemnation proceeds between a property owner and a lien holder. B. In the event of any insured loss in excess of Two Hundred Fifty Thousand Dollars ($250,000) or in the event an Event of Default, or an event which with the giving of notice or the passing of time or both constitutes an Event of Default, shall have occurred and be continuing, all insurance proceeds on account of any damage to the Property shall be payable to, and deposited with, Beneficiary. Beneficiary, at its sole option, may (i) apply such insurance proceeds in payment of the Indebtedness or in satisfaction of any other Obligation in such order as Beneficiary may determine, (ii) use such insurance proceeds to repair or reconstruct the Improvements, (iii) release such insurance proceeds to Trustor for repair or reconstruction of the Improvements in accordance with the procedures described in Paragraph 5.1.E hereof, or (iv) divide such proceeds in any manner among any such application, use or release. No such application, use or release shall, however, extend or postpone the due date of any installments under the Note or change the amount of such installments or cure or waive any Event of Default or notice of Event of Default under the Loan Documents or invalidate any act done pursuant to such notice. C. Notwithstanding the provisions of Para- graph 5.1.B hereof, if all or any part of the Property is damaged or destroyed or less than all of the Property is taken by any public or quasi-public authority through condemnation, eminent domain, deed in lieu thereof, or otherwise, Beneficiary shall make the net amount of all insurance proceeds and condemnation awards received by Beneficiary after deduction of Beneficiary's reasonable costs and expenses, if any, in collection of the same and costs associated with Beneficiary's review of the Preliminary Plans and Specifications and other costs associated with disbursement of such proceeds (the "Net Proceeds") available for the repair and reconstruction of the Property (or so much thereof as was not condemned) pursuant to the procedures described in Paragraph 5.1.E hereof, provided that (i) no Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred and shall be continuing, (ii) Trustor has complied with the provisions of Paragraph 5.1.A hereof and Beneficiary has approved the Preliminary Plans and Specifications, (iii) Trustor shall proceed with the reconstruction of the Property as nearly as possible to the condition it was in immediately prior to the occurrence of such casualty or taking (the "Occurrence") and in accordance with the Plans and Specifications as promptly as is practicable after the Occurrence, but in no event later than four (4) months after the Occurrence, (iv) Beneficiary shall be satisfied that such reconstruction can be completed no later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (v) Beneficiary shall be satisfied that the reconstruction can be completed at a cost which does not exceed the Net Proceeds, or, in the event the cost of such restoration exceeds the Net Proceeds, Trustor shall have satisfied the requirements set forth in Para- graph 5.1.F(i) hereof or Paragraph 5.1.F(ii) hereof, (vi) Beneficiary shall be satisfied that Trustor (whether with rental loss insurance proceeds or otherwise) will continue to be able to timely pay all payments as they become due on the Indebtedness during such period of repair and reconstruction, (vii) Trustor shall cause such reconstruction to be completed with due diligence as promptly as possible after commencement, but in no event later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (viii) Beneficiary determines that repair or reconstruction is economically feasible and that the Property can physically and legally be restored to at least its value as of the Closing Date, (ix) Trustor shall have entered into a guaran- teed maximum price general construction contract acceptable in all respects to Beneficiary for completion of the repair or reconstruction, which contract must include provision for a retainage of not less than ten percent (10%) until full completion of the repair or reconstruction, and (x) the insurer does not deny liability to any named insured. D. Beneficiary shall be entitled to settle and adjust all insurance claims, and Beneficiary may deduct and retain from the proceeds of any insurance the amount of all expenses incurred by Beneficiary in connection with any settlement or adjustment. Notwithstanding the foregoing, so long as no Event of Default or event which, with the giving of notice or the passage of time or both, would constitute an Event of Default shall have occurred and be continuing, Trustor may settle directly with the insurer any insurance claims involving an amount less than Two Hundred Fifty Thousand Dollars ($250,000) so long as (i) Trustor applies all insurance proceeds to reconstruction of the Property, (ii) Trustor promptly and diligently pursues the repairs to completion, and (iii) Trustor follows the provisions of Paragraph 5.1.A hereof. E. The Net Proceeds and any additional funds deposited by Trustor with Beneficiary shall constitute additional security for the Loan. Trustor shall execute, deliver, file and/or record, at its own expense, such documents and instruments as Beneficiary deems necessary or advisable to grant to Beneficiary a perfected, first priority security interest in the Net Proceeds and such additional funds. Provided that Trustor is otherwise entitled to receive the Net Proceeds pursuant to the terms and provisions of this Deed of Trust, Beneficiary or, at Beneficiary's option, a disbursing agent (the "Disbursing Agent") selected by Beneficiary (whose fees and expenses shall be paid by Trustor), shall pay the Net Proceeds to Trustor from time to time during the course of the restoration, subject to the following terms and conditions: (1) The work shall be administered and overseen by an architect or engineer approved by Beneficiary (the "Architect"). Complete copies of the plans and specifications for the work (the "Plans and Specifications"), approved by all governmental authorities whose approval is required, and bearing the signed approval thereof by the Architect and accompanied by the Architect's signed estimate, bearing the Architect's seal, of the entire cost of completing the work, shall be delivered to Beneficiary; (2) Each request for payment shall be made upon seven (7) day's prior written notice to Beneficiary or the Disbursing Agent and shall be accompanied by a certificate to be made by the Architect stating that (i) all of the work completed has been done in compliance with the Plans and Specifications, as approved by Beneficiary, (ii) the sum requested is justly required to reimburse Trustor for payments by Trustor to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services and materials for the work (giving a brief description of such services and materials) and, when added to all sums previously paid out by Beneficiary or the Disbursing Agent, does not exceed the value of the work done to the date of such certificate, and (iii) the amount of such proceeds remaining with Beneficiary are sufficient on completion of the work to pay for the same in full (giving in such reasonable detail as Beneficiary may require an estimate of the cost of such completion); (3) Each request shall be accompanied by waivers of lien satisfactory to Beneficiary and the Disbursing Agent covering that part of the work for which payment or reimbursement is being requested and, if required by Beneficiary or the Disbursing Agent, by a search prepared by a title company satisfactory to Beneficiary or the Disbursing Agent, that there has not been filed with respect to the Property any mechanics', materialmen's or other liens; (4) The request for any payment after the work has been completed shall be accompanied by a copy of any certificate or certificates required by any Laws and Restrictions for legal occupancy of the Improvements; (5) Trustor shall deliver to Beneficiary or the Disbursing Agent certified or photostatic copies of all permits and approvals required by any Laws and Restrictions in connection with the commencement and conduct of the work; and (6) Trustor shall deliver to Beneficiary or the Disbursing Agent a surety bond for and/or guaranty of the payment for and completion of the work, which bond or guaranty shall be in form and substance satisfactory to Beneficiary and in an amount no less than the Architect's estimate of the entire cost of completing the work. F. Notwithstanding anything to the contrary contained herein or in any of the insurance policies, all proceeds paid to Trustor under such policies shall immediately be delivered to Beneficiary. If the Net Proceeds exceed the costs of completion of the restoration of the Property, such excess proceeds shall belong and be retained by and/or paid over to Beneficiary to be applied against the Indebtedness. If at any time the Net Proceeds shall not, in Beneficiary's opinion, be sufficient to pay in full the balance of the costs which will be incurred in connection with the repair and reconstruction of the Property and all payments as they come due on the Indebtedness and all other obligations which are or may be secured by a lien on the Property during the reconstruction period, Trustor shall, prior to receiving any further disbursement, either (i) complete, using its own funds and not borrowed funds, such portion of the reconstruction as shall be sufficient to render the Net Proceeds sufficient to complete the reconstruction, or (ii) deposit the deficiency with Beneficiary before any further disbursement of the Net Proceeds shall be made, which deficiency deposit shall be held by Beneficiary in an interest bearing special account and shall be disbursed on the same conditions applicable to the Net Proceeds. Beneficiary shall remit to Trustor the balance, if any, of any such deficiency deposit remaining after completion of the reconstruction. 24.2 Additional Provisions Relating to Condemnation. Trustor, immediately upon obtaining knowledge of the commencement of any proceedings for the condemnation of the entire Property or any material part thereof, will notify Trustee and the Beneficiary of the pendency of such proceedings. Trustee and Beneficiary may participate in any such proceedings and Trustor from time to time will deliver to Beneficiary all instruments requested by Beneficiary to permit such participation. In the event of such condemnation proceedings, the award or compensation payable is hereby assigned to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to question the amount of any such award or compensation and may accept the same in the amount in which the same shall be paid. In any such condemnation proceedings Beneficiary may be represented by counsel selected by Beneficiary, the cost of such counsel to be borne by Trustor. The proceeds of any award or compensation so received shall, subject to Paragraph 5.1.C hereof as it relates to condemnation, and at the option of Beneficiary, either be applied to the prepayment of the Indebtedness or be paid over to the Trustor for restoration of the Improvements in accordance with the provisions of Paragraph 5.1.E hereof. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under applicable Arizona law providing for the allocation of condemnation proceeds between a property owner and a lien holder. ARTICLE 25 Events of Default and Remedies of Beneficiary 25.1 Events of Default. A. If one or more of the following events shall have occurred and be continuing: (1) Trustor shall fail to pay when due any part of the Indebtedness; (2) Trustor shall fail to timely observe, perform or discharge any Obligation contained in any of the Loan Documents, any agreement relating to the Property or any other loan documents with respect to the Property on its part to be performed or observed, other than as described in Paragraphs 6.1.A(1), (3), (4), (5), (6), (7) and (8), and any such failure shall remain unremedied for thirty (30) days or such lesser period as may be otherwise specified in the applicable Loan Document (the "Grace Period") after notice to Trustor of the occurrence of such failure; provided, however, that the Grace Period may be extended to ninety (90) days if: (a) Beneficiary determines in good faith that (i) such default cannot be cured within the Grace Period but can be cured within ninety (90) days, (ii) no lien or security interest created by the Loan Documents shall be impaired prior to the completion of such cure, and (iii) Beneficiary's immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Beneficiary's security interest therein, and (b) Trustor shall immediately commence and diligently pursue the cure of such default; (3) Trustor, as lessor or sublessor, as the case may be, shall assign the rents or income of the Property or any part thereof (other than to Beneficiary) without first obtaining the written consent of Beneficiary; (4) Any representation or warranty made by Trustor in, under or pursuant to the Loan Documents was false or misleading in any material respect as of the date on which such representation or warranty was made or deemed remade, and Trustor does not cause to be taken and completed within thirty (30) days following notice of such breach any and all action required to cause such representation or warranty to be true and correct in all respects as originally made; (5) (i) Any claim or lien shall be filed against the Property or any part thereof, whether or not such lien shall be prior to this Deed of Trust, which shall be maintained for a period of thirty (30) days without discharge, satisfaction or adequate bonding in accordance with the terms of this Deed of Trust; (ii) the existence of any interest in the Property other than the Permitted Exceptions, those of Trustor, Trustee, Beneficiary and any tenants in the Property; or (iii) the sale, hypothecation, conveyance or other disposition of the Property without the prior written consent of Beneficiary except as the result of the condemnation of a non-material part of the Property as set forth in Paragraph 5.1 above or as otherwise expressly permitted under the Loan Documents; (6) Any of the Loan Documents, at any time after their respective execution and delivery and for any reason, other than an act or omission of Beneficiary, shall cease to be in full force and effect or be declared null and void, or shall cease to constitute valid and subsisting liens and/or valid and perfected security interests in and to the Property, or Trustor shall contest or deny in writing that it has any further liability or obligation under any of the Loan Documents; (7) The failure of Trustor to observe the provisions of Paragraph 4.2 hereof; and/or (8) An "Event of Default" occurs under any one or more of the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Fremont Deed of Trust, the Nevada Deed of Trust and/or the South San Francisco Deed of Trust. THEN and in any such event Beneficiary may, by written notice delivered to Trustor, which notice specifically states the occurrence of an Event of Default, declare Trustor to be in default. Upon the occurrence of such event and the giving of such notice, the same shall constitute an event of default (an "Event of Default"). B. It shall constitute an Event of Default hereunder without the requirement of any notice if one or more of the following events shall have occurred and be continuing: (1) (i) The entry of an order for relief under Title 11 of the United States Code as to Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein or the adjudication of Trustor, any general partner of Trustor, or any owner of the Property as insolvent or bankrupt pursuant to the provisions of any state insolvency or bankruptcy act; (ii) the commencement by Trustor, any general partner of Trustor, or any parent company of such partner of any case, proceeding or other action seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors; (iii) consent to, acquiescence in or attempt to secure the appointment of any Receiver of all or any substantial part of its properties or of the Property by Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein; (iv) Trustor, any general partner of Trustor, or any parent company of such partner shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts or shall make a general assignment for the benefit of creditors; or (v) Trustor, any general partner of Trustor, or any parent company of such partner shall take any action to authorize any of the acts set forth above; or (2) Any case, proceeding or other action against Trustor, any general partner of Trustor, any parent company of such partner, or any owner of Property or any interest therein shall be commenced seeking to have an order for relief entered against such party as a debtor or seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors, or seeking the appointment of any Receiver for Trustor, any general partner thereof, or any parent company of such partner or for all or any substantial part of its property or the Property, and such case, proceeding or other action remains undismissed for an aggregate of sixty (60) days (whether or not consecutive) or Trustor or general partner or parent company during the period of its ownership fails to proceed diligently during such sixty (60) day period to have such proceeding or other action dismissed. C. Upon the occurrence of any Event of Default, Beneficiary may at any time declare all of the Indebtedness to be due and payable and the same shall thereupon become immediately due and payable, together with any prepayment fee due in accordance with the terms of the Note, without any further presentment, demand, protest or notice of any kind. Beneficiary may in its sole discretion, also do any of the following: (1) in person, by agent, or by a Receiver, and without regard to the adequacy of security, the solvency of Trustor or the condition of the Property, enter upon and take possession of the Property, or any part thereof, in its own name or in the name of Trustee and do any acts which Beneficiary deems necessary to preserve the value, marketability or rentability of the Property; sue for or otherwise collect the rents, issues and profits therefrom, including those past due and unpaid, and apply the same, less cost and expenses of operation and collection, including, without limitation, reasonable attorneys' fees, against the Indebtedness, all in such order as Beneficiary may determine. The entering upon and taking possession of said property, the collection of such rents, issues and profits and the application thereof as aforesaid shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice; (2) commence an action to foreclose this Deed of Trust in the manner provided under this Deed of Trust or by law; (3) with respect to any Personalty, proceed as to both the real and personal property in accordance with Beneficiary's rights and remedies in respect of the Land, or proceed to sell said Personalty separately and without regard to the Land in accordance with Beneficiary's rights and remedies as to personal property; and/or (4) deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause the Property to be sold, which notice Trustee or Beneficiary shall cause to be duly filed for record. 25.2 Power of Sale. A. Should Beneficiary elect to foreclose by exercise of the power of sale herein contained, Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of default having been given as then required by law, and after lapse of such time as may then be required by law, after recordation of such notice of default, Trustee, without demand on Trustor, shall, after notice of sale having been given as required by law, sell the Property at the time and place of sale fixed by it in said notice of sale, either as a whole or in separate parcels as Beneficiary shall determine, and in such order as Beneficiary may determine, at public auction to the highest bidder. Beneficiary may, in its sole discretion, designate the order in which the Property shall be offered for sale or sold through a single sale or through two or more successive sales, or in any other manner Beneficiary deems to be in its best interest. If Beneficiary elects more than one sale or other disposition of the Property, Beneficiary may at its option cause the same to be conducted simultaneously or successively, on the same day or at such different days or times and in such order as Beneficiary may deem to be in its best interest, and no such sale shall terminate or otherwise affect the lien of this Deed of Trust on any part of the Property not then sold until all Indebtedness secured hereby has been fully paid. If Beneficiary elects to dispose of the Property though more than one sale, Trustor shall pay the costs and expenses of each such sale of its interest in the Property and of any proceedings where the same may be made. Trustee may postpone sale of all or any part of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement, and without further notice make such sale at the time fixed by the last postponement; or Trustee may, in its discretion, give a new notice of sale. Beneficiary may rescind any such notice of default at any time before Trustee's sale by executing a notice of rescission and recording the same. The recordation of such notice shall constitute a cancellation of any prior declaration of default and demand for sale and of any acceleration of maturity of Indebted- ness affected by any prior declaration or notice of default. The exercise by Beneficiary of the right of rescission shall not constitute a waiver of any default then existing or subsequently occurring, or impair the right of Beneficiary to execute other declarations of default and demand for sale, or notices of default and of election to cause the Property to be sold, nor otherwise affect the Note or this Deed of Trust, or any of the rights, obligations or remedies of Beneficiary or Trustee hereunder or thereunder. After sale Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale. If allowed by law, Beneficiary, if it is the purchaser, may turn in the Note at the amount owing therein toward payment of the purchase price (or for endorsement of the purchase price as a payment on the Note if the amount owing thereon exceeds the purchase price). Trustor hereby expressly waives any right of redemption after sale that Trustor may have at the time of sale or that may apply to the sale. Trustor hereby expressly waives all rights of marshalling with respect to each of the Combined Properties that Trustor may have in the event of foreclosure hereunder or under any of the other Combined Deeds of Trust. B. Trustee, upon such sale, shall make (without any covenant or warranty, express or implied), execute and after due payment made, deliver to the purchaser, its heirs or assigns, a deed or other record of interest, as the case may be, in and to the property so sold that shall convey to the purchaser all the title and interest of Trustor in the Property (or part thereof sold), and shall apply the proceeds of such sale in payment, first, of the expenses of such sale together with the reasonable expenses of the trust, including, without limitation, attorneys' fees, that shall become due upon any default made by Trustor, and also such sums, if any, as Trustee or Beneficiary shall have paid for procuring a search of the title to the Property, or any part thereof, subsequent to the execution of this Deed of Trust; and in payment, second, of the Indebtedness then remaining unpaid, and the amount of all other monies with interest thereon agreed or provided to be paid by Trustor; and the balance or surplus of such proceeds of sale Trustee shall pay to Trustor, its successors or assigns as their interest may appear. C. The purchaser at the Trustee sale shall be entitled to immediate possession of the Property as against Trustee or any other persons in possession and shall have the right to summary proceedings to obtain possession provided in Title 12, Chapter 8, Article 4, Arizona Revised Statutes, or otherwise, together with costs and reasonable attorneys fees. Each provision of applicable law relating to this Deed of Trust is and shall remain applicable to the respective rights and obligations of Trustor, Beneficiary and Trustee and no term or provision hereof shall limit or restrict such rights or obligations. The omission of any express provision restating the applicable law herein shall not constitute or render the same inapplicable or waive the same. All provisions of law relating to this Deed of Trust are incorporated by reference herein. To the extent permitted by law, an action may be maintained by Beneficiary to recover a deficiency judgment for any balance due hereunder. In lieu of sale pursuant to the power of sale conferred hereby, this Deed of Trust may be foreclosed in the same manner provided by law for the foreclosure of mortgages on real property and Beneficiary shall have all rights and remedies available to it pursuant to such laws. D. Acknowledgement of Due Process. TRUSTOR UPON EXECUTION AND DELIVERY OF THIS DEED OF TRUST WAS INFORMED THAT CERTAIN PARAGRAPHS HEREOF GRANT A POWER OF SALE AND PROVIDE FOR SUMMARY FORECLOSURE PROCEEDING AT THE ELECTION OF BENEFICIARY UPON AN EVENT OF DEFAULT. AS A CONDITION PRECEDENT TO OBTAINING THE LOAN AND IN CONSIDERATION THEREOF, TRUSTOR SPECIFICALLY ACKNOWLEDGES THAT SUCH PROCEEDING MAY NOT GRANT THE RIGHT TO NOTICE AND OPPORTUNITY TO BE HEARD IN ANY JUDICIAL PROCEEDING IN A COURT HAVING JURISDICTION OF THE PARTIES AND THE SUBJECT MATTERS PRIOR TO THE COMMENCEMENT OF SUCH PROCEEDINGS AND OF THE POWER OF SALE HEREIN GRANTED. TRUSTOR REPRESENTS AND WARRANTS THAT IT IS AN ENTITY SOPHISTICATED IN THE FINANCING OF COMMERCIAL PROPERTIES OF THE NATURE CONSTITUTING THE PROPERTY AND HAS BEEN FULLY REPRESENTED BY COUNSEL IN THIS MATTER AND HAS BEEN ADVISED OF THE TERMS AND CONDITIONS OF THIS DEED OF TRUST AND THE SPECIFIC PROVISIONS OF THIS DEED OF TRUST AS DESCRIBED ABOVE. E. In any case in which, under the provisions of this Deed of Trust, Beneficiary has a right to institute a trustee's sale or foreclosure proceedings, whether before or after the whole Indebtedness is declared to be immediately due as aforesaid, or whether before or after the institution of legal proceedings to foreclose the lien hereof or before or after sale thereunder, forthwith upon demand of Beneficiary, Trustor shall surrender to Beneficiary and Beneficiary shall be entitled to take actual possession of the Property or any part thereof personally, or by its agents or attorneys, as for condition broken, and Beneficiary in its discretion may, with or without force and with or without process of law, enter upon and take and maintain possession of all or any part of the Property, together with all documents, books, records, papers and accounts of Trustor or then owners of the Property relating thereto, and may exclude Trustor, its agents or servants, wholly therefrom and may, as attorney-in-fact or agent of Trustor, or in its own name as Beneficiary and under the powers herein granted, hold, operate, manage and control the Property and conduct the business, if any, thereof, either personally or by its agents, and with full power to use such measures, legal or equitable, as in its discretion or in the discretion of its successors or assigns may be deemed proper or necessary to enforce the payment of security of the avails, rents, issues and profits of the Property, including actions for the recovery of rent, actions in forcible detainer and actions in distress for rent, if an available remedy, hereby granting full power and authority to exercise each and every of the rights, privileges and powers herein granted at any and all times hereafter, without notice to Trustor, and with full power to cancel or terminate any lease or sublease for any cause or on any ground which would entitle Trustor to cancel the same, to elect to disaffirm any lease or sublease made subsequent to this Deed of Trust or subordinated to the lien hereof, to make all necessary or proper repairs, betterments and improvements to the Property as to it may seem judicious, insure and reinsure the same and all risks incidental to Beneficiary's possession, operation and management thereof and to receive all of such avails, rents, issues and profits. Beneficiary shall not be obligated to perform or discharge, nor does it hereby undertake to perform or discharge, any obligation, duty or liability under any leases and Trustor shall and does hereby agree to indemnify and hold Beneficiary harmless of and from any and all liability, loss or damage which it may or might incur under said leases or under or by reason of the assignment thereof and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants or agreements contained in said leases. Should Beneficiary incur any such liability, loss or damage under said leases or under or by reason of the assignment thereof, or in the defense of any claims or demands, the amount thereof, including costs, expenses and reasonable attorneys' fees shall be secured hereby, and Trustor shall reimburse Beneficiary therefor immediately upon demand. Trustor shall have no obligation to indemnify Beneficiary as to any claim or demand arising from the gross negligence or willful misconduct of Beneficiary or any employee, agent, representative or contractor of Beneficiary. F. Beneficiary, in the exercise of the rights and powers hereinabove conferred upon it by Paragraphs 6.2.E and 8.1 hereof, shall have full power to use and apply the avails, rents, issues and profits of the Property to the payment of or on account of the following, in such order as Beneficiary may determine: (1) to the payment of the reasonable operating expenses of said Property, including cost of management and leasing thereof (which shall include reasonable compensation to Beneficiary's agent or agents, if management be delegated to an agent or agents, and shall also include lease commissions and other compensation and expenses of seeking and procuring tenants and entering into leases), established claims for damages, if any, and premiums on insurance hereinabove authorized; (2) to the payment of taxes and special assessments now due or which may hereafter become due on said Property; (3) to the payment of all repairs, decorating, renewals, replacements, alterations, additions, betterments and improvements reasonably necessary for the continued operation of said Property, including the cost from time to time of installing or replacing refrigeration and gas or electric heating therein, and of placing said property in such condition as will, in the judgment of Beneficiary, make it readily rentable; (4) to the payment of any Indebtedness or any deficiency which may result from any foreclosure sale; and (5) the remainder to be paid to Trustor or as may be required by law. 25.3 Proof of Default. In the event of a sale of the Property, or any part thereof, and the execution of a deed therefor, the recital therein of default, and of recording notice of default and election of sale, and of the elapsing of the required time (if any) between the foregoing recording and the following notice, and of the giving of notice of sale, and of a demand by Beneficiary, or its successors or assigns, that such sale should be made, shall be conclusive proof of such default, recording, election, elapsing of time, and of the due giving of such notice, and that the sale was regularly and validly made on due and proper demand by Beneficiary, its successors or assigns. Any such deed or deeds with such recitals therein shall be effective and conclusive against Trustor, its successors and assigns, and all other Persons. The receipt for the purchase money recited or contained in any deed executed to the purchaser as aforesaid shall be sufficient to discharge such purchaser from all obligations to see to the proper application of the purchase money. 25.4 Protection of Security. If an Event of Default shall have occurred and be continuing, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligations or defaults hereunder, may: (i) perform any act in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary and Trustee being authorized to enter upon the Property for such purpose; (ii) appear in and defend any action or proceeding purporting to affect, in any manner whatsoever, the obligations or the Indebtedness, the security hereof or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase or compromise any encumbrance, charge or lien that in the judgment of Beneficiary or Trustee is prior or superior hereto; and (iv) in exercising any such powers, pay necessary expenses, employ counsel and pay reasonable attorneys' fees. Trustor agrees that all sums expended by Trustee or Beneficiary pursuant to this paragraph, together with interest at the Secondary Interest Rate from the date of expenditure by Beneficiary, shall be added to the principal amount of the Indebtedness secured by the Loan Documents and this Deed of Trust and shall be payable by Trustor to Beneficiary upon demand. 25.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of strict right and without notice to Trustor or anyone claiming under Trustor, and without regard to the then value of the Property, shall have the right to apply ex parte to any court having jurisdiction to appoint a Receiver to enter upon and take possession of the Property, and Trustor hereby waives notice of any application therefor, provided a hearing to confirm such appointment with notice to Trustor is set within the time required by law. Any such Receiver shall have all the powers and duties of Receivers in like or similar cases and all the powers and duties of Beneficiary in case of entry as provided in this Deed of Trust, and shall continue as such and exercise all such powers until the date of confirmation of sale, unless such receivership is sooner terminated. Beneficiary's right to a Receiver as set forth in this Paragraph 6.5, shall be absolute and unconditional once an Event of Default occurs and said Receiver may be obtained in any judicial foreclosure, suit for specific performance or in any other law suit to enforce this Deed of Trust in any manner or in any other independent and/or separate action brought by Beneficiary regardless of whether Beneficiary seeks any relief in such action other than the appointment of a receiver and in that respect, Trustor waivers any express or implied requirement under common law or A.R.S. Section 12.1241 that a receiver may be appointed only ancillary to other judicial or non- judicial relief. This right is created by this Deed of Trust and is a contractual right between the parties and is cumulative of and shall not affect in any way the right of Beneficiary given by law for the appointment of a Receiver. It is agreed that time is of the essence in the performance of this Deed of Trust. 25.6 Remedies Cumulative. All remedies of Beneficiary provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the other Loan Documents or by law, including, without limitation, any right of offset. The exercise of any right or remedy by Beneficiary hereunder shall not in any way constitute a cure or waiver of default hereunder or under the Loan Documents, or invalidate any act done pursuant to any notice of default, or prejudice Beneficiary in the exercise of any of its rights hereunder or under the Loan Documents. The entering upon or taking possession of the Property, collections of the Rents and Proceeds and the application thereof as permitted in this Deed of trust shall not cure or waive any Event of Default or notice of Trustee's sale or invalidate any act done pursuant to such notice. Beneficiary shall have all of the rights provided for in Arizona Revised Statutes Sections 33-702B and 33-807, or otherwise. 25.7 Curing of Defaults. If Trustor shall at any time fail to perform or comply with any of the terms, covenants and conditions required on Trustor's part to be performed and complied with under this Deed of Trust, any of the other Loan Documents or any other agreement that, under the terms of this Deed of Trust, Trustor is required to perform, then Beneficiary, and without waiving or releasing Trustor from any of the Obligations, may, in its sole discretion: (i) make any payments thereunder payable by Trustor and take out, pay for and maintain any of the insurance policies provided for therein; and/or (ii) after the expiration of any applicable grace period and subject to Trustor's rights to contest certain obligations specifically granted hereby, perform any such other acts thereunder on the part of Trustor to be performed and enter upon the Property for such purpose. All sums so paid out of Beneficiary's own funds and all reasonable costs and expenses incurred and paid by Beneficiary in connection with the performance of any such act, together with interest on unpaid balances thereof at the Secondary Interest Rate from the respective dates of Beneficiary's making of each such payment, shall be added to the principal of the Indebtedness, shall be secured by the Loan Documents and by the lien of this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, and shall be payable by Trustor to Beneficiary on demand. ARTICLE 26 Security Agreement and Fixture Filing 26.1 Grant of Security Interest. Trustor hereby grants to Beneficiary a security interest in and to all Trustor's right, title and interest now owned or hereafter acquired in and to the Personalty and the Fixtures (collectively, the "Collateral"), to secure the payment and performance of the Obligations. 26.2 Remedies. This Deed of Trust constitutes a security agreement with respect to the Collateral in which Beneficiary is hereby granted a security interest. In addition to the rights and remedies provided under this Deed of Trust, Beneficiary shall have all of the rights and remedies of a secured party under the Arizona Uniform Commercial Code (the "Commercial Code") as well as all other rights and remedies available at law or in equity. Trustor hereby agrees to execute and deliver on demand and irrevocably constitutes and appoints Beneficiary the attorney-in-fact of Trustor to, at Trustor's expense, execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements, continuation statements or other instruments as Beneficiary may request or require in order to impose, perfect or continue the perfection of the lien or security interest created hereby. Upon the occurrence of any Event of Default, Beneficiary shall have (i) the right to cause any of the Collateral which is personal property to be sold at any one or more public or private sales as permitted by applicable law and to apply the proceeds thereof to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, and (ii) the right to apply to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, any Collateral which is cash, negotiable documents or chattel paper. Any such disposition may be conducted by an employee or agent of Beneficiary or Trustee. Any Person, including, without limitation, both Trustor and Beneficiary, shall be eligible to purchase any part or all of such Personalty at any such disposition. 26.3 Expenses. Expenses of retaking, holding, preparing for sale, selling or the like pertaining to the Collateral shall be borne by Trustor and shall include Beneficiary's and Trustee's reasonable attorneys' fees and legal expenses. Trustor, upon demand of Beneficiary shall assemble the Collateral and make it available to Beneficiary at the Property, a place which is hereby deemed to be reasonably convenient to Beneficiary and Trustor. Beneficiary shall give Trustor at least ten (10) days' prior written notice of the time and place of any public sale or other disposition of the Collateral or of the time after which any private sale or any other intended disposition is to be made. Any such notice sent to Trustor in the manner provided for the mailing of notices herein is hereby deemed to be reasonable notice to Trustor. 26.4 Fixture Filing. This Deed of Trust covers certain goods which are or are to become fixtures related to the Land and constitutes a financing statement, filed as a fixture filing in the official records of the county recorder of the county in which the Property is located, executed by Trustor as debtor in favor of Beneficiary as secured party. For purposes of the Commercial Code the following information is supplied: (a) Name and Address of Debtor: Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, California 94549 Attention: Mr. Scott Whitney (b) Name and Address of Record Owner of Real Estate: Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, California 94549 Attention: Mr. Scott Whitney (c) Description of Real Estate: See Exhibit A attached hereto. (d) Name and Address of Secured Party: The Prudential Insurance Company of America Four Embarcadero Center, Suite 2700 San Francisco, California 94111 Attention: Regional Counsel This Deed of Trust covers certain goods which are or are to become fixtures related to the Land and constitutes a fixture filing with respect to such goods executed by Trustor as debtor in favor of Beneficiary as secured party. 26.5 Waivers. Trustor waives (a) any right to require Beneficiary to (i) proceed against any Person, (ii) proceed against or exhaust any Collateral or (iii) pursue any other remedy in its power; and (b) any defense arising by reason of any disability or other defense of Trustor or any other Person, or by reason of the cessation from any cause whatsoever of the liability of Trustor or any other Person. Until the Indebtedness shall have been paid in full, Trustor shall not have any right to subrogation, and Trustor waives any right to enforce any remedy which Beneficiary now has or may hereafter have against Trustor or against any other Person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by Beneficiary. ARTICLE 27 Assignment of Rents 27.1 Assignment of Rents. Trustor absolutely and unconditionally assigns and transfers the Rents to Beneficiary, whether now due, past due or to become due, and gives to and confers upon Beneficiary the right, power and authority to collect such Rents, and apply the same to the Indebtedness. Trustor irrevocably appoints Beneficiary its agent to, at any time, demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, either in the name of Trustor or in the name of Beneficiary, for all such Rents. Neither the foregoing assignment of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or remedies under this Deed of Trust shall be deemed to make Beneficiary a "mortgagee- in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof, unless and until Beneficiary, in person or by its own agent, assumes actual possession thereof, nor shall appointment of a Receiver for the Property by any court at the request of Beneficiary or by agreement with Trustor or the entering into possession of the Property or any part thereof by such Receiver be deemed to make Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof. 27.2 Collection of Rents. Notwithstanding anything to the contrary contained herein or in the Note, so long as no Event of Default shall occur, Trustor shall have a license, revocable upon the occurrence of an Event of Default or, if an Event of Default shall have occurred, so long as such Event of Default shall not have been waived by Beneficiary, to collect all Rents, and to first apply same to the Indebtedness as and when due and thereafter to retain, use and enjoy the same and to otherwise exercise all rights with respect thereto, subject to the terms hereof. Upon the occurrence of an Event of Default, Beneficiary shall have the right, on written notice to Trustor, to terminate and revoke the license heretofore granted to Trustor and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein or by law or at equity. ARTICLE 28 Miscellaneous 28.1 Successor Trustee. Beneficiary may remove Trustee or any successor trustee at any time or times and appoint a successor trustee by recording a written substitution in the county where the Property is located, or in any other manner permitted by law. 28.2 Change of Law. In the event of the passage, after the date of this Deed of Trust, of any law deducting from the value of the Property, for the purposes of taxation, any lien thereon, or changing in any way the laws now in force for the taxation of mortgages, deeds of trust, or debts secured by mortgage or deed of trust (other than laws imposing taxes on income), or the manner of the collection of any such taxes so as to materially affect the anticipated yield of Beneficiary as holder of the Note and/or Benefi- ciary under this Deed of Trust, the Indebtedness plus any applicable prepayment charges shall become due and payable at the option of Beneficiary exercised by thirty (30) days' notice to Trustor unless Trustor, within such thirty (30) day period shall, if permitted by law, assume the payment of any tax or other charge so imposed upon Beneficiary for the period remaining until full payment by Trustor of the Indebtedness. 28.3 No Waiver. No waiver by Beneficiary of any default or breach by Trustor hereunder shall be implied from any omission by Beneficiary to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default expressly referenced in the waiver and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Beneficiary to or of any act by Trustor requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. 28.4 Abandonment. Subject to such chattel mortgages, security agreements or other liens on title as may exist thereon with the consent of Beneficiary, or any provided for herein, any and all Personalty that upon foreclosure of the Property is owned by Trustor and is used in connection with the operation of the Property shall be deemed at the option of Beneficiary to have become on such date a part of the Property and abandoned to Beneficiary in its then condition. 28.5 Notices. All notices, demands, requests, consents, statements, satisfactions, waivers, designations, refusals, confirmation or denials that may be required or otherwise provided for or contemplated under the terms of this Deed of Trust shall be in writing, and shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged, (ii) one business day after having been deposited for overnight delivery with Federal Express or another comparable overnight courier service, or (iii) three business days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows: If to Trustor: Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, California 94549 Attention: Mr. Scott Whitney If to Trustee: First American Title Insurance Company 1850 Mount Diablo Boulevard, Suite 300 Walnut Creek, California 94596 If to Beneficiary: The Prudential Insurance Company of America Four Embarcadero Center Suite 2700 San Francisco, California 94111 Attention: Regional Counsel Loan No. 6 102 104 with a copy to: The Prudential Insurance Company of America One Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Vice President, Loan Servicing Loan No. 6 102 104 or addressed to each respective party at such other address as such party may from time to time designate by written notice to the other parties given in the manner aforesaid. 28.6 Severability. If any term, provision, covenant or condition hereof or any application thereof should be held by a court of competent jurisdiction to be invalid, void or unenforceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. 28.7 Joinder of Foreclosure. Should Beneficiary hold any other or additional security for the payment of the Indebtedness or performance of the Obligations, its sale or foreclosure, upon any default in such payment or performance, in the sole discretion of Beneficiary, may be prior to, subsequent to, or joined or otherwise contemporaneous with any sale or foreclosure hereunder. In addition to the rights herein specifically conferred, Beneficiary, at any time and from time to time, may exercise any right or remedy now or hereafter given by law to beneficiaries under deeds of trust generally, or to the holders of any obligations of the kind hereby secured. 28.8 Governing Law. The parties expressly agree that this Deed of Trust (including, without limitation, all questions regarding permissible rates of interest) shall be governed by and construed in accordance with the laws of the state in which the Land is located. 28.9 Subordination. At the option of Beneficiary, this Deed of Trust shall become subject and subordinate in whole or in part (but not with respect to priority of entitlement to any insurance proceeds, damages, awards, or compensation resulting from damage to the Property or condemnation or exercise of power of eminent domain), to any and all contracts of sale and/or any and all Leases upon the execution by Beneficiary and recording thereof in the Official Records of the County in which the Land is located of a unilateral declaration to that effect. Beneficiary may require the issuance of such title insurance endorsements to the Title Policy in connection with any such subordination as Beneficiary, in its reasonable judgment, shall determine are appropriate, and Trustor shall be obligated to pay any cost or expense incurred in connection with the issuance thereof. 28.10 Future Advances. Upon the request of Trustor or its permitted successors in ownership of the Property, Beneficiary may hereafter, at its option, at any time before full payment of the Indebtedness, make future advances to Trustor or said successors, and the same, with interest and late charges, shall be secured by this Deed of Trust; provided, however, that the amount of principal secured by this Deed of Trust and remaining unpaid, shall not at the time of and including any such advance exceed the original principal sum secured hereby; and provided further that if Beneficiary, at its option, shall make a future advance or advances as aforesaid, Trustor or said successors in ownership agree to execute and deliver to Beneficiary (i) a note to evidence the same, payable on or before the maturity of the Indebtedness secured hereby and bearing such other terms as Beneficiary shall require, and (ii) satisfactory evidence that after such advance this Deed of Trust will secure such advance and continue to constitute a valid first mortgage lien on the Property subject only to the Permitted Exceptions. 28.11 Waiver of Statute of Limitations and Rights to Trial by Jury. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust and the right to a jury trial in any action under or relating to the Loan Documents is hereby waived, to the fullest extent allowed by law. 28.12 Entire Agreement. The Loan Documents and the Remediation and Indemnification Agreements set forth the entire understanding between Trustor and Beneficiary relative to the Loan and the same shall not be amended except by a written instrument duly executed by each of Trustor and Beneficiary. Any and all previous representations, warranties, agreements and understandings between or among the parties regarding the subject matter of the Loan or the Loan Documents, whether written or oral, are superseded by this Deed of Trust and the other Loan Documents. The foregoing notwithstanding, the terms and the conditions of the Application shall survive the funding of the Loan but in the event of any conflict between the provisions of the Application and any of the other Loan Documents or the Remediation and Indemnification Agreements, except as otherwise specifically provided herein, the terms of such other Loan Documents and the Remediation and Indemnification Agreements shall control. 28.13 References to Foreclosure. References in this Deed of Trust to "foreclosure" and related phrases shall be deemed references to the appropriate procedure in connection with Trustee's private power of sale as well as any judicial foreclosure proceeding or a conveyance in lieu of foreclosure. 28.14 Rights of Beneficiary and Trustee. At any time or from time to time, without liability therefor and without notice, and without releasing or otherwise affecting the liability of any person for payment of any Indebtedness (i) Beneficiary at its sole discretion and only in writing may extend the time for, or release any Person now or hereafter liable for, payment of any or all such Indebtedness, or accept or release additional security therefor, or subordinate the lien or charge hereof, or (ii) Trustee upon written request of Beneficiary and presentation of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust for endorsement may reconvey any part of the Property, consent to the making of any map or plat thereof, join in granting any easement thereon, or join in any such agreement of extension or subordination. Upon written request of Beneficiary and surrender of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust to the Trustee for cancellation, and upon payment to Trustee of its fees and expenses, Trustee shall reconvey without warranty the remaining Property. The recitals in any reconveyance shall be conclusive proof of the truthfulness thereof and the grantee in any reconveyance may be described as "the person or persons legally entitled thereto." 28.15 Copies. Trustor will promptly give to Beneficiary copies of all (i) notices of violation relating to the Property that Trustor receives from any governmental agency or author- ity, and (ii) notices of default that Trustor shall give or receive under any agreement that Trustor covenants to perform hereunder, including, without limitation, notices of default relating to the Property that Trustor receives under any agreement relating to the borrowing of money by Trustor or from any Person. 28.16 No Merger. So long as any of the Indebtedness shall remain unpaid or Trustor shall have any further obligation under the Loan Documents, unless Beneficiary shall otherwise consent in writing, the fee estate of Trustor in the Property or any part thereof shall not merge, by operation of law or otherwise, with any leasehold or other estate in the Property or any part thereof, but shall always be kept separate and distinct therefrom, notwithstanding the union of said fee estate and such leasehold or other estate in Trustor or any other Person. 28.17 Right of Entry. In addition to the rights granted to Beneficiary under Paragraph 3.10 hereof, Beneficiary may enter at any reasonable time upon any part of the Property for the purpose of performing any of the acts Beneficiary is authorized to perform under the terms of this Deed of Trust or of any of the other Loan Documents. Trustor agrees to cooperate with Beneficiary to facilitate such entry. 28.18 Performance by Trustor. Trustor will faithfully perform each and every Obligation to be performed by Trustor under any lien or encumbrance, including, without limitation, mortgages, deeds of trust, leases, declarations or covenants, conditions and/or restrictions and other agreements which affect the Property. If Trustor fails to do so, Beneficiary, without demand or notice, may do any or all things necessary to perform the Obligations of Trustor under the pertinent instrument. 28.19 Personalty Security Instruments. Trustor covenants and agrees that if Beneficiary at any time holds additional security for any obligations secured hereby, it may enforce the terms thereof or otherwise realize upon the same, at its option, either before or concurrently herewith or after a sale is made hereunder, and may apply the proceeds upon the Indebtedness secured hereby without affecting the status of or waiving any right to exhaust all or any other security, including the security hereunder, and without waiving any breach or default or any right or power whether exercised hereunder, and without waiving any breach or default or any right or power whether exercised hereunder or contained herein or in any such other security. 28.20 Suits to Protect Property. Trustor covenants and agrees to appear in and defend any action or proceeding purporting to affect the security of the Deed of Trust, or of any additional or other security for the Obligations, the interest of Beneficiary or the rights, powers and duties of Trustee hereunder; and to pay all costs and expenses, including, without limitation, costs of evidence of title and reasonable attorneys' fees, in any action or proceeding in which Beneficiary and/or Trustee may appear or be made a party, including, without limitation, foreclosure or other proceedings commenced by those claiming a right to any part of the Property in any action to partition or condemn all or part of the Property, whether or not pursued to final judgment, and in any exercise of the power of sale contained herein, whether or not the sale is actually consummated. Trustee agrees that in any such action or proceeding in which Beneficiary is made a party, Beneficiary may at its option defend such action, and all costs of such defense, including all court costs and reasonable attorneys' fees, shall be borne and paid by Trustor. 28.21 Junior Liens. Trustor represents and warrants that as of the date hereof there are no encumbrances to secure debt junior to this Deed of Trust and covenants that there are to be none as of the date when this Deed of Trust becomes of record. 28.22 Charges for Statements. Trustor agrees to pay Beneficiary's charge, up to the maximum amount permitted by law, for any statement regarding the obligations secured by this Deed of Trust requested by Trustor or on its behalf. 28.23 Usury. In the event that Beneficiary determines that any charge, fee or interest paid or agreed to be paid in connection with the Loan may, under the applicable usury laws, cause the interest rate on the Loan to exceed the maximum permitted by law, then such charges, fees or interest shall be reduced and any amounts actually paid in excess of the maximum interest permitted by such laws shall be applied by Beneficiary to reduce the outstanding principal balance of the Loan. The parties intend that Trustor shall not be required to pay, and Beneficiary shall not be entitled to collect, interest in excess of the maximum legal rate permitted under the applicable usury laws. 28.24 Publicity. Trustor hereby agrees that Beneficiary, at its expense, may publicize the financing of the Property. Beneficiary shall endeavor to notify Trustor of its intent to publicize the financing; provided, however, that Beneficiary's failure to so notify Trustor shall not constitute a breach by Beneficiary under the Loan Documents. 28.25 Information Reporting Under IRC Section 6045(e). Any information returns or certifications that must be filed with the Internal Revenue Service and/or provided to other parties, pursuant to Internal Revenue Code Section 6045(e) shall be prepared, filed by and sent to the appropriate parties by Trustor. To the extent permitted by law, Beneficiary shall have no responsibility to perform such services; provided however, upon demand Trustor shall reimburse Beneficiary for any costs incurred by Beneficiary in doing so and shall also pay such fee as Beneficiary may reasonably and lawfully request. Beneficiary shall, where requested by Trustor, promptly supply Trustor with all information pertaining to Beneficiary reasonably required by Trustor to prepare and file any such return or certification. Trustor shall indemnify Beneficiary and defend, protect and hold Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims) that Beneficiary may incur, directly or indirectly, as a result of or in connection with the assertion against Beneficiary of any claim relating to the failure of Trustor to comply with its obligations under this Paragraph. 28.26 ERISA. A. Trustor understands and acknowledges that on the Closing Date, the source of funds from which Beneficiary extends the Loan is its general account, which is subject to the claims of its general creditors under state law. Beneficiary (i) represents and warrants that either (a) it is not funding the Loan with Plan Assets (as described below) or (b) if Beneficiary is funding the Loan with Plan Assets, such funding satisfies the provisions of Prohibited Transaction Class Exemption 95-60 and (ii) covenants that either clause (a) or (b) immediately above will be true throughout the term of the Loan. B. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, and (ii) the assets of Trustor do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 ("Plan Assets"). C. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not a "governmental plan" within the meaning of Section 3(32) of ERISA, and (ii) transactions by or with Trustor are not subject to state statutes regulating investments of and fiduciary obligations with respect to governmental plans. D. Trustor covenants and agrees to deliver to Beneficiary such certifications or other evidence on the Closing Date and from time to time throughout the term of the Loan, as requested by Beneficiary in its sole discretion, that (i) Trustor is not an "employee benefit plan" or a "governmental plan"; and (ii) Trustor is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (1) Equity interests in Trustor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than twenty-five percent (25%) of all equity interests in Trustor are held by "benefit plan investors" within the meaning of 29 C.F.R Section 2510.3-101(f)(2); or (3) Trustor qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). E. Any of the following shall constitute an Event of Default entitling Beneficiary to exercise any and all remedies to which it may be entitled under the Loan Documents: (i) the failure of any representation or warranty made by Trustor under this Paragraph 9.26 to be true and correct in all material respects, (ii) the failure of Trustor to comply in all material respects with the obligation to provide Beneficiary with the written certifications and evidence referred to above, or (iii) assuming compliance by Beneficiary with the representations, warranties and covenants in Paragraph 9.26.A above, the consummation by Trustor of a transaction which would cause the Loan or any exercise of Beneficiary's rights under the Loan Documents to constitute a non-exempt prohibited transaction under ERISA or a material violation of a state statute regulating governmental plans, subjecting Beneficiary to liability for violation of ERISA or such state statute, provided, that Trustor shall have thirty (30) days after its receipt of notice of default from Beneficiary within which to commence the cure of such default and, with respect to defaults under clause (i) immediately above, Trustor shall have an additional ninety (90) days thereafter within which to effect such cure provided it shall have commenced its efforts to cure within such thirty (30) day period and shall thereafter diligently and in good faith continuously prosecute such cure to completion. Failure by Trustor to cure any such default within the applicable time period set forth above shall constitute an Event of Default. F. Trustor hereby indemnifies, defends and holds Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims and losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required) that Beneficiary may incur as a direct result of an Event of Default under clause (E) above, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. This indemnity shall survive any termination, satisfaction or foreclosure of this Deed of Trust and shall not be subject to the limitation on personal liability described in Paragraph 19 of the Note. G. Anything in the Application, Paragraph 4.2 or elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no sale, assignment or transfer of any direct or indirect interest in Trustor shall be permitted which would negate Trustor's representations in this Paragraph 9.26 or cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of any provision of ERISA or of any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. H. Anything in the Application, Paragraph 4.2 elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no direct or indirect transfer of the Property or any interest therein including, without limitation, a junior lien or leasehold interest, shall be permitted which would cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of ERISA or any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. I. Anything in the Application, this Deed of Trust or the Loan Documents to the contrary notwithstanding, no less than fifteen (15) before consummation of any permitted transfer of title to the Property or of an interest in Trustor, or of any direct or indirect right, title or interest in either of them, or of the placing of any lien or encumbrance on the Property, Borrower shall obtain from the proposed transferee or lienholder a representation to Beneficiary in form and substance satisfactory to Beneficiary that the provisions of Paragraph 9.26.D above will be true after the transfer, or in the case of a lien or encumbrance, would remain true following any foreclosure or conveyance in lieu thereof, and further provided that any proposed lienholder agrees that any direct or indirect transfer of its lien or any interest therein will be governed by this section. 28.27 Defense and Indemnity Rights. Whenever, under any Loan Document, Trustor is obligated to indemnify and/or defend Beneficiary, or Trustor is obligated to defend or prosecute any action or proceeding, then Beneficiary shall have the right of counsel of Beneficiary's choice reasonably exercised, and all costs and expenses incurred by Beneficiary in connection with such participation (including, without limitation, reasonable attorneys' fees) shall be reimbursed by Trustor to Beneficiary immediately upon demand. In addition, Beneficiary shall have the right to approve any counsel retained by Trustor in connection with the prosecution or defense of any such action or proceeding by Trustor. Trustor shall give notice to Beneficiary of the initiation of all proceedings prosecuted or required to be defended by Trustor, or which are subject to Trustor's indemnity obligations, under this Deed of Trust, promptly after the receipt by Trustor of notice of the existence of any such proceeding, but in no event later than five (5) days thereafter. All costs or expenses required to be reimbursed by Trustor to Beneficiary hereunder shall, if not paid when due as herein specified, bear interest at the Secondary Interest Rate. As used herein, "proceeding" shall include litigation (whether by way of complaint, answer, cross-complaint, counter claim or third party claim), arbitration and administrative hearings or proceedings. 28.28 Destruction of Note. Trustor shall, if the Note is mutilated or destroyed by any cause whatsoever, or otherwise lost or stolen and regardless of whether due to the act or neglect of Beneficiary or Trustee, execute and deliver to Beneficiary in substitution therefor a duplicate promissory note containing the same terms and conditions as the Note, within ten (10) days after Beneficiary notifies Trustor of any such mutilation, destruction, loss or theft of the Note. Any new promissory note executed and delivered hereunder shall be in full substitution for the Note, shall not constitute any new or additional indebtedness of Trustor to Beneficiary, shall constitute solely a substitute evidence of the indebtedness evidenced by the original Note, and shall not affect in any manner the priority of this Deed of Trust, or any other document or instrument executed in connection with or evidencing or securing the Indebtedness under the Note. Failure or delay by Beneficiary to notify Trustor hereunder shall not affect in any manner Trustor's lia- bility for the Indebtedness under the Note or Trustor's obligation to execute a new promissory note hereunder; and Trustor's failure to execute a new promissory note on Beneficiary's request hereunder shall likewise not affect Trustor's liability for the indebtedness under the Note. 28.29 Trustor, Beneficiary and Trustee Defined. As used in this Deed of Trust, "Trustor" includes the original signators of this Deed of Trust as Trustor, and its successors and assigns; the term "Beneficiary" means the Beneficiary named herein or any future owner or holder, including pledgee and participants, of any note, notes or instrument secured hereby, or any participation therein; and "Trustee" includes the original Trustee under this Deed of Trust and its successors and assigns. 28.30 Rules of Construction. When the identity of the parties or other circumstances make appropriate, the masculine gender shall include the feminine and/or neuter, and the singular number shall include the plural. Specific enumeration of rights, powers and remedies of Trustee and Beneficiary and of acts which they may do and of acts Trustor must do or not do shall not exclude or limit the general. The headings of each Article and Paragraph are for information and convenience and do not limit or construe the contents of any provision hereof. The provisions of this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements shall be construed as a whole according to their common meaning, not strictly for or against any party and consistent with the provisions herein contained, in order to achieve the objectives and purposes of such documents. Each party and its counsel has reviewed and revised the Loan Documents and the Remediation and Indemnification Agreements and agree that the normal rule of construction to the effect that any ambiguities to be resolved against the drafting party shall not be employed in the interpretation of such document. The use in this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements of the words "including," "such as," or words of similar import, when following any general term, statement or matter shall not be construed to limit such statement, term or matter to the specific items or matters, whether or not language of non- limitation such as "without limitation" or "but not limited to," or words of similar import, are used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such statement, term or matter. 28.31 Information to Third Persons. If, at any time, Beneficiary desires to sell or transfer, or grant a participation interest in, all or any portion of, or any interest in, the Note, this Deed of Trust or any other Loan Document to any Person, Trustor and each Loan Party shall furnish in a timely manner any and all financial information concerning the Property and Leases, and concerning Trustor's or such Loan Party's financial condition, requested by Beneficiary or such person in connection with any such sale or transfer. 28.32 Commingling of Funds. Any and all sums collected or retained by Beneficiary hereunder (including insurance and condemnation proceeds and any amounts paid by Trustor to Beneficiary under Paragraph 3.4 hereof), shall not be deemed to be held in trust, and Beneficiary may commingle any and all such funds or proceeds with its general assets and shall not be liable for the payment of any interest or other return thereon, except to the extent expressly provided herein or otherwise required by law. 28.33 Standards of Discretion. Nothing contained in this Deed of Trust, the Note, or any other Loan Documents, shall limit the right of Beneficiary to exercise its good faith business judgment, or act, in a subjective manner with respect to any matter as to which it has specifically been granted such right or the right to act in its sole discretion or sole judgment hereunder or thereunder, whether "objectively" reasonable under the circumstances. Any such exercise shall not be deemed inconsistent with any covenant of good faith and fair dealing otherwise implied by law to be a part of this Deed of Trust; and the parties intend by the foregoing to set forth and affirm their entire understanding with respect to the terms, covenants and conditions and standards pursuant to which their rights, duties and obligations are to be judged, their performance measured, and the parameters within which Beneficiary's discretion may be exercised hereunder and under the other Loan Documents; provided, however, that the foregoing shall not limit Beneficiary's obligation to act reasonably under the circumstances where any provision of the Loan Documents provides for the reasonable consent or approval of Beneficiary. 28.34 Certain Standards on Efforts of Trustor. Whenever in this Deed of Trust, or any other Loan Document, the phrase "cause to be" is used in conjunction with any of Trustor's Obligations, such phrase shall be deemed to include the use by Trustor of best efforts and all due diligence to cause the applicable act, event or circumstance to occur or be performed or taken, and such efforts and due diligence shall encompass the initiation of litigation or other proceedings in order to enforce or bring about the happening of the applicable act or matter. 28.35 Certain Obligations Unsecured. Notwithstanding anything to the contrary set forth herein or any of the Loan Documents, this Deed of Trust shall not secure the following obligations (the "Unsecured Obligations"): (i) any obligations evidenced by or arising under the Remediation and Indemnification Agreements, and (ii) any other obligations in this Deed of Trust or in any of the other Loan Documents to the extent that such other obligations relate specifically to the presence on the Property of Hazardous Materials (as defined in the Remediation and Indemnification Agreements) and are the same or have the same effect as any of the obligations evidenced by or arising under the Remediation and Indemnification Agreements. Any breach or default with respect to the Unsecured Obligations shall constitute an Event of Default hereunder, notwithstanding the fact that such Unsecured Obligations are not secured by this Deed of Trust. Nothing in this section shall, in itself, impair or limit Beneficiary's right to obtain a judgment in accordance with applicable law after foreclosure for any deficiency in recovery of all obligations that are secured by this Deed of Trust following foreclosure. 28.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfaction of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Fremont Deed of Trust, and the South San Francisco Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non- refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. 28.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. 28.38 Waiver of Appraisement, Homestead, Marshaling. Trustor waives to the full extent lawfully allowed the benefit of any homestead, evaluation, stay and extension or exemption laws or any so called "moratorium laws" now or hereinafter in force and waives any rights available with respect to marshaling of assets so as to require the separate sales of any portion of the Property, or as to require Beneficiary to exhaust its remedies against a specific portion of Property before proceeding against the other and does hereby expressly consent to and authorize the sale of the Property or any part thereof as a single unit or parcel or as separate parcels. Trustor further waives to the full extent lawfully allowed the benefit of all laws now existing or that hereafter may be enacted providing for (i) any appraisement before sale of any portion of the Property, commonly known as "Appraisement Laws," including, without limitation, a hearing to determine fair market value pursuant to A.R.S. Sections 12-1566, 33-814, 33-725 and/or 33-727, and (ii) the benefit of all laws that may be hereafter enacted in any way extending the time of the enforcement of the collection of the Indebtedness or commonly known as "Stay Laws". 28.39 Business Loan Representation. Trustor represents and warrants to Beneficiary that the Loan evidenced by the Note is a business loan transacted solely for the purpose of carrying on the business of Trustor and the Property does not constitute the homestead of Trustor. IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be executed as of the day and year first above written. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] [11128.AGRE]H61606 State of California) ) ss. County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington, a notary public, personally appeared Scott R. Whitney personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public (seal) RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (Fremont) THIS DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (this "Deed of Trust") dated as of January 30, 1998 is made by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation, having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Trustor"), First American Title Insurance Company, having offices at 1850 Mount Diablo Boulevard, Suite 300, Walnut Creek, California 94596 ("Trustee"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Beneficiary"). WITNESSETH: Trustor HEREBY IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO Trustee, IN TRUST, WITH POWER OF SALE, all of Trustor's right, title and interest now owned or hereafter acquired in and to the following property, together with the Personalty (as hereinafter defined), all of which is hereinafter collectively defined as the "Property": (i) that certain real property (the "Land") located in the County of Alameda, State of California, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference; (ii) all Improvements (as hereinafter defined) and all appurtenances, easements, rights and privileges thereof, including all minerals, oil, gas and other hydrocarbon substances thereon or therein, air rights, water rights and development rights, and any land lying in the streets, roads or avenues adjoining the Land or any part thereof; (iii) all Fixtures (as hereinafter defined), whether now or hereafter installed, being hereby declared to be for all purposes of this Deed of Trust a part of the Land; and (iv) the rents, issues and profits of or from the Land, Improvements and Fixtures. FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary may determine: (i) payment of the Indebtedness (as hereinafter defined), and (ii) payment (with interest as provided) and performance by Trustor of the Obligations (as hereinafter defined). Notwithstanding the foregoing, or any other term contained herein or in the Loan Documents, none of Trustor's obligations under or pursuant to the Remediation and Indemnification Agreements (as hereinafter defined) shall be secured by the lien of this Deed of Trust. ARTICLE 29 Definitions As used in this Deed of Trust the following terms shall have the following meanings; other terms are defined where they appear in this Deed of Trust: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by this Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Application: Collectively, the Application dated December 5, 1995, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application dated January 5, 1996, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application executed by Trustor (referred to as "Borrower" therein) on April 13, 1996, which Application includes the exhibits attached thereto, and the Application executed by Trustor (referred to as "Borrower" therein) on October 31, 1997, which Application includes the exhibits attached thereto. Arizona Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Closing Date: The date this Deed of Trust is recorded in the Official Records of Alameda County, California. Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the preceding twelve- month period for the Remaining Properties, to (b) the sum of (i) the annual debt service payments (including principal and interest) for the preceding twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Combined Deeds of Trust: Collectively, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, and the South San Francisco Deed of Trust. Combined Loan to Value Ratio: The ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of all encumbrances against the Remaining Properties, to (ii) the fair market value of the Remaining Properties, as determined by Beneficiary. Combined Properties: Collectively, the Property, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Arizona Deed of Trust, and the properties encumbered by the South San Francisco Deed of Trust. Event of Default: As defined in Paragraph 6.1 hereof. Fixtures: All fixtures located upon or within the Improvements or now or hereafter installed in, or used in connection with any of the Improvements, including boilers, furnaces, pipes, plumbing, elevators, cleaning and sprinkler systems, fire extinguishing apparatus and equipment, water tanks, heating, ventilating, air conditioning and air cooling equipment, whether or not permanently affixed to the Land or the Improvements. Future Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the immediately upcoming twelve-month period for the Remaining Properties (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) for the same twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Future Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the next upcoming twelve-month period (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the same twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Impositions: All real estate and personal property and other taxes and assessments, water and sewer rates and charges levied or assessed upon or with respect to the Property, and all other governmental charges and any interest or costs or penalties with respect thereto, ground rent and charges for any easement or agreement maintained for the benefit of the Property, general and special, ordinary and extraordinary, foreseen or unforeseen, of any kind and nature whatsoever that at any time prior to or after the execution of the Loan Documents may be assessed, levied, imposed, or become a lien upon the Property or the rent or income received therefrom, or any use or occupancy thereof; and any and all other charges, expenses, payments, claims, mechanics' or material suppliers' liens or assessments of any nature, if any, which are or may become a lien upon the Property or the rent or income received therefrom. Impound Account: The account that Trustor may be required to maintain pursuant to Paragraph 3.4 hereof for the deposit of amounts required to pay Impositions and insurance premiums. Improvements: All buildings and other improvements and appurtenances located on the Land, including surface improvements, such as parking areas and landscaping structures and all improvements, additions and replacements thereof, and other buildings and improvements, at any time hereafter constructed or placed upon the Land. Indebtedness: The principal of and all other amounts, payments and premiums due under the Note (and each and every of them) and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Trustor to Beneficiary and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the preceding twelve- month period, to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the preceding twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Individual Loan to Value Ratio: For each individual Combined Property, the ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of the Allocable Loan Amount for such Combined Property and all other encumbrances (other than the Loan) against such Combined Property, to (ii) the fair market value of such Combined Property, as determined by Beneficiary. Inventory: The personal property Inventory attached hereto as Exhibit C. Laws and Restrictions: All federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, Leases and other rental agreements, relating to the development, occupancy, ownership, management, use, and/or operation of the Property or otherwise affecting all or any part of the Property or Trustor. Leases: Any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property. Loan: The loans from Beneficiary to Trustor evidenced by the Note. Loan Documents: The Note, the Application, the Owner's Affidavit, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases, the Post-Closing Agreement, and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Loan Parties: Trustor. Material Adverse Change: Any material and adverse change in (i) the financial condition of any of the Loan Parties, or (ii) the condition or operation of the Property. Milpitas Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Net Operating Income: For any period, gross income from operations of the Remaining Properties, for the purposes of determining Combined Debt Service Coverage or Future Combined Debt Service Coverage, or from operations of an individual Combined Property, for the purposes of determining the Individual Debt Service Coverage or Future Individual Debt Service Coverage for such Combined Property, in either case, derived from arm's length, market rate rents from leases with unaffiliated third parties in possession of the leased premises and paying rent on a current basis, service fees or charges, and addi- tional rent resulting from operating expense, common area maintenance, utilities and tax escalation pass through provisions (excluding capital gains income derived from the sale of assets and other items of income which Beneficiary reasonably determines are unlikely to occur in any subsequent period), less operating expenses (such as cleaning, utilities, administrative, landscaping, security and common area maintenance expenses, common area association fees, repairs and maintenance and less fixed expenses (such as insurance, real estate and other taxes), which expenses shall be related to the property producing such gross income, shall be for services from arm's length third party transactions or equivalent to the same, and shall exclude all expenses for capital improvements and replacements, debt service and depreciation or amortization of capital expenditures and other similar noncash items. Operating expenses shall include not less than 4.0% of gross income for the property encumbered by the Woodlands Deed of Trust and not less than 3.5% of gross income for each of the other Combined Properties and shall include reserves for replacements of not less than $31,000 for the Property encumbered by the Tustin Deed of Trust and not less than $23,000 for each of the other Combined Properties. Real estate taxes shall be calculated based upon the greater of (i) the current tax bill plus the next subsequent year's escalations as permitted under applicable law, or (ii) the estimated market value of such Combined Properties (as determined by Beneficiary) at the time of any reconveyance described in Paragraph 9.36 of this Deed of Trust multiplied by the then current tax rate. Gross income shall not be anticipated for any greater period than that approved by generally accepted accounting principles, nor shall operating expenses be prepaid. Nevada Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Obligations: Any and all of the covenants, promises and other obligations (including, without limitation, the Indebtedness) made or owing by Trustor to or due to Beneficiary under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Trustor to each and every other Person relating to the Property. Ontario Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Owner's Affidavit: That certain Owner's Affidavit dated as of even date herewith, executed by Trustor in favor of Beneficiary. Permitted Exceptions: All of those matters described on Exhibit B attached hereto. Person: Any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. Personalty: Trustor's right, title and interest in all personal property (other than Fixtures) now or hereafter located in, upon or about or collected or used in connection with the Property, together with all present and future attachments, accessions, replacements, substitutions and additions thereto or therefor, and the cash and noncash proceeds thereof, including all property listed in the Inventory, the Impound Account, all goods, documents, instruments and chattel paper, all drawings, plans and specifications, all causes of action and recoveries now or hereafter existing for any loss or diminution in value of the Property, all licenses, governmental authorizations or permits pertaining to the Property or the development, ownership, management or operation thereof, all trademarks, service marks, designs, logos, trade names, names or similar identifications pertaining to the Property, and all accounts, contract rights and general intangibles (including, without limitation, any insurance proceeds and condemnation awards or compensation) arising out of or incident to the ownership, development or operation of the Property owned by or in which Trustor has an interest including, without limitation, all personal property described in the UCC-1 Financing Statement executed by Trustor of even date herewith, which is incorporated herein by this reference, and all furniture, furnishings, equipment, machinery, construction materials and supplies, leasehold interests in personal property and the Leases. Notwithstanding the foregoing, Personalty shall not include any proprietary computer software developed by Trustor for the interpretation, manipulation or presentation of the information comprising the books and records of Trustor. Post-Closing Agreement: That certain Post-Closing Actions Agreement dated as of even date herewith, executed by Trustor in favor of Beneficiary. Property: As defined in the above granting paragraph of this Deed of Trust. Receiver: Any trustee, receiver, custodian, fiscal agent, liquidator or similar officer. Remaining Properties: Collectively, each of the Combined Properties which remain encumbered by any of the Combined Deeds of Trust following the requested reconveyance of this Deed of Trust pursuant to Paragraph 9.36 of this Deed of Trust and following the prior or concurrent reconveyance of any of the other Combined Deeds of Trust pursuant to Paragraph 9.36 of any of the other Combined Deeds of Trust. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the Property. Rents: All rents, royalties, revenues, issues, profits, proceeds and other income from the Property. Secondary Interest Rate: As defined in the Note. South San Francisco Deed of Trust: That certain Deed of Trust dated as of this date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. Tustin Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. ARTICLE 30 Representations and Warranties Trustor hereby represents and warrants to Beneficiary and Trustee that as of the date of this Deed of Trust and as of the date of any subsequent disbursement pursuant to the Loan Documents: 30.1 Title, Authorization and Organization. Trustor (i) is the lawful owner of the Property and holds good and marketable title to the Property free and clear of all defects, liens, encumbrances, easements, exceptions and assessments, except the Permitted Exceptions; (ii) has good, right and lawful authority to grant the Property as provided in and by this Deed of Trust; (iii) has the requisite power and authority to own, develop and operate the Property; (iv) is duly organized, validly existing and in good standing under the laws of the State of its organization and is duly qualified to do business in the State in which the Land is located; and (v) is in compliance with all Laws and Restrictions applicable to it. 30.2 Validity of Loan Documents. The execution, delivery and performance by Trustor of the Loan Documents and the borrowings evidenced by the Note are within the power of Trustor, have been authorized by all requisite corporate or partnership authority and will not violate any Laws and Restrictions or any agreement or other instrument. Each of the Loan Documents when executed and delivered to Beneficiary, will constitute a legal, valid and binding obligation of Trustor enforceable in accordance with its terms. 30.3 Financial Statements. All financial statements and data that have been given to Beneficiary with respect to the Property or any Loan Party are true, accurate, complete and correct and except as expressly noted to the contrary therein, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby. There has been no Material Adverse Change since the date of the most recent financial statement given to Beneficiary. 30.4 Other Information. All reports, papers, data and information given to Beneficiary with respect to Loan Parties and the Property are accurate, correct and complete. 30.5 Litigation. There is not now pending against or affecting any Loan Party or the Property, nor to the best of Trustor's knowledge is there threatened any action, suit or proceeding at law or in equity or by or before any administrative agency that, if adversely determined, would materially impair or affect (i) the financial condition or operations of such Loan Party, or (ii) the condition, use or operation of the Property. 30.6 Additional Representations and Warranties. (i) The Property is not used principally or primarily for agricultural or grazing purposes; (ii) each Loan Party has filed all federal, state, county and municipal income tax returns required to have been filed by it and has paid all taxes that have become due pursuant to such returns or pursuant to any assessments received by it (and no Loan Party knows of any basis for any additional assessment against it in respect of such taxes); (iii) all costs for labor and materials for the construction of the Improvements have been paid in full other than ongoing work for leasehold improvements under Leases approved in writing by Beneficiary; (iv) Trustor is not aware of any assessment for public improvements which is pending and which could become a lien upon the Property; (v) no event has occurred which with the giving of notice or the passage of time, or both, would constitute an Event of Default under any of the Loan Documents; (vi) Trustor is not a party to any agreement or instrument materially and adversely affecting its present or proposed business conducted on the Property or the Property itself, financial or otherwise; (vii) Trustor is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions set forth in any such agreement or instrument to which it is a party to the extent that the same would have a material and adverse effect on the Property or Trustor's ability to timely perform its Obligations under the Loan Documents; (viii) all Fixtures are permanently affixed to the Improvements and Trustor has not executed any financing statement or security agreements covering the Fixtures, or any of them, and the costs of all Fixtures due as of the date hereof have been paid; (ix) neither the Property, nor any part thereof, has sustained, incurred or suffered any material damage or destruction; and (x) subject to the Permitted Exceptions, the Personalty is owned by Trustor, free and clear of any liens, encumbrances, mortgages, security interests, claims and rights of others. 30.7 Compliance with Laws. The Property and the proposed and actual use thereof comply with all Laws and Restrictions and the Laws and Restrictions contain no unsatisfied conditions necessary for the actual use of the Property as it is currently used. Trustor has received no notices of violations of any Laws and Restrictions. 30.8 Bankruptcy. No petition in bankruptcy, petition or answer seeking assignment for the benefit of creditors or appointment of a Receiver with respect to Trustor has occurred or is contemplated, and no reorganization, arrangement, liquidation or dissolution or similar relief under the Federal Bankruptcy laws or any state laws have been instituted by or against Trustor, and none is contemplated. ARTICLE 31 Affirmative Covenants Trustor hereby covenants and agrees as follows: 31.1 Obligations of Trustor. Trustor will (i) timely perform, or cause to be timely performed, all the Obligations; (ii) maintain and preserve the lien of this Deed of Trust; and (iii) forever warrant and defend its grant made herein against any and all claims and demands whatsoever. 31.2 Insurance. A. Trustor, at its sole cost and expense, will keep and maintain for the mutual benefit of Trustor and Beneficiary, the following policies of insurance: (1) Insurance against loss or damage to the Property by fire and other risks covered by insurance commonly known as the broad form of extended coverage, including losses sustained by reason of riot and civil commotion, vandalism, malicious mischief, burglary, theft and mysterious disappearance, flood (if the Property is located in a HUD designated special flood hazard area) and against such other risks or hazards as Beneficiary from time to time reasonably may designate, in an amount equal to one hundred percent (100%) of the then "full replacement cost" of the Improvements, the Fixtures and the Personalty, without deduction for physical depreciation. (2) Rental income insurance against loss of income in an amount not less than twelve (12) months rental and taxes and other operating expense reimbursements or payments at then-current income levels. (3) Commercial General Liability insurance including broad form property damage, contractual liability and personal injury or death coverage, with a combined single limit of at least $5,000,000. (4) "Builders Risk" insurance, during any material construction, repair, replacement, renovation or alteration of the Improvements, in such amounts as are reasonably approved by Beneficiary. (5) If applicable, boiler and machinery insurance covering boilers and other pressure vessels, the air conditioning system, high pressure piping and other machinery and equipment required for the operation of the Property. (6) Such other insurance, and in such amounts, as may from time to time be reasonably required by Beneficiary (but excluding earthquake insurance, unless earthquake insurance is required pursuant to the terms of any of the Leases). B. Trustor shall provide Beneficiary with satisfactory evidence of compliance with applicable requirements for Worker's Compensation insurance and of employee automobile coverage. C. All policies of insurance required by this Deed of Trust (i) shall be satisfactory in form and substance to Beneficiary and written with companies satisfactory to Beneficiary, (ii) shall name Beneficiary as an additional insured as its interests may appear, (iii) shall contain a Standard Lender's Loss Payable endorsement and other non-contributory standard mortgagee protection clauses acceptable to Beneficiary, and at Beneficiary's option, a waiver of subrogation rights by the insurer, (iv) shall contain an agreement by the insurer that such policy shall not be amended or canceled without at least thirty (30) days' prior written notice to Beneficiary, (v) shall be in the full replacement cost of the Improve- ments, without deduction for physical depreciation and (vi) shall contain such other provisions as Beneficiary deems reasonably necessary or desirable to protect its interests. Any policies containing a coinsurance clause shall include a replacement cost endorsement adequate to ensure that the coinsurance clause is rendered inoperative. D. In the event a blanket policy is submitted to satisfy Trustor's responsibilities under this Paragraph 3.2, in addition to such other requirements set forth herein, Trustor shall deliver to Beneficiary a certificate from such insurer indicating that Beneficiary is an insured under such policy and designating the amount of such insurance applicable to the Property. E. Trustor shall furnish evidence, satisfactory to Beneficiary, that (i) all insurance requirements (including, without limitation, provisions for waivers of subrogation) set forth in the Leases or any other agreements affecting the Property shall have been satisfied by each party thereto, and (ii) Trustor's insurance coverage is sufficient (assuming the total destruction of the Property) to permit Trustor to rebuild the Improvements (including basic tenant improvements) and to replace the Fixtures and Personalty in such manner as to enable the Property to be operable and rentable as it is currently rented and operated, and no tenant shall have the right to terminate its lease of any portion of the Property as a result of the failure of Trustor to rebuild above-standard tenant improvements. F. Self-insurance (other than the applicable deductibles approved by Beneficiary) shall not be employed to satisfy the requirements of this Paragraph 3.2. G. All of Trustor's right, title and interest in and to all policies of property insurance and any unearned premiums paid thereon are hereby assigned (to the fullest extent assignable) to Beneficiary who shall have the right, but not the obligation, to assign the same to any purchaser of the Property at any foreclosure sale. H. Not less than thirty (30) days prior to the expiration dates of any policy previously furnished pursuant to this Paragraph 3.2, Trustor shall provide Beneficiary with duplicate originals or certified copies of the renewal policies together with evidence satisfactory to Beneficiary of Trustor's payment of the applicable premiums. 31.3 Maintenance, Waste and Repair. Trustor will (i) maintain the Property in good order and condition, (ii) promptly make all necessary structural and non-structural repairs to the Property, (iii) not diminish or materially alter the Improvements, nor erect any new buildings, structures or building additions on the Property, without the prior written consent of Beneficiary, and (iv) not permit any waste of the Property or make any change in the use thereof, nor do or permit to be done thereon anything, that may in any way impair the security of this Deed of Trust. 31.4 Impositions; Impounds. Trustor will pay when due all Impositions. Upon an Event of Default, Trustor will pay monthly to Beneficiary an amount equal to one-twelfth (1/12th) of the annual cost of Impositions together with an amount equal to the estimated next hazard and other required insurance premiums. These funds will be held by Beneficiary (and may be commingled with other funds of Beneficiary) without interest and will be released to Trustor for payment of Impositions and insurance premiums, or directly applied to such costs by Beneficiary, as Beneficiary may elect. 31.5 Compliance with Law. Trustor will promptly and faithfully comply with all present and future Laws and Restrictions. 31.6 Books and Records. Trustor, without expense to Beneficiary, will maintain full and complete books of account and other records reflecting the results of the operations of the Property in accordance with generally accepted accounting principles consistently applied, and will furnish or cause to be furnished to Beneficiary such financial information concerning the condition of the Loan Parties and the Property as Beneficiary shall reasonably request. The following information will be furnished without request: A. As soon as available, and in any event within thirty (30) days after the close of each fiscal quarter of each fiscal year of Trustor, a statement of revenues and expenses relating to the rentals and operations of the Property for the applicable fiscal quarter just ended, certified by Trustor; B. As soon as available, and in any event within ninety (90) days after the end of each fiscal year of Trustor, an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary and a rent roll in the form delivered to Beneficiary in connection with the closing of the Loan certified by Trustor reflecting all the existing Leases; and C. As soon as available, and in any event within ninety (90) days after the end of Trustor's fiscal year, a balance sheet of Trustor, certified in a manner acceptable to Beneficiary. After the occurrence of an Event of Default, or in the event Trustor fails to deliver an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary within the time frame set forth in Paragraph 3.6.B, above, Beneficiary shall have the right, at all reasonable times and upon reasonable notice, to audit the books of account and records of any Loan Party, all of which shall be made available at Trustor's office during reasonable business hours to Beneficiary and Beneficiary's representatives for such purpose, from time to time. If such audit discloses a variance of three per- cent (3%) or more in income or expenses, the cost of such audit shall be paid by Trustor. 31.7 Further Assurances. Trustor, at any time upon the reasonable request of Beneficiary, will at Trustor's expense execute, acknowledge and deliver all such additional papers and instruments (including, without limitation, a declaration of no setoff) and all such further acts and things as may be reasonably necessary to carry out the purposes of the Loan Documents and to subject to the liens thereof any property intended by the terms thereof to be covered thereby and any renewals, additions, substitutions or replacements thereto. 31.8 Indemnity and Attorneys' Fees. Trustor will indemnify, defend, protect and hold Beneficiary harmless from any and all liability, loss, claims, damage, cost or expense (including, without limitation, reasonable attorneys' fees) that Beneficiary may or might incur hereunder, or in connection with the making or administering of the Loan, the enforcement of any of Beneficiary's rights or remedies hereunder or under the other Loan Documents, any action taken by Beneficiary hereunder or thereunder, whether or not suit is filed, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Beneficiary arising out of the Property, or any part thereof or interest therein, or as to which it becomes necessary to defend or uphold the lien of this Deed of Trust or other Loan Documents. Should Beneficiary incur any such liability, loss, claim, damage, cost or expense, the amount thereof with interest thereon at the Secondary Interest Rate shall be payable by Trustor immediately without demand, shall be secured by this Deed of Trust, and shall be part of the Indebtedness. 31.9 Litigation. Trustor will promptly give notice in writing to Beneficiary of any litigation which may reasonably be expected to result in a Material Adverse Change. 31.10 Inspection of Property. Trustor hereby grants to Beneficiary, its agents, employees, consultants and contractors, the right to enter upon the Property for the purpose of making any and all inspections, reports, tests (including, without limitation, soils borings, ground water testing, wells and/or soils analysis), inquiries and reviews as Beneficiary (in its sole and absolute discretion) may deem necessary to assess the then current condition of the Property; provided, however, that Beneficiary shall not conduct any such tests (including, without limitation, soil borings, ground water testing, wells and/or soils analysis) (i) unless Beneficiary becomes aware of, or reasonably suspects, an environmental event on or near the Property which could have a material adverse effect on any portion of the Property and Trustor refuses or fails to conduct such tests in a manner reasonably requested by Beneficiary, or (ii) until after the occurrence of an Event of Default under any of the Loan documents or the Remediation and Indemnification Agreements. Beneficiary shall provide Trustor with one (1) business day's notice of such entry; provided, however, that, subject to the preceding sentence, Trustor's consent shall not be required for such entry or for the performance of such tests. All costs, fees and expenses (including those of Benefi- ciary's legal counsel and consultants) incurred by Beneficiary with respect to such inspections, reports, tests, inquiries and reviews shall be paid by Trustor to Beneficiary upon demand, shall accrue interest at the Secondary Interest Rate until paid, and shall be secured by this Deed of Trust. Beneficiary shall make reasonable efforts in the exercise of its entry, inspection, and other rights under this Paragraph to avoid interference with the business operations of any tenant or licensee occupying space at the Property pursuant to Leases permitted by the Loan Documents, and, so long as no Event of Default has occurred, shall cooperate with Trustor in setting the time for such entry, inspections and tests. 31.11 Contest. Notwithstanding the provisions of Paragraphs 3.4 and 3.5 hereof, Trustor may, at its expense, contest the validity or application of any Impositions or Laws and Restrictions by appropriate legal proceedings promptly initiated and conducted in good faith and with due diligence, provided that (i) Beneficiary is reasonably satisfied that neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, or lost as a result of such contest, and (ii) Trustor shall have posted a bond or furnished such other security as may be reasonably required from time to time by Beneficiary. 31.12 Tax Receipts. Trustor will deliver to Beneficiary, within seven (7) days after the demand made therefor, bills showing the payment to the extent then due of all taxes, assessments (including, without limitation, those payable in periodic installments), and any Imposition that may have become a lien upon the Property or any part thereof. 31.13 Additional Information. Trustor will furnish to Beneficiary, within seven (7) days after written request therefor, any and all information that Beneficiary may reasonably request concerning the Property or the performance by Trustor of the Obligations. 31.14 Prepayment. Trustor may prepay the Loan only on the terms and conditions set forth in the Note and Trustor shall pay Beneficiary prepayment charges in respect of any prepayment, whether voluntary or involuntary, as required by and on the terms and conditions set forth in the Note. 31.15 FIRPTA Affidavit. In the event of any transfer by Trustor of its rights hereunder or of any interest in the Property otherwise permitted under this Deed of Trust, such transferee shall, as an additional condition to such transfer, under penalty of perjury, execute and deliver to Beneficiary an affidavit concerning the non- foreign status of such transferee substantially in the form required to be delivered by Trustor in connection with the funding of the Loan. Nothing in this Paragraph 3.15 shall be deemed a modification or waiver of any other provision of any of the Loan Documents limiting, prohibiting or otherwise relating to any transfer of any interest in the Property or Trustor. 31.16 Tax Service Contract. Throughout the term of the Loan, at Trustor's sole expense, Beneficiary shall be furnished tax service contracts issued by a tax reporting agency satisfactory to Beneficiary. 31.17 Reimbursement. Any amount paid by Beneficiary for any tax, stamp tax, assessment, water rate, sewer rate, insurance premium, repair, rent charge, debt, claim, inspection or lien having priority over this Deed of Trust or to in any way protect the security for the Loan, shall (i) bear interest at the Secondary Interest Rate from the date of payment by Beneficiary, (ii) constitute additional indebtedness secured by this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, (iii) be secured by this Deed of Trust, and (iv) be payable by Trustor to Beneficiary upon demand. 31.18 Plans and Specifications. Trustor agrees to keep at its offices at the Property, and to make available to Beneficiary during normal business hours, "As-Built Plans and Specifications", or, if unavailable, the final set of plans and specifications from which the Improvements were constructed ("As-Builts"), certified by a licensed architect or licensed contractor as true, correct and complete As-Builts for the Improvements. ARTICLE 32 Negative Covenants Trustor hereby covenants and agrees as follows: 32.1 Restrictive Uses. Trustor will not initiate, join in, or consent to any change in the current use of the Property or in any zoning ordinance, private restrictive covenant, assessment proceedings or other public or private restrictions limiting or restricting the uses that may be made of the Property or any part thereof without the prior written consent of Beneficiary. 32.2 Due on Sale or Encumbrance. A. Except as expressly otherwise provided in this Paragraph 4.2, in the event that Trustor, without the prior written consent of Beneficiary (which consent may be withheld for any reason or for no reason or given upon such terms and conditions as Beneficiary deems necessary or appropriate, all within Beneficiary's absolute discretion), shall sell, convey, assign, transfer, alienate or otherwise dispose of or be divested of its title to, or, shall mortgage, convey security title to, or otherwise encumber or cause to be encumbered, the Property or any part thereof or any interest therein in any manner or way, whether voluntary or involuntary, or in the event of (a) any merger, consolidation or dissolution involving, or the sale or transfer of all or substantially all of the assets of, Trustor or any general partner of Trustor, (b) the transfer (at one time or over any period of time) of ten percent (10%) or more of the voting stock of (i) a corporate Trustor or (ii) any corporate general partner of Trustor, (c) the transfer of any general partnership interest in Trustor or in any partnership which is a direct or indirect general partner of Trustor, or (d) the conversion of any such general partnership interest to a limited partnership interest, then the entire balance of the Indebtedness, plus the Prepayment Premium (as defined in the Note), shall become immediately due and payable at the option of Beneficiary. Trustor hereby covenants not to participate in, cause or permit any of the foregoing actions or events described in this Paragraph 4.2 without Beneficiary's prior written consent. Consent to one such transfer by Beneficiary shall not be deemed a waiver of the right to require such consent to further or future transfers. Any such transferee shall, as a condition of the effectiveness of any consent or waiver by Beneficiary hereunder, as a covenant of Trustor and such transferee, and in form and substance required by Beneficiary, assume all obligations under the Loan Documents and the assumption shall not, however, release Trustor, or any maker or guarantor of the Note, from any liability thereunder. This provision shall not apply to transfers of title or interest under any will or testament or applicable law of descent. B. Notwithstanding the foregoing, the provisions of this Paragraph 4.2 shall not apply to (i) the sale of stock on any recognized public stock exchange in the ordinary course of business, (ii) any merger or consolidation of Trustor where the surviving company has a Debt Ratio (as defined below) which does not exceed the Debt Ratio of Trustor as of the Closing Date, as shown by evidence reasonably satisfactory to Beneficiary, and (iii) a public tender offer by a Person unaffiliated with Trustor to purchase the stock of Trustor. Notwithstanding anything to the contrary contained herein, unless a change in the ownership of Trustor is the result of one or more of the acts described in the immediately preceding sentence (in which case the prior consent of Beneficiary is not required), Beneficiary's prior written consent shall be required in the event of a change in the ownership of Trustor (in a single transaction or cumulative transactions) such that in excess of 50% of Trustor's stock is owned or controlled by a sole shareholder or an affiliated group of shareholders ("Sale"). Notwithstanding the foregoing, a Sale shall specifically exclude: (a) the conversion ("Conversion") to common stock shares of some or all of the Series A convertible preferred stock of Trustor outstanding as of the Closing Date (the "Preferred Stock"), (b) any initial sale ("Initial Sale") of any of the Preferred Stock to a Person unaffiliated with Trustor which occurs either prior to and/or subsequent to any Conversion, and (c) any sale of any of the Preferred Stock subsequent to an Initial Sale of such Preferred Stock to a Person unaffiliated with Trustor which previously acquired some or all of the Preferred Stock in an Initial Sale. As used herein, "Debt Ratio" means the ratio of all indebtedness of Trustor and its subsidiaries to the sum of all assets of Trustor and it subsidiaries, before depreciation and less the sum of any intangible assets. 32.3 Replacement of Fixtures and Personalty. Trustor will not permit any of the Fixtures or Personalty to be removed at any time from the Property without the prior written consent of Beneficiary unless actually replaced by articles of equal suitability and value owned by Trustor free and clear of any lien or security interest. 32.4 No Cooperative or Condominium. Trustor shall not operate the Property or permit the Property to be operated, as a cooperative or condominium building or buildings in which the tenants or occupants participate in the ownership, control, or management of the Property or any part thereof, as tenant stockholders or otherwise. 32.5 Partnership Agreement. Trustor, if a partnership, will not terminate, alter, modify or amend or permit the termination, alteration, modification or amendment of its Partnership Agreement without Beneficiary's prior written consent. ARTICLE 33 Casualties and Condemnation 33.1 Insurance and Condemnation Proceeds. A. Trustor will notify Beneficiary in writing promptly after loss or damage caused by fire or other casualty to all or any part of the Property resulting in damage in excess of $25,000 per occurrence, and prior to the making of any repairs thereto. Trustor will furnish to Beneficiary within sixty (60) days after such loss or damage (a) preliminary plans and specifications for the repair and reconstruction of the Property (the "Preliminary Plans and Specifications"); and (b) evidence satisfactory to Beneficiary (i) of the cost of repair or reconstruction in accordance with the Preliminary Plans and Specifications, (ii) that sufficient funds are available and/or committed for the benefit of Beneficiary, including insurance proceeds, funds provided by the Trustor, payment and performance bond, or otherwise, to complete such repair or reconstruction, and (iii) that such repair or reconstruction may be completed in accordance with all applicable Laws and Restrictions within the time frame described in Paragraph 5.1.C.(v) hereof and that all necessary permits and approvals have been or will be obtained. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under applicable law providing for the allocation of condemnation proceeds between a property owner and a lien holder. B. In the event of any insured loss in excess of Two Hundred Fifty Thousand Dollars ($250,000) or in the event an Event of Default, or an event which with the giving of notice or the passing of time or both constitutes an Event of Default, shall have occurred and be continuing, all insurance proceeds on account of any damage to the Property shall be payable to, and deposited with, Beneficiary. Beneficiary, at its sole option, may (i) apply such insurance proceeds in payment of the Indebtedness or in satisfaction of any other Obligation in such order as Beneficiary may determine, (ii) use such insurance proceeds to repair or reconstruct the Improvements, (iii) release such insurance proceeds to Trustor for repair or reconstruction of the Improvements in accordance with the procedures described in Paragraph 5.1.E hereof, or (iv) divide such proceeds in any manner among any such application, use or release. No such application, use or release shall, however, extend or postpone the due date of any installments under the Note or change the amount of such installments or cure or waive any Event of Default or notice of Event of Default under the Loan Documents or invalidate any act done pursuant to such notice. C. Notwithstanding the provisions of Para- graph 5.1.B hereof, if all or any part of the Property is damaged or destroyed or less than all of the Property is taken by any public or quasi-public authority through condemnation, eminent domain, deed in lieu thereof, or otherwise, Beneficiary shall make the net amount of all insurance proceeds and condemnation awards received by Beneficiary after deduction of Beneficiary's reasonable costs and expenses, if any, in collection of the same and costs associated with Beneficiary's review of the Preliminary Plans and Specifications and other costs associated with disbursement of such proceeds (the "Net Proceeds") available for the repair and reconstruction of the Property (or so much thereof as was not condemned) pursuant to the procedures described in Paragraph 5.1.E hereof, provided that (i) no Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred and shall be continuing, (ii) Trustor has complied with the provisions of Paragraph 5.1.A hereof and Beneficiary has approved the Preliminary Plans and Specifications, (iii) Trustor shall proceed with the reconstruction of the Property as nearly as possible to the condition it was in immediately prior to the occurrence of such casualty or taking (the "Occurrence") and in accordance with the Plans and Specifications as promptly as is practicable after the Occurrence, but in no event later than four (4) months after the Occurrence, (iv) Beneficiary shall be satisfied that such reconstruction can be completed no later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (v) Beneficiary shall be satisfied that the reconstruction can be completed at a cost which does not exceed the Net Proceeds, or, in the event the cost of such restoration exceeds the Net Proceeds, Trustor shall have satisfied the requirements set forth in Para- graph 5.1.F(i) hereof or Paragraph 5.1.F(ii) hereof, (vi) Beneficiary shall be satisfied that Trustor (whether with rental loss insurance proceeds or otherwise) will continue to be able to timely pay all payments as they become due on the Indebtedness during such period of repair and reconstruction, (vii) Trustor shall cause such reconstruction to be completed with due diligence as promptly as possible after commencement, but in no event later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (viii) Beneficiary determines that repair or reconstruction is economically feasible and that the Property can physically and legally be restored to at least its value as of the Closing Date, (ix) Trustor shall have entered into a guaran- teed maximum price general construction contract acceptable in all respects to Beneficiary for completion of the repair or reconstruction, which contract must include provision for a retainage of not less than ten percent (10%) until full completion of the repair or reconstruction, and (x) the insurer does not deny liability to any named insured. D. Beneficiary shall be entitled to settle and adjust all insurance claims, and Beneficiary may deduct and retain from the proceeds of any insurance the amount of all expenses incurred by Beneficiary in connection with any settlement or adjustment. Notwithstanding the foregoing, so long as no Event of Default or event which, with the giving of notice or the passage of time or both, would constitute an Event of Default shall have occurred and be continuing, Trustor may settle directly with the insurer any insurance claims involving an amount less than Two Hundred Fifty Thousand Dollars ($250,000) so long as (i) Trustor applies all insurance proceeds to reconstruction of the Property, (ii) Trustor promptly and diligently pursues the repairs to completion, and (iii) Trustor follows the provisions of Paragraph 5.1.A hereof. E. The Net Proceeds and any additional funds deposited by Trustor with Beneficiary shall constitute additional security for the Loan. Trustor shall execute, deliver, file and/or record, at its own expense, such documents and instruments as Beneficiary deems necessary or advisable to grant to Beneficiary a perfected, first priority security interest in the Net Proceeds and such additional funds. Provided that Trustor is otherwise entitled to receive the Net Proceeds pursuant to the terms and provisions of this Deed of Trust, Beneficiary or, at Beneficiary's option, a disbursing agent (the "Disbursing Agent") selected by Beneficiary (whose fees and expenses shall be paid by Trustor), shall pay the Net Proceeds to Trustor from time to time during the course of the restoration, subject to the following terms and conditions: (1) The work shall be administered and overseen by an architect or engineer approved by Beneficiary (the "Architect"). Complete copies of the plans and specifications for the work (the "Plans and Specifications"), approved by all governmental authorities whose approval is required, and bearing the signed approval thereof by the Architect and accompanied by the Architect's signed estimate, bearing the Architect's seal, of the entire cost of completing the work, shall be delivered to Beneficiary; (2) Each request for payment shall be made upon seven (7) day's prior written notice to Beneficiary or the Disbursing Agent and shall be accompanied by a certificate to be made by the Architect stating that (i) all of the work completed has been done in compliance with the Plans and Specifications, as approved by Beneficiary, (ii) the sum requested is justly required to reimburse Trustor for payments by Trustor to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services and materials for the work (giving a brief description of such services and materials) and, when added to all sums previously paid out by Beneficiary or the Disbursing Agent, does not exceed the value of the work done to the date of such certificate, and (iii) the amount of such proceeds remaining with Beneficiary are sufficient on completion of the work to pay for the same in full (giving in such reasonable detail as Beneficiary may require an estimate of the cost of such completion); (3) Each request shall be accompanied by waivers of lien satisfactory to Beneficiary and the Disbursing Agent covering that part of the work for which payment or reimbursement is being requested and, if required by Beneficiary or the Disbursing Agent, by a search prepared by a title company satisfactory to Beneficiary or the Disbursing Agent, that there has not been filed with respect to the Property any mechanics', materialmen's or other liens; (4) The request for any payment after the work has been completed shall be accompanied by a copy of any certificate or certificates required by any Laws and Restrictions for legal occupancy of the Improvements; (5) Trustor shall deliver to Beneficiary or the Disbursing Agent certified or photostatic copies of all permits and approvals required by any Laws and Restrictions in connection with the commencement and conduct of the work; and (6) Trustor shall deliver to Beneficiary or the Disbursing Agent a surety bond for and/or guaranty of the payment for and completion of the work, which bond or guaranty shall be in form and substance satisfactory to Beneficiary and in an amount no less than the Architect's estimate of the entire cost of completing the work. F. Notwithstanding anything to the contrary contained herein or in any of the insurance policies, all proceeds paid to Trustor under such policies shall immediately be delivered to Beneficiary. If the Net Proceeds exceed the costs of completion of the restoration of the Property, such excess proceeds shall belong and be retained by and/or paid over to Beneficiary to be applied against the Indebtedness. If at any time the Net Proceeds shall not, in Beneficiary's opinion, be sufficient to pay in full the balance of the costs which will be incurred in connection with the repair and reconstruction of the Property and all payments as they come due on the Indebtedness and all other obligations which are or may be secured by a lien on the Property during the reconstruction period, Trustor shall, prior to receiving any further disbursement, either (i) complete, using its own funds and not borrowed funds, such portion of the reconstruction as shall be sufficient to render the Net Proceeds sufficient to complete the reconstruction, or (ii) deposit the deficiency with Beneficiary before any further disbursement of the Net Proceeds shall be made, which deficiency deposit shall be held by Beneficiary in an interest bearing special account and shall be disbursed on the same conditions applicable to the Net Proceeds. Beneficiary shall remit to Trustor the balance, if any, of any such deficiency deposit remaining after completion of the reconstruction. 33.2 Additional Provisions Relating to Condemnation. Trustor, immediately upon obtaining knowledge of the commencement of any proceedings for the condemnation of the entire Property or any material part thereof, will notify Trustee and the Beneficiary of the pendency of such proceedings. Trustee and Beneficiary may participate in any such proceedings and Trustor from time to time will deliver to Beneficiary all instruments requested by Beneficiary to permit such participation. In the event of such condemnation proceedings, the award or compensation payable is hereby assigned to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to question the amount of any such award or compensation and may accept the same in the amount in which the same shall be paid. In any such condemnation proceedings Beneficiary may be represented by counsel selected by Beneficiary, the cost of such counsel to be borne by Trustor. The proceeds of any award or compensation so received shall, subject to Paragraph 5.1.C hereof as it relates to condemnation, and at the option of Beneficiary, either be applied to the prepayment of the Indebtedness or be paid over to the Trustor for restoration of the Improvements in accordance with the provisions of Paragraph 5.1.E hereof. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under Section 1265.225(a) of the California Code of Civil Procedure or any successor statute. ARTICLE 34 Events of Default and Remedies of Beneficiary 34.1 Events of Default. A. If one or more of the following events shall have occurred and be continuing: (1) Trustor shall fail to pay when due any part of the Indebtedness; (2) Trustor shall fail to timely observe, perform or discharge any Obligation contained in any of the Loan Documents, any agreement relating to the Property or any other loan documents with respect to the Property on its part to be performed or observed, other than as described in Paragraphs 6.1.A(1), (3), (4), (5), (6), (7) and (8), and any such failure shall remain unremedied for thirty (30) days or such lesser period as may be otherwise specified in the applicable Loan Document (the "Grace Period") after notice to Trustor of the occurrence of such failure; provided, however, that the Grace Period may be extended to ninety (90) days if: (a) Beneficiary determines in good faith that (i) such default cannot be cured within the Grace Period but can be cured within ninety (90) days, (ii) no lien or security interest created by the Loan Documents shall be impaired prior to the completion of such cure, and (iii) Beneficiary's immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Beneficiary's security interest therein, and (b) Trustor shall immediately commence and diligently pursue the cure of such default; (3) Trustor, as lessor or sublessor, as the case may be, shall assign the rents or income of the Property or any part thereof (other than to Beneficiary) without first obtaining the written consent of Beneficiary; (4) Any representation or warranty made by Trustor in, under or pursuant to the Loan Documents was false or misleading in any material respect as of the date on which such representation or warranty was made or deemed remade, and Trustor does not cause to be taken and completed within thirty (30) days following notice of such breach any and all action required to cause such representation or warranty to be true and correct in all respects as originally made; (5) (i) Any claim or lien shall be filed against the Property or any part thereof, whether or not such lien shall be prior to this Deed of Trust, which shall be maintained for a period of thirty (30) days without discharge, satisfaction or adequate bonding in accordance with the terms of this Deed of Trust; (ii) the existence of any interest in the Property other than the Permitted Exceptions, those of Trustor, Trustee, Beneficiary and any tenants in the Property; or (iii) the sale, hypothecation, conveyance or other disposition of the Property without the prior written consent of Beneficiary except as the result of the condemnation of a non-material part of the Property as set forth in Paragraph 5.1 above or as otherwise expressly permitted under the Loan Documents; (6) Any of the Loan Documents, at any time after their respective execution and delivery and for any reason, other than an act or omission of Beneficiary, shall cease to be in full force and effect or be declared null and void, or shall cease to constitute valid and subsisting liens and/or valid and perfected security interests in and to the Property, or Trustor shall contest or deny in writing that it has any further liability or obligation under any of the Loan Documents; (7) The failure of Trustor to observe the provisions of Paragraph 4.2 hereof; and/or (8) An "Event of Default" occurs under any one or more of the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust and/or the South San Francisco Deed of Trust. THEN and in any such event Beneficiary may, by written notice delivered to Trustor, which notice specifically states the occurrence of an Event of Default, declare Trustor to be in default. Upon the occurrence of such event and the giving of such notice, the same shall constitute an event of default (an "Event of Default"). B. It shall constitute an Event of Default hereunder without the requirement of any notice if one or more of the following events shall have occurred and be continuing: (1) (i) The entry of an order for relief under Title 11 of the United States Code as to Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein or the adjudication of Trustor, any general partner of Trustor, or any owner of the Property as insolvent or bankrupt pursuant to the provisions of any state insolvency or bankruptcy act; (ii) the commencement by Trustor, any general partner of Trustor, or any parent company of such partner of any case, proceeding or other action seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors; (iii) consent to, acquiescence in or attempt to secure the appointment of any Receiver of all or any substantial part of its properties or of the Property by Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein; (iv) Trustor, any general partner of Trustor, or any parent company of such partner shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts or shall make a general assignment for the benefit of creditors; or (v) Trustor, any general partner of Trustor, or any parent company of such partner shall take any action to authorize any of the acts set forth above; or (2) Any case, proceeding or other action against Trustor, any general partner of Trustor, any parent company of such partner, or any owner of Property or any interest therein shall be commenced seeking to have an order for relief entered against such party as a debtor or seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors, or seeking the appointment of any Receiver for Trustor, any general partner thereof, or any parent company of such partner or for all or any substantial part of its property or the Property, and such case, proceeding or other action remains undismissed for an aggregate of sixty (60) days (whether or not consecutive) or Trustor or general partner or parent company during the period of its ownership fails to proceed diligently during such sixty (60) day period to have such proceeding or other action dismissed. C. Upon the occurrence of any Event of Default, Beneficiary may at any time declare all of the Indebtedness to be due and payable and the same shall thereupon become immediately due and payable, together with any prepayment fee due in accordance with the terms of the Note, without any further presentment, demand, protest or notice of any kind. Beneficiary may in its sole discretion, also do any of the following: (1) in person, by agent, or by a Receiver, and without regard to the adequacy of security, the solvency of Trustor or the condition of the Property, enter upon and take possession of the Property, or any part thereof, in its own name or in the name of Trustee and do any acts which Beneficiary deems necessary to preserve the value, marketability or rentability of the Property; sue for or otherwise collect the rents, issues and profits therefrom, including those past due and unpaid, and apply the same, less cost and expenses of operation and collection, including, without limitation, reasonable attorneys' fees, against the Indebtedness, all in such order as Beneficiary may determine. The entering upon and taking possession of said property, the collection of such rents, issues and profits and the application thereof as aforesaid shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice; (2) commence an action to foreclose this Deed of Trust in the manner provided under this Deed of Trust or by law; (3) with respect to any Personalty, proceed as to both the real and personal property in accordance with Beneficiary's rights and remedies in respect of the Land, or proceed to sell said Personalty separately and without regard to the Land in accordance with Beneficiary's rights and remedies as to personal property; and/or (4) deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause the Property to be sold, which notice Trustee or Beneficiary shall cause to be duly filed for record. 34.2 Power of Sale. A. Should Beneficiary elect to foreclose by exercise of the power of sale herein contained, Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of default having been given as then required by law, and after lapse of such time as may then be required by law, after recordation of such notice of default, Trustee, without demand on Trustor, shall, after notice of sale having been given as required by law, sell the Property at the time and place of sale fixed by it in said notice of sale, either as a whole or in separate parcels as Beneficiary shall determine, and in such order as Beneficiary may determine, at public auction to the highest bidder. Beneficiary may, in its sole discretion, designate the order in which the Property shall be offered for sale or sold through a single sale or through two or more successive sales, or in any other manner Beneficiary deems to be in its best interest. If Beneficiary elects more than one sale or other disposition of the Property, Beneficiary may at its option cause the same to be conducted simultaneously or successively, on the same day or at such different days or times and in such order as Beneficiary may deem to be in its best interest, and no such sale shall terminate or otherwise affect the lien of this Deed of Trust on any part of the Property not then sold until all Indebtedness secured hereby has been fully paid. If Beneficiary elects to dispose of the Property though more than one sale, Trustor shall pay the costs and expenses of each such sale of its interest in the Property and of any proceedings where the same may be made. Trustee may postpone sale of all or any part of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement, and without further notice make such sale at the time fixed by the last postponement; or Trustee may, in its discretion, give a new notice of sale. Beneficiary may rescind any such notice of default at any time before Trustee's sale by executing a notice of rescission and recording the same. The recordation of such notice shall constitute a cancellation of any prior declaration of default and demand for sale and of any acceleration of maturity of Indebted- ness affected by any prior declaration or notice of default. The exercise by Beneficiary of the right of rescission shall not constitute a waiver of any default then existing or subsequently occurring, or impair the right of Beneficiary to execute other declarations of default and demand for sale, or notices of default and of election to cause the Property to be sold, nor otherwise affect the Note or this Deed of Trust, or any of the rights, obligations or remedies of Beneficiary or Trustee hereunder or thereunder. After sale Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale. If allowed by law, Beneficiary, if it is the purchaser, may turn in the Note at the amount owing therein toward payment of the purchase price (or for endorsement of the purchase price as a payment on the Note if the amount owing thereon exceeds the purchase price). Trustor hereby expressly waives any right of redemption after sale that Trustor may have at the time of sale or that may apply to the sale. Trustor hereby expressly waives all rights of marshalling with respect to each of the Combined Properties that Trustor may have in the event of foreclosure hereunder or under any of the other Combined Deeds of Trust. B. Trustee, upon such sale, shall make (without any covenant or warranty, express or implied), execute and after due payment made, deliver to the purchaser, its heirs or assigns, a deed or other record of interest, as the case may be, in and to the property so sold that shall convey to the purchaser all the title and interest of Trustor in the Property (or part thereof sold), and shall apply the proceeds of such sale in payment, first, of the expenses of such sale together with the reasonable expenses of the trust, including, without limitation, attorneys' fees, that shall become due upon any default made by Trustor, and also such sums, if any, as Trustee or Beneficiary shall have paid for procuring a search of the title to the Property, or any part thereof, subsequent to the execution of this Deed of Trust; and in payment, second, of the Indebtedness then remaining unpaid, and the amount of all other monies with interest thereon agreed or provided to be paid by Trustor; and the balance or surplus of such proceeds of sale Trustee shall pay to Trustor, its successors or assigns as their interest may appear. 34.3 Proof of Default. In the event of a sale of the Property, or any part thereof, and the execution of a deed therefor, the recital therein of default, and of recording notice of default and election of sale, and of the elapsing of the required time (if any) between the foregoing recording and the following notice, and of the giving of notice of sale, and of a demand by Beneficiary, or its successors or assigns, that such sale should be made, shall be conclusive proof of such default, recording, election, elapsing of time, and of the due giving of such notice, and that the sale was regularly and validly made on due and proper demand by Beneficiary, its successors or assigns. Any such deed or deeds with such recitals therein shall be effective and conclusive against Trustor, its successors and assigns, and all other Persons. The receipt for the purchase money recited or contained in any deed executed to the purchaser as aforesaid shall be sufficient to discharge such purchaser from all obligations to see to the proper application of the purchase money. 34.4 Protection of Security. If an Event of Default shall have occurred and be continuing, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligations or defaults hereunder, may: (i) perform any act in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary and Trustee being authorized to enter upon the Property for such purpose; (ii) appear in and defend any action or proceeding purporting to affect, in any manner whatsoever, the obligations or the Indebtedness, the security hereof or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase or compromise any encumbrance, charge or lien that in the judgment of Beneficiary or Trustee is prior or superior hereto; and (iv) in exercising any such powers, pay necessary expenses, employ counsel and pay reasonable attorneys' fees. Trustor agrees that all sums expended by Trustee or Beneficiary pursuant to this paragraph, together with interest at the Secondary Interest Rate from the date of expenditure by Beneficiary, shall be added to the principal amount of the Indebtedness secured by the Loan Documents and this Deed of Trust and shall be payable by Trustor to Beneficiary upon demand. 34.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of strict right and without notice to Trustor or anyone claiming under Trustor, and without regard to the then value of the Property, shall have the right to apply ex parte to any court having jurisdiction to appoint a Receiver to enter upon and take possession of the Property, and Trustor hereby waives notice of any application therefor, provided a hearing to confirm such appointment with notice to Trustor is set within the time required by law. Any such Receiver shall have all the powers and duties of Receivers in like or similar cases and all the powers and duties of Beneficiary in case of entry as provided in this Deed of Trust, and shall continue as such and exercise all such powers until the date of confirmation of sale, unless such receivership is sooner terminated. 34.6 Remedies Cumulative. All remedies of Beneficiary provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the other Loan Documents or by law, including, without limitation, any right of offset. The exercise of any right or remedy by Beneficiary hereunder shall not in any way constitute a cure or waiver of default hereunder or under the Loan Documents, or invalidate any act done pursuant to any notice of default, or prejudice Beneficiary in the exercise of any of its rights hereunder or under the Loan Documents. 34.7 Curing of Defaults. If Trustor shall at any time fail to perform or comply with any of the terms, covenants and conditions required on Trustor's part to be performed and complied with under this Deed of Trust, any of the other Loan Documents or any other agreement that, under the terms of this Deed of Trust, Trustor is required to perform, then Beneficiary, and without waiving or releasing Trustor from any of the Obligations, may, in its sole discretion: (i) make any payments thereunder payable by Trustor and take out, pay for and maintain any of the insurance policies provided for therein; and/or (ii) after the expiration of any applicable grace period and subject to Trustor's rights to contest certain obligations specifically granted hereby, perform any such other acts thereunder on the part of Trustor to be performed and enter upon the Property for such purpose. All sums so paid out of Beneficiary's own funds and all reasonable costs and expenses incurred and paid by Beneficiary in connection with the performance of any such act, together with interest on unpaid balances thereof at the Secondary Interest Rate from the respective dates of Beneficiary's making of each such payment, shall be added to the principal of the Indebtedness, shall be secured by the Loan Documents and by the lien of this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, and shall be payable by Trustor to Beneficiary on demand. ARTICLE 35 Security Agreement and Fixture Filing 35.1 Grant of Security Interest. Trustor hereby grants to Beneficiary a security interest in and to all Trustor's right, title and interest now owned or hereafter acquired in and to the Personalty and the Fixtures (collectively, the "Collateral"), to secure the payment and performance of the Obligations. 35.2 Remedies. This Deed of Trust constitutes a security agreement with respect to the Collateral in which Beneficiary is hereby granted a security interest. In addition to the rights and remedies provided under this Deed of Trust, Beneficiary shall have all of the rights and remedies of a secured party under the California Uniform Commercial Code as well as all other rights and remedies available at law or in equity. Trustor hereby agrees to execute and deliver on demand and irrevocably constitutes and appoints Beneficiary the attorney-in-fact of Trustor to, at Trustor's expense, execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements, con- tinuation statements or other instruments as Beneficiary may request or require in order to impose, perfect or continue the perfection of the lien or security interest created hereby. Upon the occurrence of any Event of Default, Beneficiary shall have (i) the right to cause any of the Collateral which is personal property to be sold at any one or more public or private sales as permitted by applicable law and to apply the proceeds thereof to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, and (ii) the right to apply to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, any Collateral which is cash, negotiable documents or chattel paper. Any such disposition may be conducted by an employee or agent of Beneficiary or Trustee. Any Person, including, without limitation, both Trustor and Beneficiary, shall be eligible to purchase any part or all of such Personalty at any such disposition. 35.3 Expenses. Expenses of retaking, holding, preparing for sale, selling or the like pertaining to the Collateral shall be borne by Trustor and shall include Beneficiary's and Trustee's reasonable attorneys' fees and legal expenses. Trustor, upon demand of Beneficiary shall assemble the Collateral and make it available to Beneficiary at the Property, a place which is hereby deemed to be reasonably convenient to Beneficiary and Trustor. Beneficiary shall give Trustor at least ten (10) days' prior written notice of the time and place of any public sale or other disposition of the Collateral or of the time after which any private sale or any other intended disposition is to be made. Any such notice sent to Trustor in the manner provided for the mailing of notices herein is hereby deemed to be reasonable notice to Trustor. 35.4 Fixture Filing. This Deed of Trust covers certain goods which are or are to become fixtures related to the Land and constitutes a fixture filing with respect to such goods executed by Trustor as debtor in favor of Beneficiary as secured party. 35.5 Waivers. Trustor waives (a) any right to require Beneficiary to (i) proceed against any Person, (ii) proceed against or exhaust any Collateral or (iii) pursue any other remedy in its power; and (b) any defense arising by reason of any disability or other defense of Trustor or any other Person, or by reason of the cessation from any cause whatsoever of the liability of Trustor or any other Person. Until the Indebtedness shall have been paid in full, Trustor shall not have any right to subrogation, and Trustor waives any right to enforce any remedy which Beneficiary now has or may hereafter have against Trustor or against any other Person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by Beneficiary. ARTICLE 36 Assignment of Rents 36.1 Assignment of Rents. Trustor absolutely and unconditionally assigns and transfers the Rents to Beneficiary, whether now due, past due or to become due, and gives to and confers upon Beneficiary the right, power and authority to collect such Rents, and apply the same to the Indebtedness. Trustor irrevocably appoints Beneficiary its agent to, at any time, demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, either in the name of Trustor or in the name of Beneficiary, for all such Rents. Neither the foregoing assignment of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or remedies under this Deed of Trust shall be deemed to make Beneficiary a "mortgagee- in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof, unless and until Beneficiary, in person or by its own agent, assumes actual possession thereof, nor shall appointment of a Receiver for the Property by any court at the request of Beneficiary or by agreement with Trustor or the entering into possession of the Property or any part thereof by such Receiver be deemed to make Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof. 36.2 Collection of Rents. Notwithstanding anything to the contrary contained herein or in the Note, so long as no Event of Default shall occur, Trustor shall have a license, revocable upon the occurrence of an Event of Default or, if an Event of Default shall have occurred, so long as such Event of Default shall not have been waived by Beneficiary, to collect all Rents, and to first apply same to the Indebtedness as and when due and thereafter to retain, use and enjoy the same and to otherwise exercise all rights with respect thereto, subject to the terms hereof. Upon the occurrence of an Event of Default, Beneficiary shall have the right, on written notice to Trustor, to terminate and revoke the license heretofore granted to Trustor and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein or by law or at equity. ARTICLE 37 Miscellaneous 37.1 Successor Trustee. Beneficiary may remove Trustee or any successor trustee at any time or times and appoint a successor trustee by recording a written substitution in the county where the Property is located, or in any other manner permitted by law. 37.2 Change of Law. In the event of the passage, after the date of this Deed of Trust, of any law deducting from the value of the Property, for the purposes of taxation, any lien thereon, or changing in any way the laws now in force for the taxation of mortgages, deeds of trust, or debts secured by mortgage or deed of trust (other than laws imposing taxes on income), or the manner of the collection of any such taxes so as to materially affect the anticipated yield of Beneficiary as holder of the Note and/or Benefi- ciary under this Deed of Trust, the Indebtedness plus any applicable prepayment charges shall become due and payable at the option of Beneficiary exercised by thirty (30) days' notice to Trustor unless Trustor, within such thirty (30) day period shall, if permitted by law, assume the payment of any tax or other charge so imposed upon Beneficiary for the period remaining until full payment by Trustor of the Indebtedness. 37.3 No Waiver. No waiver by Beneficiary of any default or breach by Trustor hereunder shall be implied from any omission by Beneficiary to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default expressly referenced in the waiver and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Beneficiary to or of any act by Trustor requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. 37.4 Abandonment. Subject to such chattel mortgages, security agreements or other liens on title as may exist thereon with the consent of Beneficiary, or any provided for herein, any and all Personalty that upon foreclosure of the Property is owned by Trustor and is used in connection with the operation of the Property shall be deemed at the option of Beneficiary to have become on such date a part of the Property and abandoned to Beneficiary in its then condition. 37.5 Notices. All notices, demands, requests, consents, statements, satisfactions, waivers, designations, refusals, confirmation or denials that may be required or otherwise provided for or contemplated under the terms of this Deed of Trust shall be in writing, and shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged, (ii) one business day after having been deposited for overnight delivery with Federal Express or another comparable overnight courier service, or (iii) three business days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows: If to Trustor: Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, California 94549 Attention: Mr. Scott Whitney If to Trustee: First American Title Insurance Company 1850 Mount Diablo Boulevard, Suite 300 Walnut Creek, California 94596 If to Beneficiary: The Prudential Insurance Company of America Four Embarcadero Center Suite 2700 San Francisco, California 94111 Attention: Regional Counsel Loan No. 6 101 085 with a copy to: The Prudential Insurance Company of America One Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Vice President, Loan Servicing Loan No. 6 101 085 or addressed to each respective party at such other address as such party may from time to time designate by written notice to the other parties given in the manner aforesaid. 37.6 Severability. If any term, provision, covenant or condition hereof or any application thereof should be held by a court of competent jurisdiction to be invalid, void or unenforceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. 37.7 Joinder of Foreclosure. Should Beneficiary hold any other or additional security for the payment of the Indebtedness or performance of the Obligations, its sale or foreclosure, upon any default in such payment or performance, in the sole discretion of Beneficiary, may be prior to, subsequent to, or joined or otherwise contemporaneous with any sale or foreclosure hereunder. In addition to the rights herein specifically conferred, Beneficiary, at any time and from time to time, may exercise any right or remedy now or hereafter given by law to beneficiaries under deeds of trust generally, or to the holders of any obligations of the kind hereby secured. 37.8 Governing Law. The parties expressly agree that this Deed of Trust (including, without limitation, all questions regarding permissible rates of interest) shall be governed by and construed in accordance with the laws of the state in which the Land is located. 37.9 Subordination. At the option of Beneficiary, this Deed of Trust shall become subject and subordinate in whole or in part (but not with respect to priority of entitlement to any insurance proceeds, damages, awards, or compensation resulting from damage to the Property or condemnation or exercise of power of eminent domain), to any and all contracts of sale and/or any and all Leases upon the execution by Beneficiary and recording thereof in the Official Records of the County in which the Land is located of a unilateral declaration to that effect. Beneficiary may require the issuance of such title insurance endorsements to the Title Policy in connection with any such subordination as Beneficiary, in its reasonable judgment, shall determine are appropriate, and Trustor shall be obligated to pay any cost or expense incurred in connection with the issuance thereof. 37.10 Future Advances. Upon the request of Trustor or its permitted successors in ownership of the Property, Beneficiary may hereafter, at its option, at any time before full payment of the Indebtedness, make future advances to Trustor or said successors, and the same, with interest and late charges, shall be secured by this Deed of Trust; provided, however, that the amount of principal secured by this Deed of Trust and remaining unpaid, shall not at the time of and including any such advance exceed the original principal sum secured hereby; and provided further that if Beneficiary, at its option, shall make a future advance or advances as aforesaid, Trustor or said successors in ownership agree to execute and deliver to Beneficiary (i) a note to evidence the same, payable on or before the maturity of the Indebtedness secured hereby and bearing such other terms as Beneficiary shall require, and (ii) satisfactory evidence that after such advance this Deed of Trust will secure such advance and continue to constitute a valid first mortgage lien on the Property subject only to the Permitted Exceptions. 37.11 Waiver of Statute of Limitations and Rights to Trial by Jury. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust and the right to a jury trial in any action under or relating to the Loan Documents is hereby waived, to the fullest extent allowed by law. 37.12 Entire Agreement. The Loan Documents and the Remediation and Indemnification Agreements set forth the entire understanding between Trustor and Beneficiary relative to the Loan and the same shall not be amended except by a written instrument duly executed by each of Trustor and Beneficiary. Any and all previous representations, warranties, agreements and understandings between or among the parties regarding the subject matter of the Loan or the Loan Documents, whether written or oral, are superseded by this Deed of Trust and the other Loan Documents. The foregoing notwithstanding, the terms and the conditions of the Application shall survive the funding of the Loan but in the event of any conflict between the provisions of the Application and any of the other Loan Documents or the Remediation and Indemnification Agreements, except as otherwise specifically provided herein, the terms of such other Loan Documents and the Remediation and Indemnification Agreements shall control. 37.13 References to Foreclosure. References in this Deed of Trust to "foreclosure" and related phrases shall be deemed references to the appropriate procedure in connection with Trustee's private power of sale as well as any judicial foreclosure proceeding or a conveyance in lieu of foreclosure. 37.14 Rights of Beneficiary and Trustee. At any time or from time to time, without liability therefor and without notice, and without releasing or otherwise affecting the liability of any person for payment of any Indebtedness (i) Beneficiary at its sole discretion and only in writing may extend the time for, or release any Person now or hereafter liable for, payment of any or all such Indebtedness, or accept or release additional security therefor, or subordinate the lien or charge hereof, or (ii) Trustee upon written request of Beneficiary and presentation of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust for endorsement may reconvey any part of the Property, consent to the making of any map or plat thereof, join in granting any easement thereon, or join in any such agreement of extension or subordination. Upon written request of Beneficiary and surrender of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust to the Trustee for cancellation, and upon payment to Trustee of its fees and expenses, Trustee shall reconvey without warranty the remaining Property. The recitals in any reconveyance shall be conclusive proof of the truthfulness thereof and the grantee in any reconveyance may be described as "the person or persons legally entitled thereto." 37.15 Copies. Trustor will promptly give to Beneficiary copies of all (i) notices of violation relating to the Property that Trustor receives from any governmental agency or author- ity, and (ii) notices of default that Trustor shall give or receive under any agreement that Trustor covenants to perform hereunder, including, without limitation, notices of default relating to the Property that Trustor receives under any agreement relating to the borrowing of money by Trustor or from any Person. 37.16 No Merger. So long as any of the Indebtedness shall remain unpaid or Trustor shall have any further obligation under the Loan Documents, unless Beneficiary shall otherwise consent in writing, the fee estate of Trustor in the Property or any part thereof shall not merge, by operation of law or otherwise, with any leasehold or other estate in the Property or any part thereof, but shall always be kept separate and distinct therefrom, notwithstanding the union of said fee estate and such leasehold or other estate in Trustor or any other Person. 37.17 Right of Entry. In addition to the rights granted to Beneficiary under Paragraph 3.10 hereof, Beneficiary may enter at any reasonable time upon any part of the Property for the purpose of performing any of the acts Beneficiary is authorized to perform under the terms of this Deed of Trust or of any of the other Loan Documents. Trustor agrees to cooperate with Beneficiary to facilitate such entry. 37.18 Performance by Trustor. Trustor will faithfully perform each and every Obligation to be performed by Trustor under any lien or encumbrance, including, without limitation, mortgages, deeds of trust, leases, declarations or covenants, conditions and/or restrictions and other agreements which affect the Property. If Trustor fails to do so, Beneficiary, without demand or notice, may do any or all things necessary to perform the Obligations of Trustor under the pertinent instrument. 37.19 Personalty Security Instruments. Trustor covenants and agrees that if Beneficiary at any time holds additional security for any obligations secured hereby, it may enforce the terms thereof or otherwise realize upon the same, at its option, either before or concurrently herewith or after a sale is made hereunder, and may apply the proceeds upon the Indebtedness secured hereby without affecting the status of or waiving any right to exhaust all or any other security, including the security hereunder, and without waiving any breach or default or any right or power whether exercised hereunder, and without waiving any breach or default or any right or power whether exercised hereunder or contained herein or in any such other security. 37.20 Suits to Protect Property. Trustor covenants and agrees to appear in and defend any action or proceeding purporting to affect the security of the Deed of Trust, or of any additional or other security for the Obligations, the interest of Beneficiary or the rights, powers and duties of Trustee hereunder; and to pay all costs and expenses, including, without limitation, costs of evidence of title and reasonable attorneys' fees, in any action or proceeding in which Beneficiary and/or Trustee may appear or be made a party, including, without limitation, foreclosure or other proceedings commenced by those claiming a right to any part of the Property in any action to partition or condemn all or part of the Property, whether or not pursued to final judgment, and in any exercise of the power of sale contained herein, whether or not the sale is actually consummated. Trustee agrees that in any such action or proceeding in which Beneficiary is made a party, Beneficiary may at its option defend such action, and all costs of such defense, including all court costs and reasonable attorneys' fees, shall be borne and paid by Trustor. 37.21 Junior Liens. Trustor represents and warrants that as of the date hereof there are no encumbrances to secure debt junior to this Deed of Trust and covenants that there are to be none as of the date when this Deed of Trust becomes of record. 37.22 Charges for Statements. Trustor agrees to pay Beneficiary's charge, up to the maximum amount permitted by law, for any statement regarding the obligations secured by this Deed of Trust requested by Trustor or on its behalf. 37.23 Usury. In the event that Beneficiary determines that any charge, fee or interest paid or agreed to be paid in connection with the Loan may, under the applicable usury laws, cause the interest rate on the Loan to exceed the maximum permitted by law, then such charges, fees or interest shall be reduced and any amounts actually paid in excess of the maximum interest permitted by such laws shall be applied by Beneficiary to reduce the outstanding principal balance of the Loan. The parties intend that Trustor shall not be required to pay, and Beneficiary shall not be entitled to collect, interest in excess of the maximum legal rate permitted under the applicable usury laws. 37.24 Publicity. Trustor hereby agrees that Beneficiary, at its expense, may publicize the financing of the Property. Beneficiary shall endeavor to notify Trustor of its intent to publicize the financing; provided, however, that Beneficiary's failure to so notify Trustor shall not constitute a breach by Beneficiary under the Loan Documents. 37.25 Information Reporting Under IRC Section 6045(e). Any information returns or certifications that must be filed with the Internal Revenue Service and/or provided to other parties, pursuant to Internal Revenue Code Section 6045(e) shall be prepared, filed by and sent to the appropriate parties by Trustor. To the extent permitted by law, Beneficiary shall have no responsibility to perform such services; provided however, upon demand Trustor shall reimburse Beneficiary for any costs incurred by Beneficiary in doing so and shall also pay such fee as Beneficiary may reasonably and lawfully request. Beneficiary shall, where requested by Trustor, promptly supply Trustor with all information pertaining to Beneficiary reasonably required by Trustor to prepare and file any such return or certification. Trustor shall indemnify Beneficiary and defend, protect and hold Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims) that Beneficiary may incur, directly or indirectly, as a result of or in connection with the assertion against Beneficiary of any claim relating to the failure of Trustor to comply with its obligations under this Paragraph. 37.26 ERISA. A. Trustor understands and acknowledges that on the Closing Date, the source of funds from which Beneficiary extends the Loan is its general account, which is subject to the claims of its general creditors under state law. Beneficiary (i) represents and warrants that either (a) it is not funding the Loan with Plan Assets (as described below) or (b) if Beneficiary is funding the Loan with Plan Assets, such funding satisfies the provisions of Prohibited Transaction Class Exemption 95-60 and (ii) covenants that either clause (a) or (b) immediately above will be true throughout the term of the Loan. B. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, and (ii) the assets of Trustor do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 ("Plan Assets"). C. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not a "governmental plan" within the meaning of Section 3(32) of ERISA, and (ii) transactions by or with Trustor are not subject to state statutes regulating investments of and fiduciary obligations with respect to governmental plans. D. Trustor covenants and agrees to deliver to Beneficiary such certifications or other evidence on the Closing Date and from time to time throughout the term of the Loan, as requested by Beneficiary in its sole discretion, that (i) Trustor is not an "employee benefit plan" or a "governmental plan"; and (ii) Trustor is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (1) Equity interests in Trustor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than twenty-five percent (25%) of all equity interests in Trustor are held by "benefit plan investors" within the meaning of 29 C.F.R Section 2510.3-101(f)(2); or (3) Trustor qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). E. Any of the following shall constitute an Event of Default entitling Beneficiary to exercise any and all remedies to which it may be entitled under the Loan Documents: (i) the failure of any representation or warranty made by Trustor under this Paragraph 9.26 to be true and correct in all material respects, (ii) the failure of Trustor to comply in all material respects with the obligation to provide Beneficiary with the written certifications and evidence referred to above, or (iii) assuming compliance by Beneficiary with the representations, warranties and covenants in Paragraph 9.26.Aabove, the consummation by Trustor of a transaction which would cause the Loan or any exercise of Beneficiary's rights under the Loan Documents to constitute a non-exempt prohibited transaction under ERISA or a material violation of a state statute regulating governmental plans, subjecting Beneficiary to liability for violation of ERISA or such state statute, provided, that Trustor shall have thirty (30) days after its receipt of notice of default from Beneficiary within which to commence the cure of such default and, with respect to defaults under clause (i) immediately above, Trustor shall have an additional ninety (90) days thereafter within which to effect such cure provided it shall have commenced its efforts to cure within such thirty (30) day period and shall thereafter diligently and in good faith continuously prosecute such cure to completion. Failure by Trustor to cure any such default within the applicable time period set forth above shall constitute an Event of Default. F. Trustor hereby indemnifies, defends and holds Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims and losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required) that Beneficiary may incur as a direct result of an Event of Default under clause (E) above, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. This indemnity shall survive any termination, satisfaction or foreclosure of this Deed of Trust and shall not be subject to the limitation on personal liability described in Paragraph 19 of the Note. G. Anything in the Application, Paragraph 4.2 or elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no sale, assignment or transfer of any direct or indirect interest in Trustor shall be permitted which would negate Trustor's representations in this Paragraph 9.26 or cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of any provision of ERISA or of any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. H. Anything in the Application, Paragraph 4.2 elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no direct or indirect transfer of the Property or any interest therein including, without limitation, a junior lien or leasehold interest, shall be permitted which would cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of ERISA or any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. I. Anything in the Application, this Deed of Trust or the Loan Documents to the contrary notwithstanding, no less than fifteen (15) before consummation of any permitted transfer of title to the Property or of an interest in Trustor, or of any direct or indirect right, title or interest in either of them, or of the placing of any lien or encumbrance on the Property, Borrower shall obtain from the proposed transferee or lienholder a representation to Beneficiary in form and substance satisfactory to Beneficiary that the provisions of Paragraph 9.26.D above will be true after the transfer, or in the case of a lien or encumbrance, would remain true following any foreclosure or conveyance in lieu thereof, and further provided that any proposed lienholder agrees that any direct or indirect transfer of its lien or any interest therein will be governed by this section. 37.27 Defense and Indemnity Rights. Whenever, under any Loan Document, Trustor is obligated to indemnify and/or defend Beneficiary, or Trustor is obligated to defend or prosecute any action or proceeding, then Beneficiary shall have the right of counsel of Beneficiary's choice reasonably exercised, and all costs and expenses incurred by Beneficiary in connection with such participation (including, without limitation, reasonable attorneys' fees) shall be reimbursed by Trustor to Beneficiary immediately upon demand. In addition, Beneficiary shall have the right to approve any counsel retained by Trustor in connection with the prosecution or defense of any such action or proceeding by Trustor. Trustor shall give notice to Beneficiary of the initiation of all proceedings prosecuted or required to be defended by Trustor, or which are subject to Trustor's indemnity obligations, under this Deed of Trust, promptly after the receipt by Trustor of notice of the existence of any such proceeding, but in no event later than five (5) days thereafter. All costs or expenses required to be reimbursed by Trustor to Beneficiary hereunder shall, if not paid when due as herein specified, bear interest at the Secondary Interest Rate. As used herein, "proceeding" shall include litigation (whether by way of complaint, answer, cross-complaint, counter claim or third party claim), arbitration and administrative hearings or proceedings. 37.28 Destruction of Note. Trustor shall, if the Note is mutilated or destroyed by any cause whatsoever, or otherwise lost or stolen and regardless of whether due to the act or neglect of Beneficiary or Trustee, execute and deliver to Beneficiary in substitution therefor a duplicate promissory note containing the same terms and conditions as the Note, within ten (10) days after Beneficiary notifies Trustor of any such mutilation, destruction, loss or theft of the Note. Any new promissory note executed and delivered hereunder shall be in full substitution for the Note, shall not constitute any new or additional indebtedness of Trustor to Beneficiary, shall constitute solely a substitute evidence of the indebtedness evidenced by the original Note, and shall not affect in any manner the priority of this Deed of Trust, or any other document or instrument executed in connection with or evidencing or securing the Indebtedness under the Note. Failure or delay by Beneficiary to notify Trustor hereunder shall not affect in any manner Trustor's lia- bility for the Indebtedness under the Note or Trustor's obligation to execute a new promissory note hereunder; and Trustor's failure to execute a new promissory note on Beneficiary's request hereunder shall likewise not affect Trustor's liability for the indebtedness under the Note. 37.29 Trustor, Beneficiary and Trustee Defined. As used in this Deed of Trust, "Trustor" includes the original signators of this Deed of Trust as Trustor, and its successors and assigns; the term "Beneficiary" means the Beneficiary named herein or any future owner or holder, including pledgee and participants, of any note, notes or instrument secured hereby, or any participation therein; and "Trustee" includes the original Trustee under this Deed of Trust and its successors and assigns. 37.30 Rules of Construction. When the identity of the parties or other circumstances make appropriate, the masculine gender shall include the feminine and/or neuter, and the singular number shall include the plural. Specific enumeration of rights, powers and remedies of Trustee and Beneficiary and of acts which they may do and of acts Trustor must do or not do shall not exclude or limit the general. The headings of each Article and Paragraph are for information and convenience and do not limit or construe the contents of any provision hereof. The provisions of this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements shall be construed as a whole according to their common meaning, not strictly for or against any party and consistent with the provisions herein contained, in order to achieve the objectives and purposes of such documents. Each party and its counsel has reviewed and revised the Loan Documents and the Remediation and Indemnification Agreements and agree that the normal rule of construction to the effect that any ambiguities to be resolved against the drafting party shall not be employed in the interpretation of such document. The use in this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements of the words "including," "such as," or words of similar import, when following any general term, statement or matter shall not be construed to limit such statement, term or matter to the specific items or matters, whether or not language of non- limitation such as "without limitation" or "but not limited to," or words of similar import, are used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such statement, term or matter. 37.31 Information to Third Persons. If, at any time, Beneficiary desires to sell or transfer, or grant a participation interest in, all or any portion of, or any interest in, the Note, this Deed of Trust or any other Loan Document to any Person, Trustor and each Loan Party shall furnish in a timely manner any and all financial information concerning the Property and Leases, and concerning Trustor's or such Loan Party's financial condition, requested by Beneficiary or such person in connection with any such sale or transfer. 37.32 Commingling of Funds. Any and all sums collected or retained by Beneficiary hereunder (including insurance and condemnation proceeds and any amounts paid by Trustor to Beneficiary under Paragraph 3.4 hereof), shall not be deemed to be held in trust, and Beneficiary may commingle any and all such funds or proceeds with its general assets and shall not be liable for the payment of any interest or other return thereon, except to the extent expressly provided herein or otherwise required by law. 37.33 Standards of Discretion. Nothing contained in this Deed of Trust, the Note, or any other Loan Documents, shall limit the right of Beneficiary to exercise its good faith business judgment, or act, in a subjective manner with respect to any matter as to which it has specifically been granted such right or the right to act in its sole discretion or sole judgment hereunder or thereunder, whether "objectively" reasonable under the circumstances. Any such exercise shall not be deemed inconsistent with any covenant of good faith and fair dealing otherwise implied by law to be a part of this Deed of Trust; and the parties intend by the foregoing to set forth and affirm their entire understanding with respect to the terms, covenants and conditions and standards pursuant to which their rights, duties and obligations are to be judged, their performance measured, and the parameters within which Beneficiary's discretion may be exercised hereunder and under the other Loan Documents; provided, however, that the foregoing shall not limit Beneficiary's obligation to act reasonably under the circumstances where any provision of the Loan Documents provides for the reasonable consent or approval of Beneficiary. 37.34 Certain Standards on Efforts of Trustor. Whenever in this Deed of Trust, or any other Loan Document, the phrase "cause to be" is used in conjunction with any of Trustor's Obligations, such phrase shall be deemed to include the use by Trustor of best efforts and all due diligence to cause the applicable act, event or circumstance to occur or be performed or taken, and such efforts and due diligence shall encompass the initiation of litigation or other proceedings in order to enforce or bring about the happening of the applicable act or matter. 37.35 Certain Obligations Unsecured. Notwithstanding anything to the contrary set forth herein or any of the Loan Documents, this Deed of Trust shall not secure the following obligations (the "Unsecured Obligations"): (i) any obligations evidenced by or arising under the Remediation and Indemnification Agreements, and (ii) any other obligations in this Deed of Trust or in any of the other Loan Documents to the extent that such other obligations relate specifically to the presence on the Property of Hazardous Materials (as defined in the Remediation and Indemnification Agreements) and are the same or have the same effect as any of the obligations evidenced by or arising under the Remediation and Indemnification Agreements. Any breach or default with respect to the Unsecured Obligations shall constitute an Event of Default hereunder, notwithstanding the fact that such Unsecured Obligations are not secured by this Deed of Trust. Nothing in this section shall, in itself, impair or limit Beneficiary's right to obtain a judgment in accordance with applicable law after foreclosure for any deficiency in recovery of all obligations that are secured by this Deed of Trust following foreclosure. 37.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfaction of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, and the South San Francisco Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non- refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. 37.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be executed as of the day and year first above written. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] [11128.AGRE]H61141 State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington , a notary public, personally appeared Scott R. Whitney personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public (seal) RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (South San Francisco) THIS DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING WITH ASSIGNMENT OF LEASES, RENTS AND AGREEMENTS (this "Deed of Trust") dated as of January 30, 1998 is made by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation, having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Trustor"), First American Title Insurance Company, having offices at 1850 Mount Diablo Boulevard, Suite 300, Walnut Creek, California 94596 ("Trustee"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Beneficiary"). WITNESSETH: Trustor HEREBY IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO Trustee, IN TRUST, WITH POWER OF SALE, all of Trustor's right, title and interest now owned or hereafter acquired in and to the following property, together with the Personalty (as hereinafter defined), all of which is hereinafter collectively defined as the "Property": (i) those certain real properties (collectively, the "Land") located in the County of San Mateo, State of California, and more particularly described in Exhibit A-1 and Exhibit A-2 attached hereto and incorporated herein by this reference; (ii) all Improvements (as hereinafter defined) and all appurtenances, easements, rights and privileges thereof, including all minerals, oil, gas and other hydrocarbon substances thereon or therein, air rights, water rights and development rights, and any land lying in the streets, roads or avenues adjoining the Land or any part thereof; (iii) all Fixtures (as hereinafter defined), whether now or hereafter installed, being hereby declared to be for all purposes of this Deed of Trust a part of the Land; and (iv) the rents, issues and profits of or from the Land, Improvements and Fixtures. FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary may determine: (i) payment of the Indebtedness (as hereinafter defined), and (ii) payment (with interest as provided) and performance by Trustor of the Obligations (as hereinafter defined). Notwithstanding the foregoing, or any other term contained herein or in the Loan Documents, none of Trustor's obligations under or pursuant to the Remediation and Indemnification Agreements (as hereinafter defined) shall be secured by the lien of this Deed of Trust. ARTICLE 38 Definitions As used in this Deed of Trust the following terms shall have the following meanings; other terms are defined where they appear in this Deed of Trust: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; and (viii) for the properties encumbered by this Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000. Application: Collectively, the Application dated December 5, 1995, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application dated January 5, 1996, executed by Trustor (referred to as "Borrower" therein), which Application includes the exhibits attached thereto, the Application executed by Trustor (referred to as "Borrower" therein) on April 13, 1996, which Application includes the exhibits attached thereto, and the Application executed by Trustor (referred to as "Borrower" therein) on October 31, 1997, which Application includes the exhibits attached thereto. Arizona Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of even date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Closing Date: The date this Deed of Trust is recorded in the Official Records of Alameda County, California. Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the preceding twelve- month period for the Remaining Properties, to (b) the sum of (i) the annual debt service payments (including principal and interest) for the preceding twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Combined Deeds of Trust: Collectively, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, and the Fremont Deed of Trust. Combined Loan to Value Ratio: The ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of all encumbrances against the Remaining Properties, to (ii) the fair market value of the Remaining Properties, as determined by Beneficiary. Combined Properties: Collectively, the Property, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Arizona Deed of Trust, and the property encumbered by the Fremont Deed of Trust. Event of Default: As defined in Paragraph 6.1 hereof. Fixtures: All fixtures located upon or within the Improvements or now or hereafter installed in, or used in connection with any of the Improvements, including boilers, furnaces, pipes, plumbing, elevators, cleaning and sprinkler systems, fire extinguishing apparatus and equipment, water tanks, heating, ventilating, air conditioning and air cooling equipment, whether or not permanently affixed to the Land or the Improvements. Fremont Deed of Trust: That certain Deed of Trust dated as of this date herewith, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California as amended from time to time. Future Combined Debt Service Coverage: The ratio, as determined by Beneficiary, of (a) Net Operating Income for the immediately upcoming twelve-month period for the Remaining Properties (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) for the same twelve-month period on the portion of the Loan consisting of the aggregate of the Allocable Loan Amounts for the Remaining Properties, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of the Remaining Properties for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory notes or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Future Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the next upcoming twelve-month period (based on reasonable assumptions determined by Beneficiary), to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the same twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the same twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Impositions: All real estate and personal property and other taxes and assessments, water and sewer rates and charges levied or assessed upon or with respect to the Property, and all other governmental charges and any interest or costs or penalties with respect thereto, ground rent and charges for any easement or agreement maintained for the benefit of the Property, general and special, ordinary and extraordinary, foreseen or unforeseen, of any kind and nature whatsoever that at any time prior to or after the execution of the Loan Documents may be assessed, levied, imposed, or become a lien upon the Property or the rent or income received therefrom, or any use or occupancy thereof; and any and all other charges, expenses, payments, claims, mechanics' or material suppliers' liens or assessments of any nature, if any, which are or may become a lien upon the Property or the rent or income received therefrom. Impound Account: The account that Trustor may be required to maintain pursuant to Paragraph 3.4 hereof for the deposit of amounts required to pay Impositions and insurance premiums. Improvements: All buildings and other improvements and appurtenances located on the Land, including surface improvements, such as parking areas and landscaping structures and all improvements, additions and replacements thereof, and other buildings and improvements, at any time hereafter constructed or placed upon the Land. Indebtedness: The principal of and all other amounts, payments and premiums due under the Note (and each and every of them) and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Trustor to Beneficiary and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Individual Debt Service Coverage: For each of the Combined Properties, the ratio, as determined by Beneficiary, of (a) Net Operating Income for such Combined Property for the preceding twelve- month period, to (b) the sum of (i) the annual debt service payments (including principal and interest) on the portion of the Loan consisting of the Allocable Loan Amount for such Combined Property for the preceding twelve-month period, and (ii) the annual debt service payments (including principal and interest) on all other indebtedness secured or which will be secured by a lien on all or part of such Combined Property for the preceding twelve-month period. For purposes of calculating annual debt service, amortization of the aggregate principal indebtedness over a thirty (30) year period (or such lesser period if the applicable promissory note or other loan documents in the case of loans other than the Loan provide otherwise) is assumed to apply during the entire term of the Loan. Individual Loan to Value Ratio: For each individual Combined Property, the ratio, as determined by Beneficiary, of (i) the aggregate principal balance, together with all accrued but unpaid interest, of the Allocable Loan Amount for such Combined Property and all other encumbrances (other than the Loan) against such Combined Property, to (ii) the fair market value of such Combined Property, as determined by Beneficiary. Inventory: The personal property Inventory attached hereto as Exhibits C-1 and C-2. Laws and Restrictions: All federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, Leases and other rental agreements, relating to the development, occupancy, ownership, management, use, and/or operation of the Property or otherwise affecting all or any part of the Property or Trustor. Leases: Any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property. Loan: The loans from Beneficiary to Trustor evidenced by the Note. Loan Documents: The Note, the Application, the Owner's Affidavit, this Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, the Nevada Deed of Trust, the Arizona Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases, the Post-Closing Agreement, and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Loan Parties: Trustor. Material Adverse Change: Any material and adverse change in (i) the financial condition of any of the Loan Parties, or (ii) the condition or operation of the Property. Milpitas Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Net Operating Income: For any period, gross income from operations of the Remaining Properties, for the purposes of determining Combined Debt Service Coverage or Future Combined Debt Service Coverage, or from operations of an individual Combined Property, for the purposes of determining the Individual Debt Service Coverage or Future Individual Debt Service Coverage for such Combined Property, in either case, derived from arm's length, market rate rents from leases with unaffiliated third parties in possession of the leased premises and paying rent on a current basis, service fees or charges, and addi- tional rent resulting from operating expense, common area maintenance, utilities and tax escalation pass through provisions (excluding capital gains income derived from the sale of assets and other items of income which Beneficiary reasonably determines are unlikely to occur in any subsequent period), less operating expenses (such as cleaning, utilities, administrative, landscaping, security and common area maintenance expenses, common area association fees, repairs and maintenance and less fixed expenses (such as insurance, real estate and other taxes), which expenses shall be related to the property producing such gross income, shall be for services from arm's length third party transactions or equivalent to the same, and shall exclude all expenses for capital improvements and replacements, debt service and depreciation or amortization of capital expenditures and other similar noncash items. Operating expenses shall include not less than 4.0% of gross income for the property encumbered by the Woodlands Deed of Trust and not less than 3.5% of gross income for each of the other Combined Properties and shall include reserves for replacements of not less than $31,000 for the Property encumbered by the Tustin Deed of Trust and not less than $23,000 for each of the other Combined Properties. Real estate taxes shall be calculated based upon the greater of (i) the current tax bill plus the next subsequent year's escalations as permitted under applicable law, or (ii) the estimated market value of such Combined Properties (as determined by Beneficiary) at the time of any reconveyance described in Paragraph 9.36 of this Deed of Trust multiplied by the then current tax rate. Gross income shall not be anticipated for any greater period than that approved by generally accepted accounting principles, nor shall operating expenses be prepaid. Nevada Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Obligations: Any and all of the covenants, promises and other obligations (including, without limitation, the Indebtedness) made or owing by Trustor to or due to Beneficiary under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Trustor to each and every other Person relating to the Property. Ontario Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Owner's Affidavit: That certain Owner's Affidavit dated as of even date herewith, executed by Trustor in favor of Beneficiary. Permitted Exceptions: All of those matters described on Exhibit B attached hereto. Person: Any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. Personalty: Trustor's right, title and interest in all personal property (other than Fixtures) now or hereafter located in, upon or about or collected or used in connection with the Property, together with all present and future attachments, accessions, replacements, substitutions and additions thereto or therefor, and the cash and noncash proceeds thereof, including all property listed in the Inventory, the Impound Account, all goods, documents, instruments and chattel paper, all drawings, plans and specifications, all causes of action and recoveries now or hereafter existing for any loss or diminution in value of the Property, all licenses, governmental authorizations or permits pertaining to the Property or the development, ownership, management or operation thereof, all trademarks, service marks, designs, logos, trade names, names or similar identifications pertaining to the Property, and all accounts, contract rights and general intangibles (including, without limitation, any insurance proceeds and condemnation awards or compensation) arising out of or incident to the ownership, development or operation of the Property owned by or in which Trustor has an interest including, without limitation, all personal property described in the UCC-1 Financing Statement executed by Trustor of even date herewith, which is incorporated herein by this reference, and all furniture, furnishings, equipment, machinery, construction materials and supplies, leasehold interests in personal property and the Leases. Notwithstanding the foregoing, Personalty shall not include any proprietary computer software developed by Trustor for the interpretation, manipulation or presentation of the information comprising the books and records of Trustor. Post-Closing Agreement: That certain Post-Closing Actions Agreement dated as of even date herewith, executed by Trustor in favor of Beneficiary. Property: As defined in the above granting paragraph of this Deed of Trust. Receiver: Any trustee, receiver, custodian, fiscal agent, liquidator or similar officer. Remaining Properties: Collectively, each of the Combined Properties which remain encumbered by any of the Combined Deeds of Trust following the requested reconveyance of this Deed of Trust pursuant to Paragraph 9.36 of this Deed of Trust and following the prior or concurrent reconveyance of any of the other Combined Deeds of Trust pursuant to Paragraph 9.36 of any of the other Combined Deeds of Trust. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997 executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of even date herewith executed by Trustor in favor of Beneficiary in connection with the Property. Rents: All rents, royalties, revenues, issues, profits, proceeds and other income from the Property. Secondary Interest Rate: As defined in the Note. Tustin Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as further by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as further amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of even date herewith, as further amended from time to time. ARTICLE 39 Representations and Warranties Trustor hereby represents and warrants to Beneficiary and Trustee that as of the date of this Deed of Trust and as of the date of any subsequent disbursement pursuant to the Loan Documents: 39.1 Title, Authorization and Organization. Trustor (i) is the lawful owner of the Property and holds good and marketable title to the Property free and clear of all defects, liens, encumbrances, ease- ments, exceptions and assessments, except the Permitted Exceptions; (ii) has good, right and lawful authority to grant the Property as provided in and by this Deed of Trust; (iii) has the requisite power and authority to own, develop and operate the Property; (iv) is duly organized, validly existing and in good standing under the laws of the State of its organization and is duly qualified to do business in the State in which the Land is located; and (v) is in compliance with all Laws and Restrictions applicable to it. 39.2 Validity of Loan Documents. The execution, delivery and performance by Trustor of the Loan Documents and the borrowings evidenced by the Note are within the power of Trustor, have been authorized by all requisite corporate or partnership authority and will not violate any Laws and Restrictions or any agreement or other instrument. Each of the Loan Documents when executed and delivered to Beneficiary, will constitute a legal, valid and binding obligation of Trustor enforceable in accordance with its terms. 39.3 Financial Statements. All financial statements and data that have been given to Beneficiary with respect to the Property or any Loan Party are true, accurate, complete and correct and except as expressly noted to the contrary therein, have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby. There has been no Material Adverse Change since the date of the most recent financial statement given to Beneficiary. 39.4 Other Information. All reports, papers, data and information given to Beneficiary with respect to Loan Parties and the Property are accurate, correct and complete. 39.5 Litigation. There is not now pending against or affecting any Loan Party or the Property, nor to the best of Trustor's knowledge is there threatened any action, suit or proceeding at law or in equity or by or before any administrative agency that, if adversely determined, would materially impair or affect (i) the financial condition or operations of such Loan Party, or (ii) the condition, use or operation of the Property. 39.6 Additional Representations and Warranties. (i) The Property is not used principally or primarily for agricultural or grazing purposes; (ii) each Loan Party has filed all federal, state, county and municipal income tax returns required to have been filed by it and has paid all taxes that have become due pursuant to such returns or pursuant to any assessments received by it (and no Loan Party knows of any basis for any additional assessment against it in respect of such taxes); (iii) all costs for labor and materials for the construction of the Improvements have been paid in full other than ongoing work for leasehold improvements under Leases approved in writing by Beneficiary; (iv) Trustor is not aware of any assessment for public improvements which is pending and which could become a lien upon the Property; (v) no event has occurred which with the giving of notice or the passage of time, or both, would constitute an Event of Default under any of the Loan Documents; (vi) Trustor is not a party to any agreement or instrument materially and adversely affecting its present or proposed business conducted on the Property or the Property itself, financial or otherwise; (vii) Trustor is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions set forth in any such agreement or instrument to which it is a party to the extent that the same would have a material and adverse effect on the Property or Trustor's ability to timely perform its Obligations under the Loan Documents; (viii) all Fixtures are permanently affixed to the Improvements and Trustor has not executed any financing statement or security agreements covering the Fixtures, or any of them, and the costs of all Fixtures due as of the date hereof have been paid; (ix) neither the Property, nor any part thereof, has sustained, incurred or suffered any material damage or destruction; and (x) subject to the Permitted Exceptions, the Personalty is owned by Trustor, free and clear of any liens, encumbrances, mortgages, security interests, claims and rights of others. 39.7 Compliance with Laws. The Property and the proposed and actual use thereof comply with all Laws and Restrictions and the Laws and Restrictions contain no unsatisfied conditions necessary for the actual use of the Property as it is currently used. Trustor has received no notices of violations of any Laws and Restrictions. 39.8 Bankruptcy. No petition in bankruptcy, petition or answer seeking assignment for the benefit of creditors or appointment of a Receiver with respect to Trustor has occurred or is contemplated, and no reorganization, arrangement, liquidation or dissolution or similar relief under the Federal Bankruptcy laws or any state laws have been instituted by or against Trustor, and none is contemplated. ARTICLE 40 Affirmative Covenants Trustor hereby covenants and agrees as follows: 40.1 Obligations of Trustor. Trustor will (i) timely perform, or cause to be timely performed, all the Obligations; (ii) maintain and preserve the lien of this Deed of Trust; and (iii) forever warrant and defend its grant made herein against any and all claims and demands whatsoever. 40.2 Insurance. A. Trustor, at its sole cost and expense, will keep and maintain for the mutual benefit of Trustor and Beneficiary, the following policies of insurance: (1) Insurance against loss or damage to the Property by fire and other risks covered by insurance commonly known as the broad form of extended coverage, including losses sustained by reason of riot and civil commotion, vandalism, malicious mischief, burglary, theft and mysterious disappearance, flood (if the Property is located in a HUD designated special flood hazard area) and against such other risks or hazards as Beneficiary from time to time reasonably may designate, in an amount equal to one hundred percent (100%) of the then "full replacement cost" of the Improvements, the Fixtures and the Personalty, without deduction for physical depreciation. (2) Rental income insurance against loss of income in an amount not less than twelve (12) months rental and taxes and other operating expense reimbursements or payments at then-current income levels. (3) Commercial General Liability insurance including broad form property damage, contractual liability and personal injury or death coverage, with a combined single limit of at least $5,000,000. (4) "Builders Risk" insurance, during any material construction, repair, replacement, renovation or alteration of the Improvements, in such amounts as are reasonably approved by Beneficiary. (5) If applicable, boiler and machinery insurance covering boilers and other pressure vessels, the air conditioning system, high pressure piping and other machinery and equipment required for the operation of the Property. (6) Such other insurance, and in such amounts, as may from time to time be reasonably required by Beneficiary (but excluding earthquake insurance, unless earthquake insurance is required pursuant to the terms of any of the Leases). B. Trustor shall provide Beneficiary with satisfactory evidence of compliance with applicable requirements for Worker's Compensation insurance and of employee automobile coverage. C. All policies of insurance required by this Deed of Trust (i) shall be satisfactory in form and substance to Beneficiary and written with companies satisfactory to Beneficiary, (ii) shall name Beneficiary as an additional insured as its interests may appear, (iii) shall contain a Standard Lender's Loss Payable endorsement and other non-contributory standard mortgagee protection clauses acceptable to Beneficiary, and at Beneficiary's option, a waiver of subrogation rights by the insurer, (iv) shall contain an agreement by the insurer that such policy shall not be amended or canceled without at least thirty (30) days' prior written notice to Beneficiary, (v) shall be in the full replacement cost of the Improvements, without deduction for physical depreciation and (vi) shall contain such other provisions as Beneficiary deems reasonably necessary or desirable to protect its interests. Any policies containing a coinsurance clause shall include a replacement cost endorsement adequate to ensure that the coinsurance clause is rendered inoperative. D. In the event a blanket policy is submitted to satisfy Trustor's responsibilities under this Paragraph 3.2, in addition to such other requirements set forth herein, Trustor shall deliver to Beneficiary a certificate from such insurer indicating that Beneficiary is an insured under such policy and designating the amount of such insurance applicable to the Property. E. Trustor shall furnish evidence, satisfactory to Beneficiary, that (i) all insurance requirements (including, without limitation, provisions for waivers of subrogation) set forth in the Leases or any other agreements affecting the Property shall have been satisfied by each party thereto, and (ii) Trustor's insurance coverage is sufficient (assuming the total destruction of the Property) to permit Trustor to rebuild the Improvements (including basic tenant improvements) and to replace the Fixtures and Personalty in such manner as to enable the Property to be operable and rentable as it is currently rented and operated, and no tenant shall have the right to terminate its lease of any portion of the Property as a result of the failure of Trustor to rebuild above-standard tenant improvements. F. Self-insurance (other than the applicable deductibles approved by Beneficiary) shall not be employed to satisfy the requirements of this Paragraph 3.2. G. All of Trustor's right, title and interest in and to all policies of property insurance and any unearned premiums paid thereon are hereby assigned (to the fullest extent assignable) to Beneficiary who shall have the right, but not the obligation, to assign the same to any purchaser of the Property at any foreclosure sale. H. Not less than thirty (30) days prior to the expiration dates of any policy previously furnished pursuant to this Paragraph 3.2, Trustor shall provide Beneficiary with duplicate originals or certified copies of the renewal policies together with evidence satisfactory to Beneficiary of Trustor's payment of the applicable premiums. 40.3 Maintenance, Waste and Repair. Trustor will (i) maintain the Property in good order and condition, (ii) promptly make all necessary structural and non-structural repairs to the Property, (iii) not diminish or materially alter the Improvements, nor erect any new buildings, structures or building additions on the Property, without the prior written consent of Beneficiary, and (iv) not permit any waste of the Property or make any change in the use thereof, nor do or permit to be done thereon anything, that may in any way impair the security of this Deed of Trust. 40.4 Impositions; Impounds. Trustor will pay when due all Impositions. Upon an Event of Default, Trustor will pay monthly to Beneficiary an amount equal to one-twelfth (1/12th) of the annual cost of Impositions together with an amount equal to the estimated next hazard and other required insurance premiums. These funds will be held by Beneficiary (and may be commingled with other funds of Beneficiary) without interest and will be released to Trustor for payment of Impositions and insurance premiums, or directly applied to such costs by Beneficiary, as Beneficiary may elect. 40.5 Compliance with Law. Trustor will promptly and faithfully comply with all present and future Laws and Restrictions. 40.6 Books and Records. Trustor, without expense to Beneficiary, will maintain full and complete books of account and other records reflecting the results of the operations of the Property in accordance with generally accepted accounting principles consistently applied, and will furnish or cause to be furnished to Beneficiary such financial information concerning the condition of the Loan Parties and the Property as Beneficiary shall reasonably request. The following information will be furnished without request: A. As soon as available, and in any event within thirty (30) days after the close of each fiscal quarter of each fiscal year of Trustor, a statement of revenues and expenses relating to the rentals and operations of the Property for the applicable fiscal quarter just ended, certified by Trustor; B. As soon as available, and in any event within ninety (90) days after the end of each fiscal year of Trustor, an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary and a rent roll in the form delivered to Beneficiary in connection with the closing of the Loan certified by Trustor reflecting all the existing Leases; and C. As soon as available, and in any event within ninety (90) days after the end of Trustor's fiscal year, a balance sheet of Trustor, certified in a manner acceptable to Beneficiary. After the occurrence of an Event of Default, or in the event Trustor fails to deliver an annual operating statement for the Property certified by an independent certified public accountant acceptable to Beneficiary within the time frame set forth in Paragraph 3.6.B, above, Beneficiary shall have the right, at all reasonable times and upon reasonable notice, to audit the books of account and records of any Loan Party, all of which shall be made available at Trustor's office during reasonable business hours to Beneficiary and Beneficiary's representatives for such purpose, from time to time. If such audit discloses a variance of three per- cent (3%) or more in income or expenses, the cost of such audit shall be paid by Trustor. 40.7 Further Assurances. Trustor, at any time upon the reasonable request of Beneficiary, will at Trustor's expense execute, acknowledge and deliver all such additional papers and instruments (including, without limitation, a declaration of no setoff) and all such further acts and things as may be reasonably necessary to carry out the purposes of the Loan Documents and to subject to the liens thereof any property intended by the terms thereof to be covered thereby and any renewals, additions, substitutions or replacements thereto. 40.8 Indemnity and Attorneys' Fees. Trustor will indemnify, defend, protect and hold Beneficiary harmless from any and all liability, loss, claims, damage, cost or expense (including, without limitation, reasonable attorneys' fees) that Beneficiary may or might incur hereunder, or in connection with the making or administering of the Loan, the enforcement of any of Beneficiary's rights or remedies hereunder or under the other Loan Documents, any action taken by Beneficiary hereunder or thereunder, whether or not suit is filed, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Beneficiary arising out of the Property, or any part thereof or interest therein, or as to which it becomes necessary to defend or uphold the lien of this Deed of Trust or other Loan Documents. Should Beneficiary incur any such liability, loss, claim, damage, cost or expense, the amount thereof with interest thereon at the Secondary Interest Rate shall be payable by Trustor immediately without demand, shall be secured by this Deed of Trust, and shall be part of the Indebtedness. 40.9 Litigation. Trustor will promptly give notice in writing to Beneficiary of any litigation which may reasonably be expected to result in a Material Adverse Change. 40.10 Inspection of Property. Trustor hereby grants to Beneficiary, its agents, employees, consultants and contractors, the right to enter upon the Property for the purpose of making any and all inspections, reports, tests (including, without limitation, soils borings, ground water testing, wells and/or soils analysis), inquiries and reviews as Beneficiary (in its sole and absolute discretion) may deem necessary to assess the then current condition of the Property; provided, however, that Beneficiary shall not conduct any such tests (including, without limitation, soil borings, ground water testing, wells and/or soils analysis) (i) unless Beneficiary becomes aware of, or reasonably suspects, an environmental event on or near the Property which could have a material adverse effect on any portion of the Property and Trustor refuses or fails to conduct such tests in a manner reasonably requested by Beneficiary, or (ii) until after the occurrence of an Event of Default under any of the Loan documents or the Remediation and Indemnification Agreements. Beneficiary shall provide Trustor with one (1) business day's notice of such entry; provided, however, that, subject to the preceding sentence, Trustor's consent shall not be required for such entry or for the performance of such tests. All costs, fees and expenses (including those of Benefi- ciary's legal counsel and consultants) incurred by Beneficiary with respect to such inspections, reports, tests, inquiries and reviews shall be paid by Trustor to Beneficiary upon demand, shall accrue interest at the Secondary Interest Rate until paid, and shall be secured by this Deed of Trust. Beneficiary shall make reasonable efforts in the exercise of its entry, inspection, and other rights under this Paragraph to avoid interference with the business operations of any tenant or licensee occupying space at the Property pursuant to Leases permitted by the Loan Documents, and, so long as no Event of Default has occurred, shall cooperate with Trustor in setting the time for such entry, inspections and tests. 40.11 Contest. Notwithstanding the provisions of Paragraphs 3.4 and 3.5 hereof, Trustor may, at its expense, contest the validity or application of any Impositions or Laws and Restrictions by appropriate legal proceedings promptly initiated and conducted in good faith and with due diligence, provided that (i) Beneficiary is reasonably satisfied that neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, or lost as a result of such contest, and (ii) Trustor shall have posted a bond or furnished such other security as may be reasonably required from time to time by Beneficiary. 40.12 Tax Receipts. Trustor will deliver to Beneficiary, within seven (7) days after the demand made therefor, bills showing the payment to the extent then due of all taxes, assessments (including, without limitation, those payable in periodic installments), and any Imposition that may have become a lien upon the Property or any part thereof. 40.13 Additional Information. Trustor will furnish to Beneficiary, within seven (7) days after written request therefor, any and all information that Beneficiary may reasonably request concerning the Property or the performance by Trustor of the Obligations. 40.14 Prepayment. Trustor may prepay the Loan only on the terms and conditions set forth in the Note and Trustor shall pay Beneficiary prepayment charges in respect of any prepayment, whether voluntary or involuntary, as required by and on the terms and conditions set forth in the Note. 40.15 FIRPTA Affidavit. In the event of any transfer by Trustor of its rights hereunder or of any interest in the Property otherwise permitted under this Deed of Trust, such transferee shall, as an addi- tional condition to such transfer, under penalty of perjury, execute and deliver to Beneficiary an affidavit concerning the non-foreign status of such transferee substantially in the form required to be delivered by Trustor in connection with the funding of the Loan. Nothing in this Paragraph 3.15 shall be deemed a modification or waiver of any other provision of any of the Loan Documents limiting, prohibiting or otherwise relating to any transfer of any interest in the Property or Trustor. 40.16 Tax Service Contract. Throughout the term of the Loan, at Trustor's sole expense, Beneficiary shall be furnished tax service contracts issued by a tax reporting agency satisfactory to Beneficiary. 40.17 Reimbursement. Any amount paid by Beneficiary for any tax, stamp tax, assessment, water rate, sewer rate, insurance premium, repair, rent charge, debt, claim, inspection or lien having priority over this Deed of Trust or to in any way protect the security for the Loan, shall (i) bear interest at the Secondary Interest Rate from the date of payment by Beneficiary, (ii) constitute additional indebtedness secured by this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, (iii) be secured by this Deed of Trust, and (iv) be payable by Trustor to Beneficiary upon demand. 40.18 Plans and Specifications. Trustor agrees to keep at its offices at the Property, and to make available to Beneficiary during normal business hours, "As-Built Plans and Specifications", or, if unavailable, the final set of plans and specifications from which the Improvements were constructed ("As-Builts"), certified by a licensed architect or licensed contractor as true, correct and complete As-Builts for the Improvements. ARTICLE 41 Negative Covenants Trustor hereby covenants and agrees as follows: 41.1 Restrictive Uses. Trustor will not initiate, join in, or consent to any change in the current use of the Property or in any zoning ordinance, private restrictive covenant, assessment proceedings or other public or private restrictions limiting or restricting the uses that may be made of the Property or any part thereof without the prior written consent of Beneficiary. 41.2 Due on Sale or Encumbrance. A. Except as expressly otherwise provided in this Paragraph 4.2, in the event that Trustor, without the prior written consent of Beneficiary (which consent may be withheld for any reason or for no reason or given upon such terms and conditions as Bene- ficiary deems necessary or appropriate, all within Beneficiary's absolute discretion), shall sell, convey, assign, transfer, alienate or otherwise dispose of or be divested of its title to, or, shall mortgage, convey security title to, or otherwise encumber or cause to be encumbered, the Property or any part thereof or any interest therein in any manner or way, whether voluntary or involuntary, or in the event of (a) any merger, consolidation or dissolution involving, or the sale or transfer of all or substantially all of the assets of, Trustor or any general partner of Trustor, (b) the transfer (at one time or over any period of time) of ten percent (10%) or more of the voting stock of (i) a corporate Trustor or (ii) any corporate general partner of Trustor, (c) the transfer of any general partnership interest in Trustor or in any partnership which is a direct or indirect general partner of Trustor, or (d) the conversion of any such general partnership interest to a limited partnership interest, then the entire balance of the Indebtedness, plus the Prepayment Premium (as defined in the Note), shall become immediately due and payable at the option of Beneficiary. Trustor hereby covenants not to participate in, cause or permit any of the foregoing actions or events described in this Paragraph 4.2 without Beneficiary's prior written consent. Consent to one such transfer by Beneficiary shall not be deemed a waiver of the right to require such consent to further or future transfers. Any such transferee shall, as a condition of the effectiveness of any consent or waiver by Beneficiary hereunder, as a covenant of Trustor and such transferee, and in form and substance required by Beneficiary, assume all obligations under the Loan Documents and the assumption shall not, however, release Trustor, or any maker or guarantor of the Note, from any liability thereunder. This provision shall not apply to transfers of title or interest under any will or testament or applicable law of descent. B. Notwithstanding the foregoing, the provisions of this Paragraph 4.2 shall not apply to (i) the sale of stock on any recognized public stock exchange in the ordinary course of business, (ii) any merger or consolidation of Trustor where the surviving company has a Debt Ratio (as defined below) which does not exceed the Debt Ratio of Trustor as of the Closing Date, as shown by evidence reasonably satisfactory to Beneficiary, and (iii) a public tender offer by a Person unaffiliated with Trustor to purchase the stock of Trustor. Notwithstanding anything to the contrary contained herein, unless a change in the ownership of Trustor is the result of one or more of the acts described in the immediately preceding sentence (in which case the prior consent of Beneficiary is not required), Beneficiary's prior written consent shall be required in the event of a change in the ownership of Trustor (in a single transaction or cumulative transactions) such that in excess of 50% of Trustor's stock is owned or controlled by a sole shareholder or an affiliated group of shareholders ("Sale"). Notwithstanding the foregoing, a Sale shall specifically exclude: (a) the conversion ("Conversion") to common stock shares of some or all of the Series A convertible preferred stock of Trustor outstanding as of the Closing Date (the "Preferred Stock"), (b) any initial sale ("Initial Sale") of any of the Preferred Stock to a Person unaffiliated with Trustor which occurs either prior to and/or subsequent to any Conversion, and (c) any sale of any of the Preferred Stock subsequent to an Initial Sale of such Preferred Stock to a Person unaffiliated with Trustor which previously acquired some or all of the Preferred Stock in an Initial Sale. As used herein, "Debt Ratio" means the ratio of all indebtedness of Trustor and its subsidiaries to the sum of all assets of Trustor and it subsidiaries, before depreciation and less the sum of any intangible assets. 41.3 Replacement of Fixtures and Personalty. Trustor will not permit any of the Fixtures or Personalty to be removed at any time from the Property without the prior written consent of Beneficiary unless actually replaced by articles of equal suitability and value owned by Trustor free and clear of any lien or security interest. 41.4 No Cooperative or Condominium. Trustor shall not operate the Property or permit the Property to be operated, as a cooperative or condominium building or buildings in which the tenants or occupants participate in the ownership, control, or management of the Property or any part thereof, as tenant stockholders or otherwise. 41.5 Partnership Agreement. Trustor, if a partnership, will not terminate, alter, modify or amend or permit the termination, alteration, modification or amendment of its Partnership Agreement without Beneficiary's prior written consent. ARTICLE 42 Casualties and Condemnation 42.1 Insurance and Condemnation Proceeds. A. Trustor will notify Beneficiary in writing promptly after loss or damage caused by fire or other casualty to all or any part of the Property resulting in damage in excess of $25,000 per occurrence, and prior to the making of any repairs thereto. Trustor will furnish to Beneficiary within sixty (60) days after such loss or damage (a) preliminary plans and specifications for the repair and reconstruction of the Property (the "Preliminary Plans and Specifi- cations"); and (b) evidence satisfactory to Beneficiary (i) of the cost of repair or reconstruction in accordance with the Preliminary Plans and Specifications, (ii) that sufficient funds are available and/or committed for the benefit of Beneficiary, including insurance proceeds, funds provided by the Trustor, payment and performance bond, or otherwise, to complete such repair or reconstruction, and (iii) that such repair or reconstruction may be completed in accordance with all applicable Laws and Restrictions within the time frame described in Paragraph 5.1.C.(v) hereof and that all necessary permits and approvals have been or will be obtained. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under applicable law providing for the allocation of condemnation proceeds between a property owner and a lien holder. B. In the event of any insured loss in excess of Two Hundred Fifty Thousand Dollars ($250,000) or in the event an Event of Default, or an event which with the giving of notice or the passing of time or both constitutes an Event of Default, shall have occurred and be continuing, all insurance proceeds on account of any damage to the Property shall be payable to, and deposited with, Beneficiary. Beneficiary, at its sole option, may (i) apply such insurance proceeds in payment of the Indebtedness or in satisfaction of any other Obligation in such order as Beneficiary may determine, (ii) use such insurance proceeds to repair or reconstruct the Improvements, (iii) release such insurance proceeds to Trustor for repair or reconstruction of the Improvements in accordance with the procedures described in Paragraph 5.1.E hereof, or (iv) divide such proceeds in any manner among any such application, use or release. No such application, use or release shall, however, extend or postpone the due date of any installments under the Note or change the amount of such installments or cure or waive any Event of Default or notice of Event of Default under the Loan Documents or invalidate any act done pursuant to such notice. C. Notwithstanding the provisions of Paragraph 5.1.B hereof, if all or any part of the Property is damaged or destroyed or less than all of the Property is taken by any public or quasi-public authority through condemnation, eminent domain, deed in lieu thereof, or otherwise, Beneficiary shall make the net amount of all insurance proceeds and condemnation awards received by Beneficiary after deduction of Beneficiary's reasonable costs and expenses, if any, in collection of the same and costs associated with Beneficiary's review of the Preliminary Plans and Specifications and other costs associated with disbursement of such proceeds (the "Net Proceeds") available for the repair and reconstruction of the Property (or so much thereof as was not condemned) pursuant to the procedures described in Paragraph 5.1.E hereof, provided that (i) no Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred and shall be continuing, (ii) Trustor has complied with the provisions of Para- graph 5.1.A hereof and Beneficiary has approved the Preliminary Plans and Specifications, (iii) Trustor shall proceed with the reconstruction of the Property as nearly as possible to the condition it was in immediately prior to the occurrence of such casualty or taking (the "Occurrence") and in accordance with the Plans and Specifications as promptly as is practicable after the Occurrence, but in no event later than four (4) months after the Occurrence, (iv) Beneficiary shall be satisfied that such reconstruction can be completed no later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (v) Beneficiary shall be satisfied that the reconstruction can be completed at a cost which does not exceed the Net Proceeds, or, in the event the cost of such restoration exceeds the Net Proceeds, Trustor shall have satisfied the requirements set forth in Para- graph 5.1.F(i) hereof or Paragraph 5.1.F(ii) hereof, (vi) Beneficiary shall be satisfied that Trustor (whether with rental loss insurance proceeds or otherwise) will continue to be able to timely pay all payments as they become due on the Indebtedness during such period of repair and reconstruction, (vii) Trustor shall cause such reconstruction to be completed with due diligence as promptly as possible after commencement, but in no event later than twelve (12) months after the Occurrence and at least twelve (12) months before the maturity of the Loan, (viii) Beneficiary determines that repair or reconstruction is economically feasible and that the Property can physically and legally be restored to at least its value as of the Closing Date, (ix) Trustor shall have entered into a guaran- teed maximum price general construction contract acceptable in all respects to Beneficiary for completion of the repair or reconstruction, which contract must include provision for a retainage of not less than ten percent (10%) until full completion of the repair or reconstruction, and (x) the insurer does not deny liability to any named insured. D. Beneficiary shall be entitled to settle and adjust all insurance claims, and Beneficiary may deduct and retain from the proceeds of any insurance the amount of all expenses incurred by Beneficiary in connection with any settlement or adjustment. Notwithstanding the foregoing, so long as no Event of Default or event which, with the giving of notice or the passage of time or both, would constitute an Event of Default shall have occurred and be continuing, Trustor may settle directly with the insurer any insurance claims involving an amount less than Two Hundred Fifty Thousand Dollars ($250,000) so long as (i) Trustor applies all insurance proceeds to reconstruction of the Property, (ii) Trustor promptly and diligently pursues the repairs to completion, and (iii) Trustor follows the provisions of Paragraph 5.1.A hereof. E. The Net Proceeds and any additional funds deposited by Trustor with Beneficiary shall constitute additional security for the Loan. Trustor shall execute, deliver, file and/or record, at its own expense, such documents and instruments as Beneficiary deems necessary or advisable to grant to Beneficiary a perfected, first priority security interest in the Net Proceeds and such additional funds. Provided that Trustor is otherwise entitled to receive the Net Proceeds pursuant to the terms and provisions of this Deed of Trust, Beneficiary or, at Beneficiary's option, a disbursing agent (the "Disbursing Agent") selected by Beneficiary (whose fees and expenses shall be paid by Trustor), shall pay the Net Proceeds to Trustor from time to time during the course of the restoration, subject to the following terms and conditions: (1) The work shall be administered and overseen by an architect or engineer approved by Beneficiary (the "Architect"). Complete copies of the plans and specifications for the work (the "Plans and Specifications"), approved by all governmental authorities whose approval is required, and bearing the signed approval thereof by the Architect and accompanied by the Architect's signed estimate, bearing the Architect's seal, of the entire cost of completing the work, shall be delivered to Beneficiary; (2) Each request for payment shall be made upon seven (7) day's prior written notice to Beneficiary or the Disbursing Agent and shall be accompanied by a certificate to be made by the Architect stating that (i) all of the work completed has been done in compliance with the Plans and Specifications, as approved by Beneficiary, (ii) the sum requested is justly required to reimburse Trustor for payments by Trustor to, or is justly due to, the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services and materials for the work (giving a brief description of such services and materials) and, when added to all sums previously paid out by Beneficiary or the Disbursing Agent, does not exceed the value of the work done to the date of such certificate, and (iii) the amount of such proceeds remaining with Beneficiary are sufficient on completion of the work to pay for the same in full (giving in such reasonable detail as Beneficiary may require an estimate of the cost of such completion); (3) Each request shall be accompanied by waivers of lien satisfactory to Beneficiary and the Disbursing Agent covering that part of the work for which payment or reimbursement is being requested and, if required by Beneficiary or the Disbursing Agent, by a search prepared by a title company satisfactory to Beneficiary or the Disbursing Agent, that there has not been filed with respect to the Property any mechanics', materialmen's or other liens; (4) The request for any payment after the work has been completed shall be accompanied by a copy of any certificate or certificates required by any Laws and Restrictions for legal occupancy of the Improvements; (5) Trustor shall deliver to Beneficiary or the Disbursing Agent certified or photostatic copies of all permits and approvals required by any Laws and Restrictions in connection with the commencement and conduct of the work; and (6) Trustor shall deliver to Beneficiary or the Disbursing Agent a surety bond for and/or guaranty of the payment for and completion of the work, which bond or guaranty shall be in form and substance satisfactory to Beneficiary and in an amount no less than the Architect's estimate of the entire cost of completing the work. F. Notwithstanding anything to the contrary contained herein or in any of the insurance policies, all proceeds paid to Trustor under such policies shall immediately be delivered to Beneficiary. If the Net Proceeds exceed the costs of completion of the restoration of the Property, such excess proceeds shall belong and be retained by and/or paid over to Beneficiary to be applied against the Indebtedness. If at any time the Net Proceeds shall not, in Beneficiary's opinion, be sufficient to pay in full the balance of the costs which will be incurred in connection with the repair and reconstruction of the Property and all payments as they come due on the Indebtedness and all other obligations which are or may be secured by a lien on the Property during the reconstruction period, Trustor shall, prior to receiving any further disbursement, either (i) complete, using its own funds and not borrowed funds, such portion of the reconstruction as shall be sufficient to render the Net Proceeds sufficient to complete the reconstruction, or (ii) deposit the deficiency with Beneficiary before any further disbursement of the Net Proceeds shall be made, which deficiency deposit shall be held by Beneficiary in an interest bearing special account and shall be disbursed on the same conditions applicable to the Net Proceeds. Beneficiary shall remit to Trustor the balance, if any, of any such deficiency deposit remaining after completion of the reconstruction. 42.2 Additional Provisions Relating to Condemnation. Trustor, immediately upon obtaining knowledge of the commencement of any proceedings for the condemnation of the entire Property or any material part thereof, will notify Trustee and the Beneficiary of the pendency of such proceedings. Trustee and Beneficiary may participate in any such proceedings and Trustor from time to time will deliver to Beneficiary all instruments requested by Beneficiary to permit such participation. In the event of such condemnation proceedings, the award or compensation payable is hereby assigned to and shall be paid to Beneficiary. Beneficiary shall be under no obligation to question the amount of any such award or compensation and may accept the same in the amount in which the same shall be paid. In any such condemnation proceedings Beneficiary may be represented by counsel selected by Beneficiary, the cost of such counsel to be borne by Trustor. The proceeds of any award or compensation so received shall, subject to Paragraph 5.1.C hereof as it relates to condemnation, and at the option of Beneficiary, either be applied to the prepayment of the Indebtedness or be paid over to the Trustor for restoration of the Improvements in accordance with the provisions of Paragraph 5.1.E hereof. Trustor hereby unconditionally and irrevocably waives all rights of a property owner under Section 1265.225(a) of the California Code of Civil Procedure or any successor statute. ARTICLE 43 Events of Default and Remedies of Beneficiary 43.1 Events of Default. A. If one or more of the following events shall have occurred and be continuing: (1) Trustor shall fail to pay when due any part of the Indebtedness; (2) Trustor shall fail to timely observe, perform or discharge any Obligation contained in any of the Loan Documents, any agreement relating to the Property or any other loan documents with respect to the Property on its part to be performed or observed, other than as described in Paragraphs 6.1.A(1), (3), (4), (5), (6), (7) and (8), and any such failure shall remain unremedied for thirty (30) days or such lesser period as may be otherwise specified in the applicable Loan Document (the "Grace Period") after notice to Trustor of the occurrence of such failure; provided, however, that the Grace Period may be extended to ninety (90) days if: (a) Beneficiary determines in good faith that (i) such default cannot be cured within the Grace Period but can be cured within ninety (90) days, (ii) no lien or security interest created by the Loan Documents shall be impaired prior to the completion of such cure, and (iii) Beneficiary's immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Beneficiary's security interest therein, and (b) Trustor shall immediately commence and diligently pursue the cure of such default; (3) Trustor, as lessor or sublessor, as the case may be, shall assign the rents or income of the Property or any part thereof (other than to Beneficiary) without first obtaining the written consent of Beneficiary; (4) Any representation or warranty made by Trustor in, under or pursuant to the Loan Documents was false or misleading in any material respect as of the date on which such representation or warranty was made or deemed remade, and Trustor does not cause to be taken and completed within thirty (30) days following notice of such breach any and all action required to cause such representation or warranty to be true and correct in all respects as originally made; (5) (i) Any claim or lien shall be filed against the Property or any part thereof, whether or not such lien shall be prior to this Deed of Trust, which shall be maintained for a period of thirty (30) days without discharge, satisfaction or adequate bonding in accordance with the terms of this Deed of Trust; (ii) the existence of any interest in the Property other than the Permitted Exceptions, those of Trustor, Trustee, Beneficiary and any tenants in the Property; or (iii) the sale, hypothecation, conveyance or other disposition of the Property without the prior written consent of Beneficiary except as the result of the condemnation of a non-material part of the Property as set forth in Paragraph 5.1 above or as otherwise expressly permitted under the Loan Documents; (6) Any of the Loan Documents, at any time after their respective execution and delivery and for any reason, other than an act or omission of Beneficiary, shall cease to be in full force and effect or be declared null and void, or shall cease to constitute valid and subsisting liens and/or valid and perfected security interests in and to the Property, or Trustor shall contest or deny in writing that it has any further liability or obligation under any of the Loan Documents; (7) The failure of Trustor to observe the provisions of Paragraph 4.2 hereof; and/or (8) An "Event of Default" occurs under any one or more of the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust and/or the Fremont Deed of Trust. THEN and in any such event Beneficiary may, by written notice delivered to Trustor, which notice specifically states the occurrence of an Event of Default, declare Trustor to be in default. Upon the occurrence of such event and the giving of such notice, the same shall constitute an event of default (an "Event of Default"). B. It shall constitute an Event of Default hereunder without the requirement of any notice if one or more of the following events shall have occurred and be continuing: (1) (i) The entry of an order for relief under Title 11 of the United States Code as to Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein or the adjudication of Trustor, any general partner of Trustor, or any owner of the Property as insolvent or bankrupt pursuant to the provisions of any state insolvency or bankruptcy act; (ii) the commencement by Trustor, any general partner of Trustor, or any parent company of such partner of any case, proceeding or other action seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors; (iii) consent to, acquiescence in or attempt to secure the appointment of any Receiver of all or any substantial part of its properties or of the Property by Trustor, any general partner of Trustor, any parent company of such partner, or any owner of the Property or any interest therein; (iv) Trustor, any general partner of Trustor, or any parent company of such partner shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts or shall make a general assignment for the benefit of creditors; or (v) Trustor, any general partner of Trustor, or any parent company of such partner shall take any action to authorize any of the acts set forth above; or (2) Any case, proceeding or other action against Trustor, any general partner of Trustor, any parent company of such partner, or any owner of Property or any interest therein shall be commenced seeking to have an order for relief entered against such party as a debtor or seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors, or seeking the appointment of any Receiver for Trustor, any general partner thereof, or any parent company of such partner or for all or any substantial part of its property or the Property, and such case, proceeding or other action remains undismissed for an aggregate of sixty (60) days (whether or not consecutive) or Trustor or general partner or parent company during the period of its ownership fails to proceed diligently during such sixty (60) day period to have such proceeding or other action dismissed. C. Upon the occurrence of any Event of Default, Beneficiary may at any time declare all of the Indebtedness to be due and payable and the same shall thereupon become immediately due and payable, together with any prepayment fee due in accordance with the terms of the Note, without any further presentment, demand, protest or notice of any kind. Beneficiary may in its sole discretion, also do any of the following: (1) in person, by agent, or by a Receiver, and without regard to the adequacy of security, the solvency of Trustor or the condition of the Property, enter upon and take possession of the Property, or any part thereof, in its own name or in the name of Trustee and do any acts which Beneficiary deems necessary to preserve the value, marketability or rentability of the Property; sue for or otherwise collect the rents, issues and profits therefrom, including those past due and unpaid, and apply the same, less cost and expenses of operation and collection, including, without limitation, reasonable attorneys' fees, against the Indebtedness, all in such order as Beneficiary may determine. The entering upon and taking possession of said property, the collection of such rents, issues and profits and the application thereof as aforesaid shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice; (2) commence an action to foreclose this Deed of Trust in the manner provided under this Deed of Trust or by law; (3) with respect to any Personalty, proceed as to both the real and personal property in accordance with Beneficiary's rights and remedies in respect of the Land, or proceed to sell said Personalty separately and without regard to the Land in accordance with Beneficiary's rights and remedies as to personal property; and/or (4) deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause the Property to be sold, which notice Trustee or Beneficiary shall cause to be duly filed for record. 43.2 Power of Sale. A. Should Beneficiary elect to foreclose by exercise of the power of sale herein contained, Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of default having been given as then required by law, and after lapse of such time as may then be required by law, after recordation of such notice of default, Trustee, without demand on Trustor, shall, after notice of sale having been given as required by law, sell the Property at the time and place of sale fixed by it in said notice of sale, either as a whole or in separate parcels as Beneficiary shall determine, and in such order as Beneficiary may determine, at public auction to the highest bidder. Beneficiary may, in its sole discretion, designate the order in which the Property shall be offered for sale or sold through a single sale or through two or more successive sales, or in any other manner Beneficiary deems to be in its best interest. If Beneficiary elects more than one sale or other disposition of the Property, Beneficiary may at its option cause the same to be conducted simultaneously or successively, on the same day or at such different days or times and in such order as Beneficiary may deem to be in its best interest, and no such sale shall terminate or otherwise affect the lien of this Deed of Trust on any part of the Property not then sold until all Indebtedness secured hereby has been fully paid. If Beneficiary elects to dispose of the Property though more than one sale, Trustor shall pay the costs and expenses of each such sale of its interest in the Property and of any proceedings where the same may be made. Trustee may postpone sale of all or any part of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement, and without further notice make such sale at the time fixed by the last postponement; or Trustee may, in its discretion, give a new notice of sale. Beneficiary may rescind any such notice of default at any time before Trustee's sale by executing a notice of rescission and recording the same. The recordation of such notice shall constitute a cancellation of any prior declaration of default and demand for sale and of any acceleration of maturity of Indebtedness affected by any prior declaration or notice of default. The exercise by Beneficiary of the right of rescission shall not constitute a waiver of any default then existing or subsequently occurring, or impair the right of Beneficiary to execute other declarations of default and demand for sale, or notices of default and of election to cause the Property to be sold, nor otherwise affect the Note or this Deed of Trust, or any of the rights, obligations or remedies of Beneficiary or Trustee hereunder or thereunder. After sale Trustee shall deliver to such purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale. If allowed by law, Beneficiary, if it is the purchaser, may turn in the Note at the amount owing therein toward payment of the purchase price (or for endorsement of the purchase price as a payment on the Note if the amount owing thereon exceeds the purchase price). Trustor hereby expressly waives any right of redemption after sale that Trustor may have at the time of sale or that may apply to the sale. Trustor hereby expressly waives all rights of marshalling with respect to each of the Combined Properties that Trustor may have in the event of foreclosure hereunder or under any of the other Combined Deeds of Trust. B. Trustee, upon such sale, shall make (without any covenant or warranty, express or implied), execute and after due payment made, deliver to the purchaser, its heirs or assigns, a deed or other record of interest, as the case may be, in and to the property so sold that shall convey to the purchaser all the title and interest of Trustor in the Property (or part thereof sold), and shall apply the proceeds of such sale in payment, first, of the expenses of such sale together with the reasonable expenses of the trust, including, without limitation, attorneys' fees, that shall become due upon any default made by Trustor, and also such sums, if any, as Trustee or Beneficiary shall have paid for procuring a search of the title to the Property, or any part thereof, subsequent to the execution of this Deed of Trust; and in payment, second, of the Indebtedness then remaining unpaid, and the amount of all other monies with interest thereon agreed or provided to be paid by Trustor; and the balance or surplus of such proceeds of sale Trustee shall pay to Trustor, its successors or assigns as their interest may appear. 43.3 Proof of Default. In the event of a sale of the Property, or any part thereof, and the execution of a deed therefor, the recital therein of default, and of recording notice of default and election of sale, and of the elapsing of the required time (if any) between the foregoing recording and the following notice, and of the giving of notice of sale, and of a demand by Beneficiary, or its successors or assigns, that such sale should be made, shall be conclusive proof of such default, recording, election, elapsing of time, and of the due giving of such notice, and that the sale was regularly and validly made on due and proper demand by Beneficiary, its successors or assigns. Any such deed or deeds with such recitals therein shall be effective and conclusive against Trustor, its successors and assigns, and all other Persons. The receipt for the purchase money recited or contained in any deed executed to the purchaser as aforesaid shall be sufficient to discharge such purchaser from all obligations to see to the proper application of the purchase money. 43.4 Protection of Security. If an Event of Default shall have occurred and be continuing, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligations or defaults hereunder, may: (i) perform any act in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary and Trustee being authorized to enter upon the Property for such purpose; (ii) appear in and defend any action or proceeding purporting to affect, in any manner whatsoever, the obligations or the Indebtedness, the security hereof or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase or compromise any encumbrance, charge or lien that in the judgment of Beneficiary or Trustee is prior or superior hereto; and (iv) in exercising any such powers, pay necessary expenses, employ counsel and pay reasonable attorneys' fees. Trustor agrees that all sums expended by Trustee or Beneficiary pursuant to this paragraph, together with interest at the Secondary Interest Rate from the date of expenditure by Beneficiary, shall be added to the principal amount of the Indebtedness secured by the Loan Documents and this Deed of Trust and shall be payable by Trustor to Beneficiary upon demand. 43.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of strict right and without notice to Trustor or anyone claiming under Trustor, and without regard to the then value of the Property, shall have the right to apply ex parte to any court having jurisdiction to appoint a Receiver to enter upon and take possession of the Property, and Trustor hereby waives notice of any application therefor, provided a hearing to confirm such appointment with notice to Trustor is set within the time required by law. Any such Receiver shall have all the powers and duties of Receivers in like or similar cases and all the powers and duties of Beneficiary in case of entry as provided in this Deed of Trust, and shall continue as such and exercise all such powers until the date of confirmation of sale, unless such receivership is sooner terminated. 43.6 Remedies Cumulative. All remedies of Beneficiary provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the other Loan Documents or by law, including, without limitation, any right of offset. The exercise of any right or remedy by Beneficiary hereunder shall not in any way constitute a cure or waiver of default hereunder or under the Loan Documents, or invalidate any act done pursuant to any notice of default, or prejudice Beneficiary in the exercise of any of its rights hereunder or under the Loan Documents. 43.7 Curing of Defaults. If Trustor shall at any time fail to perform or comply with any of the terms, covenants and conditions required on Trustor's part to be performed and complied with under this Deed of Trust, any of the other Loan Documents or any other agreement that, under the terms of this Deed of Trust, Trustor is required to perform, then Beneficiary, and without waiving or releasing Trustor from any of the Obligations, may, in its sole discretion: (i) make any payments thereunder payable by Trustor and take out, pay for and maintain any of the insurance policies provided for therein; and/or (ii) after the expiration of any applicable grace period and subject to Trustor's rights to contest certain obligations specifically granted hereby, perform any such other acts thereunder on the part of Trustor to be performed and enter upon the Property for such purpose. All sums so paid out of Beneficiary's own funds and all reasonable costs and expenses incurred and paid by Beneficiary in connection with the performance of any such act, together with interest on unpaid balances thereof at the Secondary Interest Rate from the respective dates of Beneficiary's making of each such payment, shall be added to the principal of the Indebtedness, shall be secured by the Loan Documents and by the lien of this Deed of Trust, prior to any right, title or interest in or claim upon the Property attaching or accruing subsequent to the lien of this Deed of Trust, and shall be payable by Trustor to Beneficiary on demand. ARTICLE 44 Security Agreement and Fixture Filing 44.1 Grant of Security Interest. Trustor hereby grants to Beneficiary a security interest in and to all Trustor's right, title and interest now owned or hereafter acquired in and to the Personalty and the Fixtures (collectively, the "Collateral"), to secure the payment and performance of the Obligations. 44.2 Remedies. This Deed of Trust constitutes a security agreement with respect to the Collateral in which Beneficiary is hereby granted a security interest. In addition to the rights and remedies provided under this Deed of Trust, Beneficiary shall have all of the rights and remedies of a secured party under the California Uniform Commercial Code as well as all other rights and remedies available at law or in equity. Trustor hereby agrees to execute and deliver on demand and irrevocably constitutes and appoints Beneficiary the attorney-in-fact of Trustor to, at Trustor's expense, execute, deliver and, if appropriate, to file with the appropriate filing officer or office such security agreements, financing statements, con- tinuation statements or other instruments as Beneficiary may request or require in order to impose, perfect or continue the perfection of the lien or security interest created hereby. Upon the occurrence of any Event of Default, Beneficiary shall have (i) the right to cause any of the Collateral which is personal property to be sold at any one or more public or private sales as permitted by applicable law and to apply the proceeds thereof to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, and (ii) the right to apply to the Indebtedness or any other monetary obligation of Trustor to Beneficiary, any Collateral which is cash, negotiable documents or chattel paper. Any such disposition may be conducted by an employee or agent of Beneficiary or Trustee. Any Person, including, without limitation, both Trustor and Beneficiary, shall be eligible to purchase any part or all of such Personalty at any such disposition. 44.3 Expenses. Expenses of retaking, holding, preparing for sale, selling or the like pertaining to the Collateral shall be borne by Trustor and shall include Beneficiary's and Trustee's reasonable attorneys' fees and legal expenses. Trustor, upon demand of Beneficiary shall assemble the Collateral and make it available to Beneficiary at the Property, a place which is hereby deemed to be reasonably convenient to Beneficiary and Trustor. Beneficiary shall give Trustor at least ten (10) days' prior written notice of the time and place of any public sale or other disposition of the Collateral or of the time after which any private sale or any other intended disposition is to be made. Any such notice sent to Trustor in the manner provided for the mailing of notices herein is hereby deemed to be reasonable notice to Trustor. 44.4 Fixture Filing. This Deed of Trust covers certain goods which are or are to become fixtures related to the Land and constitutes a fixture filing with respect to such goods executed by Trustor as debtor in favor of Beneficiary as secured party. 44.5 Waivers. Trustor waives (a) any right to require Beneficiary to (i) proceed against any Person, (ii) proceed against or exhaust any Collateral or (iii) pursue any other remedy in its power; and (b) any defense arising by reason of any disability or other defense of Trustor or any other Person, or by reason of the cessation from any cause whatsoever of the liability of Trustor or any other Person. Until the Indebtedness shall have been paid in full, Trustor shall not have any right to subrogation, and Trustor waives any right to enforce any remedy which Beneficiary now has or may hereafter have against Trustor or against any other Person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by Beneficiary. ARTICLE 45 Assignment of Rents 45.1 Assignment of Rents. Trustor absolutely and unconditionally assigns and transfers the Rents to Beneficiary, whether now due, past due or to become due, and gives to and confers upon Beneficiary the right, power and authority to collect such Rents, and apply the same to the Indebtedness. Trustor irrevocably appoints Beneficiary its agent to, at any time, demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, either in the name of Trustor or in the name of Beneficiary, for all such Rents. Neither the foregoing assignment of Rents to Beneficiary nor the exercise by Beneficiary of any of its rights or remedies under this Deed of Trust shall be deemed to make Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof, unless and until Beneficiary, in person or by its own agent, assumes actual possession thereof, nor shall appointment of a Receiver for the Property by any court at the request of Beneficiary or by agreement with Trustor or the entering into possession of the Property or any part thereof by such Receiver be deemed to make Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in any manner with respect to the Property or the use, occupancy, enjoyment or operation of all or any part thereof. 45.2 Collection of Rents. Notwithstanding anything to the contrary contained herein or in the Note, so long as no Event of Default shall occur, Trustor shall have a license, revocable upon the occurrence of an Event of Default or, if an Event of Default shall have occurred, so long as such Event of Default shall not have been waived by Beneficiary, to collect all Rents, and to first apply same to the Indebtedness as and when due and thereafter to retain, use and enjoy the same and to otherwise exercise all rights with respect thereto, subject to the terms hereof. Upon the occurrence of an Event of Default, Beneficiary shall have the right, on written notice to Trustor, to terminate and revoke the license heretofore granted to Trustor and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein or by law or at equity. ARTICLE 46 Miscellaneous 46.1 Successor Trustee. Beneficiary may remove Trustee or any successor trustee at any time or times and appoint a successor trustee by recording a written substitution in the county where the Property is located, or in any other manner permitted by law. 46.2 Change of Law. In the event of the passage, after the date of this Deed of Trust, of any law deducting from the value of the Property, for the purposes of taxation, any lien thereon, or changing in any way the laws now in force for the taxation of mortgages, deeds of trust, or debts secured by mortgage or deed of trust (other than laws imposing taxes on income), or the manner of the collection of any such taxes so as to materially affect the anticipated yield of Beneficiary as holder of the Note and/or Beneficiary under this Deed of Trust, the Indebtedness plus any applicable prepayment charges shall become due and payable at the option of Beneficiary exercised by thirty (30) days' notice to Trustor unless Trustor, within such thirty (30) day period shall, if permitted by law, assume the payment of any tax or other charge so imposed upon Beneficiary for the period remaining until full payment by Trustor of the Indebtedness. 46.3 No Waiver. No waiver by Beneficiary of any default or breach by Trustor hereunder shall be implied from any omission by Beneficiary to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default expressly referenced in the waiver and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Beneficiary to or of any act by Trustor requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. 46.4 Abandonment. Subject to such chattel mortgages, security agreements or other liens on title as may exist thereon with the consent of Beneficiary, or any provided for herein, any and all Personalty that upon foreclosure of the Property is owned by Trustor and is used in connection with the operation of the Property shall be deemed at the option of Beneficiary to have become on such date a part of the Property and abandoned to Beneficiary in its then condition. 46.5 Notices. All notices, demands, requests, consents, statements, satisfactions, waivers, designations, refusals, confirmation or denials that may be required or otherwise provided for or contemplated under the terms of this Deed of Trust shall be in writing, and shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged, (ii) one business day after having been deposited for overnight delivery with Federal Express or another comparable overnight courier service, or (iii) three business days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows: If to Trustor: Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, California 94549 Attention: Mr. Scott Whitney If to Trustee: First American Title Insurance Company 1850 Mount Diablo Boulevard, Suite 300 Walnut Creek, California 94596 If to Beneficiary: The Prudential Insurance Company of America Four Embarcadero Center Suite 2700 San Francisco, California 94111 Attention: Regional Counsel Loan No. 6 101 085 with a copy to: The Prudential Insurance Company of America One Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Vice President, Loan Servicing Loan No. 6 101 085 or addressed to each respective party at such other address as such party may from time to time designate by written notice to the other parties given in the manner aforesaid. 46.6 Severability. If any term, provision, covenant or condition hereof or any application thereof should be held by a court of competent jurisdiction to be invalid, void or unenforceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. 46.7 Joinder of Foreclosure. Should Beneficiary hold any other or additional security for the payment of the Indebtedness or performance of the Obligations, its sale or foreclosure, upon any default in such payment or performance, in the sole discretion of Beneficiary, may be prior to, subsequent to, or joined or otherwise contemporaneous with any sale or foreclosure hereunder. In addition to the rights herein specifically conferred, Beneficiary, at any time and from time to time, may exercise any right or remedy now or hereafter given by law to beneficiaries under deeds of trust generally, or to the holders of any obligations of the kind hereby secured. 46.8 Governing Law. The parties expressly agree that this Deed of Trust (including, without limitation, all questions regarding permissible rates of interest) shall be governed by and construed in accordance with the laws of the state in which the Land is located. 46.9 Subordination. At the option of Beneficiary, this Deed of Trust shall become subject and subordinate in whole or in part (but not with respect to priority of entitlement to any insurance proceeds, damages, awards, or compensation resulting from damage to the Property or condemnation or exercise of power of eminent domain), to any and all contracts of sale and/or any and all Leases upon the execution by Beneficiary and recording thereof in the Official Records of the County in which the Land is located of a unilateral declaration to that effect. Beneficiary may require the issuance of such title insurance endorsements to the Title Policy in connection with any such subordination as Beneficiary, in its reasonable judgment, shall determine are appropriate, and Trustor shall be obligated to pay any cost or expense incurred in connection with the issuance thereof. 46.10 Future Advances. Upon the request of Trustor or its permitted successors in ownership of the Property, Beneficiary may hereafter, at its option, at any time before full payment of the Indebtedness, make future advances to Trustor or said successors, and the same, with interest and late charges, shall be secured by this Deed of Trust; provided, however, that the amount of principal secured by this Deed of Trust and remaining unpaid, shall not at the time of and including any such advance exceed the original principal sum secured hereby; and provided further that if Beneficiary, at its option, shall make a future advance or advances as aforesaid, Trustor or said successors in ownership agree to execute and deliver to Beneficiary (i) a note to evidence the same, payable on or before the maturity of the Indebtedness secured hereby and bearing such other terms as Beneficiary shall require, and (ii) satisfactory evidence that after such advance this Deed of Trust will secure such advance and continue to constitute a valid first mortgage lien on the Property subject only to the Permitted Exceptions. 46.11 Waiver of Statute of Limitations and Rights to Trial by Jury. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust and the right to a jury trial in any action under or relating to the Loan Documents is hereby waived, to the fullest extent allowed by law. 46.12 Entire Agreement. The Loan Documents and the Remediation and Indemnification Agreements set forth the entire understanding between Trustor and Beneficiary relative to the Loan and the same shall not be amended except by a written instrument duly executed by each of Trustor and Beneficiary. Any and all previous representations, warranties, agreements and understandings between or among the parties regarding the subject matter of the Loan or the Loan Documents, whether written or oral, are superseded by this Deed of Trust and the other Loan Documents. The foregoing notwithstanding, the terms and the conditions of the Application shall survive the funding of the Loan but in the event of any conflict between the provisions of the Application and any of the other Loan Documents or the Remediation and Indemnification Agreements, except as otherwise specifically provided herein, the terms of such other Loan Documents and the Remediation and Indemnification Agreements shall control. 46.13 References to Foreclosure. References in this Deed of Trust to "foreclosure" and related phrases shall be deemed references to the appropriate procedure in connection with Trustee's private power of sale as well as any judicial foreclosure proceeding or a conveyance in lieu of foreclosure. 46.14 Rights of Beneficiary and Trustee. At any time or from time to time, without liability therefor and without notice, and without releasing or otherwise affecting the liability of any person for payment of any Indebtedness (i) Beneficiary at its sole discretion and only in writing may extend the time for, or release any Person now or hereafter liable for, payment of any or all such Indebtedness, or accept or release additional security therefor, or subordinate the lien or charge hereof, or (ii) Trustee upon written request of Beneficiary and presentation of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust for endorsement may reconvey any part of the Property, consent to the making of any map or plat thereof, join in granting any easement thereon, or join in any such agreement of extension or subordination. Upon written request of Beneficiary and surrender of the Note, any additional notes secured by this Deed of Trust and this Deed of Trust to the Trustee for cancella- tion, and upon payment to Trustee of its fees and expenses, Trustee shall reconvey without warranty the remaining Property. The recitals in any reconveyance shall be conclusive proof of the truthfulness thereof and the grantee in any reconveyance may be described as "the person or persons legally entitled thereto." 46.15 Copies. Trustor will promptly give to Beneficiary copies of all (i) notices of violation relating to the Property that Trustor receives from any governmental agency or authority, and (ii) notices of default that Trustor shall give or receive under any agreement that Trustor covenants to perform hereunder, including, without limitation, notices of default relating to the Property that Trustor receives under any agreement relating to the borrowing of money by Trustor or from any Person. 46.16 No Merger. So long as any of the Indebtedness shall remain unpaid or Trustor shall have any further obligation under the Loan Documents, unless Beneficiary shall otherwise consent in writing, the fee estate of Trustor in the Property or any part thereof shall not merge, by operation of law or otherwise, with any leasehold or other estate in the Property or any part thereof, but shall always be kept separate and distinct therefrom, notwithstanding the union of said fee estate and such leasehold or other estate in Trustor or any other Person. 46.17 Right of Entry. In addition to the rights granted to Beneficiary under Paragraph 3.10 hereof, Beneficiary may enter at any reasonable time upon any part of the Property for the purpose of performing any of the acts Beneficiary is authorized to perform under the terms of this Deed of Trust or of any of the other Loan Documents. Trustor agrees to cooperate with Beneficiary to facilitate such entry. 46.18 Performance by Trustor. Trustor will faithfully perform each and every Obligation to be performed by Trustor under any lien or encumbrance, including, without limitation, mortgages, deeds of trust, leases, declarations or covenants, conditions and/or restrictions and other agreements which affect the Property. If Trustor fails to do so, Beneficiary, without demand or notice, may do any or all things necessary to perform the Obligations of Trustor under the pertinent instrument. 46.19 Personalty Security Instruments. Trustor covenants and agrees that if Beneficiary at any time holds additional security for any obligations secured hereby, it may enforce the terms thereof or otherwise realize upon the same, at its option, either before or concurrently herewith or after a sale is made hereunder, and may apply the proceeds upon the Indebtedness secured hereby without affecting the status of or waiving any right to exhaust all or any other security, including the security hereunder, and without waiving any breach or default or any right or power whether exercised hereunder, and without waiving any breach or default or any right or power whether exercised hereunder or contained herein or in any such other security. 46.20 Suits to Protect Property. Trustor covenants and agrees to appear in and defend any action or proceeding purporting to affect the security of the Deed of Trust, or of any additional or other security for the Obligations, the interest of Beneficiary or the rights, powers and duties of Trustee hereunder; and to pay all costs and expenses, including, without limitation, costs of evidence of title and reasonable attorneys' fees, in any action or proceeding in which Beneficiary and/or Trustee may appear or be made a party, including, without limitation, foreclosure or other proceedings commenced by those claiming a right to any part of the Property in any action to partition or condemn all or part of the Property, whether or not pursued to final judgment, and in any exercise of the power of sale contained herein, whether or not the sale is actually consummated. Trustee agrees that in any such action or proceeding in which Beneficiary is made a party, Beneficiary may at its option defend such action, and all costs of such defense, including all court costs and reasonable attorneys' fees, shall be borne and paid by Trustor. 46.21 Junior Liens. Trustor represents and warrants that as of the date hereof there are no encumbrances to secure debt junior to this Deed of Trust and covenants that there are to be none as of the date when this Deed of Trust becomes of record. 46.22 Charges for Statements. Trustor agrees to pay Beneficiary's charge, up to the maximum amount permitted by law, for any statement regarding the obligations secured by this Deed of Trust requested by Trustor or on its behalf. 46.23 Usury. In the event that Beneficiary determines that any charge, fee or interest paid or agreed to be paid in connection with the Loan may, under the applicable usury laws, cause the interest rate on the Loan to exceed the maximum permitted by law, then such charges, fees or interest shall be reduced and any amounts actually paid in excess of the maximum interest permitted by such laws shall be applied by Beneficiary to reduce the outstanding principal balance of the Loan. The parties intend that Trustor shall not be required to pay, and Beneficiary shall not be entitled to collect, interest in excess of the maximum legal rate permitted under the applicable usury laws. 46.24 Publicity. Trustor hereby agrees that Beneficiary, at its expense, may publicize the financing of the Property. Beneficiary shall endeavor to notify Trustor of its intent to publicize the financing; provided, however, that Beneficiary's failure to so notify Trustor shall not constitute a breach by Beneficiary under the Loan Documents. 46.25 Information Reporting Under IRC Section 6045(e). Any information returns or certifications that must be filed with the Internal Revenue Service and/or provided to other parties, pursuant to Internal Revenue Code Section 6045(e) shall be prepared, filed by and sent to the appropriate parties by Trustor. To the extent permitted by law, Beneficiary shall have no responsibility to perform such services; provided however, upon demand Trustor shall reimburse Beneficiary for any costs incurred by Beneficiary in doing so and shall also pay such fee as Beneficiary may reasonably and lawfully request. Beneficiary shall, where requested by Trustor, promptly supply Trustor with all information pertaining to Beneficiary reasonably required by Trustor to prepare and file any such return or certification. Trustor shall indemnify Beneficiary and defend, protect and hold Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims) that Beneficiary may incur, directly or indirectly, as a result of or in connection with the assertion against Beneficiary of any claim relating to the failure of Trustor to comply with its obligations under this Paragraph. 46.26 ERISA. A. Trustor understands and acknowledges that on the Closing Date, the source of funds from which Beneficiary extends the Loan is its general account, which is subject to the claims of its general creditors under state law. Beneficiary (i) represents and warrants that either (a) it is not funding the Loan with Plan Assets (as described below) or (b) if Beneficiary is funding the Loan with Plan Assets, such funding satisfies the provisions of Prohibited Transaction Class Exemption 95-60 and (ii) covenants that either clause (a) or (b) immediately above will be true throughout the term of the Loan. B. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I of ERISA, and (ii) the assets of Trustor do not constitute "plan assets" of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 ("Plan Assets"). C. Trustor represents and warrants to Beneficiary that, as of the date of this Deed of Trust and throughout the term of the Loan, (i) Trustor is not a "governmental plan" within the meaning of Section 3(32) of ERISA, and (ii) transactions by or with Trustor are not subject to state statutes regulating investments of and fiduciary obligations with respect to governmental plans. D. Trustor covenants and agrees to deliver to Beneficiary such certifications or other evidence on the Closing Date and from time to time throughout the term of the Loan, as requested by Beneficiary in its sole discretion, that (i) Trustor is not an "employee benefit plan" or a "governmental plan"; and (ii) Trustor is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (1) Equity interests in Trustor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than twenty-five percent (25%) of all equity interests in Trustor are held by "benefit plan investors" within the meaning of 29 C.F.R Section 2510.3-101(f)(2); or (3) Trustor qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). E. Any of the following shall constitute an Event of Default entitling Beneficiary to exercise any and all remedies to which it may be entitled under the Loan Documents: (i) the failure of any representation or warranty made by Trustor under this Paragraph 9.26 to be true and correct in all material respects, (ii) the failure of Trustor to comply in all material respects with the obligation to provide Beneficiary with the written certifications and evidence referred to above, or (iii) assuming compliance by Beneficiary with the representations, warranties and covenants in Paragraph 9.26.A above, the consummation by Trustor of a transaction which would cause the Loan or any exercise of Beneficiary's rights under the Loan Documents to constitute a non-exempt prohibited transaction under ERISA or a material violation of a state statute regulating governmental plans, subjecting Beneficiary to liability for violation of ERISA or such state statute, provided, that Trustor shall have thirty (30) days after its receipt of notice of default from Beneficiary within which to commence the cure of such default and, with respect to defaults under clause (i) immediately above, Trustor shall have an additional ninety (90) days thereafter within which to effect such cure provided it shall have commenced its efforts to cure within such thirty (30) day period and shall thereafter diligently and in good faith continuously prosecute such cure to completion. Failure by Trustor to cure any such default within the applicable time period set forth above shall constitute an Event of Default. F. Trustor hereby indemnifies, defends and holds Beneficiary harmless from and against all loss, cost, damage and expense (including, without limitation, attorneys' fees and costs incurred in the investigation, defense and settlement of claims and losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required) that Beneficiary may incur as a direct result of an Event of Default under clause (E) above, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. This indemnity shall survive any termination, satisfaction or foreclosure of this Deed of Trust and shall not be subject to the limitation on personal liability described in Paragraph 19 of the Note. G. Anything in the Application, Paragraph 4.2 or elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no sale, assignment or transfer of any direct or indirect interest in Trustor shall be permitted which would negate Trustor's representations in this Paragraph 9.26 or cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of any provision of ERISA or of any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. H. Anything in the Application, Paragraph 4.2 elsewhere in this Deed of Trust or the Loan Documents to the contrary notwithstanding, no direct or indirect transfer of the Property or any interest therein including, without limitation, a junior lien or leasehold interest, shall be permitted which would cause this Deed of Trust (or any exercise of Beneficiary's rights under the Loan Documents) to constitute a violation of ERISA or any applicable state statute regulating a governmental plan, assuming compliance by Beneficiary with the representations, warranties and covenants set forth in Paragraph 9.26.A above. I. Anything in the Application, this Deed of Trust or the Loan Documents to the contrary notwithstanding, no less than fifteen (15) before consummation of any permitted transfer of title to the Property or of an interest in Trustor, or of any direct or indirect right, title or interest in either of them, or of the placing of any lien or encumbrance on the Property, Borrower shall obtain from the proposed transferee or lienholder a representation to Beneficiary in form and substance satisfactory to Beneficiary that the provisions of Paragraph 9.26.D above will be true after the transfer, or in the case of a lien or encumbrance, would remain true following any foreclosure or conveyance in lieu thereof, and further provided that any proposed lienholder agrees that any direct or indirect transfer of its lien or any interest therein will be governed by this section. 46.27 Defense and Indemnity Rights. Whenever, under any Loan Document, Trustor is obligated to indemnify and/or defend Beneficiary, or Trustor is obligated to defend or prosecute any action or proceeding, then Beneficiary shall have the right of counsel of Beneficiary's choice reasonably exercised, and all costs and expenses incurred by Beneficiary in connection with such participation (including, without limitation, reasonable attorneys' fees) shall be reimbursed by Trustor to Beneficiary immediately upon demand. In addition, Beneficiary shall have the right to approve any counsel retained by Trustor in connection with the prosecution or defense of any such action or proceeding by Trustor. Trustor shall give notice to Beneficiary of the initiation of all proceedings prosecuted or required to be defended by Trustor, or which are subject to Trustor's indemnity obligations, under this Deed of Trust, promptly after the receipt by Trustor of notice of the existence of any such proceeding, but in no event later than five (5) days thereafter. All costs or expenses required to be reimbursed by Trustor to Beneficiary hereunder shall, if not paid when due as herein specified, bear interest at the Secondary Interest Rate. As used herein, "proceeding" shall include litigation (whether by way of complaint, answer, cross-complaint, counter claim or third party claim), arbitration and administrative hearings or proceedings. 46.28 Destruction of Note. Trustor shall, if the Note is mutilated or destroyed by any cause whatsoever, or otherwise lost or stolen and regardless of whether due to the act or neglect of Beneficiary or Trustee, execute and deliver to Beneficiary in substitution therefor a duplicate promissory note containing the same terms and conditions as the Note, within ten (10) days after Beneficiary notifies Trustor of any such mutilation, destruction, loss or theft of the Note. Any new promissory note executed and delivered hereunder shall be in full substitution for the Note, shall not constitute any new or additional indebtedness of Trustor to Beneficiary, shall constitute solely a substitute evidence of the indebtedness evidenced by the original Note, and shall not affect in any manner the priority of this Deed of Trust, or any other document or instrument executed in connection with or evidencing or securing the Indebtedness under the Note. Failure or delay by Beneficiary to notify Trustor hereunder shall not affect in any manner Trustor's lia- bility for the Indebtedness under the Note or Trustor's obligation to execute a new promissory note hereunder; and Trustor's failure to execute a new promissory note on Beneficiary's request hereunder shall likewise not affect Trustor's liability for the indebtedness under the Note. 46.29 Trustor, Beneficiary and Trustee Defined. As used in this Deed of Trust, "Trustor" includes the original signators of this Deed of Trust as Trustor, and its successors and assigns; the term "Benefi- ciary" means the Beneficiary named herein or any future owner or holder, including pledgee and participants, of any note, notes or instrument secured hereby, or any participation therein; and "Trustee" includes the original Trustee under this Deed of Trust and its successors and assigns. 46.30 Rules of Construction. When the identity of the parties or other circumstances make appropriate, the masculine gender shall include the feminine and/or neuter, and the singular number shall include the plural. Specific enumeration of rights, powers and remedies of Trustee and Beneficiary and of acts which they may do and of acts Trustor must do or not do shall not exclude or limit the general. The headings of each Article and Paragraph are for information and convenience and do not limit or construe the contents of any provision hereof. The provisions of this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements shall be construed as a whole according to their common meaning, not strictly for or against any party and consistent with the provisions herein contained, in order to achieve the objectives and purposes of such documents. Each party and its counsel has reviewed and revised the Loan Documents and the Remediation and Indemnification Agreements and agree that the normal rule of construction to the effect that any ambiguities to be resolved against the drafting party shall not be employed in the interpretation of such document. The use in this Deed of Trust, all other Loan Documents and the Remediation and Indemnification Agreements of the words "including," "such as," or words of similar import, when following any general term, statement or matter shall not be construed to limit such statement, term or matter to the specific items or matters, whether or not language of non- limitation such as "without limitation" or "but not limited to," or words of similar import, are used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such statement, term or matter. 46.31 Information to Third Persons. If, at any time, Beneficiary desires to sell or transfer, or grant a participation interest in, all or any portion of, or any interest in, the Note, this Deed of Trust or any other Loan Document to any Person, Trustor and each Loan Party shall furnish in a timely manner any and all financial information concerning the Property and Leases, and concerning Trustor's or such Loan Party's financial condition, requested by Beneficiary or such person in connection with any such sale or transfer. 46.32 Commingling of Funds. Any and all sums collected or retained by Beneficiary hereunder (including insurance and condemnation proceeds and any amounts paid by Trustor to Beneficiary under Paragraph 3.4 hereof), shall not be deemed to be held in trust, and Beneficiary may commingle any and all such funds or proceeds with its general assets and shall not be liable for the payment of any interest or other return thereon, except to the extent expressly provided herein or otherwise required by law. 46.33 Standards of Discretion. Nothing contained in this Deed of Trust, the Note, or any other Loan Documents, shall limit the right of Beneficiary to exercise its good faith business judgment, or act, in a subjective manner with respect to any matter as to which it has specifically been granted such right or the right to act in its sole discretion or sole judgment hereunder or thereunder, whether "objectively" reasonable under the circumstances. Any such exercise shall not be deemed inconsistent with any covenant of good faith and fair dealing otherwise implied by law to be a part of this Deed of Trust; and the parties intend by the foregoing to set forth and affirm their entire understanding with respect to the terms, covenants and conditions and standards pursuant to which their rights, duties and obligations are to be judged, their performance measured, and the parameters within which Beneficiary's discretion may be exercised hereunder and under the other Loan Documents; provided, however, that the foregoing shall not limit Beneficiary's obligation to act reasonably under the circumstances where any provision of the Loan Documents provides for the reasonable consent or approval of Beneficiary. 46.34 Certain Standards on Efforts of Trustor. Whenever in this Deed of Trust, or any other Loan Document, the phrase "cause to be" is used in conjunction with any of Trustor's Obligations, such phrase shall be deemed to include the use by Trustor of best efforts and all due diligence to cause the applicable act, event or circumstance to occur or be performed or taken, and such efforts and due diligence shall encompass the initiation of litigation or other proceedings in order to enforce or bring about the happening of the applicable act or matter. 46.35 Certain Obligations Unsecured. Notwithstanding anything to the contrary set forth herein or any of the Loan Documents, this Deed of Trust shall not secure the following obligations (the "Unsecured Obligations"): (i) any obligations evidenced by or arising under the Remediation and Indemnification Agreements, and (ii) any other obligations in this Deed of Trust or in any of the other Loan Documents to the extent that such other obligations relate specifically to the presence on the Property of Hazardous Materials (as defined in the Remediation and Indemnification Agreements) and are the same or have the same effect as any of the obligations evidenced by or arising under the Remediation and Indemnification Agreements. Any breach or default with respect to the Unsecured Obligations shall constitute an Event of Default hereunder, notwithstanding the fact that such Unsecured Obligations are not secured by this Deed of Trust. Nothing in this section shall, in itself, impair or limit Beneficiary's right to obtain a judgment in accordance with applicable law after foreclosure for any deficiency in recovery of all obligations that are secured by this Deed of Trust following foreclosure. 46.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfaction of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Milpitas Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non-refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty- five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. 46.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be executed as of the day and year first above written. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] [11128.AGRE]I12494 State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca , a notary public, personally appeared Scott R. Whitney, Sr. V. P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public (seal) RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _______________________________________________________________ ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (Arizona) THIS ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (this "Assignment") is made as of January 30, 1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Assignee"), for the benefit and protection of Assignee as beneficiary under that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith executed by Assignor in favor of Assignee (the "Deed of Trust") encumbering that certain real property, together with any improvements now or at any time located thereon, located in the County of Maricopa, State of Arizona (the "Property"), and more particularly described in Exhibit A attached hereto and incorporated herein by this reference and for the benefit and protection of Assignee as payee and holder of that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), and that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). W I T N E S S E T H: FOR VALUE RECEIVED, Assignor does hereby irrevocably and absolutely SELL, ASSIGN, TRANSFER, SET OVER AND DELIVER unto Assignee any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property, including, without limitation, those leases described in Exhibit B attached hereto (collectively, the "Leases"). TOGETHER, with the immediate and continuing right to collect and receive all of the rents, income, receipts, revenues, issues and profits now due or which may become due or to which Assignor may now or shall hereafter (including the period of redemption, if any) become entitled or may demand or claim, arising or issuing from or out of the Leases or from deficiency rents and liquidated damages following default, including, without limitation, all security and other deposits now or hereafter held by Assignor, and all proceeds payable under any policy of insurance covering loss of rents or other income from the Property, together with any and all rights and claims of any kind that Assignor may have against lessees under the Leases or any subtenants or occupants of the Property, or any part thereof (all such moneys, rights and claims described in this paragraph being hereinafter called the "Receipts"). SUBJECT, however, to a license hereby granted by Assignee to Assignor, but limited as hereinafter provided, to collect and receive the Receipts. ASSIGNOR REPRESENTS, WARRANTS, COVENANTS AND AGREES AS FOLLOWS: 47 Representations and Warranties. Assignor represents and warrants that: (i) Assignor is the owner of the Property, and has good title to the Leases and Receipts and full and complete right to assign the same; (ii) no other Person (as herein- after defined) has any right, title or interest in the Leases or Receipts; (iii) Assignor has duly and punctually performed all and singular the obligations, terms, covenants, conditions and warranties of the Leases on Assignor's part to be kept, observed and performed; (iv) Assignor has not previously sold, assigned, transferred, mortgaged or pledged the Leases or the Receipts, whether now due or hereafter to become due; (v) no Receipts for any period of more than thirty (30) days subsequent to the date hereof have been collected, nor has payment of any of same been otherwise discharged or compromised; (vi) the lessees under the Leases ("Lessees") are not in default of any of the terms thereof and do not have any defense, set- off or counter claim against Assignor thereunder; (vii) the Leases are in full force and effect, are valid and enforceable in accordance with their terms, and have not been modified, amended or altered, whether in writing or orally, except as otherwise disclosed to Assignee in writing; (viii) except as disclosed on the rent roll delivered to Assignee in connection with the funding of the Loan (the "Rent Roll"), there are no unextinguished rent concessions, abatements or other inducements relating to the Leases, and no Lessee has any option or right to acquire any interest in the Property; and (ix) the Rent Roll discloses all currently existing Leases and is complete, accurate and true in all respects. As used herein, the term "Person" shall mean and refer to any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. 48 Affirmative Covenants. Assignor shall: (i) observe, perform and discharge, duly and punctually, all and singular the obligations, terms, covenants, conditions and warranties of the Leases, on the part of Assignor to be kept, observed and per- formed, and give prompt notice to Assignee of any failure on the part of Assignor to observe, perform and discharge the same; (ii) direct the Lessees to deliver all rents and other payments due under the Leases to Assignee upon written request of Assignee and without further action of Assignor; (iii) upon request of Assignee, notify Lessees in writing of this Assignment and that any security deposit, or other deposits heretofore delivered to Assignor have been retained by Assignor or assigned and delivered to Assignee, as the case may be; (iv) enforce or secure in the name of Assignee the performance of each and every obligation, term, covenant, condition and agreement of the Leases to be performed by Lessees; (v) appear in and defend any action or proceeding arising under, occurring out of, or in any manner con- nected with the Leases or the obligations, duties, or liabilities of Assignor and Lessees thereunder; and (vi) upon request by Assignee, to do so in the name and on behalf of Assignee but at the expense of Assignor, and to pay all costs and expenses of Assignee, including, without limitation, reasonable attorneys' fees. In the negotiation of any future leases or the renewal of any of the Leases, Assignor shall use commercially reasonable efforts not to agree to obtain the agreement of Assignee to execute a subordination, non-disturbance and attornment agreement ("SNDA") with the Lessee or proposed lessee. So long as Assignor uses such commercially reasonable efforts, Assignee shall enter into an SNDA on Assignee's then current standard SNDA form with the tenant for any lease which is either expressly approved by Assignee in writing or which meets the criteria set forth in paragraphs (a) or (b) of Section 3, below. Pursuant to such SNDA, Assignee shall agree that in the exercise of any foreclosure remedies under the Deed of Trust, Assignee will not disturb such tenant in its possession of the demised premises so long as such tenant is not in default under its lease. 49 Negative Covenants. Assignor shall not, without the prior written consent of Assignee: (i) lease any part of the Property or renew or extend any of the Leases; (ii) terminate, amend, modify or alter in any manner any of the Leases, or waive, excuse, condone, discount, set off, compromise, or in any manner release or discharge Lessees from any obligations, covenants, conditions or agreements by such Lessees to be kept, or accept or consent to any surrender of the Leases; (iii) receive or collect any Receipts for a period of more than one month in advance (whether in cash or by promissory note or otherwise); (iv) further assign the Leases or pledge, transfer, mortgage or otherwise encumber or assign future payments of Receipts; (v) commence an action of ejectment or summary proceedings for dispossession of the Lessees under any of the Leases; (vi) consent to any modification of the express purposes for which the Property has been leased; or (vii) consent to any subletting of the Property or any part thereof, or to any assignment of the Leases by lessees thereunder or to any assignment or further subletting by any sublessees. Notwithstanding the foregoing, Assignor may do the following with respect to the Leases, including without limitation any new leases affecting the Property, without obtaining Assignee's prior written consent: A. Enter into any amendment or modification of any Lease, so long as the Lessee under such Lease leases not more than 10,000 rentable square feet of the Property, provided that Assignor delivers to Assignee an executed copy of such amendment within a reasonable time after execution thereof, but in no case later than 5 business days after such execution, and provided further that such amendment (i) is consistent with the ordinary and reasonable business practices and procedures customarily employed by Assignor for properties similar to the Property, (ii) does not substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, (iii) does not decrease or accelerate the rent under such Lease, (iv) does not decrease the term of such Lease, unless such a reduced lease term is granted in conjunction with both retaining an existing Lessee and with enlarging the size of the same Lessee's space in the Property, (v) does not cause such Lease to vary substantially from Assignor's standard form lease, and (vi) is not of a Lease for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and B. Enter into new bona fide arms-length leases (or renew existing Leases) with third-party tenants for premises of 10,000 rentable square feet or less, provided such leases (i) are on Assignor's standard form lease approved by Assignee, with no modifications that substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, and (ii) are not for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and C. Terminate any Lease (for premises of 10,000 rentable square feet or less) in the ordinary course of Assignor's business (i) for non-payment of rent or other material default by the Lessee thereunder so long as such termination does not include a payment by such Lessee to Assignor, or (ii) if all of the space occupied pursuant to the Lease to be terminated is to be leased to another Lessee in conjunction with a transaction permitted under Section 3(a)(iv), above. In any case in which Assignee's consent is required pursuant to this Section 3, Assignee shall respond to requests for such consent in an expedient manner, and such consent shall not be unreasonably withheld or delayed and shall be deemed given unless objections in reasonable detail are given to Assignee within eight (8) business days following Assignor's receipt of (i) written request for such consent, which written request shall include the date Assignee's response is due, and (ii) all pertinent information relating to the Lease or proposed lease in question, including, without limitation, copies of the proposed amendment or new lease, if applicable. 50 Default and Remedies. In the event any representation or warranty herein of Assignor shall be found to be untrue in any material respect when made, or thereafter becomes untrue in any material respect, or in the event Assignor shall default in the payment of any Indebtedness (as hereinafter defined) or in the observance or performance of any other Obligation (as hereinafter defined), after the expiration of all applicable grace or cure periods, if any, set forth in the Deed of Trust, then, in each such instance, the same shall constitute an "Event of Default" hereunder and under the Loan Documents (as defined in the Deed of Trust), thereby entitling Assignee to declare all Indebtedness immediately due and payable and to exercise any and all of the rights and remedies provided thereunder and hereunder as well as by law or in equity. Specifically, but without limiting the generality of the foregoing, upon or at any time after the occurrence of an Event of Default, Assignee, at its option, shall have the complete right, power and authority to exercise and enforce any or all of the following rights and remedies: (i) to terminate and revoke the license granted to Assignor hereunder and collect the Receipts, and without taking possession of the Property, in Assignee's own name, to demand, collect, receive, sue for, attach and levy the Receipts, to give proper receipts, releases and acquittances therefor, and after deducting all necessary and proper costs and expenses of operation and collection, as determined in Assignee's sole judgment, and including reasonable attorneys' fees, to apply the net proceeds thereof, together with any funds of Assignor deposited with Assignee, upon the Indebtedness and in such order as Assignee may determine in its sole discretion; and (ii) without regard to the adequacy of the security, with or without any action or proceeding, through any person or by agent, by the Trustee under the Deed of Trust, or by a receiver appointed by a court of competent jurisdiction, and irrespective of Assignor's possession, to enter upon, take possession of, manage and operate the Property, or any part thereof or interest therein, make, modify, enforce, cancel or accept surrender of, any of the Leases, remove and evict any Lessee, increase or decrease rents under any of the Leases, decorate, clean and repair any premises under any of the Leases, and otherwise do any act or incur any costs or expenses as Assignee deems necessary or proper to protect the rights of Assignee therein, as fully and to the same extent as Assignor could do if in possession, and in such event to apply the Receipts so collected to the operation and management of the Property, in such order as the Assignee shall deem proper in its sole discretion, including payment of reasonable management, brokerage and attorneys' fees, payment of the Indebtedness and maintenance, without interest, of reserves for replacements. Collection of Receipts hereunder, and application thereof as specified above, and/or the entry upon and taking possession of the Property, or any part thereof or interest therein, shall not cure or waive any default or waive, modify or affect any notice of default under any Loan Documents, or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by Assignee, once exercised, shall continue for so long as Assignee shall elect. If Assignee shall thereafter elect to discontinue the exercise of any such right or remedy, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent Event of Default. A demand upon any Lessee made by Assignee for payment of Receipts by reason of any default claimed by Assignee hereunder or under any other Loan Documents shall be sufficient to warrant to said Lessee to make future payments of all Receipts to Assignee without the necessity for further consent by Assignor. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. As used herein, the term "Obligations" shall mean and refer to any and all of the covenants, promises and other obligations (including the Indebtedness) made or owing by Assignor to or due Assignee under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Assignor to each and every other Person relating to the Property. 51 Grant of License to Assignor. So long as there shall exist no Event of Default, Assignor shall have the right under a license granted hereby (but limited as provided in this paragraph) to collect, but not prior to accrual, all Receipts. Assignor shall receive such Receipts, and shall hold the same, as well as the right and license to receive the same, as a trust fund to be applied, and Assignor shall so apply the same, first to the payment of taxes and assessments upon the Property before penalty or interest are due thereon, second to the cost of such insurance and of such maintenance and repairs as is required by the terms of the Deed of Trust, third to the satisfaction of all obligations under the Leases, and fourth to the payment of the Indebtedness before using any part of the Receipts for any other purpose. 52 Power of Attorney. Effective automatically upon the occurrence of an Event of Default and continuously thereafter, and without the necessity of the execution of any further documents or instruments, Assignor hereby constitutes and appoints Assignee as Assignor's true and lawful attorney, coupled with an interest, in the name, place and stead of Assignor (i) to collect, demand, sue for, attach, levy, recover and receive all Receipts due and payable by Lessees pursuant to the Leases and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion, as selected by Assignee, of the Indebtedness, notwithstanding that the amount owing thereunder may not then be due and payable or that the Indebtedness is adequately secured, and Assignor does hereby authorize and direct such Lessees to deliver such payment to Assignee in accordance with the foregoing; and (ii) to subject and subordinate at any time and from time to time, the Leases, to the lien of the Deed of Trust or any other Loan Documents or any other mortgage or deed of trust on or to any ground lease of the Property or to request or require such subordination, where such reservation, option or authority was reserved under the Leases to the Assignor, or in any case, where the Assignor otherwise would have the right, power or privilege so to do. Assignor hereby ratifies and confirms all acts that Assignee shall do or cause to be done by virtue of the powers granted hereby and warrants that the Assignor has not, on or at any time prior to the date hereof, exercised any such right of subordination under clause (ii) above and covenants not to exercise any such right except as may be required by Assignee. The power of attorney hereunder granted is irrevocable and continuing, shall survive the insolvency or dissolution of Assignor, and such rights, powers and privileges shall be exclusive in Assignee, its successors and assigns so long as any part of the Indebtedness shall remain unpaid. 53 Indemnity. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all lia- bility, loss, cost, damage or expense (including, without limitation, reasonable attorneys' fees) that Assignee may or might incur under or by reason of this Assignment, for any action taken by Assignee hereunder, or the enforcement of this Assignment, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Assignee arising out of the Leases, including any claim by any Lessees of credit from rental paid to and received by Assignor. If Assignee incurs any such liability, loss, cost, damage or expense, the amount thereof with interest thereon at the Secondary Interest Rate (as defined in the Note), shall be payable by Assignor immediately upon demand, shall be secured by the Deed of Trust, and shall be part of the Indebtedness. 54 No Waiver. The failure of Assignee to avail itself of any of the terms, covenants and conditions of this Assignment for any period of time, or at any time or times, shall not be construed or deemed to be a waiver of any such right, and nothing herein contained, nor anything done or omitted to be done by Assignee pursuant hereto, shall be deemed a waiver by Assignee of any of its rights and remedies under the Loan Documents, or under any applicable laws. The rights of Assignee to collect the Indebtedness and to enforce any security therefor may be exercised by Assignee, either prior to, simultaneously with, or subsequent to, any action taken hereunder. 55 No Merger. So long as any of the Indebtedness shall remain unpaid, unless Assignee shall otherwise consent in writing, the leasehold estates and the subleasehold estates on the Property, if any, shall not merge, but shall always be kept separate and distinct, notwithstanding the union of said estates either in Assignor or in any Lessees or in a third party, by purchase or otherwise. 56 No Mortgagee in Possession; No Other Liability. The acceptance by Assignee of this Assignment, with all of the rights, power, privileges and authority so created, shall not, prior to entry upon and taking of possession of the Property by Assignee, be deemed or construed to (i) constitute Assignee a mortgagee in possession nor thereafter or at any time or in any event obligate Assignee to appear in or defend any action or proceeding relating to the Leases or to the Property, (ii) require Assignee to take any action hereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Leases, or (iii) require Assignee to assume any obligation or responsibility for any security deposits or other deposits delivered to Assignor by Lessees and not assigned and delivered to Assignee. Assignee shall not be liable in any way for any injury or damage to person or property sustained by any Person in or about the Property. 57 Payment of Indebtedness. Upon payment in full of all of the Indebtedness, this Assignment shall become and be void and of no effect, but the affidavit, certificate, letter or statement of any officer of Assignee showing any part of said Indebtedness to remain unpaid shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this Assignment, and any Person may and is hereby authorized to rely thereon. 58 Notices. All notices, demands or documents of any kind that Assignee or Assignor may be required or may desire to serve shall be served in the manner provided in the Deed of Trust. 59 Successors and Assigns; Gender. The terms, covenants, conditions and warranties contained herein and the powers granted hereby shall run with the land, shall inure to the benefit of and bind all parties hereto and their respective heirs, executors, administrators, successors and assigns, and all subsequent owners of the Property, and all subsequent holders of the Note and the Deed of Trust, subject in all events to the provisions of the Deed of Trust regarding transfers of the Property by Assignor. In this Assignment, whenever the context so requires, the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural and conversely in each case. If there is more than one party constituting Assignor, all obligations of each Assignor hereunder shall be joint and several. 60 Severability. If any term, provision, covenant or condition hereof or any application thereof should be held unen- forceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. 61 Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of Arizona. 62 Expenses. Assignor shall pay on demand all costs and expenses incurred by Assignee in connection with the review of Leases, including the fees and disbursements of Assignee's outside counsel. 63 Absolute Assignment. Notwithstanding anything contained herein to the contrary, this Assignment is intended by Assignor and Assignee to create and shall be construed to create an absolute assignment by Assignor to Assignee of all of Assignor's right, title and interest in the Leases and Receipts and shall not be deemed to create a security interest therein. Assignor and Assignee further agree that, during the term of this Assignment, the Leases and Receipts shall not constitute property of Assignor (or of any estate of Assignor) within the meaning of 11 U.S.C. Section 541, as amended from time to time. 64 Priority Of Leases. NOTICE OF THE FOLLOWING IS HEREBY GIVEN TO ALL TENANTS EXECUTING A LEASE AFFECTING THE PROPERTY, EACH OF WHICH SHALL BE ON NOTICE OF, BOUND BY AND SUBJECT TO THE TERMS OF THIS PARAGRAPH 18: 18.1 Anything to the contrary in any Lease notwithstanding, Assignee shall have the right, but not the obligation, to change the priority of that Lease and the lien of the Deed of Trust from time to time by one or more unilateral notices to the tenant that (a) the lien of the Deed of Trust shall be subordinate to such Lease, or (b) the Lease shall be subordinate to the Deed of Trust. 18.2 Upon written request of Assignee, every tenant under a Lease receiving such request shall execute and deliver to Assignee within the time period specified in that written request a written agreement which provides the following: (a) upon the foreclosure of the Deed of Trust such tenant shall attorn to the purchaser of the Property at the foreclosure sale, and (b) the foreclosure of the Deed of Trust shall not disturb or result in the cancellation or termination of that tenant's Lease. Assignee has no obligation to deliver such a request to any tenant. 18.3 Assignor covenants that, unless Assignee otherwise agrees, each Lease shall provide, among other things, that Assignee shall have the right to (a) change the relative priority of that Lease and the Deed of Trust by notice to the tenant that (i) the Lease shall be subordinate to the Deed of Trust, or (ii) the Deed of Trust shall be subordinate to the Lease, and (b) elect whether or not (i) such Lease shall survive foreclosure of the Deed of Trust, and (ii) such tenant shall attorn to Assignee or the purchaser upon a foreclosure sale. 18.4 Assignee shall have the right to elect to be a third party beneficiary of any attornment provisions contained in any Lease. Anything to the contrary in any Lease notwithstanding, no election by Assignor under any Lease or otherwise to alter the relative priority of that Lease and the Deed of Trust shall be effective unless Assignee shall have consented thereto in writing. 65 Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. 66 Counterparts. This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. IN WITNESS WHEREOF, this Assignment of Lessor's Interest in Leases has been duly executed by Assignor the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] Witness (other than Notary Public): /s/ Cindy Lynds Name: Cindy Lynds The Prudential Insurance Company of America hereby executes this Assignment to evidence its agreement with the last two sentences of Section 2, hereof. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson [Printed Name and Title] Witness (other than Notary Public): Name: [11128.AGRE]I13400 State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca , a notary public, personally appeared Scott R. Whitney, Sr. V.P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public (seal) State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca , a notary public, personally appeared Scott R. Whitney, Sr. V. P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/Rebecca L. Ingraca Notary Public (seal) RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _______________________________________________________________ ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (Fremont) THIS ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (this "Assignment") is made as of January 30, 1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Assignee"), for the benefit and protection of Assignee as beneficiary under that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith executed by Assignor in favor of Assignee (the "Deed of Trust") encumbering that certain real property, together with any improvements now or at any time located thereon, located in the County of Alameda, State of California (the "Property"), and more particularly described in Exhibit A attached hereto and incorporated herein by this reference and for the benefit and protection of Assignee as payee and holder of that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), and that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). W I T N E S S E T H: FOR VALUE RECEIVED, Assignor does hereby irrevocably and absolutely SELL, ASSIGN, TRANSFER, SET OVER AND DELIVER unto Assignee any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property, including, without limitation, those leases described in Exhibit B attached hereto (collectively, the "Leases"). TOGETHER, with the immediate and continuing right to collect and receive all of the rents, income, receipts, revenues, issues and profits now due or which may become due or to which Assignor may now or shall hereafter (including the period of redemption, if any) become entitled or may demand or claim, arising or issuing from or out of the Leases or from deficiency rents and liquidated damages following default, including, without limitation, all security and other deposits now or hereafter held by Assignor, and all proceeds payable under any policy of insurance covering loss of rents or other income from the Property, together with any and all rights and claims of any kind that Assignor may have against lessees under the Leases or any subtenants or occupants of the Property, or any part thereof (all such moneys, rights and claims described in this paragraph being hereinafter called the "Receipts"). SUBJECT, however, to a license hereby granted by Assignee to Assignor, but limited as hereinafter provided, to collect and receive the Receipts. ASSIGNOR REPRESENTS, WARRANTS, COVENANTS AND AGREES AS FOLLOWS: 67 Representations and Warranties. Assignor represents and warrants that: (i) Assignor is the owner of the Property, and has good title to the Leases and Receipts and full and complete right to assign the same; (ii) no other Person (as herein- after defined) has any right, title or interest in the Leases or Receipts; (iii) Assignor has duly and punctually performed all and singular the obligations, terms, covenants, conditions and warranties of the Leases on Assignor's part to be kept, observed and performed; (iv) Assignor has not previously sold, assigned, transferred, mortgaged or pledged the Leases or the Receipts, whether now due or hereafter to become due; (v) no Receipts for any period of more than thirty (30) days subsequent to the date hereof have been collected, nor has payment of any of same been otherwise discharged or compromised; (vi) the lessees under the Leases ("Lessees") are not in default of any of the terms thereof and do not have any defense, set- off or counter claim against Assignor thereunder; (vii) the Leases are in full force and effect, are valid and enforceable in accordance with their terms, and have not been modified, amended or altered, whether in writing or orally, except as otherwise disclosed to Assignee in writing; (viii) except as disclosed on the rent roll delivered to Assignee in connection with the funding of the Loan (the "Rent Roll"), there are no unextinguished rent concessions, abatements or other inducements relating to the Leases, and no Lessee has any option or right to acquire any interest in the Property; and (ix) the Rent Roll discloses all currently existing Leases and is complete, accurate and true in all respects. As used herein, the term "Person" shall mean and refer to any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. 68 Affirmative Covenants. Assignor shall: (i) observe, perform and discharge, duly and punctually, all and singular the obligations, terms, covenants, conditions and warranties of the Leases, on the part of Assignor to be kept, observed and per- formed, and give prompt notice to Assignee of any failure on the part of Assignor to observe, perform and discharge the same; (ii) direct the Lessees to deliver all rents and other payments due under the Leases to Assignee upon written request of Assignee and without further action of Assignor; (iii) upon request of Assignee, notify Lessees in writing of this Assignment and that any security deposit, or other deposits heretofore delivered to Assignor have been retained by Assignor or assigned and delivered to Assignee, as the case may be; (iv) enforce or secure in the name of Assignee the performance of each and every obligation, term, covenant, condition and agreement of the Leases to be performed by Lessees; (v) appear in and defend any action or proceeding arising under, occurring out of, or in any manner con- nected with the Leases or the obligations, duties, or liabilities of Assignor and Lessees thereunder; and (vi) upon request by Assignee, to do so in the name and on behalf of Assignee but at the expense of Assignor, and to pay all costs and expenses of Assignee, including, without limitation, reasonable attorneys' fees. In the negotiation of any future leases or the renewal of any of the Leases, Assignor shall use commercially reasonable efforts not to agree to obtain the agreement of Assignee to execute a subordination, non-disturbance and attornment agreement ("SNDA") with the Lessee or proposed lessee. So long as Assignor uses such commercially reasonable efforts, Assignee shall enter into an SNDA on Assignee's then current standard SNDA form with the tenant for any lease which is either expressly approved by Assignee in writing or which meets the criteria set forth in paragraphs (a) or (b) of Section 3, below. Pursuant to such SNDA, Assignee shall agree that in the exercise of any foreclosure remedies under the Deed of Trust, Assignee will not disturb such tenant in its possession of the demised premises so long as such tenant is not in default under its lease. 69 Negative Covenants. Assignor shall not, without the prior written consent of Assignee: (i) lease any part of the Property or renew or extend any of the Leases; (ii) terminate, amend, modify or alter in any manner any of the Leases, or waive, excuse, condone, discount, set off, compromise, or in any manner release or discharge Lessees from any obligations, covenants, conditions or agreements by such Lessees to be kept, or accept or consent to any surrender of the Leases; (iii) receive or collect any Receipts for a period of more than one month in advance (whether in cash or by promissory note or otherwise); (iv) further assign the Leases or pledge, transfer, mortgage or otherwise encumber or assign future payments of Receipts; (v) commence an action of ejectment or summary proceedings for dispossession of the Lessees under any of the Leases; (vi) consent to any modification of the express purposes for which the Property has been leased; or (vii) consent to any subletting of the Property or any part thereof, or to any assignment of the Leases by lessees thereunder or to any assignment or further subletting by any sublessees. Notwithstanding the foregoing, Assignor may do the following with respect to the Leases, including without limitation any new leases affecting the Property, without obtaining Assignee's prior written consent: A. Enter into any amendment or modification of any Lease, so long as the Lessee under such Lease leases not more than 10,000 rentable square feet of the Property, provided that Assignor delivers to Assignee an executed copy of such amendment within a reasonable time after execution thereof, but in no case later than 5 business days after such execution, and provided further that such amendment (i) is consistent with the ordinary and reasonable business practices and procedures customarily employed by Assignor for properties similar to the Property, (ii) does not substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, (iii) does not decrease or accelerate the rent under such Lease, (iv) does not decrease the term of such Lease, unless such a reduced lease term is granted in conjunction with both retaining an existing Lessee and with enlarging the size of the same Lessee's space in the Property, (v) does not cause such Lease to vary substantially from Assignor's standard form lease, and (vi) is not of a Lease for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and B. Enter into new bona fide arms-length leases (or renew existing Leases) with third-party tenants for premises of 10,000 rentable square feet or less, provided such leases (i) are on Assignor's standard form lease approved by Assignee, with no modifications that substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, and (ii) are not for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and C. Terminate any Lease (for premises of 10,000 rentable square feet or less) in the ordinary course of Assignor's business (i) for non-payment of rent or other material default by the Lessee thereunder so long as such termination does not include a payment by such Lessee to Assignor, or (ii) if all of the space occupied pursuant to the Lease to be terminated is to be leased to another Lessee in conjunction with a transaction permitted under Section 3(a)(iv), above. In any case in which Assignee's consent is required pursuant to this Section 3, Assignee shall respond to requests for such consent in an expedient manner, and such consent shall not be unreasonably withheld or delayed and shall be deemed given unless objections in reasonable detail are given to Assignee within eight (8) business days following Assignor's receipt of (i) written request for such consent, which written request shall include the date Assignee's response is due, and (ii) all pertinent information relating to the Lease or proposed lease in question, including, without limitation, copies of the proposed amendment or new lease, if applicable. 70 Default and Remedies. In the event any representation or warranty herein of Assignor shall be found to be untrue in any material respect when made, or thereafter becomes untrue in any material respect, or in the event Assignor shall default in the payment of any Indebtedness (as hereinafter defined) or in the observance or performance of any other Obligation (as hereinafter defined), after the expiration of all applicable grace or cure periods, if any, set forth in the Deed of Trust, then, in each such instance, the same shall constitute an "Event of Default" hereunder and under the Loan Documents (as defined in the Deed of Trust), thereby entitling Assignee to declare all Indebtedness immediately due and payable and to exercise any and all of the rights and remedies provided thereunder and hereunder as well as by law or in equity. Specifically, but without limiting the generality of the foregoing, upon or at any time after the occurrence of an Event of Default, Assignee, at its option, shall have the complete right, power and authority to exercise and enforce any or all of the following rights and remedies: (i) to terminate and revoke the license granted to Assignor hereunder and collect the Receipts, and without taking possession of the Property, in Assignee's own name, to demand, collect, receive, sue for, attach and levy the Receipts, to give proper receipts, releases and acquittances therefor, and after deducting all necessary and proper costs and expenses of operation and collection, as determined in Assignee's sole judgment, and including reasonable attorneys' fees, to apply the net proceeds thereof, together with any funds of Assignor deposited with Assignee, upon the Indebtedness and in such order as Assignee may determine in its sole discretion; and (ii) without regard to the adequacy of the security, with or without any action or proceeding, through any person or by agent, by the Trustee under the Deed of Trust, or by a receiver appointed by a court of competent jurisdiction, and irrespective of Assignor's possession, to enter upon, take possession of, manage and operate the Property, or any part thereof or interest therein, make, modify, enforce, cancel or accept surrender of, any of the Leases, remove and evict any Lessee, increase or decrease rents under any of the Leases, decorate, clean and repair any premises under any of the Leases, and otherwise do any act or incur any costs or expenses as Assignee deems necessary or proper to protect the rights of Assignee therein, as fully and to the same extent as Assignor could do if in possession, and in such event to apply the Receipts so collected to the operation and management of the Property, in such order as the Assignee shall deem proper in its sole discretion, including payment of reasonable management, brokerage and attorneys' fees, payment of the Indebtedness and maintenance, without interest, of reserves for replacements. Collection of Receipts hereunder, and application thereof as specified above, and/or the entry upon and taking possession of the Property, or any part thereof or interest therein, shall not cure or waive any default or waive, modify or affect any notice of default under any Loan Documents, or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by Assignee, once exercised, shall continue for so long as Assignee shall elect. If Assignee shall thereafter elect to discontinue the exercise of any such right or remedy, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent Event of Default. A demand upon any Lessee made by Assignee for payment of Receipts by reason of any default claimed by Assignee hereunder or under any other Loan Documents shall be sufficient to warrant to said Lessee to make future payments of all Receipts to Assignee without the necessity for further consent by Assignor. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. As used herein, the term "Obligations" shall mean and refer to any and all of the covenants, promises and other obligations (including the Indebtedness) made or owing by Assignor to or due Assignee under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Assignor to each and every other Person relating to the Property. 71 Grant of License to Assignor. So long as there shall exist no Event of Default, Assignor shall have the right under a license granted hereby (but limited as provided in this paragraph) to collect, but not prior to accrual, all Receipts. Assignor shall receive such Receipts, and shall hold the same, as well as the right and license to receive the same, as a trust fund to be applied, and Assignor shall so apply the same, first to the payment of taxes and assessments upon the Property before penalty or interest are due thereon, second to the cost of such insurance and of such maintenance and repairs as is required by the terms of the Deed of Trust, third to the satisfaction of all obligations under the Leases, and fourth to the payment of the Indebtedness before using any part of the Receipts for any other purpose. 72 Power of Attorney. Effective automatically upon the occurrence of an Event of Default and continuously thereafter, and without the necessity of the execution of any further documents or instruments, Assignor hereby constitutes and appoints Assignee as Assignor's true and lawful attorney, coupled with an interest, in the name, place and stead of Assignor (i) to collect, demand, sue for, attach, levy, recover and receive all Receipts due and payable by Lessees pursuant to the Leases and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion, as selected by Assignee, of the Indebtedness, notwithstanding that the amount owing thereunder may not then be due and payable or that the Indebtedness is adequately secured, and Assignor does hereby authorize and direct such Lessees to deliver such payment to Assignee in accordance with the foregoing; and (ii) to subject and subordinate at any time and from time to time, the Leases, to the lien of the Deed of Trust or any other Loan Documents or any other mortgage or deed of trust on or to any ground lease of the Property or to request or require such subordination, where such reservation, option or authority was reserved under the Leases to the Assignor, or in any case, where the Assignor otherwise would have the right, power or privilege so to do. Assignor hereby ratifies and confirms all acts that Assignee shall do or cause to be done by virtue of the powers granted hereby and warrants that the Assignor has not, on or at any time prior to the date hereof, exercised any such right of subordination under clause (ii) above and covenants not to exercise any such right except as may be required by Assignee. The power of attorney hereunder granted is irrevocable and continuing, shall survive the insolvency or dissolution of Assignor, and such rights, powers and privileges shall be exclusive in Assignee, its successors and assigns so long as any part of the Indebtedness shall remain unpaid. 73 Indemnity. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all lia- bility, loss, cost, damage or expense (including, without limitation, reasonable attorneys' fees) that Assignee may or might incur under or by reason of this Assignment, for any action taken by Assignee hereunder, or the enforcement of this Assignment, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Assignee arising out of the Leases, including any claim by any Lessees of credit from rental paid to and received by Assignor. If Assignee incurs any such liability, loss, cost, damage or expense, the amount thereof with interest thereon at the Secondary Interest Rate (as defined in the Note), shall be payable by Assignor immediately upon demand, shall be secured by the Deed of Trust, and shall be part of the Indebtedness. 74 No Waiver. The failure of Assignee to avail itself of any of the terms, covenants and conditions of this Assignment for any period of time, or at any time or times, shall not be construed or deemed to be a waiver of any such right, and nothing herein contained, nor anything done or omitted to be done by Assignee pursuant hereto, shall be deemed a waiver by Assignee of any of its rights and remedies under the Loan Documents, or under any applicable laws. The rights of Assignee to collect the Indebtedness and to enforce any security therefor may be exercised by Assignee, either prior to, simultaneously with, or subsequent to, any action taken hereunder. 75 No Merger. So long as any of the Indebtedness shall remain unpaid, unless Assignee shall otherwise consent in writing, the leasehold estates and the subleasehold estates on the Property, if any, shall not merge, but shall always be kept separate and distinct, notwithstanding the union of said estates either in Assignor or in any Lessees or in a third party, by purchase or otherwise. 76 No Mortgagee in Possession; No Other Liability. The acceptance by Assignee of this Assignment, with all of the rights, power, privileges and authority so created, shall not, prior to entry upon and taking of possession of the Property by Assignee, be deemed or construed to (i) constitute Assignee a mortgagee in possession nor thereafter or at any time or in any event obligate Assignee to appear in or defend any action or proceeding relating to the Leases or to the Property, (ii) require Assignee to take any action hereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Leases, or (iii) require Assignee to assume any obligation or responsibility for any security deposits or other deposits delivered to Assignor by Lessees and not assigned and delivered to Assignee. Assignee shall not be liable in any way for any injury or damage to person or property sustained by any Person in or about the Property. 77 Payment of Indebtedness. Upon payment in full of all of the Indebtedness, this Assignment shall become and be void and of no effect, but the affidavit, certificate, letter or statement of any officer of Assignee showing any part of said Indebtedness to remain unpaid shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this Assignment, and any Person may and is hereby authorized to rely thereon. 78 Notices. All notices, demands or documents of any kind that Assignee or Assignor may be required or may desire to serve shall be served in the manner provided in the Deed of Trust. 79 Successors and Assigns; Gender. The terms, covenants, conditions and warranties contained herein and the powers granted hereby shall run with the land, shall inure to the benefit of and bind all parties hereto and their respective heirs, executors, administrators, successors and assigns, and all subsequent owners of the Property, and all subsequent holders of the Note and the Deed of Trust, subject in all events to the provisions of the Deed of Trust regarding transfers of the Property by Assignor. In this Assignment, whenever the context so requires, the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural and conversely in each case. If there is more than one party constituting Assignor, all obligations of each Assignor hereunder shall be joint and several. 80 Severability. If any term, provision, covenant or condition hereof or any application thereof should be held unen- forceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. 81 Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of California. 82 Expenses. Assignor shall pay on demand all costs and expenses incurred by Assignee in connection with the review of Leases, including the fees and disbursements of Assignee's outside counsel. 83 Absolute Assignment. Notwithstanding anything contained herein to the contrary, this Assignment is intended by Assignor and Assignee to create and shall be construed to create an absolute assignment by Assignor to Assignee of all of Assignor's right, title and interest in the Leases and Receipts and shall not be deemed to create a security interest therein. Assignor and Assignee further agree that, during the term of this Assignment, the Leases and Receipts shall not constitute property of Assignor (or of any estate of Assignor) within the meaning of 11 U.S.C. Section 541, as amended from time to time. 84 Priority Of Leases. NOTICE OF THE FOLLOWING IS HEREBY GIVEN TO ALL TENANTS EXECUTING A LEASE AFFECTING THE PROPERTY, EACH OF WHICH SHALL BE ON NOTICE OF, BOUND BY AND SUBJECT TO THE TERMS OF THIS PARAGRAPH 18: 18.1 Anything to the contrary in any Lease notwithstanding, Assignee shall have the right, but not the obligation, to change the priority of that Lease and the lien of the Deed of Trust from time to time by one or more unilateral notices to the tenant that (a) the lien of the Deed of Trust shall be subordinate to such Lease, or (b) the Lease shall be subordinate to the Deed of Trust. 18.2 Upon written request of Assignee, every tenant under a Lease receiving such request shall execute and deliver to Assignee within the time period specified in that written request a written agreement which provides the following: (a) upon the foreclosure of the Deed of Trust such tenant shall attorn to the purchaser of the Property at the foreclosure sale, and (b) the foreclosure of the Deed of Trust shall not disturb or result in the cancellation or termination of that tenant's Lease. Assignee has no obligation to deliver such a request to any tenant. 18.3 Assignor covenants that, unless Assignee otherwise agrees, each Lease shall provide, among other things, that Assignee shall have the right to (a) change the relative priority of that Lease and the Deed of Trust by notice to the tenant that (i) the Lease shall be subordinate to the Deed of Trust, or (ii) the Deed of Trust shall be subordinate to the Lease, and (b) elect whether or not (i) such Lease shall survive foreclosure of the Deed of Trust, and (ii) such tenant shall attorn to Assignee or the purchaser upon a foreclosure sale. 18.4 Assignee shall have the right to elect to be a third party beneficiary of any attornment provisions contained in any Lease. Anything to the contrary in any Lease notwithstanding, no election by Assignor under any Lease or otherwise to alter the relative priority of that Lease and the Deed of Trust shall be effective unless Assignee shall have consented thereto in writing. 85 Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. 86 This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. IN WITNESS WHEREOF, this Assignment of Lessor's Interest in Leases has been duly executed by Assignor the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] The Prudential Insurance Company of America hereby executes this Assignment to evidence its agreement with the last two sentences of Section 2, hereof. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson [Printed Name and Title] [11128.AGRE]H61452 State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca , a notary public, personally appeared Scott R. Whitney, Sr. V. P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public (seal) State of ) ) ss. County of ) On _______________________, 1998, before me, , a notary public, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Notary Public (seal) RECORDING REQUESTED BY, AND WHEN RECORDED RETURN TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _____________________________________________________________________ FIRST MODIFICATION OF DEED OF TRUST AND OTHER DOCUMENTS (Nevada) This First Modification of Deed of Trust and Other Documents, dated as of January 30, 1998 (this "Modification"), is made by and between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Trustor"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Beneficiary"), as a first modification to that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary and recorded on May 9, 1997 as Instrument No. 2026926 in the Official Records of Washoe County, Nevada (the "Deed of Trust") and the other documents described herein. The Deed of Trust secures certain obligations of Trustor more particularly described therein and encumbers the real property described in Exhibit A attached hereto. Reference is also made to that certain Assignment of Lessor's Interest in Leases dated as of May 9, 1997, executed by Trustor in favor of Beneficiary and recorded on May 9, 19976 as Instrument No. 2096927 in the Official Records of Washoe County, Nevada (the "Assignment"). This Modification is entered into in conjunction with that certain Third Modification of Deed of Trust and Other Documents (The Woodlands Business Park) of even date herewith, to be recorded in the Official Records of Salt Lake County, Utah, that certain Third Modification of Deed of Trust and Other Documents (Tustin Business Park) of even date herewith, to be recorded in the Official Records of Orange County, California, that certain Third Modification of Deed of Trust and Other Documents (Dupont Industrial Center, Ontario) of even date herewith, to be recorded in the Official Records of San Bernardino County, California, and that certain Second Modification of Deed of Trust and Other Documents (Milpitas Business Park) of even date herewith, to be recorded in the Official Records of Santa Clara County, California (collectively, together with this Modification, the "Modification Documents"). The Modification Documents are entered into with reference to (i) Trustor's assumption of, and amendment and restatement of, that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), (ii) the indebtedness of Trustor evidenced by that certain Amended and Restated Promissory Note dated as of May 24, 1996, made by Trustor to the order of Beneficiary in the face principal amount of $25,000,000 (the "Multistate Note"), and (iii) the indebtedness of Trustor evidenced by that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). Capitalized terms used and not otherwise defined herein have the meanings set forth for them in the Deed of Trust. In consideration of the foregoing, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: I. Modification of Deed of Trust. The Deed of Trust is hereby modified as follows: A. The definitions of Allocable Loan Amount, Combined Deeds of Trust, Combined Properties, Loan Documents, Milpitas Deed of Trust, Note, Ontario Deed of Trust, Remediation and Indemnification Agreements, Tustin Deed of Trust, and Woodlands Deed of Trust, as set forth in Article 1 of the Deed of Trust are hereby deleted in their entirety, and the following new definitions are inserted in their place, in the appropriate alphabetical order: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by this Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Combined Deeds of Trust: Collectively, this Deed of Trust, the Woodlands Deed of Trust, the Ontario Deed of Trust, the Milpitas Deed of Trust, the Tustin Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust. Combined Properties: Collectively, the Property, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Arizona Deed of Trust, the properties encumbered by the South San Francisco Deed of Trust and the property encumbered by the Fremont Deed of Trust. Loan Documents: The Note, the Application, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, this Deed of Trust, the Woodlands Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Milpitas Deed of Trust: That certain Deed of Trust dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of January 30, 1998 executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Ontario Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January , 1998, as further amended from time to time. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997, executed by Trustor in favor of Beneficiary in connection with the Property, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust. Tustin Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. B. The following new definitions of Arizona Deed of Trust, Fremont Deed of Trust and South San Francisco Deed of Trust are hereby added to Article 1 of the Deed of Trust, in alphabetical order: Arizona Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Fremont Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. South San Francisco Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. C. Paragraph 6.1.A(8) of the Deed of Trust is hereby deleted in its entirety and the following new paragraph is hereby inserted in its place: (8) An "Event of Default" occurs under any one or more of the Tustin Deed of Trust, the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Ontario Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and/or the Fremont Deed of Trust. D. Paragraph 9.36 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.36 is hereby inserted in its place: 9.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfac- tion of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Woodlands Deed of Trust, the Tustin Deed of Trust, the Milpitas Deed of Trust, the Ontario Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non-refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. E. Paragraph 9.37 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.37 is hereby inserted in its place: 9.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. F. The Deed of Trust is hereby modified to provide that it secures, in addition to all other obligations now or hereafter secured thereby, a. Trustor's obligations to Beneficiary under the Multistate Note, the Nevada Note, the Arizona/California Note and all other Loan Documents, as supplemented and/or otherwise modified by this Modification, and b. Trustor's obligations to Beneficiary under the (i) the Arizona Deed of Trust, (ii) the South San Francisco Deed of Trust, (iii) the Fremont Deed of Trust, and (iv) the Modification Documents. II. Modification of Multistate Note. The Multistate Note is hereby amended so that (i) the term "Deeds of Trust" as used therein includes the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust (as defined in Paragraph 1.2 of this Modification) as well as the balance of the Deeds of Trust provided therein, as modified by the Modification Documents, (ii) the term "Remediation and Indemnification Agreements" as used therein shall have the meaning ascribed thereto in the Deeds of Trust (as modified by the Modification Documents). III. Modification of Assignment. The Assignment is hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, and (ii) the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by this Modification. IV. Modification of Other Documents. The other Loan Documents and the Remediation and Indemnification Agreement executed by Trustor in favor of Beneficiary in connection with the Property are hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by this Modification. V. No Other Modification. Except as expressly modified hereby, the Note, the Deed of Trust, and other Loan Documents remain unmodified and in full force and effect. VI. Miscellaneous. This Modification shall bind, and shall inure to the benefit of, the successors and assigns of the parties. This document may be executed in counterparts with the same force and effect as if the parties had executed one instrument, and each such counterpart shall constitute an original hereof. This Modification shall be governed by the laws of the State of Nevada (without regard to any choice of law provisions thereof). IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Modification to be duly executed as of the date first written above. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] "BENEFICIARY": THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson Vice President [11128.AGRE]I3394 State of California ) ) County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, Notary Public, personally appeared Scott R. Whitney, Sr. V. P., X personally known to me or ____ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca State of California ) ) County of ) On _________, 1998, before me, ________________, Notary Public, personally appeared ___________________________________, ____ personally known to me or ____ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. _______________________________ RECORDING REQUESTED BY, AND WHEN RECORDED RETURN TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _____________________________________________________________________ SECOND MODIFICATION OF DEED OF TRUST AND OTHER DOCUMENTS (Milpitas Town Center) This Second Modification of Deed of Trust and Other Documents, dated as of January 30, 1998 (this "Modification"), is made by and between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Trustor"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Beneficiary"), as a second modification to that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary and recorded on May 31, 1996 as Instrument No. 13312305 in the Official Records of Santa Clara County, California, as modified by that certain First Modification of Deed of Trust and Other Documents (the "First Modification") dated as of May 9, 1997 and recorded on May 9, 1997 as Instrument No. 13702775 in the Official Records of Santa Clara County, California (collectively, the "Deed of Trust") and the other documents described herein. The Deed of Trust secures certain obligations of Trustor more particularly described therein and encumbers the real property described in Exhibit A attached hereto. Reference is also made to that certain Assignment of Lessor's Interest in Leases dated as of May 24, 1996, executed by Trustor in favor of Beneficiary and recorded on May 31, 1996 as Instrument No. 13312306 in the Official Records of Santa Clara County, California, as modified by the First Modification (collectively, the "Assignment"). This Modification is entered into in conjunction with that certain Third Modification of Deed of Trust and Other Documents (The Woodlands Business Park) of even date herewith, to be recorded in the Official Records of Salt Lake County, Utah, that certain Third Modification of Deed of Trust and Other Documents (Tustin Business Park) of even date herewith, to be recorded in the Official Records of Orange County, California, that certain Third Modification of Deed of Trust and Other Documents (Dupont Industrial Center, Ontario) of even date herewith, to be recorded in the Official Records of San Bernardino County, California, and that certain First Modification of Deed of Trust and Other Documents (Nevada) of even date herewith, to be recorded in the Official Records of Washoe County, Nevada (collectively, together with this Modification, the "Modification Documents"). The Modification Documents are entered into with reference to (i) Trustor's assumption of, and amendment and restatement of, that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), (ii) the indebtedness of Trustor evidenced by that certain Amended and Restated Promissory Note dated as of May 24, 1996, made by Trustor to the order of Beneficiary in the face principal amount of $25,000,000 (the "Multistate Note"), and (iii) the indebtedness of Trustor evidenced by that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). Capitalized terms used and not otherwise defined herein have the meanings set forth for them in the Deed of Trust. In consideration of the foregoing, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: I. Modification of Deed of Trust. The Deed of Trust is hereby modified as follows: A. The definitions of Allocable Loan Amount, Combined Deeds of Trust, Combined Properties, Loan Documents, Nevada Deed of Trust, Note, Ontario Deed of Trust, Remediation and Indemnification Agreements, Tustin Deed of Trust, and Woodlands Deed of Trust, as set forth in Article 1 of the Deed of Trust are hereby deleted in their entirety, and the following new definitions are inserted in their place, in the appropriate alphabetical order: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the this Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Combined Deeds of Trust: Collectively, this Deed of Trust, the Woodlands Deed of Trust, the Ontario Deed of Trust, the Nevada Deed of Trust, the Tustin Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust. Combined Properties: Collectively, the Property, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Arizona Deed of Trust, the properties encumbered by the South San Francisco Deed of Trust and the property encumbered by the Fremont Deed of Trust. Loan Documents: The Note, the Application, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, this Deed of Trust, the Woodlands Deed of Trust, the Ontario Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Nevada Deed of Trust: That certain Deed of Trust dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County, Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of January 30, 1998 executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Ontario Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996, executed by Trustor in favor of Beneficiary in connection with the Property, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust. Tustin Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. B. The following new definitions of Arizona Deed of Trust, Fremont Deed of Trust and South San Francisco Deed of Trust are hereby added to Article 1 of the Deed of Trust, in alphabetical order: Arizona Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Fremont Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. South San Francisco Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. C. Paragraph 6.1.A(8) of the Deed of Trust is hereby deleted in its entirety and the following new paragraph is hereby inserted in its place: (8) An "Event of Default" occurs under any one or more of the Tustin Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Ontario Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and/or the Fremont Deed of Trust. D. Paragraph 9.36 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.36 is hereby inserted in its place: 9.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfac- tion of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Woodlands Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Ontario Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non-refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. E. Paragraph 9.37 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.37 is hereby inserted in its place: 9.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. F. Paragraph 9.38 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.38 is hereby inserted in its place: 9.38 Reconveyance on Full Payment of Multistate Note. In the event that the Indebtedness evidenced by the Multistate Note is repaid in full on the Maturity Date thereof (as defined in the Multistate Note), and provided (i) no Event of Default shall have occurred and be continuing under the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust, (ii) the Remaining Properties (after the proposed release of the Ontario Deed of Trust, this Deed of Trust, the Woodlands Deed of Trust and the Tustin Deed of Trust) would have both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%, and (iii) each of the individual Remaining Properties (after such release) shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; provided, however, that if there is only one Remaining Property then such Remaining Property would have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 2.00 and an Individual Loan to Value Ratio of not more than 55%, then Beneficiary agrees to release and reconvey the Ontario Deed of Trust, this Deed of Trust, the Woodlands Deed of Trust and the Tustin Deed of Trust, and the Combined Properties (other than the properties encumbered by the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust) encumbered thereby shall then and thereafter no longer serve as collateral for the Nevada Note or the Arizona/California Note. G. The Deed of Trust is hereby modified to provide that it secures, in addition to all other obligations now or hereafter secured thereby, a. Trustor's obligations to Beneficiary under the Multistate Note, the Nevada Note, the Arizona/California Note and all other Loan Documents, as supplemented and/or otherwise modified by the First Modification and this Modification, and b. Trustor's obligations to Beneficiary under the (i) Nevada Deed of Trust, (ii) the Arizona Deed of Trust, (iii) the South San Francisco Deed of Trust, (iv) the Fremont Deed of Trust, and (v) the Modification Documents. II. Modification of Multistate Note. The Multistate Note is hereby amended so that (i) the term "Deeds of Trust" as used therein includes the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust (as defined in Paragraph 1.2 of this Modification) as well as the balance of the Deeds of Trust provided therein, as modified by the Modification Documents, (ii) the term "Remediation and Indemnification Agreements" as used therein shall have the meaning ascribed thereto in the Deeds of Trust (as modified by the Modification Documents). III. Modification of Assignment. The Assignment is hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, and (ii) the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification and this Modification. IV. Modification of Other Documents. The other Loan Documents and the Remediation and Indemnification Agreement executed by Trustor in favor of Beneficiary in connection with the Property are hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification and this Modification. V. No Other Modification. Except as expressly modified hereby, the Note, the Deed of Trust, and other Loan Documents remain unmodified and in full force and effect. VI. Miscellaneous. This Modification shall bind, and shall inure to the benefit of, the successors and assigns of the parties. This document may be executed in counterparts with the same force and effect as if the parties had executed one instrument, and each such counterpart shall constitute an original hereof. This Modification shall be governed by the laws of the State of California (without regard to any choice of law provisions thereof). IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Modification to be duly executed as of the date first written above. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] "BENEFICIARY": THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson Vice President [11128.AGRE]I3393 State of California ) ) County of California) On February 2, 1998, before me, Colette M. Pennington, Notary Public, personally appeared Scott R. Whitney, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/Colette M. Pennington State of California California ) ) County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington, Notary Public, personally appeared Scott R. Whitney, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Colette M. Pennington RECORDING REQUESTED BY, AND WHEN RECORDED RETURN TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _____________________________________________________________________ THIRD MODIFICATION OF DEED OF TRUST AND OTHER DOCUMENTS (The Woodlands Business Park) This Third Modification of Deed of Trust and Other Documents, dated as of January 30, 1998 (this "Modification"), is made by and between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Trustor"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Beneficiary"), as a third modification to that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary and recorded on March 27, 1996 as Instrument No. 6313696 in the Official Records of Salt Lake County, Utah, as modified by that certain First Modification of Deed of Trust and Other Documents (the "First Modification"), dated as of May 24, 1996 and recorded on May 31, 1996 as Instrument No. 6371832 in the Official Records of Salt Lake County, Utah, as modified by that certain Second Modification of Deed of Trust and Other Documents (the "Second Modification "), dated as of May 9, 1997 and recorded on May 9, 1997 as Instrument No. 6641142 in the Official Records of Salt Lake County, Utah (collectively, the "Deed of Trust") and the other documents described herein. The Deed of Trust secures certain obligations of Trustor more particularly described therein and encumbers the real property described in Exhibit A attached hereto. Reference is also made to that certain Assignment of Lessor's Interest in Leases dated as of March 20, 1996, executed by Trustor in favor of Beneficiary and recorded on March 27, 1996 as Instrument No. 6313697 in the Official Records of Salt Lake County, Utah, as modified by the First Modification and the Second Modification (collectively, the "Assignment"). This Modification is entered into in conjunction with that certain Third Modification of Deed of Trust and Other Documents (Dupont Industrial Center, Ontario) of even date herewith, to be recorded in the Official Records of San Bernardino County, California, that certain Third Modification of Deed of Trust and Other Documents (Tustin Business Park) of even date herewith, to be recorded in the Official Records of Orange County, California, that certain Second Modification of Deed of Trust and Other Documents (Milpitas Business Park) of even date herewith, to be recorded in the Official Records of Santa Clara County, California, and that certain First Modification of Deed of Trust and Other Documents (Nevada) of even date herewith, to be recorded in the Official Records of Washoe County, Nevada (collectively, together with this Modification, the "Modification Documents"). The Modification Documents are entered into with reference to (i) Trustor's assumption of, and amendment and restatement of, that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), (ii) the indebtedness of Trustor evidenced by that certain Amended and Restated Promissory Note dated as of May 24, 1996, made by Trustor to the order of Beneficiary in the face principal amount of $25,000,000 (the "Multistate Note"), and (iii) the indebtedness of Trustor evidenced by that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). Capitalized terms used and not otherwise defined herein have the meanings set forth for them in the Deed of Trust. In consideration of the foregoing, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: I. Modification of Deed of Trust. The Deed of Trust is hereby modified as follows: A. The definitions of Allocable Loan Amount, Combined Deeds of Trust, Combined Properties, Loan Documents, Milpitas Deed of Trust, Nevada Deed of Trust, Note, Ontario Deed of Trust, Remediation and Indemnification Agreements, and Tustin Deed of Trust, as set forth in Article 1 of the Deed of Trust are hereby deleted in their entirety, and the following new definitions are inserted in their place, in the appropriate alphabetical order: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by this Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Combined Deeds of Trust: Collectively, this Deed of Trust, the Ontario Deed of Trust, the Milpitas Deed of Trust, the Nevada Deed of Trust, the Tustin Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust. Combined Properties: Collectively, the Property, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Arizona Deed of Trust, the properties encumbered by the South San Francisco Deed of Trust and the property encumbered by the Fremont Deed of Trust. Loan Documents: The Note, the Application, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, this Deed of Trust, the Ontario Deed of Trust, the Milpitas Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Milpitas Deed of Trust: That certain Deed of Trust dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Nevada Deed of Trust: That certain Deed of Trust dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County, Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of January 30, 1998 executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Ontario Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the Property, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust. Tustin Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. B. The following new definitions of Arizona Deed of Trust, Fremont Deed of Trust and South San Francisco Deed of Trust are hereby added to Article 1 of the Deed of Trust, in alphabetical order: Arizona Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Fremont Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. South San Francisco Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. C. Paragraph 6.1.A(8) of the Deed of Trust is hereby deleted in its entirety and the following new paragraph is hereby inserted in its place: (8) An "Event of Default" occurs under any one or more of the Tustin Deed of Trust, the Ontario Deed of Trust, the Nevada Deed of Trust, the Milpitas Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and/or the Fremont Deed of Trust. D. Paragraph 9.36 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.36 is hereby inserted in its place: 9.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfac- tion of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Ontario Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Milpitas Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non-refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. E. Paragraph 9.37 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.37 is hereby inserted in its place: 9.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. F. Paragraph 9.38 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.38 is hereby inserted in its place: 9.38 Reconveyance on Full Payment of Multistate Note. In the event that the Indebtedness evidenced by the Multistate Note is repaid in full on the Maturity Date thereof (as defined in the Multistate Note), and provided (i) no Event of Default shall have occurred and be continuing under the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust, (ii) the Remaining Properties (after the proposed release of the Ontario Deed of Trust, the Milpitas Deed of Trust, the Tustin Deed of Trust and this Deed of Trust) would have both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%, and (iii) each of the individual Remaining Properties (after such release) shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; provided, however, that if there is only one Remaining Property then such Remaining Property would have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 2.00 and an Individual Loan to Value Ratio of not more than 55%, then Beneficiary agrees to release and reconvey the Ontario Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust and this Deed of Trust, and the Combined Properties (other than the properties encumbered by the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust) encumbered thereby shall then and thereafter no longer serve as collateral for the Nevada Note or the Arizona/California Note. G. The Deed of Trust is hereby modified to provide that it secures, in addition to all other obligations now or hereafter secured thereby, a. Trustor's obligations to Beneficiary under the Multistate Note, the Nevada Note, the Arizona/California Note and all other Loan Documents, as supplemented and/or otherwise modified by the First Modification, the Second Modification and this Modification, and b. Trustor's obligations to Beneficiary under the (i) Nevada Deed of Trust, (ii) the Arizona Deed of Trust, (iii) the South San Francisco Deed of Trust, (iv) the Fremont Deed of Trust, and (v) the Modification Documents. II. Modification of Multistate Note. The Multistate Note is hereby amended so that (i) the term "Deeds of Trust" as used therein includes the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust (as defined in Paragraph 1.2 of this Modification) as well as the balance of the Deeds of Trust provided therein, as modified by the Modification Documents, (ii) the term "Remediation and Indemnification Agreements" as used therein shall have the meaning ascribed thereto in the Deeds of Trust (as modified by the Modification Documents). III. Modification of Assignment. The Assignment is hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, and (ii) the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. IV. Modification of Other Documents. The other Loan Documents and the Remediation and Indemnification Agreement executed by Trustor in favor of Beneficiary in connection with the Property are hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. V. No Other Modification. Except as expressly modified hereby, the Note, the Deed of Trust, and other Loan Documents remain unmodified and in full force and effect. VI. Miscellaneous. This Modification shall bind, and shall inure to the benefit of, the successors and assigns of the parties. This document may be executed in counterparts with the same force and effect as if the parties had executed one instrument, and each such counterpart shall constitute an original hereof. This Modification shall be governed by the laws of the State of Utah (without regard to any choice of law provisions thereof). IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Modification to be duly executed as of the date first written above. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] "BENEFICIARY": THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Vice President [11128.AGRE]I12581 State of California ) ) County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington, Notary Public, personally appeared Scott R. Whitney, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public State of California ) ) County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington, Notary Public, personally appeared Scott R. Whitney, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/Colette M. Pennington Notary Public RECORDING REQUESTED BY, AND WHEN RECORDED RETURN TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _____________________________________________________________________ THIRD MODIFICATION OF DEED OF TRUST AND OTHER DOCUMENTS (Dupont Industrial Center, Ontario) This Third Modification of Deed of Trust and Other Documents, dated as of January 30, 1998 (this "Modification"), is made by and between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Trustor"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Beneficiary"), as a third modification to that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary and recorded on March 27, 1996 as Instrument No. 19960104594 in the Official Records of San Bernardino County, California, as modified by that certain First Modification of Deed of Trust and Other Documents (the "First Modification"), dated as of May 24, 1996 and recorded on May 31, 1996 as Instrument No. 19960193054 in the Official Records of San Bernardino County, California, as modified by that certain Second Modification of Deed of Trust and Other Documents (the "Second Modification"), dated as of May 9, 1997 and recorded on May 9, 1997 as Instrument No. 19970167135 in the Official Records of San Bernadino County, California (collectively, the "Deed of Trust") and the other documents described herein. The Deed of Trust secures certain obligations of Trustor more particularly described therein and encumbers the real property described in Exhibit A attached hereto. Reference is also made to that certain Assignment of Lessor's Interest in Leases dated as of March 20, 1996, executed by Trustor in favor of Beneficiary and recorded on March 27, 1996 as Instrument No. 19960104597 in the Official Records of San Bernardino County, California, as modified by the First Modification and the Second Modification (collectively, the "Assignment"). This Modification is entered into in conjunction with that certain Third Modification of Deed of Trust and Other Documents (The Woodlands Business Park) of even date herewith, to be recorded in the Official Records of Salt Lake County, Utah, that certain Third Modification of Deed of Trust and Other Documents (Tustin Business Park) of even date herewith, to be recorded in the Official Records of Orange County, California, that certain Second Modification of Deed of Trust and Other Documents (Milpitas Business Park) of even date herewith, to be recorded in the Official Records of Santa Clara County, California, and that certain First Modification of Deed of Trust and Other Documents (Nevada) of even date herewith, to be recorded in the Official Records of Washoe County, Nevada (collectively, together with this Modification, the "Modification Documents"). The Modification Documents are entered into with reference to (i) Trustor's assumption of, and amendment and restatement of, that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), (ii) the indebtedness of Trustor evidenced by that certain Amended and Restated Promissory Note dated as of May 24, 1996, made by Trustor to the order of Beneficiary in the face principal amount of $25,000,000 (the "Multistate Note"), and (iii) the indebtedness of Trustor evidenced by that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). Capitalized terms used and not otherwise defined herein have the meanings set forth for them in the Deed of Trust. In consideration of the foregoing, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: I. Modification of Deed of Trust. The Deed of Trust is hereby modified as follows: A. The definitions of Allocable Loan Amount, Combined Deeds of Trust, Combined Properties, Loan Documents, Milpitas Deed of Trust, Nevada Deed of Trust, Note, Remediation and Indemnification Agreements, Tustin Deed of Trust, and Woodlands Deed of Trust, as set forth in Article 1 of the Deed of Trust are hereby deleted in their entirety, and the following new definitions are inserted in their place, in the appropriate alphabetical order: Allocable Loan Amount: (i) For the property encumbered by this Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by the Tustin Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Combined Deeds of Trust: Collectively, this Deed of Trust, the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Nevada Deed of Trust, the Tustin Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust. Combined Properties: Collectively, the Property, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Tustin Deed of Trust, the property encumbered by the Arizona Deed of Trust, the properties encumbered by the South San Francisco Deed of Trust and the property encumbered by the Fremont Deed of Trust. Loan Documents: The Note, the Application, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, this Deed of Trust, the Woodlands Deed of Trust, the Milpitas Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Milpitas Deed of Trust: That certain Deed of Trust dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Nevada Deed of Trust: That certain Deed of Trust dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County, Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of January 30, 1998 executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the Property, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Tustin Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust. Tustin Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Orange County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Woodlands Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. B. The following new definitions of Arizona Deed of Trust, Fremont Deed of Trust and South San Francisco Deed of Trust are hereby added to Article 1 of the Deed of Trust, in alphabetical order: Arizona Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Fremont Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. South San Francisco Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. C. Paragraph 6.1.A(8) of the Deed of Trust is hereby deleted in its entirety and the following new paragraph is hereby inserted in its place: (8) An "Event of Default" occurs under any one or more of the Woodlands Deed of Trust, the Tustin Deed of Trust, the Nevada Deed of Trust, the Milpitas Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and/or the Fremont Deed of Trust. D. Paragraph 9.36 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.36 is hereby inserted in its place: 9.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfac- tion of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Milpitas Deed of Trust, the Tustin Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non- refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. 1.5 Paragraph 9.37 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.37 is hereby inserted in its place: 9.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. 1.6 Paragraph 9.38 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.38 is hereby inserted in its place: 9.38 Reconveyance on Full Payment of Multistate Note. In the event that the Indebtedness evidenced by the Multistate Note is repaid in full on the Maturity Date thereof (as defined in the Multistate Note), and provided (i) no Event of Default shall have occurred and be continuing under the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust, (ii) the Remaining Properties (after the proposed release of the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust and this Deed of Trust) would have both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%, and (iii) each of the individual Remaining Properties (after such release) shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; provided, however, that if there is only one Remaining Property then such Remaining Property would have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 2.00 and an Individual Loan to Value Ratio of not more than 55%, then Beneficiary agrees to release and reconvey the Tustin Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust and this Deed of Trust, and the Combined Properties (other than the properties encumbered by the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust) encumbered thereby shall then and thereafter no longer serve as collateral for the Nevada Note or the Arizona/California Note. 1.7 The Deed of Trust is hereby modified to provide that it secures, in addition to all other obligations now or hereafter secured thereby, (a) Trustor's obligations to Beneficiary under the Multistate Note, the Nevada Note, the Arizona/California Note and all other Loan Documents, as supplemented and/or otherwise modified by the First Modification, the Second Modification and this Modification, and (b) Trustor's obligations to Beneficiary under the (i) Nevada Deed of Trust, (ii) the Arizona Deed of Trust, (iii) the South San Francisco Deed of Trust, (iv) the Fremont Deed of Trust, and (v) the Modification Documents. 2. Modification of Multistate Note. The Multistate Note is hereby amended so that (i) the term "Deeds of Trust" as used therein includes the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust (as defined in Paragraph 1.2 of this Modification) as well as the balance of the Deeds of Trust provided therein, as modified by the Modification Documents, (ii) the term "Remediation and Indemnification Agreements" as used therein shall have the meaning ascribed thereto in the Deeds of Trust (as modified by the Modification Documents). 3. Modification of Assignment. The Assignment is hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, and (ii) the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. 4. Modification of Other Documents. The other Loan Documents and the Remediation and Indemnification Agreement executed by Trustor in favor of Beneficiary in connection with the Property are hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. 5. No Other Modification. Except as expressly modified hereby, the Note, the Deed of Trust, and other Loan Documents remain unmodified and in full force and effect. 6. Miscellaneous. This Modification shall bind, and shall inure to the benefit of, the successors and assigns of the parties. This document may be executed in counterparts with the same force and effect as if the parties had executed one instrument, and each such counterpart shall constitute an original hereof. This Modification shall be governed by the laws of the State of California (without regard to any choice of law provisions thereof). IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Modification to be duly executed as of the date first written above. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] "BENEFICIARY": THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson Vice President [11128.AGRE]I12549 State of California ) ) County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, Notary Public, personally appeared Scott R. Whitney, Sr. V. P., personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public State of California ) ) County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, Notary Public, personally appeared Scott R. Whitney, Sr. V. P., personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public RECORDING REQUESTED BY, AND WHEN RECORDED RETURN TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _____________________________________________________________________ THIRD MODIFICATION OF DEED OF TRUST AND OTHER DOCUMENTS (Tustin Business Park) This Third Modification of Deed of Trust and Other Documents, dated as of January 30, 1998 (this "Modification"), is made by and between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Trustor"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Beneficiary"), as a third modification to that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary and recorded on March 27, 1996 as Instrument No. 19960147696 in the Official Records of Orange County, California, as modified by that certain First Modification of Deed of Trust and Other Documents (the "First Modification"), dated as of May 24, 1996 and recorded on May 31, 1996 as Instrument No. 19960272607 in the Official Records of Orange County, California, as modified by that certain Second Modification of Deed of Trust and Other Documents (the "Second Modification"), dated as of May 9, 1997 and recorded on May 9, 1997 as Instrument No. 19970217603 in the Official Records of Orange County, California (collectively, the "Deed of Trust") and the other documents described herein. The Deed of Trust secures certain obligations of Trustor more particularly described therein and encumbers the real property described in Exhibit A attached hereto. Reference is also made to that certain Assignment of Lessor's Interest in Leases dated as of March 20, 1996, executed by Trustor in favor of Beneficiary and recorded on March 27, 1996 as Instrument No. 19960147697 in the Official Records of Orange County, California, as modified by the First Modification and the Second Modification (collectively, the "Assignment"). This Modification is entered into in conjunction with that certain Third Modification of Deed of Trust and Other Documents (Dupont Industrial Center, Ontario) of even date herewith, to be recorded in the Official Records of San Bernardino County, California, that certain Third Modification of Deed of Trust and Other Documents (The Woodlands Business Park) of even date herewith, to be recorded in the Official Records of Salt Lake County, Utah, that certain Second Modification of Deed of Trust and Other Documents (Milpitas Business Park) of even date herewith, to be recorded in the Official Records of Santa Clara County, California, and that certain First Modification of Deed of Trust and Other Documents (Nevada) of even date herewith, to be recorded in the Official Records of Washoe County, Nevada (collectively, together with this Modification, the "Modification Documents"). The Modification Documents are entered into with reference to (i) Trustor's assumption of, and amendment and restatement of, that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), (ii) the indebtedness of Trustor evidenced by that certain Amended and Restated Promissory Note dated as of May 24, 1996, made by Trustor to the order of Beneficiary in the face principal amount of $25,000,000 (the "Multistate Note"), and (iii) the indebtedness of Trustor evidenced by that certain Promissory Note dated as of even date herewith executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). Capitalized terms used and not otherwise defined herein have the meanings set forth for them in the Deed of Trust. In consideration of the foregoing, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: 7 Modification of Deed of Trust. The Deed of Trust is hereby modified as follows: 7.1 The definitions of Allocable Loan Amount, Combined Deeds of Trust, Combined Properties, Loan Documents, Milpitas Deed of Trust, Nevada Deed of Trust, Note, Ontario Deed of Trust, Remediation and Indemnification Agreements, and Woodlands Deed of Trust, as set forth in Article 1 of the Deed of Trust are hereby deleted in their entirety, and the following new definitions are inserted in their place, in the appropriate alphabetical order: Allocable Loan Amount: (i) For the property encumbered by the Ontario Deed of Trust, $8,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 8,000,000, and the denominator of which is 25,000,000; (ii) for the property encumbered by this Deed of Trust, $7,000,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is $7,000,000, and the denominator of which is 25,000,000; (iii) for the property encumbered by the Woodlands Deed of Trust, $5,200,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 5,200,000, and the denominator of which is 25,000,000; (iv) for the property encumbered by the Milpitas Deed of Trust, $4,800,000 less the product of (x) all payments of principal made under the Multistate Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 4,800,000, and the denominator of which is 25,000,000; (v) for the property encumbered by the Nevada Deed of Trust, $8,913,730.85 less all payments of principal made under the Nevada Note; (vi) for the property encumbered by the Arizona Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000; (vii) for the properties encumbered by the South San Francisco Deed of Trust, $6,500,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 6,500,000, and the denominator of which is 20,900,000; and (viii) for the property encumbered by the Fremont Deed of Trust, $7,200,000 less the product of (x) all payments of principal made under the Arizona/California Note (other than payments made pursuant to Paragraph 9.36(3) of any of the Combined Deeds of Trust) multiplied by (y) a fraction, the numerator of which is 7,200,000, and the denominator of which is 20,900,000. Combined Deeds of Trust: Collectively, this Deed of Trust, the Ontario Deed of Trust, the Milpitas Deed of Trust, the Nevada Deed of Trust, the Woodlands Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust. Combined Properties: Collectively, the Property, the property encumbered by the Ontario Deed of Trust, the property encumbered by the Milpitas Deed of Trust, the property encumbered by the Nevada Deed of Trust, the property encumbered by the Woodlands Deed of Trust, the property encumbered by the Arizona Deed of Trust, the properties encumbered by the South San Francisco Deed of Trust and the property encumbered by the Fremont Deed of Trust. Loan Documents: The Note, the Application, that certain Note Assignment and Assumption Agreement dated as of May 9, 1997 relating to the Nevada Note, this Deed of Trust, the Ontario Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, the Fremont Deed of Trust, each of the Assignments of Agreements, each of the Assignments of Lessor's Interest in Leases and all other documents, with the exception of the Remediation and Indemnification Agreements, evidencing, securing or relating to the Loan, the payment of the Indebtedness or the performance of the Obligations. Milpitas Deed of Trust: That certain Deed of Trust dated as of May 24, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Santa Clara County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Nevada Deed of Trust: That certain Deed of Trust dated as of May 9, 1997, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Washoe County, Nevada, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Note: Collectively (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Trustor in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Trustor in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of January 30, 1998 executed by Trustor in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note"). Ontario Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Bernardino County, California, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. Remediation and Indemnification Agreements: Collectively, (i) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the Property, (ii) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Ontario Deed of Trust, (iii) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 24, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Milpitas Deed of Trust, (iv) the Hazardous Substances Remediation and Indemnification Agreement dated as of March 20, 1996, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Woodlands Deed of Trust, (v) the Hazardous Substances Remediation and Indemnification Agreement dated as of May 9, 1997, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Nevada Deed of Trust, (vi) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Arizona Deed of Trust, (vii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the South San Francisco Deed of Trust, and (viii) the Hazardous Substances Remediation and Indemnification Agreement dated as of January 30, 1998, executed by Trustor in favor of Beneficiary in connection with the property encumbered by the Fremont Deed of Trust. Woodlands Deed of Trust: That certain Deed of Trust dated as of March 20, 1996, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Salt Lake County, Utah, as amended by that certain First Modification of Deed of Trust and Other Loan Documents dated as of May 24, 1996, as amended by that certain Second Modification of Deed of Trust and Other Loan Documents dated as of May 9, 1997, as amended by that certain Third Modification of Deed of Trust and Other Loan Documents dated as of January 30, 1998, as further amended from time to time. 7.2 The following new definitions of Arizona Deed of Trust, Fremont Deed of Trust and South San Francisco Deed of Trust are hereby added to Article 1 of the Deed of Trust, in alphabetical order: Arizona Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Maricopa County, Arizona, as amended from time to time. Fremont Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of Alameda County, California, as amended from time to time. South San Francisco Deed of Trust: That certain Deed of Trust dated as of January 30, 1998, executed by Trustor for the benefit of Beneficiary, recorded in the Official Records of San Mateo County, California as amended from time to time. 7.3 Paragraph 6.1.A(8) of the Deed of Trust is hereby deleted in its entirety and the following new paragraph is hereby inserted in its place: (8) An "Event of Default" occurs under any one or more of the Woodlands Deed of Trust, the Ontario Deed of Trust, the Nevada Deed of Trust, the Milpitas Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust and/or the Fremont Deed of Trust. 7.4 Paragraph 9.36 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.36 is hereby inserted in its place: 9.36 Partial Release. Beneficiary agrees to release, at any time after May 31, 1998, the Property from the lien of this Deed of Trust upon the satisfac- tion of the following conditions at the time of reconveyance: (1) No Event of Default shall have occurred and no event which, with the passage of time or the giving on notice, or both, would constitute an Event of Default shall have occurred either at the time of Beneficiary's receipt of the Trustor's written request for a reconveyance or as of the date of such reconveyance; (2) Not more than a total of three (3) of the Combined Deeds of Trust (including, without limitation, this Deed of Trust) shall have been previously reconveyed or shall be reconveyed hereby or concurrently herewith (and in no event shall Trustor be entitled to more than three (3) total releases of any or all of the Combined Properties hereunder and/or under the Combined Deeds of Trust); (3) Trustor shall pay to Beneficiary, prior to or concurrently with the reconveyance of this Deed of Trust, the Allocable Loan Amount for the Property along with the prepayment premium allocable to such Allocable Loan Amount as determined pursuant to the applicable Note; (4) Beneficiary shall have been provided satisfactory evidence that the reconveyance of this Deed of Trust does not violate the provisions of any declaration of covenants, conditions and restrictions, reciprocal easement agreement, Lease or other agreement affecting the Property or any portion thereof; (5) The Remaining Properties shall have: (i) after the first reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.80 and a Combined Loan to Value Ratio of not more than 65%, (ii) after the second reconveyance, both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 1.90 and a Combined Loan to Value Ratio of not more than 60%, and (iii) after the third and final reconveyance both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%; (6) Each of the individual Remaining Properties shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; (7) Beneficiary shall have received a commitment that the title company insuring the liens of the Milpitas Deed of Trust, the Ontario Deed of Trust, the Woodlands Deed of Trust, the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust, and the Fremont Deed of Trust will issue such title endorsements as Beneficiary deems necessary or desirable for attachment to the applicable title policies, including without limitation, CLTA Endorsement Nos. 110.5, 111, and 111.1; (8) Trustor shall pay to Beneficiary all escrow, closing and recording costs, the cost of preparing and delivering any reconveyance documentation, including legal fees and costs, the cost of any title insurance endorsements that Beneficiary may require, recording fees, any sums then due and payable under the Loan Documents and a non- refundable $25,000 processing fee, which fee shall be paid at the time of notice of the requested reconveyance; (9) Trustor shall have provided Beneficiary with forty-five (45) days prior written notice of the requested reconveyance; and (10) Such other terms and conditions as Beneficiary shall reasonably require. Notwithstanding the foregoing, in the event that the Debt Service Coverage and the Loan to Value Ratio tests set forth in Paragraphs 9.36(5) and 9.36(6), above, cannot be satisfied because of the value of, or the net cash flow from, the applicable Combined Properties, Trustor may, at its option, satisfy such tests by making a principal prepayment (the "Excess Principal Payment") on the Loan in an amount sufficient to satisfy such tests so long as Trustor also pays to Beneficiary any prepayment premium relating to such principal prepayment, as determined by the applicable Note. Upon receipt of the Excess Principal Payment, Beneficiary shall apply such amount to reduce the outstanding Loan and may apply such amount to any one or more of the Multistate Note, the Nevada Note and/or the Arizona/California Note (in such order or priority as to satisfy such tests, as determined by Beneficiary), and shall allocate the Excess Principal Payment to the applicable Allocable Loan Amount in proportion to each such Allocable Loan Amount's share of the outstanding principal balance of the Note to which such amount is applied, and, the monthly payments due under such applicable Note shall be adjusted, as of the date of the release of this Deed of Trust pursuant to this Paragraph 9.36, to reflect the Excess Principal Payment applied to such applicable Note, such adjustment to be based on the applicable interest rate under such Note and an amortization schedule equal to 300 months minus the number of months that have elapsed since May 31, 1998. A..5 Paragraph 9.37 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.37 is hereby inserted in its place: 9.37 Limitation on Personal Liabilities. Trustor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. 1.6 Paragraph 9.38 of the Deed of Trust is hereby deleted in its entirety and the following new Paragraph 9.38 is hereby inserted in its place: 9.38 Reconveyance on Full Payment of Multistate Note. In the event that the Indebtedness evidenced by the Multistate Note is repaid in full on the Maturity Date thereof (as defined in the Multistate Note), and provided (i) no Event of Default shall have occurred and be continuing under the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust, (ii) the Remaining Properties (after the proposed release of the Ontario Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust and this Deed of Trust) would have both a Combined Debt Service Coverage and a Future Combined Debt Service Coverage of not less than 2.00 and a Combined Loan to Value Ratio of not more than 55%, and (iii) each of the individual Remaining Properties (after such release) shall have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 1.00 and an Individual Loan to Value Ratio of not more than 75%; provided, however, that if there is only one Remaining Property then such Remaining Property would have both an Individual Debt Service Coverage and a Future Individual Debt Service Coverage of not less than 2.00 and an Individual Loan to Value Ratio of not more than 55%, then Beneficiary agrees to release and reconvey the Ontario Deed of Trust, the Milpitas Deed of Trust, the Woodlands Deed of Trust and this Deed of Trust, and the Combined Properties (other than the properties encumbered by the Nevada Deed of Trust, the Arizona Deed of Trust, the South San Francisco Deed of Trust or the Fremont Deed of Trust) encumbered thereby shall then and thereafter no longer serve as collateral for the Nevada Note or the Arizona/California Note. 1.7 The Deed of Trust is hereby modified to provide that it secures, in addition to all other obligations now or hereafter secured thereby, a. Trustor's obligations to Beneficiary under the Multistate Note, the Nevada Note, the Arizona/California Note and all other Loan Documents, as supplemented and/or otherwise modified by the First Modification, the Second Modification and this Modification, and b. Trustor's obligations to Beneficiary under the (i) Nevada Deed of Trust, (ii) the Arizona Deed of Trust, (iii) the South San Francisco Deed of Trust, (iv) the Fremont Deed of Trust, and (v) the Modification Documents. II. Modification of Multistate Note. The Multistate Note is hereby amended so that (i) the term "Deeds of Trust" as used therein includes the Arizona Deed of Trust, the South San Francisco Deed of Trust and the Fremont Deed of Trust (as defined in Paragraph 1.2 of this Modification) as well as the balance of the Deeds of Trust provided therein, as modified by the Modification Documents, (ii) the term "Remediation and Indemnification Agreements" as used therein shall have the meaning ascribed thereto in the Deeds of Trust (as modified by the Modification Documents). III. Modification of Assignment. The Assignment is hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, and (ii) the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. IV. Modification of Other Documents. The other Loan Documents and the Remediation and Indemnification Agreement executed by Trustor in favor of Beneficiary in connection with the Property are hereby amended so that (i) the term "Note" as used therein shall mean collectively, the Multistate Note, the Nevada Note and the Arizona/California Note, the term "Deed of Trust" as used therein shall mean the Deed of Trust as modified by the First Modification, the Second Modification and this Modification. V. No Other Modification. Except as expressly modified hereby, the Note, the Deed of Trust, and other Loan Documents remain unmodified and in full force and effect. VI. Miscellaneous. This Modification shall bind, and shall inure to the benefit of, the successors and assigns of the parties. This document may be executed in counterparts with the same force and effect as if the parties had executed one instrument, and each such counterpart shall constitute an original hereof. This Modification shall be governed by the laws of the State of California (without regard to any choice of law provisions thereof). IN WITNESS WHEREOF, Trustor and Beneficiary have caused this Modification to be duly executed as of the date first written above. "TRUSTOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Sr. Vice President [Printed Name and Title] "BENEFICIARY": THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson Vice President [11128.AGRE]H61738 REAFFIRMATION OF SUBORDINATION AGREEMENT THE IRVINE COMPANY, a Michigan corporation ("Irvine"), hereby acknowledges, agrees and consents to the foregoing Third Modification of Deed of Trust and Other Documents (the "Modification"), and agrees that the Subordination Agreement (the "Subordination Agreement") dated as of March 20, 1996 by and among Bedford Property Investors, Inc., a Maryland corporation, The Prudential Insurance Company of American, a New Jersey corporation, and Irvine, a short form of which was recorded on March 27, 1996 as Instrument No. 19960147698 in the Official Records of Orange County, California, as affirmed by the First Modification and the Second Modification, shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Subordination Agreement. The Deed of Trust as amended by the Modification, and all present and future indebtedness and obligations secured thereby, and any further renewals, extensions or modifications thereof, shall be and remain at all times a lien or charge upon the Real Property prior and superior to the Declaration and to all liens and enforcement rights and remedies of Irvine under the Declaration, including without limitation the right to require payment of an additional purchase price in the event of Owner's violation of certain Restrictions and the right of first refusal with respect to the sale of all or a portion of the Real Property. IN WITNESS WHEREOF, Irvine has duly executed this Reaffirmation of Subordination as of January 29, 1998. "IRVINE" THE IRVINE COMPANY, a Michigan corporation By: /s/ Clarence W. Barker Clarence W. Barker President, Irvine Industrial Company A division of The Irvine Company By: /s/ Jeffrey J. Wallace Jeffrey J. Wallace Assistant Secretary State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, a notary public, personally appeared Scott R. Whitney, Sr. V. P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public (seal) State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, a notary public, personally appeared Scott R. Whitney, Sr. V. P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Rebecca L. Ingraca Notary Public (seal) State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Rebecca L. Ingraca, a notary public, personally appeared Scott R. Whitney, Sr. V.P. personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Rebecca L. Ingraca Notary Public (seal) State of ) ) ss. County of ) On _______________________, 1998, before me, ___________________________, a notary public, personally appeared __________________________________ personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Notary Public (seal) Loan No.: 6-102-291 ASSIGNMENT OF AGREEMENTS THIS ASSIGNMENT OF AGREEMENTS (this "Assignment") is made as of January 30,1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Assignee"). RECITALS Assignee has made certain loans (collectively, the "Loan") to Assignor (or which have been assumed by Assignor), which are evidenced by (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"), and which is to be secured by, among other things, a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith made by Assignor, as trustor, for the benefit of Assignee, as beneficiary (the "Deed of Trust"), which Deed of Trust encumbers property located in Alameda County, California (the "Property"), as more particularly described in Exhibit A attached hereto and incorporated herein by this reference. Assignor has entered into and, from time to time, intends to enter into certain agreements pertaining to the operation of the Property and the construction of certain improvements (the "Improvements") on the Property (as defined in the Deed of Trust). As a condition to the making of the Loan, Assignee has required that Assignor execute and deliver this Assignment. AGREEMENT NOW, THEREFORE, IN CONSIDERATION for the Loan and other good and valuable consideration, the parties agree as follows: Assignment. Assignor hereby sells, assigns, transfers, sets over and delivers to Assignee all of Assignor's right, title and interest in and to any and all agreements and contracts whatsoever pertaining to the operation of the Property and any and all agreements and contracts whatsoever pertaining to the construction of the Improvements, including all preliminary and final development plans and specifications, architectural drawings, environmental impact reports, negative declarations, map approvals, conditional use permits, management agreements, agreements with contractors and agreements pertaining to the transfer of development rights or permitted floor area under all federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, and agreements, relating to the development, occupancy, ownership, management, use and/or operation of the Property or otherwise affecting all or any part of the Property or Assignor, including, without limitation, those agreements described in Exhibit B attached hereto and incorporated herein by this reference (collectively, the "Agreements"), as the same may be amended or otherwise modified from time to time. The foregoing assignment shall not include the "Leases" as defined in that certain Assignment of Lessor's Interest in Leases of even date herewith, executed by Assignor in favor of Assignee. The foregoing assignment encompasses the right of Assignor to terminate any of the Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, together with the immediate and continuing right to collect and receive all sums which may become due to Assignor or which Assignor may now or shall hereafter become entitled to demand or claim, arising from or out of the Agreements, including claims of Assignor for damages arising out of, or for breach of, of default under, any of the Agreements and all rights of Assignor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to any of the Agreements. Further Assurances. Assignor shall execute, at its cost, upon Assignee's request, any documents necessary to cause the specific assignment of any particular Agreements which are necessary, proper or desirable in Assignee's judgment to carry out the purposes of this Assignment. Obligations. Assignor shall observe, perform, and discharge duly and punctually all the obligations, terms, covenants, conditions and warranties to be performed by it pursuant to the Agreements. Assignor shall not, without the prior written consent of Assignee, which consent shall not be unreasonably withheld, terminate, amend, modify or alter in any manner any Agreements, or waive, execute, condone, discount, set off, compromise, or in any manner release or discharge the other parties to any Agreements from any obligations, covenants, conditions, or agreements by such parties to be kept, or accept or consent to any surrender of the Agreements. Revocable License. So long as no event of default shall have occurred hereunder or under any of the other Loan Documents, Assignor shall have the right under a revocable license granted hereby to collect and retain all sums which may become payable to Assignor under the Agreements. Assignee, upon the occurrence of an event of default hereunder or under any of the other Loan Documents, at its option, on written notice to Assignor shall have the right to terminate and revoke the license herein granted and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein, under any of the Loan Documents or by law or in equity. Representations and Warranties. Assignor represents and warrants that, to the best of its knowledge, it has the right to assign the Agreements to Assignee as herein provided (except for those Agreements which by their express terms are not assignable) and that Assignor has not previously sold, assigned, mortgaged, pledged or otherwise transferred or encumbered any of its rights, title or interest therein. Nonresponsibility. The acceptance by Assignee of this Assignment with all the rights, powers, privileges and authority so granted shall not obligate Assignee to assume any obligations under the Agreements or to take any action thereunder or to expend any money or incur any expense or perform or discharge any obligation or responsibility for the nonperformance of the provisions thereof by Assignor. Attorney-in-Fact. Assignor does hereby constitute and appoint Assignee its true and lawful attorney-in-fact, which appointment is coupled with an interest to (i) exercise any and all rights under the Agreements and (ii) demand, sue for, collect, attach, levy, recover and receive any and all sums which may become due to Assignor, to which Assignor now or shall hereafter become entitled or which Assignor may demand or claim, arising or issuing from or out of the Agreements and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion of the Indebtedness (as hereinafter defined), as selected by Assignee, notwithstanding that the amount owing thereunder may not then be due and payable or that the Note is adequately secured. Assignor does hereby authorize and direct the delivery and payment of such sums to Assignee and authorizes Assignee to sign and deliver written instructions to this effect in Assignor's name and stead, and hereby ratifies and confirms all whatsoever that its said attorney shall do or cause to be done by virtue of the powers granted hereby. The power of attorney hereunder is irrevocable and continuing and such rights, powers and privileges shall be exclusive in Assignee, it successors and assigns so long as any part of the Indebtedness remains unpaid; provided, however, Assignee shall not exercise any of its rights or authority as attorney-in-fact prior to the occurrence of an event of default hereunder or under any of the other Loan Documents. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Indemnity. Assignor shall pay any and all costs and expenses incurred by Assignee in enforcing any rights or remedies under this Assignment, including, without limitation, reasonable attorneys' fees. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all claims, losses, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees) arising out of or resulting from this Assignment, including the exercise or enforcement of any of the rights of Assignee hereunder, and Assignor shall reimburse Assignee on demand for any and all such expenses. Counterparts. This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. Successors and Assigns. The covenants and agreements herein contained shall bind and inure to the benefit of the parties hereto and their successors and assigns, subject, however, to the provisions of the Deed of Trust regarding transfer of the Property by Assignor. Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of California. Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. IN WITNESS WHEREOF, Assignor has executed this Assignment of Agreements on the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] [11128.AGRE]H61652 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Steefel, Levitt & Weiss One Embarcadero Center, 30th Floor San Francisco, California 94111 Attention: James F. Eastman, Esq. _______________________________________________________________ ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (South San Francisco) THIS ASSIGNMENT OF LESSOR'S INTEREST IN LEASES (this "Assignment") is made as of January 30, 1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation having offices at 270 Lafayette Circle, Lafayette, California 94549 ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation having offices at Four Embarcadero Center, Suite 2700, San Francisco, California 94111 ("Assignee"), for the benefit and protection of Assignee as beneficiary under that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith executed by Assignor in favor of Assignee (the "Deed of Trust") encumbering those certain real properties, together with any improvements now or at any time located thereon, located in the County of San Mateo, State of California (collectively, the "Property"), and more particularly described in Exhibits A-1 and A-2 attached hereto and incorporated herein by this reference and for the benefit and protection of Assignee as payee and holder of that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), and that certain Amended and Restated Promissory Note dated as of May 9, 1997 executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000), payable to Assignee or its order, and all modifications, renewals or extensions thereof (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"). W I T N E S S E T H: FOR VALUE RECEIVED, Assignor does hereby irrevocably and absolutely SELL, ASSIGN, TRANSFER, SET OVER AND DELIVER unto Assignee any and all leasehold interests, including subleases and tenancies following attornment, now or hereafter affecting or covering any part of the Property, including, without limitation, those leases described in Exhibits B-1 and B-2 attached hereto (collectively, the "Leases"). TOGETHER, with the immediate and continuing right to collect and receive all of the rents, income, receipts, revenues, issues and profits now due or which may become due or to which Assignor may now or shall hereafter (including the period of redemption, if any) become entitled or may demand or claim, arising or issuing from or out of the Leases or from deficiency rents and liquidated damages following default, including, without limitation, all security and other deposits now or hereafter held by Assignor, and all proceeds payable under any policy of insurance covering loss of rents or other income from the Property, together with any and all rights and claims of any kind that Assignor may have against lessees under the Leases or any subtenants or occupants of the Property, or any part thereof (all such moneys, rights and claims described in this paragraph being hereinafter called the "Receipts"). SUBJECT, however, to a license hereby granted by Assignee to Assignor, but limited as hereinafter provided, to collect and receive the Receipts. ASSIGNOR REPRESENTS, WARRANTS, COVENANTS AND AGREES AS FOLLOWS: Representations and Warranties. Assignor represents and warrants that: (i)ASSIGNOR is the owner of the Property, and has good title to the Leases and Receipts and full and complete right to assign the same; (ii)no other Person (as hereinafter defined) has any right, title or interest in the Leases or Receipts; (iii)ASSIGNOR has duly and punctually performed all and singular the obligations, terms, covenants, conditions and warranties of the Leases on Assignor's part to be kept, observed and performed; (iv) Assignor has not previously sold, assigned, transferred, mortgaged or pledged the Leases or the Receipts, whether now due or hereafter to become due; (v)No Receipts for any period of more than thirty (30) days subsequent to the date hereof have been collected, nor has payment of any of same been otherwise discharged or compromised; (vi)the lessees under the Leases ("Lessees") are not in default of any of the terms thereof and do not have any defense, set-off or counter claim against Assignor thereunder; (vii)The Leases are in full force and effect, are valid and enforceable in accordance with their terms, and have not been modified, amended or altered, whether in writing or orally, except as otherwise disclosed to Assignee in writing; (viii)except as disclosed on the rent rolls delivered to Assignee in connection with the funding of the Loan (the "Rent Rolls"), there are no unextinguished rent concessions, abatements or other inducements relating to the Leases, and no Lessee has any option or right to acquire any interest in the Property; and (ix)The Rent Rolls disclose all currently existing Leases and is complete, accurate and true in all respects. As used herein, the term "Person" shall mean and refer to any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. Affirmative Covenants. Assignor shall: (i) observe, perform and discharge, duly and punctually, all and singular the obligations, terms, covenants, conditions and warranties of the Leases, on the part of Assignor to be kept, observed and performed, and give prompt notice to Assignee of any failure on the part of Assignor to observe, perform and discharge the same; (ii) direct the Lessees to deliver all rents and other payments due under the Leases to Assignee upon written request of Assignee and without further action of Assignor; (iii) upon request of Assignee, notify Lessees in writing of this Assignment and that any security deposit, or other deposits heretofore delivered to Assignor have been retained by Assignor or assigned and delivered to Assignee, as the case may be; (iv) enforce or secure in the name of Assignee the performance of each and every obligation, term, covenant, condition and agreement of the Leases to be performed by Lessees; (v) appear in and defend any action or proceeding arising under, occurring out of, or in any manner connected with the Leases or the obligations, duties, or liabilities of Assignor and Lessees thereunder; and (vi) upon request by Assignee, to do so in the name and on behalf of Assignee but at the expense of Assignor, and to pay all costs and expenses of Assignee, including, without limitation, reasonable attorneys' fees. In the negotiation of any future leases or the renewal of any of the Leases, Assignor shall use commercially reasonable efforts not to agree to obtain the agreement of Assignee to execute a subordination, non-disturbance and attornment agreement ("SNDA") with the Lessee or proposed lessee. So long as Assignor uses such commercially reasonable efforts, Assignee shall enter into an SNDA on Assignee's then current standard SNDA form with the tenant for any lease which is either expressly approved by Assignee in writing or which meets the criteria set forth in paragraphs (a) or (b) of Section 3, below. Pursuant to such SNDA, Assignee shall agree that in the exercise of any foreclosure remedies under the Deed of Trust, Assignee will not disturb such tenant in its possession of the demised premises so long as such tenant is not in default under its lease. Negative Covenants. Assignor shall not, without the prior written consent of Assignee: (i) lease any part of the Property or renew or extend any of the Leases; (ii) terminate, amend, modify or alter in any manner any of the Leases, or waive, excuse, condone, discount, set off, compromise, or in any manner release or discharge Lessees from any obligations, covenants, conditions or agreements by such Lessees to be kept, or accept or consent to any surrender of the Leases; (iii) receive or collect any Receipts for a period of more than one month in advance (whether in cash or by promissory note or otherwise); (iv) further assign the Leases or pledge, transfer, mortgage or otherwise encumber or assign future payments of Receipts; (v) commence an action of ejectment or summary proceedings for dispossession of the Lessees under any of the Leases; (vi) consent to any modification of the express purposes for which the Property has been leased; or (vii) consent to any subletting of the Property or any part thereof, or to any assignment of the Leases by lessees thereunder or to any assignment or further subletting by any sublessees. Notwithstanding the foregoing, Assignor may do the following with respect to the Leases, including without limitation any new leases affecting the Property, without obtaining Assignee's prior written consent: Enter into any amendment or modification of any Lease, so long as the Lessee under such Lease leases not more than 10,000 rentable square feet of the Property, provided that Assignor delivers to Assignee an executed copy of such amendment within a reasonable time after execution thereof, but in no case later than 5 business days after such execution, and provided further that such amendment (i)is consistent with the ordinary and reasonable business practices and procedures customarily employed by Assignor for properties similar to the Property, (ii) does not substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, (iii) does not decrease or accelerate the rent under such Lease, (iv) does not decrease the term of such Lease, unless such a reduced lease term is granted in conjunction with both retaining an existing Lessee and with enlarging the size of the same Lessee's space in the Property, (v) does not cause such Lease to vary substantially from Assignor's standard form lease, and (vi) is not of a Lease for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and Enter into new bona fide arms-length leases (or renew existing Leases) with third-party tenants for premises of 10,000 rentable square feet or less, provided such leases (i) are on Assignor's standard form lease approved by Assignee, with no modifications that substantially increase the obligations of the landlord by providing non-market inducements to the Lessee, and (ii) are not for a single tenant space which comprises all or substantially all of the area for an individual building on the Property; and Terminate any Lease (for premises of 10,000 rentable square feet or less) in the ordinary course of Assignor's business (i) for non-payment of rent or other material default by the Lessee thereunder so long as such termination does not include a payment by such Lessee to Assignor, or (ii) if all of the space occupied pursuant to the Lease to be terminated is to be leased to another Lessee in conjunction with a transaction permitted under Section 3(a)(iv), above. In any case in which Assignee's consent is required pursuant to this Section 3, Assignee shall respond to requests for such consent in an expedient manner, and such consent shall not be unreasonably withheld or delayed and shall be deemed given unless objections in reasonable detail are given to Assignee within eight (8) business days following Assignor's receipt of (i) written request for such consent, which written request shall include the date Assignee's response is due, and (ii) all pertinent information relating to the Lease or proposed lease in question, including, without limitation, copies of the proposed amendment or new lease, if applicable. Default and Remedies. In the event any representation or warranty herein of Assignor shall be found to be untrue in any material respect when made, or thereafter becomes untrue in any material respect, or in the event Assignor shall default in the payment of any Indebtedness (as hereinafter defined) or in the observance or performance of any other Obligation (as hereinafter defined), after the expiration of all applicable grace or cure periods, if any, set forth in the Deed of Trust, then, in each such instance, the same shall constitute an "Event of Default" hereunder and under the Loan Documents (as defined in the Deed of Trust), thereby entitling Assignee to declare all Indebtedness immediately due and payable and to exercise any and all of the rights and remedies provided thereunder and hereunder as well as by law or in equity. Specifically, but without limiting the generality of the foregoing, upon or at any time after the occurrence of an Event of Default, Assignee, at its option, shall have the complete right, power and authority to exercise and enforce any or all of the following rights and remedies: to terminate and revoke the license granted to Assignor hereunder and collect the Receipts, and without taking possession of the Property, in Assignee's own name, to demand, collect, receive, sue for, attach and levy the Receipts, to give proper receipts, releases and acquittances therefor, and after deducting all necessary and proper costs and expenses of operation and collection, as determined in Assignee's sole judgment, and including reasonable attorneys' fees, to apply the net proceeds thereof, together with any funds of Assignor deposited with Assignee, upon the Indebtedness and in such order as Assignee may determine in its sole discretion; and without regard to the adequacy of the security, with or without any action or proceeding, through any person or by agent, by the Trustee under the Deed of Trust, or by a receiver appointed by a court of competent jurisdiction, and irrespective of Assignor's possession, to enter upon, take possession of, manage and operate the Property, or any part thereof or interest therein, make, modify, enforce, cancel or accept surrender of, any of the Leases, remove and evict any Lessee, increase or decrease rents under any of the Leases, decorate, clean and repair any premises under any of the Leases, and otherwise do any act or incur any costs or expenses as Assignee deems necessary or proper to protect the rights of Assignee therein, as fully and to the same extent as Assignor could do if in possession, and in such event to apply the Receipts so collected to the operation and management of the Property, in such order as the Assignee shall deem proper in its sole discretion, including payment of reasonable management, brokerage and attorneys' fees, payment of the Indebtedness and maintenance, without interest, of reserves for replacements. Collection of Receipts hereunder, and application thereof as specified above, and/or the entry upon and taking possession of the Property, or any part thereof or interest therein, shall not cure or waive any default or waive, modify or affect any notice of default under any Loan Documents, or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by Assignee, once exercised, shall continue for so long as Assignee shall elect. If Assignee shall thereafter elect to discontinue the exercise of any such right or remedy, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent Event of Default. A demand upon any Lessee made by Assignee for payment of Receipts by reason of any default claimed by Assignee hereunder or under any other Loan Documents shall be sufficient to warrant to said Lessee to make future payments of all Receipts to Assignee without the necessity for further consent by Assignor. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. As used herein, the term "Obligations" shall mean and refer to any and all of the covenants, promises and other obligations (including the Indebtedness) made or owing by Assignor to or due Assignee under and/or as set forth in the Loan Documents and all of the material covenants, promises and other obligations made or owing by Assignor to each and every other Person relating to the Property. Grant of License to Assignor. So long as there shall exist no Event of Default, Assignor shall have the right under a license granted hereby (but limited as provided in this paragraph) to collect, but not prior to accrual, all Receipts. Assignor shall receive such Receipts, and shall hold the same, as well as the right and license to receive the same, as a trust fund to be applied, and Assignor shall so apply the same, first to the payment of taxes and assessments upon the Property before penalty or interest are due thereon, second to the cost of such insurance and of such maintenance and repairs as is required by the terms of the Deed of Trust, third to the satisfaction of all obligations under the Leases, and fourth to the payment of the Indebtedness before using any part of the Receipts for any other purpose. Power of Attorney. Effective automatically upon the occurrence of an Event of Default and continuously thereafter, and without the necessity of the execution of any further documents or instruments, Assignor hereby constitutes and appoints Assignee as Assignor's true and lawful attorney, coupled with an interest, in the name, place and stead of Assignor (i)to collect, demand, sue for, attach, levy, recover and receive all Receipts due and payable by Lessees pursuant to the Leases and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion, as selected by Assignee, of the Indebtedness, notwithstanding that the amount owing thereunder may not then be due and payable or that the Indebtedness is adequately secured, and Assignor does hereby authorize and direct such Lessees to deliver such payment to Assignee in accordance with the foregoing; and (ii)To subject and subordinate at any time and from time to time, the Leases, to the lien of the Deed of Trust or any other Loan Documents or any other mortgage or deed of trust on or to any ground lease of the Property or to request or require such subordination, where such reservation, option or authority was reserved under the Leases to the Assignor, or in any case, where the Assignor otherwise would have the right, power or privilege so to do. Assignor hereby ratifies and confirms all acts that Assignee shall do or cause to be done by virtue of the powers granted hereby and warrants that the Assignor has not, on or at any time prior to the date hereof, exercised any such right of subordination under clause(ii) above and covenants not to exercise any such right except as may be required by Assignee. The power of attorney hereunder granted is irrevocable and continuing, shall survive the insolvency or dissolution of Assignor, and such rights, powers and privileges shall be exclusive in Assignee, its successors and assigns so long as any part of the Indebtedness shall remain unpaid. Indemnity. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all liability, loss, cost, damage or expense (including, without limitation, reasonable attorneys' fees) that Assignee may or might incur under or by reason of this Assignment, for any action taken by Assignee hereunder, or the enforcement of this Assignment, or by reason or in defense of any and all claims and demands whatsoever that may be asserted against Assignee arising out of the Leases, including any claim by any Lessees of credit from rental paid to and received by Assignor. If Assignee incurs any such liability, loss, cost, damage or expense, the amount thereof with interest thereon at the Secondary Interest Rate (as defined in the Note), shall be payable by Assignor immediately upon demand, shall be secured by the Deed of Trust, and shall be part of the Indebtedness. No Waiver. The failure of Assignee to avail itself of any of the terms, covenants and conditions of this Assignment for any period of time, or at any time or times, shall not be construed or deemed to be a waiver of any such right, and nothing herein contained, nor anything done or omitted to be done by Assignee pursuant hereto, shall be deemed a waiver by Assignee of any of its rights and remedies under the Loan Documents, or under any applicable laws. The rights of Assignee to collect the Indebtedness and to enforce any security therefor may be exercised by Assignee, either prior to, simultaneously with, or subsequent to, any action taken hereunder. No Merger. So long as any of the Indebtedness shall remain unpaid, unless Assignee shall otherwise consent in writing, the leasehold estates and the subleasehold estates on the Property, if any, shall not merge, but shall always be kept separate and distinct, notwithstanding the union of said estates either in Assignor or in any Lessees or in a third party, by purchase or otherwise. No Mortgagee in Possession; No Other Liability. The acceptance by Assignee of this Assignment, with all of the rights, power, privileges and authority so created, shall not, prior to entry upon and taking of possession of the Property by Assignee, be deemed or construed to (i)constitute Assignee a mortgagee in possession nor thereafter or at any time or in any event obligate Assignee to appear in or defend any action or proceeding relating to the Leases or to the Property, (ii)require Assignee to take any action hereunder, or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under the Leases, or (iii)Require Assignee to assume any obligation or responsibility for any security deposits or other deposits delivered to Assignor by Lessees and not assigned and delivered to Assignee. Assignee shall not be liable in any way for any injury or damage to person or property sustained by any Person in or about the Property. Payment of Indebtedness. Upon payment in full of all of the Indebtedness, this Assignment shall become and be void and of no effect, but the affidavit, certificate, letter or statement of any officer of Assignee showing any part of said Indebtedness to remain unpaid shall be and constitute conclusive evidence of the validity, effectiveness and continuing force of this Assignment, and any Person may and is hereby authorized to rely thereon. Notices. All notices, demands or documents of any kind that Assignee or Assignor may be required or may desire to serve shall be served in the manner provided in the Deed of Trust. Successors and Assigns; Gender. The terms, covenants, conditions and warranties contained herein and the powers granted hereby shall run with the land, shall inure to the benefit of and bind all parties hereto and their respective heirs, executors, administrators, successors and assigns, and all subsequent owners of the Property, and all subsequent holders of the Note and the Deed of Trust, subject in all events to the provisions of the Deed of Trust regarding transfers of the Property by Assignor. In this Assignment, whenever the context so requires, the masculine gender shall include the feminine and/or neuter and the singular number shall include the plural and conversely in each case. If there is more than one party constituting Assignor, all obligations of each Assignor hereunder shall be joint and several. Severability. If any term, provision, covenant or condition hereof or any application thereof should be held unenforceable, in whole or in part, all terms, provisions, covenants and conditions hereof and all applications thereof not held invalid, void or unenforceable shall continue in full force and effect and shall in no way be affected, impaired or invalidated thereby. Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of California. Expenses. Assignor shall pay on demand all costs and expenses incurred by Assignee in connection with the review of Leases, including the fees and disbursements of Assignee's outside counsel. Absolute Assignment. Notwithstanding anything contained herein to the contrary, this Assignment is intended by Assignor and Assignee to create and shall be construed to create an absolute assignment by Assignor to Assignee of all of Assignor's right, title and interest in the Leases and Receipts and shall not be deemed to create a security interest therein. Assignor and Assignee further agree that, during the term of this Assignment, the Leases and Receipts shall not constitute property of Assignor (or of any estate of Assignor) within the meaning of 11 U.S.C. Section 541, as amended from time to time. Priority Of Leases. NOTICE OF THE FOLLOWING IS HEREBY GIVEN TO ALL TENANTS EXECUTING A LEASE AFFECTING THE PROPERTY, EACH OF WHICH SHALL BE ON NOTICE OF, BOUND BY AND SUBJECT TO THE TERMS OF THIS PARAGRAPH 18: 18.1 Anything to the contrary in any Lease notwithstanding, Assignee shall have the right, but not the obligation, to change the priority of that Lease and the lien of the Deed of Trust from time to time by one or more unilateral notices to the tenant that (a) the lien of the Deed of Trust shall be subordinate to such Lease, or (b) the Lease shall be subordinate to the Deed of Trust. 18.2 Upon written request of Assignee, every tenant under a Lease receiving such request shall execute and deliver to Assignee within the time period specified in that written request a written agreement which provides the following: (a)upon the foreclosure of the Deed of Trust such tenant shall attorn to the purchaser of the Property at the foreclosure sale, and (b)The foreclosure of the Deed of Trust shall not disturb or result in the cancellation or termination of that tenant's Lease. Assignee has no obligation to deliver such a request to any tenant. 18.3 Assignor covenants that, unless Assignee otherwise agrees, each Lease shall provide, among other things, that Assignee shall have the right to (a) change the relative priority of that Lease and the Deed of Trust by notice to the tenant that (i) the Lease shall be subordinate to the Deed of Trust, or (ii) the Deed of Trust shall be subordinate to the Lease, and (b) elect whether or not (i) such Lease shall survive foreclosure of the Deed of Trust, and (ii) such tenant shall attorn to Assignee or the purchaser upon a foreclosure sale. 18.4 Assignee shall have the right to elect to be a third party beneficiary of any attornment provisions contained in any Lease. Anything to the contrary in any Lease notwithstanding, no election by Assignor under any Lease or otherwise to alter the relative priority of that Lease and the Deed of Trust shall be effective unless Assignee shall have consented thereto in writing. Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. Counterparts. This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. IN WITNESS WHEREOF, this Assignment of Lessor's Interest in Leases has been duly executed by Assignor the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] The Prudential Insurance Company of America hereby executes this Assignment to evidence its agreement with the last two sentences of Section 2, hereof. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By: /s/ Michael B. Jameson Michael B. Jameson, Vice President [Printed Name and Title] [11128.AGRE]I13399 State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington , a notary public, personally appeared Scott R. Whitney personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public (seal) State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington , a notary public, personally appeared Scott R. Whitney personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public (seal) State of California ) ) ss. County of Contra Costa ) On February 2, 1998, before me, Colette M. Pennington , a notary public, personally appeared Scott R. Whitney personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Colette M. Pennington Notary Public (seal) Loan No.: 6-102-324 ASSIGNMENT OF AGREEMENTS (South San Francisco) THIS ASSIGNMENT OF AGREEMENTS (this "Assignment") is made as of January 30, 1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Assignee"). RECITALS Assignee has made certain loans (collectively, the "Loan") to Assignor (or which have been assumed by Assignor), which are evidenced by (i)that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii)That certain Amended and Restated Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"), and which is to be secured by, among other things, a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith made by Assignor, as trustor, for the benefit of Assignee, as beneficiary (the "Deed of Trust"), which Deed of Trust encumbers property located in San Mateo County, California (the "Property"), as more particularly described in Exhibits a-1 and A-2 attached hereto and incorporated herein by this reference. Assignor has entered into and, from time to time, intends to enter into certain agreements pertaining to the operation of the Property and the construction of certain improvements (the "Improvements") on the Property (as defined in the Deed of Trust). As a condition to the making of the Loan, Assignee has required that Assignor execute and deliver this Assignment. AGREEMENT NOW, THEREFORE, IN CONSIDERATION for the Loan and other good and valuable consideration, the parties agree as follows: Assignment. Assignor hereby sells, assigns, transfers, sets over and delivers to Assignee all of Assignor's right, title and interest in and to any and all agreements and contracts whatsoever pertaining to the operation of the Property and any and all agreements and contracts whatsoever pertaining to the construction of the Improvements, including all preliminary and final development plans and specifications, architectural drawings, environmental impact reports, negative declarations, map approvals, conditional use permits, management agreements, agreements with contractors and agreements pertaining to the transfer of development rights or permitted floor area under all federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, and agreements, relating to the development, occupancy, ownership, management, use and/or operation of the Property or otherwise affecting all or any part of the Property or Assignor, including, without limitation, those agreements described in Exhibits B-1 and B-2 attached hereto and incorporated herein by this reference (collectively, the "Agreements"), as the same may be amended or otherwise modified from time to time. The foregoing assignment shall not include the "Leases" as defined in that certain Assignment of Lessor's Interest in Leases of even date herewith, executed by Assignor in favor of Assignee. The foregoing assignment encompasses the right of Assignor to terminate any of the Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, together with the immediate and continuing right to collect and receive all sums which may become due to Assignor or which Assignor may now or shall hereafter become entitled to demand or claim, arising from or out of the Agreements, including claims of Assignor for damages arising out of, or for breach of, of default under, any of the Agreements and all rights of Assignor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to any of the Agreements. Further Assurances. Assignor shall execute, at its cost, upon Assignee's request, any documents necessary to cause the specific assignment of any particular Agreements which are necessary, proper or desirable in Assignee's judgment to carry out the purposes of this Assignment. Obligations. Assignor shall observe, perform, and discharge duly and punctually all the obligations, terms, covenants, conditions and warranties to be performed by it pursuant to the Agreements. Assignor shall not, without the prior written consent of Assignee, which consent shall not be unreasonably withheld, terminate, amend, modify or alter in any manner any Agreements, or waive, execute, condone, discount, set off, compromise, or in any manner release or discharge the other parties to any Agreements from any obligations, covenants, conditions, or agreements by such parties to be kept, or accept or consent to any surrender of the Agreements. Revocable License. So long as no event of default shall have occurred hereunder or under any of the other Loan Documents, Assignor shall have the right under a revocable license granted hereby to collect and retain all sums which may become payable to Assignor under the Agreements. Assignee, upon the occurrence of an event of default hereunder or under any of the other Loan Documents, at its option, on written notice to Assignor shall have the right to terminate and revoke the license herein granted and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein, under any of the Loan Documents or by law or in equity. Representations and Warranties. Assignor represents and warrants that, to the best of its knowledge, it has the right to assign the Agreements to Assignee as herein provided (except for those Agreements which by their express terms are not assignable) and that Assignor has not previously sold, assigned, mortgaged, pledged or otherwise transferred or encumbered any of its rights, title or interest therein. Nonresponsibility. The acceptance by Assignee of this Assignment with all the rights, powers, privileges and authority so granted shall not obligate Assignee to assume any obligations under the Agreements or to take any action thereunder or to expend any money or incur any expense or perform or discharge any obligation or responsibility for the nonperformance of the provisions thereof by Assignor. Attorney-in-Fact. Assignor does hereby constitute and appoint Assignee its true and lawful attorney-in-fact, which appointment is coupled with an interest to (i)exercise any and all rights under the Agreements and (ii)demand, sue for, collect, attach, levy, recover and receive any and all sums which may become due to Assignor, to which Assignor now or shall hereafter become entitled or which Assignor may demand or claim, arising or issuing from or out of the Agreements and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion of the Indebtedness (as hereinafter defined), as selected by Assignee, notwithstanding that the amount owing thereunder may not then be due and payable or that the Note is adequately secured. Assignor does hereby authorize and direct the delivery and payment of such sums to Assignee and authorizes Assignee to sign and deliver written instructions to this effect in Assignor's name and stead, and hereby ratifies and confirms all whatsoever that its said attorney shall do or cause to be done by virtue of the powers granted hereby. The power of attorney hereunder is irrevocable and continuing and such rights, powers and privileges shall be exclusive in Assignee, it successors and assigns so long as any part of the Indebtedness remains unpaid; provided, however, Assignee shall not exercise any of its rights or authority as attorney-in-fact prior to the occurrence of an event of default hereunder or under any of the other Loan Documents. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Indemnity. Assignor shall pay any and all costs and expenses incurred by Assignee in enforcing any rights or remedies under this Assignment, including, without limitation, reasonable attorneys' fees. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all claims, losses, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees) arising out of or resulting from this Assignment, including the exercise or enforcement of any of the rights of Assignee hereunder, and Assignor shall reimburse Assignee on demand for any and all such expenses. Counterparts. This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. Successors and Assigns. The covenants and agreements herein contained shall bind and inure to the benefit of the parties hereto and their successors and assigns, subject, however, to the provisions of the Deed of Trust regarding transfer of the Property by Assignor. Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of California. Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. IN WITNESS WHEREOF, Assignor has executed this Assignment of Agreements on the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] [11128.AGRE]I13401 Loan No.: 6-102-104 ASSIGNMENT OF AGREEMENTS THIS ASSIGNMENT OF AGREEMENTS (this "Assignment") is made as of January 30, 1998, by BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation ("Assignor"), in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Assignee"). RECITALS Assignee has made certain loans (collectively, the "Loan") to Assignor (or which have been assumed by Assignor), which are evidenced by (i) that certain Amended and Restated Promissory Note dated May 24, 1996 (and deemed made as of, and relating back to, March 20, 1996), executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000.00), and all modifications, renewals or extensions thereof (the "Multistate Note"), (ii) that certain Amended and Restated Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Eight Million Nine Hundred Thirteen Thousand Seven Hundred Thirty and 85/100 Dollars ($8,913,730.85), payable to Beneficiary or its order, and all modifications, renewals or extensions thereof (the "Nevada Note"), and (iii) that certain Promissory Note dated as of even date herewith executed by Assignor, as maker, to and for the benefit of Assignee, as holder, in the original principal amount of Twenty Million Nine Hundred Thousand Dollars ($20,900,000) (the "Arizona/California Note," and together with the Multistate Note and the Nevada Note, collectively, the "Note"), and which is to be secured by, among other things, a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Leases, Rents and Agreements of even date herewith made by Assignor, as trustor, for the benefit of Assignee, as beneficiary (the "Deed of Trust"), which Deed of Trust encumbers property located in Maricopa County, Arizona (the "Property"), as more particularly described in Exhibit A attached hereto and incorporated herein by this reference. Assignor has entered into and, from time to time, intends to enter into certain agreements pertaining to the operation of the Property and the construction of certain improvements (the "Improvements") on the Property (as defined in the Deed of Trust). As a condition to the making of the Loan, Assignee has required that Assignor execute and deliver this Assignment. AGREEMENT NOW, THEREFORE, IN CONSIDERATION for the Loan and other good and valuable consideration, the parties agree as follows: Assignment. Assignor hereby sells, assigns, transfers, sets over and delivers to Assignee all of Assignor's right, title and interest in and to any and all agreements and contracts whatsoever pertaining to the operation of the Property and any and all agreements and contracts whatsoever pertaining to the construction of the Improvements, including all preliminary and final development plans and specifications, architectural drawings, environmental impact reports, negative declarations, map approvals, conditional use permits, management agreements, agreements with contractors and agreements pertaining to the transfer of development rights or permitted floor area under all federal, state, regional, county, local and other laws, regulations, orders, codes, ordinances, rules, statutes and policies, restrictive covenants and other title encumbrances, permits and approvals, and agreements, relating to the development, occupancy, ownership, management, use and/or operation of the Property or otherwise affecting all or any part of the Property or Assignor, including, without limitation, those agreements described in Exhibit B attached hereto and incorporated herein by this reference (collectively, the "Agreements"), as the same may be amended or otherwise modified from time to time. The foregoing assignment shall not include the "Leases" as defined in that certain Assignment of Lessor's Interest in Leases of even date herewith, executed by Assignor in favor of Assignee. The foregoing assignment encompasses the right of Assignor to terminate any of the Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, together with the immediate and continuing right to collect and receive all sums which may become due to Assignor or which Assignor may now or shall hereafter become entitled to demand or claim, arising from or out of the Agreements, including claims of Assignor for damages arising out of, or for breach of, of default under, any of the Agreements and all rights of Assignor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to any of the Agreements. Further Assurances. Assignor shall execute, at its cost, upon Assignee's request, any documents necessary to cause the specific assignment of any particular Agreements which are necessary, proper or desirable in Assignee's judgment to carry out the purposes of this Assignment. Obligations. Assignor shall observe, perform, and discharge duly and punctually all the obligations, terms, covenants, conditions and warranties to be performed by it pursuant to the Agreements. Assignor shall not, without the prior written consent of Assignee, which consent shall not be unreasonably withheld, terminate, amend, modify or alter in any manner any Agreements, or waive, execute, condone, discount, set off, compromise, or in any manner release or discharge the other parties to any Agreements from any obligations, covenants, conditions, or agreements by such parties to be kept, or accept or consent to any surrender of the Agreements. Revocable License. So long as no event of default shall have occurred hereunder or under any of the other Loan Documents, Assignor shall have the right under a revocable license granted hereby to collect and retain all sums which may become payable to Assignor under the Agreements. Assignee, upon the occurrence of an event of default hereunder or under any of the other Loan Documents, at its option, on written notice to Assignor shall have the right to terminate and revoke the license herein granted and shall have the complete right and authority then or thereafter to exercise and enforce any and all of its rights and remedies provided herein, under any of the Loan Documents or by law or in equity. Representations and Warranties. Assignor represents and warrants that, to the best of its knowledge, it has the right to assign the Agreements to Assignee as herein provided (except for those Agreements which by their express terms are not assignable) and that Assignor has not previously sold, assigned, mortgaged, pledged or otherwise transferred or encumbered any of its rights, title or interest therein. Nonresponsibility. The acceptance by Assignee of this Assignment with all the rights, powers, privileges and authority so granted shall not obligate Assignee to assume any obligations under the Agreements or to take any action thereunder or to expend any money or incur any expense or perform or discharge any obligation or responsibility for the nonperformance of the provisions thereof by Assignor. Attorney-in-Fact. Assignor does hereby constitute and appoint Assignee its true and lawful attorney-in-fact, which appointment is coupled with an interest to (i) exercise any and all rights under the Agreements and (ii) demand, sue for, collect, attach, levy, recover and receive any and all sums which may become due to Assignor, to which Assignor now or shall hereafter become entitled or which Assignor may demand or claim, arising or issuing from or out of the Agreements and to give proper notices, receipts, releases and acquittances therefor and after deducting expenses of collection, to apply the net proceeds as a credit upon any portion of the Indebtedness (as hereinafter defined), as selected by Assignee, notwithstanding that the amount owing thereunder may not then be due and payable or that the Note is adequately secured. Assignor does hereby authorize and direct the delivery and payment of such sums to Assignee and authorizes Assignee to sign and deliver written instructions to this effect in Assignor's name and stead, and hereby ratifies and confirms all whatsoever that its said attorney shall do or cause to be done by virtue of the powers granted hereby. The power of attorney hereunder is irrevocable and continuing and such rights, powers and privileges shall be exclusive in Assignee, it successors and assigns so long as any part of the Indebtedness remains unpaid; provided, however, Assignee shall not exercise any of its rights or authority as attorney-in-fact prior to the occurrence of an event of default hereunder or under any of the other Loan Documents. As used herein, the term "Indebtedness" shall mean and refer to the principal of and all other amounts, payments and premiums due under the Note and any extensions or renewals thereof (including extensions or renewals at a different rate of interest, whether or not evidenced by a new or additional promissory note or notes), and all other indebtedness of Assignor to Assignee and additional advances under, evidenced by and/or secured by the Loan Documents, plus interest on all such amounts. Indemnity. Assignor shall pay any and all costs and expenses incurred by Assignee in enforcing any rights or remedies under this Assignment, including, without limitation, reasonable attorneys' fees. Assignor shall indemnify, defend, protect and hold Assignee harmless from and against any and all claims, losses, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees) arising out of or resulting from this Assignment, including the exercise or enforcement of any of the rights of Assignee hereunder, and Assignor shall reimburse Assignee on demand for any and all such expenses. Counterparts. This Assignment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original and all of which together shall constitute but one and the same Assignment. Successors and Assigns. The covenants and agreements herein contained shall bind and inure to the benefit of the parties hereto and their successors and assigns, subject, however, to the provisions of the Deed of Trust regarding transfer of the Property by Assignor. Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of Arizona. Limitation on Personal Liabilities. Assignor's liability (i) under the Multistate Note is subject to the terms and conditions set forth in Paragraph 19 of the Multistate Note; (ii) under the Nevada Note is subject to the terms and conditions set forth in Paragraph 19 of the Nevada Note; and (iii) under the Arizona/California Note is subject to the terms and conditions set forth in Paragraph 19 of the Arizona/California Note. IN WITNESS WHEREOF, Assignor has executed this Assignment of Agreements on the day and year first above written. "ASSIGNOR": BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation By: /s/ Scott R. Whitney Scott R. Whitney, Senior Vice President [Printed Name and Title] Witness (other than a Notary Public): /s/ Cindy D. Lynds Name: Cindy D. Lynds [11128.AGRE]I13405 EX-10 4 EXHIBIT 10.16 Bedford Property Investors, Inc. AMENDED AND RESTATED EMPLOYEE STOCK PLAN (formerly the Employee Stock Option Plan, effective May 20, 1985, amended April 15, 1986 and June 9, 1993 and amended and restated effective January 1, 1998) In order to attract and retain the services of qualified individuals for positions of responsibility and to secure for the Company the benefits of the incentives inherent in increased ownership of Common Stock by such individuals, the Company hereby authorizes grants of Stock Options, Stock Appreciation Rights and Restricted Stock to the officers, employees and consultants of the Company and its subsidiaries. Any capitalized term used herein without definition in the section where first used shall have the meaning ascribed to such term in Section 12. 1. Administration. The Committee will be responsible for administering the Plan. The Committee will have authority to adopt such rules as it may deem appropriate to carry out the purposes of the Plan, and shall have authority to interpret and construe the provisions of the Plan and any agreements and notices under the Plan and to make determinations pursuant to any Plan provision. Each interpretation, determination or other action made or taken by the Committee pursuant to the Plan shall be final and binding on all persons. The Committee shall not be liable for any action or determination made in good faith, and shall be entitled to indemnification and reimbursement in the manner provided in the Company's certificate of incorporation and by-laws as such documents may be amended from time to time. The Committee shall have the full power and authority, subject to the express provisions hereof, to select Participants from the Eligible Individuals and to make Awards in accordance with the Plan. 2. Shares Available. Subject to the provisions of Section 9(b) of the Plan, the maximum number of shares of Common Stock which may be issued under the Plan shall not exceed [ ] shares (the "Limit"). Authorized and unissued shares of Common Stock may be delivered pursuant to the Plan. For purposes of determining the number of shares that remain available for issuance under the Plan, the following rules shall apply: (a) the number of Shares subject to outstanding Awards shall be charged against the Limit; and (b) the Limit shall be increased by: (i) the number of shares subject to an Award (or portion thereof) which lapses, expires or is otherwise terminated without the issuance of such shares or is settled by the delivery of consideration other than shares, (ii) the number of shares tendered to pay the exercise price of a Stock Option or other Award, and (iii) the number of shares withheld from any Award or contributed by a Participant to satisfy a Participant's tax withholding obligations. 3. Eligible Individuals3. Eligible Individuals. (a) Eligibility Criteria. Awards may be granted by the Committee to individuals ("Eligible Individuals") who are officers or other employees or consultants of the Company or a Subsidiary with the potential to contribute to the future success of the Company or its Subsidiaries. Members of the Compensation Committee will not be permitted to receive Awards under the Plan. (b) Maximum Number of Shares per Eligible Individual(b) Maximum Number of Shares per Eligible Individual. In accordance with the requirements under Section 162(m) of the Code, no Eligible Individual shall receive grants of Awards with respect to an aggregate of more than 400,000 shares of Common Stock in respect of any fiscal year of the Company. For purposes of the preceding sentence, any Award that is made as bonus compensation, or is made in lieu of compensation that otherwise would be payable to an Eligible Individual, shall be considered made in respect of the fiscal year to which such bonus or other compensation relates or otherwise was earned. 4. Awards Generally. Awards under the Plan may consist of Stock Options, Stock Appreciation Rights and Restricted Stock. The terms and provisions of an Award shall be set forth in a written Award Agreement approved by the Committee and delivered or made available to the Participant as soon as practicable following the date of the Award. The vesting, exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, restrictions on transferability or provision for mandatory resale to the Company) shall be determined by the Committee and set forth in the applicable Award Agreement. Notwithstanding the foregoing, the Committee may accelerate (i) the vesting or payment of any Award, (ii) the lapse of restrictions on any Award or (iii) the date on which any Option or Stock Appreciation Right first becomes exercisable. The date of a Participant's termination of employment for any reason shall be determined in the sole discretion of the Committee. The Committee shall also have full authority to determine and specify in the applicable Award Agreement the effect, if any, that a Participant's termination of employment for any reason will have on the vesting, exercisability, payment or lapse of restrictions applicable to an outstanding Award. 5. Stock Options. Stock Options. (a) Terms of Stock Options Generally. Subject to the terms of the Plan and the applicable Award Agreement, each Stock Option shall entitle the Participant to whom such Stock Option was granted to purchase the number of shares of Common Stock specified in the applicable Award Agreement and shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Agreement. Upon satisfaction of the conditions to exercisability specified in the applicable Award Agreement, a Participant shall be entitled to exercise the Stock Option in whole or in part and to receive, subject to the terms of the Award Agreement, upon satisfaction or payment of the exercise price or an irrevocable notice of exercise in the manner contemplated by Section 5(d) below, the number of shares of Common Stock in respect of which the Stock Option shall have been exercised. Stock Options may be either Nonqualified Stock Options or Incentive Stock Options. (b) Exercise Price. The exercise price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant and set forth in the Award Agreement, provided, that the exercise price per share shall be no less than 85% of the Fair Market Value per share on the date of grant. (c) Option Term. The term of each Stock Option shall be fixed by the Committee and set forth in the Award Agreement; provided, however, that a Stock Option shall not be exercisable after the expiration of ten years after the date the Stock Option is granted. (d) Method of Exercise. Subject to the provisions of the applicable Award Agreement, the exercise price of a Stock Option may be paid (i) by personal check, bank draft or postal or express money order (such modes of payment are collectively referred to as Acash@) payable to the order of the Company in U.S. dollars, (ii) by delivery of previously owned shares of Common Stock, (iii) by a combination thereof and (iv) if the applicable Award Agreement so provides, in whole or in part through the withholding of shares subject to the Stock Option with a value equal to the exercise price. Payment of the exercise price in shares of Common Stock shall be made (i) by delivering to the Company the share certificate(s) representing the required number of shares, with the Participant signing his or her name on the back or by attaching executed stock powers (the signature of the Participant must be guaranteed in either case) or (ii) attesting to ownership of a sufficient number of shares of Common Stock. In addition to the exercise methods described above, a Participant may exercise a Stock Option through a procedure whereby the Participant delivers to the Company an irrevocable notice of exercise in exchange for the Company issuing the shares of Common Stock subject to the Stock Option to a broker previously designated or approved by the Company, subject to such rules and procedures as the Committee may determine (for purposes of such a transaction the value of shares of the Common Stock shall be deemed to equal the Fair Market Value of the Common Stock on the date of exercise of the Stock Option). (e) Limitation on Exercise. No Option shall be exercisable unless the Common Stock subject thereto has been registered under the Securities Act and qualified under applicable state "blue sky" laws in connection with the offer and sale thereof, or the Company has determined that an exemption from registration under the Securities Act and from qualification under such state "blue sky" laws is available. (f) Issuance of Shares. Subject to the foregoing conditions and the terms of the applicable Award Agreement, as soon as reasonably practicable after its receipt of a proper notice of exercise and payment of the exercise price of the Stock Option for the number of shares with respect to which the Stock Option is exercised, the Company shall deliver to the Participant, at the principal office of the Company or at such other location as may be acceptable to the Company and the Participant, one or more stock certificates for the appropriate number of shares of Common Stock issued in connection with such exercise. Shares sold in connection with a broker-assisted Acashless exercise@ shall be delivered to the broker designated or appointed by the Company in the time and manner described in Section 5(d) above. Any such shares shall be fully paid and nonassessable. 6. Stock Appreciation Rights. Stock Appreciation Rights shall be subject to the terms and conditions established by the Committee in connection with the Award thereof and specified in the applicable Award Agreement. Upon satisfaction of the conditions to the payment specified in the applicable Award Agreement, each Stock Appreciation Right shall entitle a Participant to an amount, if any, equal to the Fair Market Value of a share of Common Stock on the date of exercise over the Stock Appreciation Right exercise price specified in the applicable Award Agreement. At the discretion of the Committee, payments to a Participant upon exercise of a Stock Appreciation Right may be made in Shares, cash or a combination thereof. A Stock Appreciation Right may be granted alone or in addition to other Awards, or in tandem with a Stock Option. If granted in tandem with a Stock Option, a Stock Appreciation Right shall cover the same number of shares of Common Stock as covered by the Stock Option (or such lesser number of shares as the Committee may determine) and shall be exercisable only at such time or times and to the extent the related Stock Option shall be exercisable, and shall have the same term and exercise price as the related Stock Option. Upon exercise of a Stock Appreciation Right granted in tandem with a Stock Option, the related Stock Option shall be cancelled automatically to the extent of the number of shares covered by such exercise; conversely, if the related Stock option is exercised as to some or all of the shares covered by the tandem grant, the tandem Stock Appreciation Right shall be cancelled automatically to the extent of the number of shares covered by the Stock Option exercise. 7. Restricted Stock Awards. (a) Grant of Awards. The Committee may grant Restricted Stock under the Plan in such amounts and subject to such terms and conditions as the Committee shall from time to time in its sole discretion determine. The vesting of Restricted Stock granted under the Plan may be conditioned upon the completion of a specified period of employment with the Company or any Affiliate, upon the attainment of specified performance goals, and/or upon such other criteria as the Committee may determine in its sole discretion. (b) Payment. Each Award Agreement with respect to a grant of Restricted Stock shall set forth the amount (if any) to be paid by the grantee with respect to such award. If a grantee makes any payment for Restricted Stock which does not vest, appropriate payment may be made to the grantee following the forfeiture of such award on such terms and conditions as the Committee may determine. (c) Forfeiture upon Termination of Employment. Each Award Agreement with respect to a grant of Restricted Stock award shall set forth such terms and conditions as the Committee may determine regarding the vesting and forfeiture of Restricted Stock. (d) Issuance of Shares. The Committee may provide that one or more certificates representing Restricted Stock shall be registered in the grantee's name and bear an appropriate legend specifying that such shares are not transferable and are subject to the terms and conditions of the Plan and the applicable Plan agreement, or that such certificate or certificates shall be held in escrow by the Company on behalf of the grantee until such shares vest or are forfeited, all on such terms and conditions as the Committee may determine. Unless the applicable Award Agreement otherwise provides, no Restricted Stock may be assigned, transferred, otherwise encumbered or disposed of by the grantee until such Restricted Stock has vested in accordance with the terms of such award. Subject to the provisions of Section 11(d), as soon as practicable after any Restricted Stock vests, the Company shall issue or reissue to the grantee (or to the grantee's estate in the event of the grantee's death) one or more certificates for the Common Stock represented by such Award. 8. Change in Control. Anything in the Plan to the contrary notwithstanding, in the event of a Change in Control of the Company, any Awards outstanding as of the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; provided, however, that if the Committee shall receive an opinion from a nationally recognized firm of accountants to the Company that the accelerated vesting of some or all of the Awards will prohibit the utilization of "pooling of interests" accounting in connection with the transaction resulting in the Change in Control of the Company, then such Awards shall not become fully exercisable and vested upon the Change in Control. 9. Recapitalization or Reorganization (a) Authority of the Company and Stockholders. The existence of the Plan shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Change in Capitalization. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or exchange of shares (a "Change in Capitalization"), (i) such proportionate adjustments as may be necessary (in the form determined by the Committee in its sole discretion) to reflect such change shall be made to prevent dilution or enlargement of the rights of Participants under the Plan with respect to the aggregate number of shares of Common Stock authorized to be awarded under the Plan, the number of shares of Common Stock covered by each outstanding Option and the exercise prices in respect thereof and the number of shares of Common Stock covered by future Option grants and (ii) the Committee may make such other adjustments, consistent with the foregoing, as it deems appropriate in its sole discretion. (c) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each outstanding Award will vest and become exercisable on a date prior to the consummation of the proposed action that is reasonably sufficient to enable the Participants to exercise their Awards. 10. Termination and Amendment of the Plan (a) Termination. The Plan shall terminate upon the first to occur of (i) the adoption of a resolution of the Board terminating the Plan or (ii) April 30, 2003 (the ATermination Date@). Following the Termination Date, no further grants of Awards shall be made pursuant to the Plan. (b) General Power of Board. Notwithstanding anything herein to the contrary, the Board may at any time and from time to time terminate, modify, suspend or amend the Plan in whole or in part; provided, however, that no such termination, modification, suspension or amendment shall be effective without stockholder approval if such approval is required to comply with any applicable law or stock exchange rule; and provided further that the Board may not, without stockholder approval, increase the maximum number of shares issuable under the Plan except as provided in Section 9(b) above. (c) When Participants= Consents Required. The Board may not alter, amend, suspend, or terminate the Plan without the consent of any Participant to the extent that such action would adversely affect his or her rights with respect to Awards that have previously been granted. 11. Miscellaneous (a) No Right to Grants or Employment. No Eligible Individual or Participant shall have any claim or right to receive grants of Awards under the Plan. Nothing in the Plan or in any Award or Award Agreement shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time, with or without cause. (b) Unfunded Plan. The Plan is intended to constitute an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or payments in lieu thereof with respect to awards hereunder. (c) Other Employee Benefit Plans. Payments received by a Participant under any Award made pursuant to the provisions of the Plan shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan or similar arrangement provided by the Company. (d) Securities Law Restrictions. The Committee may require each Participant purchasing or acquiring shares of Common Stock pursuant to the Plan to agree with the Company in writing that such Participant is acquiring the shares for investment and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission or the New York Stock Exchange and any other exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws. (e) Expenses. The costs and expenses of administering the Plan shall be borne by the Company. (f) Tax Withholding. Where applicable, upon the exercise or vesting of an Award, the Company shall be entitled to require as a condition to delivery of Common Stock or cash that a Participant remit, or, in appropriate cases, agree to remit when due, an amount sufficient to satisfy all federal, state and local withholding and employment tax requirements relating to such exercise or vesting. A Participant will be entitled to elect to have the Company withhold from the Common Stock to be delivered upon the exercise or vesting of an Award, or to elect to deliver to the Company from shares of Common Stock owned separately by the Participant, a sufficient number of such shares of Common Stock to satisfy the federal, state and local withholding and employment tax obligations relating to the Participant's exercise of the Award or the Award's vesting (and the Company's withholding obligations) to the extent permitted under rules and regulations adopted by the Committee and in effect at the time of such exercise or vesting. In such case, the Common Stock withheld or the Common Stock surrendered will be valued at the Fair Market Value on the date of exercise or vesting determined in accordance with the Plan. (g) Loans. On such terms and conditions as shall be approved by the Committee, the Company may directly or indirectly lend money to a Participant to accomplish the purposes of the Plan, including to assist such Participant to acquire or carry shares of Common Stock acquired upon the exercise of Stock Options granted hereunder, and the Committee may also separately lend money to any Participant to pay taxes with respect to any of the transactions contemplated by the Plan. (h) Stockholder Rights. A Participant shall have no rights as a stockholder with respect to any shares of Common Stock issuable upon exercise of a Stock Option or a Stock Appreciation Right until a certificate evidencing such shares shall have been issued to the Participant, and no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date upon which the Participant shall become the holder of record thereof. (i) Compliance with Rule 16b-3. (i) The Plan is intended to comply with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Award Agreement in a manner consistent therewith. To the extent any provision of the Plan or Award Agreement or any action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan or an Award Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of Awards) shall be deemed automatically to be incorporated by reference into the Plan or such Award Agreement insofar as Participants subject to Section 16 of the Exchange Act are concerned. (ii) Notwithstanding anything contained in the Plan or any Award Agreement to the contrary, if the consummation of any transaction under the Plan would result in the possible imposition of liability on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee shall have the right, in its sole discretion, but shall not be obligated, to defer such transaction to the extent necessary to avoid such liability. (j) Award Agreement. In the event of any conflict or inconsistency between the Plan and any Award Agreement, the Plan shall govern, and the Award Agreement shall be interpreted to minimize or eliminate any such conflict or inconsistency. (k) Governing Law. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Maryland without giving effect to conflicts of law principles. 12. Definitions. "Annual Meeting" means an annual meeting of the Company's stockholders. "Award" means an award made pursuant to the terms of the Plan to an Eligible Individual in the form of Stock Options, Stock Appreciation Rights or Restricted Stock (including all grants of Restricted Stock made by the Company during calendar year 1997). "Award Agreement" means a written agreement or certificate granting an Award. An Award Agreement shall be executed by an officer on behalf of the Company and shall contain such terms and conditions as the Committee deems appropriate and that are not inconsistent with the terms of the Plan. The Committee may in its discretion require that an Award Agreement be executed by the Participant to whom the relevant Award is made. "Board" means the Board of Directors of the Company. "Change in Control" shall mean the occurrence of any of the following: (i) any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act (other than (A) AEW Capital Management, (B) the Company or any of its subsidiaries or (C) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least three-fourths (:) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company, in each case with respect to which the stockholders of the Company immediately prior to such transaction do not, immediately after such transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such transaction; or (iv) all or substantially all of the assets of the Company are sold, liquidated or distributed. "Code" means the Internal Revenue Code of 1986, as amended, and the applicable rules and regulations promulgated thereunder. "Committee" means the Compensation Committee of the Board, any successor committee thereto or any other committee appointed by the Board to administer the Plan. "Common Stock" means the common stock of the Company, par value $0.02 per share. "Company" means Bedford Property Investors, Inc., a Maryland corporation, or any successor to substantially all of its business. "Effective Date" shall mean January 1, 1998. "Eligible Individuals" means the individuals described in Section 3 who are eligible for Awards under the Plan. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations promulgated thereunder. "Fair Market Value" means the value of Common Stock determined as follows: (i) If the Common Stock is listed on the New York Stock Exchange or any other established stock exchange or a national market system (including without limitation the Nasdaq National Market), its Fair Market Value shall be the mean between the high and low sales prices for such stock or the closing bid if no sales were reported, as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Common Stock) for the date of determination or, if the date of determination is not a trading day, the immediately preceding trading day, as reported in The Wall Street Journal or such other source as the Committee deems reliable. (ii) If the Common Stock is regularly quoted on the Nasdaq system (but not on the Nasdaq National Market) or quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock on the date of determination or, if there are no quoted prices on the date of determination, on the last day on which there are quoted prices prior to the date of determination. (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. "Incentive Stock Option" means a Stock Option which is an "incentive stock option" within the meaning of Section 422 of the Code and designated by the Committee as an Incentive Stock Option in an Award Agreement. "Nonqualified Stock Option" means a Stock Option which is not an Incentive Stock Option. "Participant" means an Eligible Individual to whom an Award has been granted under the Plan. "Plan" means the Bedford Property Investors, Inc. Amended and Restated Employee Stock Plan. "Restricted Stock" means an Award to receive a specified number of shares of Common Stock granted to an Eligible Individual pursuant to Section 7 hereof. "Stock Appreciation Right" means an Award to receive all or some portion of the appreciation on shares of Common Stock granted to an Eligible Individual pursuant to Section 6 hereof. "Stock Option" means an Award to purchase shares of Common Stock granted to an Eligible Individual pursuant to Section 5 hereof. "Subsidiary" means any corporation which is a "subsidiary corporation" within the meaning of Section 424(f) of the Code with respect to the Company. 13. Effective Date. The amendments to the Plan set forth herein by restatement shall be effective as of the Effective Date, subject to the approval thereof by the stockholders of the Company by no later than the next Annual Meeting to occur after the Effective Date. If such stockholder approval is not obtained on or before the date of such Annual Meeting, the amendments to the Plan herein shall be void ab initio. EX-10 5 EXHIBIT 10.17 NONQUALIFIED STOCK OPTION AGREEMENT (this "agreement") dated as of the Date of Grant (as defined below) between BEDFORD PROPERTY INVESTORS, INC., a Maryland corporation (the "Company"), and the other party signatory hereto (the "Participant"). WHEREAS, the Participant is currently an employee or consultant of the Company and, pursuant to the Company's Amended and Restated Employee Stock Plan (the "Plan") and upon the terms and subject to the conditions hereinafter set forth, the Company desires to provide the Participant with an incentive to remain in its service and to increase his or her interest in the success of the Company by granting to the Participant a nonqualified stock option (the "Stock Option") to purchase shares of common stock, par value $0.02 per share, of the Company (the "Common Stock"); NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows: 1. Definitions; Incorporation of Plan Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Plan, a copy of which is attached hereto. This Agreement and the Stock Option shall be subject to the Plan, the terms of which are hereby incorporated herein by reference, and in the event of any conflict or inconsistency between the Plan and this Agreement, the Plan shall govern. The date of grant of the Stock Option shall be the date specified at the foot of the signature page hereof. 2. Grant of Stock Option. Subject to the terms and conditions contained herein and in the Plan, the Company hereby grants the Stock Option to the Participant. The Stock Option granted hereunder is not intended to qualify as, and shall not be treated as, an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Set forth at the foot of the signature hereof are (i) the number of shares of Common Stock underlying the Stock Option, (ii) the per share exercise price of the Stock Option and (iii) the date of grant of the Stock Option (the "Date of Grant"). 3. Terms and Conditions of Stock Option. The Stock Option evidenced hereby is subject to the following terms and conditions: (a) Vesting. The Stock Option awarded hereunder shall vest and become exercisable as follows: Anniversary of Date of Grant Amount Vesting on Anniversary Date Cumulative Amount Vested as of Anniversary Date First 25% 25% Second 25% 50% Third 25% 75% Fourth 25% 100% (b) Stock Option Period. The Stock Option shall expire ten years from the Date of Grant, subject to earlier termination as pro vided herein and in the Plan. (c) Exercise Following Death of Participant. (i) Upon termination of the Participant's employment or consulting relationship with the Company by reason of the Participant's death, the Stock Option, to the extent exercisable at such time, may be exercised by the Participant's Beneficiary at any time within one year after the date of such termination of employment, subject to the earlier expiration of the Stock Option as provided for in Section 3(b); provided, that any portion of the Stock Option not exercised within such one-year period shall expire at the end of such period. Any portion of the Stock Option that is not exercisable at the date of termination of employment shall expire on such date. (ii) In the event of the Participant's death during the first three months of the period during which the Participant may exercise the Stock Option following his or her termination of employment or consulting relationship as provided in Sections 3(d) and 3(e) (the "Post-Termination Exercise Period"), the Stock Option, to the extent exercisable at such time, may be exercised by the Participant's Beneficiary at any time within one year after the Participant's death, subject to the earlier expiration of such Stock Option as provided for in Section 3(b); provided, that any portion of the Stock Option not exercised within such one-year period shall expire at the end of such period. (d) Exercise Following Termination Due to Disability. Upon termination of the Participant's employment or consulting relationship with the Company by reason of a condition that entitles the Participant to benefits under the Company's long- term disability plan (a "Disability"), the Stock Option, to the extent exercisable at such time, may be exercised by the Participant at any time within one year after the date of such termination of employment or consulting relationship, subject to the earlier expiration of such Stock Option as provided for in Section 3(b); provided, that any portion of the Stock Option not exercised within such one-year period shall expire at the end of such period. Any portion of the Stock Option that is not exercisable at the date of termination of employment shall expire on such date. (e) Exercise Following Other Terminations. Upon termination of the Participant's employment or consulting relationship with the Company other than by reason of the Participant's death or Disability or the termination of the Participant's employment or consulting relationship for Cause, the Stock Option, to the extent exercisable at such time, may be exercised by the Participant at any time within three months after the date of such termination of employment, subject to the earlier expiration of such Stock Option as provided for in Section 3(b); provided, that any portion of the Stock Option not exercised within such three-month period shall expire at the end of such period. Any portion of the Stock Option that is not exercisable at the date of termination of employment shall expire on such date. (f) Termination for Cause. Upon termination of the Participant's employment or consulting relationship with the Company for Cause, the entire Stock Option, whether vested or unvested, shall immediately expire and be forfeited. For purposes of this Agreement, ACause@ shall mean a willful act by the Participant in contravention of the interests of the Company as determined in the sole discretion of the Committee. (g) Notice of Exercise. Subject to the other terms and conditions hereof and in the Plan, the Participant may exercise the Stock Option, to the extent vested and exercisable, by giving written notice of exercise to the Company; provided, however, that in no event shall the Stock Option be exercisable for a fractional share. (h) Method of Exercise. The exercise price of a Stock Option may be paid (i) by personal check, bank draft or postal or express money order (such modes of payment are collectively referred to as "cash") payable to the order of the Company in U.S. dollars, (ii) by delivery of previously owned shares of Common Stock and (iii) by a combination thereof. Payment of the exercise price in shares of Common Stock shall be made (i) by delivering to the Company the share certificate(s) representing the required number of shares, with the Participant signing his or her name on the back or by attaching executed stock powers (the signature of the Participant must be guaranteed in either case) or (ii) attesting to ownership of a sufficient number of shares of Common Stock. In addition to the exercise methods described above, the Participant may exercise a Stock Option through a procedure whereby the Participant delivers to the Company an irrevocable notice of exercise in exchange for the Company issuing the shares of Common Stock subject to the Stock Option to a broker previously designated or approved by the Company, subject to such rules and procedures as the Committee may determine (for purposes of such a transaction the value of shares of the Common Stock shall be deemed to equal the Fair Market Value of the Common Stock on the date of exercise of the Stock Option). (i) Limitation on Exercise. The Stock Option shall not be exercisable unless the Common Stock subject thereto has been registered under the Securities Act and qualified under applicable state "blue sky" laws in connection with the offer and sale thereof, or the Company has determined that an exemption from registration under the Securities Act and from qualification under such state "blue sky" laws is available. (j) Stockholder Rights. The Participant shall have no rights as a stockholder with respect to any shares of Common Stock issuable upon exercise of the Stock Option until a certificate evidencing such shares shall have been issued to the Participant, and no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date upon which the Participant shall become the holder of record thereof. (k) Deferral of Profit Shares. The Participant may elect to defer receipt of the shares of Common Stock otherwise deliverable upon exercise of the Stock Option. An election to defer such delivery shall be irrevocable and shall be made in writing on a stock option deferral election form prescribed by the Committee at least six months prior to exercise. If the Participant exercises the Stock Option at any time after delivery of the stock option deferral election form by tendering previously-owned shares of Common Stock, a deferred compensation account established by the Company for the Participant will be credited with a number of phantom stock units equal to the number of shares of Common Stock for which delivery is deferred. Phantom stock units shall be paid by delivery of one share of Common Stock for each phantom stock unit in accordance with the timing and manner of payment elected by the Participant on his or her stock option deferral election form filed with the Company in connection with the Participant's first such deferral. In the event of a Change in Control, phantom stock units credited to the Participant's deferred compensation account shall be paid to the Participant by delivery of shares of Common Stock on or prior to the date of the Change in Control. Dividend equivalents will be paid on the phantom stock units by crediting the Participant's deferred compensation account with additional phantom stock units in accordance with such rules as the Committee shall adopt from time to time. (l) Issuance of Shares. Subject to the foregoing conditions and the terms of the Plan, as soon as reasonably practicable after its receipt of a proper notice of exercise and payment of the exercise price of the Stock Option for the number of shares with respect to which the Stock Option is exercised, the Company shall deliver to the Participant (or following the Participant's death, the Beneficiary entitled to exercise the Stock Option), at the principal office of the Company or at such other location as may be acceptable to the Company and the Participant (or such Beneficiary), one or more stock certificates for the appropriate number of shares of Common Stock issued in connection with such exercise. (m) Transferability. The Stock Option may, with the approval of the Committee, be transferred to one or more members of the Participant's immediate family (as defined in the Plan) or to one or more trusts or partnerships established in whole or in part for the benefit of one or more of such immediate family members (collectively, "Permitted Transferees"), subject to such rules and procedures as may from time to time be adopted or imposed by the Committee. If the Stock Option is transferred to a Permitted Transferee, it shall be further transferable only by will or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant. The Participant shall notify the Company in writing prior to any proposed transfer of the Stock Option to a Permitted Transferee and shall furnish the Company, upon request, with information concerning such Permitted Transferee's financial condition and investment experience. (n) Tax Withholding. Upon the exercise of the Stock Option, the Participant shall remit an amount sufficient to satisfy all federal, state and local withholding and employment tax requirements relating to such exercise. The Participant may elect to have the Company withhold from the Common Stock to be delivered upon the exercise of the Stock Option, or to elect to deliver to the Company from shares of Common Stock owned separately by the Participant, a sufficient number of such shares of Common Stock to satisfy the federal, state and local withholding tax obligations relating to the Participant's exercise of the Stock Option (and the Company's withholding obligations) to the extent permitted under rules and regulations adopted by the Committee and in effect at the time of such exercise. The Common Stock withheld or the Common Stock surrendered will be valued at the Fair Market Value on the date of exercise determined in accordance with the Plan. 4. Accelerated Vesting. (a) Change in Control. In the event of a Change in Control of the Company, the Stock Option, if not yet vested and exercisable on such date, shall become fully vested and exercisable; provided, however, that if the Committee shall receive an opinion from a nationally recognized firm of accountants to the Company that the accelerated vesting of the Stock Option will prohibit the utilization of "pooling of interests" accounting in connection with the transaction resulting in the Change in Control of the Company, then the Stock Option shall not become fully vested and exercisable upon the Change in Control. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Stock Option will vest and become exercisable on a date prior to the consummation of the proposed action that is reasonably sufficient to enable the Participant to exercise the Stock Option. 5. No Restriction on Right of Company to Effect Corporate Changes. This Agreement shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issuance of stock or of stock options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 6. Survival; Assignment. Reference in this Agreement to either party shall be deemed to include the heirs and permitted successors and assigns of such party; and all agreements herein by or on behalf of the Participant shall bind and inure to the benefit of the heirs and permitted successors and assigns of such parties hereto. The Participant agrees to cause any future spouse of his or hers to deliver to the Company a consent in the form of the consent set forth in Exhibit A hereto validly executed by such spouse promptly after any such person becomes his or her spouse. 7. No Right to Employment. Nothing herein shall confer upon the Participant any right to continued employment or a continued consulting relationship with the Company, or interfere with the right of the Company to terminate the employment or consulting relationship of the Participant at any time and for any reason. 8. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or sent by certified or registered mail, return receipt requested, postage prepaid, addressed, if to the Participant, to his or her attention at the mailing address set forth at the foot of the signature page of this Agreement (or to such other address as the Participant shall have specified to the Company in writing) and, if to the Company, to Bedford Property Investors, Inc., 270 Lafayette Circle, Lafayette, California 94549, Attention: Secretary. All such notices shall be conclusively deemed to be received and shall be effective, if sent by hand delivery, upon receipt, or if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed. 9. Waiver. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement. 10. Headings. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same agreement. The headings of sections and subsections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of this Agreement. 11. Governing Law. This Agreement shall shall be governed by and construed in accordance with the laws of the Maryland without giving effect to conflicts of law principles. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Participant has executed this Agreement, both as of the day and year first above written. BEDFORD PROPERTY INVESTORS, INC. By: Name: Title: PARTICIPANT Name: Address: Number of Shares Underlying Stock Option: Exercise Price: $ Date of Grant: EXHIBIT A Consent of Spouse The undersigned, as the spouse of the Participant who is the signatory to the foregoing Agreement, (a) hereby consents to, confirms and ratifies any sale by such Participant of any Stock Option or shares of Common Stock acquired upon exercise of any such Stock Option contemplated by the foregoing Agreement and for purposes of any community property laws and all other laws conveys all of his or her right, title and interest in and to such Stock Option and such shares of Common Stock to the purchaser of such Stock Option and such shares of Common Stock and (b) agrees to be bound by all of the Participant's obligations under the foregoing Agreement. EX-10 6 EXHIBIT 10.18 Bedford Property Investors, Inc. AMENDED AND RESTATED 1992 DIRECTORS STOCK OPTION PLAN (effective May 20, 1992, amended September 13, 1995 and May 16, 1996 and amended and restated effective September 4, 1997) In order to attract and retain the services of qualified individuals to serve as members of the Board and to secure for the Company the benefits of the incentives inherent in increased ownership of Common Stock by such individuals, the Company hereby authorizes (i) grants to such individuals of Options and (ii) deferrals by such individuals who are not employees of the Company of a portion of their Director's Fees in accordance with the terms and conditions set forth herein. Any capitalized term used herein without definition in the section where first used shall have the meaning ascribed to such term in Section 10. 1. Administration. The Administrator will be responsible for administering the Plan. The Administrator will have authority to adopt such rules as it may deem appropriate to carry out the purposes of the Plan, and shall have authority to interpret and construe the provisions of the Plan and any agreements and notices under the Plan and to make determinations pursuant to any Plan provision. Each interpretation, determination or other action made or taken by the Administrator pursuant to the Plan shall be final and binding on all persons. The Administrator shall not be liable for any action or determination made in good faith, and shall be entitled to indemnification and reimbursement in the manner provided in the Company's certificate of incorporation and by-laws as such documents may be amended from time to time. 2. Shares Available. Subject to the provisions of Section 7(b) of the Plan, the maximum number of shares of Common Stock which may be issued under the Plan shall not exceed 500,000 shares (the "Limit"). Either authorized and unissued shares of Common Stock or treasury shares may be delivered pursuant to the Plan. For purposes of determining the number of shares that remain available for issuance under the Plan, the following rules shall apply: (a) the number of outstanding Phantom Stock Units and shares of Common Stock underlying Options shall be charged against the Limit; and (b) the Limit shall be increased by: (i) the number of shares subject to an Option which lapses, expires or is otherwise terminated without the issuance of such shares, (ii) the number of shares tendered to pay the exercise price of an Option, and (iii) the number of shares withheld from the shares deliverable upon exercise of an Option or contributed by a Director to satisfy a Director's tax withholding obligations, if any. 3. Options. Each Director shall receive grants of Options under the Plan as follows: (a) Option Grants. (i) Initial Grant. On the date of a Director's initial election or appointment to the Board, such Director (including any Director reelected or reappointed after a period of at least 12 calendar months during which he did not serve on the Board) shall be granted, subject to Section 3(a)(iii), an Option to purchase 25,000 shares of Common Stock. Such Option shall have a per share exercise price equal to the Fair Market Value of the Common Stock determined as of the date of grant and shall be subject to the vesting schedule provided for in Section 3(b) and the other terms and conditions provided for herein. (ii) Annual Grants. At each Annual Meeting during the term of the Plan, each individual who has continuously served as a Director for a period ending on the date of such Annual Meeting and who is reelected at such Annual Meeting or who will otherwise continue to serve on the Board following such Annual Meeting will receive, subject to Section 3(a)(iii), an Option to purchase 10,000 shares of Common Stock. The Option shall have a per share exercise price equal to the Fair Market Value of the Common Stock determined as of the date of grant and shall be subject to the vesting schedule provided for in Section 3(b) and the other terms and conditions provided for herein. (iii) Insufficient Shares. If the number of shares underlying Options to be granted under Section 3(a)(i) or 3(a)(ii) exceeds the Limit, each Director to be granted an Option at such time shall receive a pro rata grant determined by multiplying (A) the number of shares underlying the Option which the Director would have been granted at such time had the number of shares available for grant under the Plan been sufficient by (B) a fraction, the numerator of which equals the Limit at such time and the denominator of which equals the total number of shares underlying Options which all Directors would have been granted had the number of shares available for grant under the Plan been sufficient. (b) Vesting Schedule of Options. Options awarded pursuant to the Plan shall vest and become exercisable on the date that is six months from the date of grant (the "Vesting Date") of the Option. (c) Term of Options. (i) Ten-Year Term. Each Option shall expire ten years from its date of grant, subject to earlier termination as provided herein. (ii) Exercise Following Termination of Service Due to Death. If a Director ceases to be a member of the Board by reason of such Director's death, the Options granted to such Director that are then exercisable may be exercised by such Director's Beneficiary at any time within one year after the date of such termination of service, subject to the earlier expiration of such Options as provided for in Section 3(c)(i) above. At the end of such one-year period, the exercisable Options shall expire. Options that are not exercisable at the date of termination of service shall expire on such date. (iii) Exercise Following Termination of Service Due to Disability. If a Director ceases to be a member of the Board by reason of such Director's Disability, the Options granted to such Director that are then exercisable may be exercised by the Director at any time within one year after the date of such termination of service, subject to the earlier expiration of such Options as provided for in Section 3(c)(i) above. At the end of such one-year period, the exercisable Options shall expire. Options that are not exercisable at the date of termination of service shall expire on such date. (iv) Exercise Following Other Terminations of Service. If a Director ceases to be a member of the Board for any reason other than death or Disability, then the Director shall have the right, subject to the terms and conditions hereof, to exercise the Option, at any time within three months after the date of such termination, subject to the earlier expiration of the Option as provided for in Section 3(c)(i) above, but only to the extent that such Option was exercisable by the Director on the date of such termination of service; provided, however, that in the event that a Director is also an employee of the Company or becomes an employee upon ceasing to be a member of the Board, the Option shall vest and become exercisable in accordance with its terms and conditions and shall remain exercisable for a period of three months after such individual=s employment with the Company terminates for any reason. Except as provided in the previous sentence, the unvested portion of the Option shall expire on the date of the Director's termination of service with the Board. At the end of such three-month period, the exercisable Options shall expire. (d) Time and Manner of Exercise of Options. (i) Notice of Exercise. Subject to the other terms and conditions hereof, a Director may exercise any Options, to the extent such Options are vested, by giving written notice of exercise to the Company; provided, however, that in no event shall an Option be exercisable for a fractional share. The date of exercise of an Option shall be the later of (A) the date on which the Company receives such written notice and (B) the date on which the conditions provided in Section 3(d)(ii) are satisfied. (ii) Payment. Subject to the last sentence of this Section 3(d)(ii), prior to the issuance of a certificate pursuant to Section 3(d)(v) hereof evidencing the shares of Common Stock in respect of which all or a portion of an Option shall have been exercised, a Director shall have paid to the Company the exercise price of the Option for all such shares purchased pursuant to the exercise of such Option. Payment may be made by personal check, bank draft or postal or express money order (such modes of payment are collectively referred to as "cash") payable to the order of the Company in U.S. dollars, or in shares of Common Stock already owned by the Director for at least six months at the time of exercise valued at their Fair Market Value as of the last business day preceding the date of exercise, or in a combination of cash and shares. Payment of the exercise price in shares of Common Stock shall be made (i) by delivering to the Company the share certificate(s) representing the required number of shares, with the Director signing his or her name on the back or by attaching executed stock powers (the signature of the Director must be guaranteed in either case) or (ii) attesting to ownership of a sufficient number of shares of Common Stock. In addition to the exercise methods described above, a Director may exercise an Option through a procedure whereby the Director delivers to the Company an irrevocable notice of exercise in exchange for the Company issuing the shares of Common Stock subject to the Option to a broker previously designated or approved by the Company, subject to such rules and procedures as the Administrator may determine (for purposes of such a transaction the value of shares of the Common Stock shall be deemed to equal the Fair Market Value of the Common Stock on the date of exercise of the Option). (iii) Stockholder Rights. A Director shall have no rights as a stockholder with respect to any shares of Common Stock issuable upon exercise of an Option until a certificate evidencing such shares shall have been issued to the Director pursuant to Section 3(d)(v), and no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date upon which the Director shall become the holder of record thereof. (iv) Limitation on Exercise. No Option shall be exercisable unless the Common Stock subject thereto has been registered under the Securities Act and qualified under applicable state "blue sky" laws in connection with the offer and sale thereof, or the Company has determined that an exemption from registration under the Securities Act and from qualification under such state "blue sky" laws is available. (v) Issuance of Shares. Subject to the foregoing conditions and Section 3(d)(vi), as soon as reasonably practicable after its receipt of a proper notice of exercise and payment of the exercise price of the Option for the number of shares with respect to which the Option is exercised, the Company shall deliver to the Director (or following the Director's death, the Beneficiary entitled to exercise the Option), at the principal office of the Company or at such other location as may be acceptable to the Company and the Director (or such Beneficiary), one or more stock certificates for the appropriate number of shares of Common Stock issued in connection with such exercise. Shares sold in connection with a broker-assisted Acashless exercise@ shall be delivered to the broker designated or appointed by the Company in the time and manner described in Section 3(d)(ii) above. Any such shares shall be fully paid and nonassessable. (vi) Deferral of Profit Shares. Directors may elect to defer receipt of shares of Common Stock otherwise deliverable upon exercise of an Option. An election to defer such delivery shall be irrevocable and shall be made in writing on a form (the "Option Deferral Election Form") acceptable to the Company at least six months prior to exercise. If a Director exercises an Option at any time after delivery of an Option Deferral Election Form with respect to such Option by tendering previously-owned shares of Common Stock, the Director's Deferred Compensation Account will be credited with a number of Phantom Stock Units equal to the number of shares of Common Stock for which delivery is deferred. Phantom Stock Units shall be paid by delivery of shares of Common Stock in accordance with the timing and manner of payment elected by the Director on his or her first Deferral Election Form filed in accordance with Section 4, or, if no such election form has previously been filed by the Director, then in accordance with the timing and manner of payment elected by the Director on such Option Deferral Election Form. (vii) Tax Withholding. Where applicable, upon the exercise of the Option (or upon settlement of Phantom Stock Units), the Company shall be entitled to require as a condition of delivery of Common Stock that a Director remit, or, in appropriate cases, agree to remit when due, an amount sufficient to satisfy all federal, state and local withholding and employment tax requirements relating to such exercise. A Director will be entitled to elect to have the Company withhold from the Common Stock to be delivered upon the exercise of the Option, or to elect to deliver to the Company from shares of Common Stock owned separately by the Director, a sufficient number of such shares of Common Stock to satisfy the federal, state and local withholding and employment tax obligations relating to the Director's exercise of the Option (and the Company's withholding obligations) to the extent, if any, permitted under rules and regulations adopted by the Administrator and in effect at the time of such exercise. In such case, the Common Stock withheld or the Common Stock surrendered will be valued at the Fair Market Value on the date of exercise determined in accordance with the Plan. (e) Transferability of Options. Options may not be transferred, pledged, assigned or otherwise disposed of except by will or the laws of descent and distribution; provided, however, that Options may be, with the approval of the Administrator, transferred to a member or members of a Director's immediate family (as defined below) or to one or more trusts or partnerships established in whole or in part for the benefit of one or more of such immediate family members (collectively, "Permitted Transferees"), subject to such rules and procedures as may from time to time be adopted or imposed by the Administrator. If an Option is transferred to a Permitted Transferee, it shall be further transferable only by will or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Director. A Director shall notify the Company in writing prior to any proposed transfer of an Option to a Permitted Transferee and shall furnish the Company, upon request, with information concerning such Permitted Transferee's financial condition and investment experience. For purposes of the Plan, a Director's "immediate family" means any child, stepchild, grandchild, spouse, son-in-law or daughter-in-law and shall include adoptive relationships; provided, however, that if the Company adopts a different definition of "immediate family" (or similar term) in connection with the transferability of employee stock options awarded to employees of the Company, such definition shall apply, without further action by the Board, to the Plan. 4. Deferral of Director's Fees. (a) Deferral Elections. (i) General Provisions. Directors may elect to defer all or a specified percentage of their Director's Fees with respect to a Deferral Period in the manner provided in this Section 4. A Director's Deferred Benefit is at all times nonforfeitable. (ii) Deferral Election Forms. Before the Election Date applicable to a Deferral Period, each Director will be provided with a Deferral Election Form and a Beneficiary Designation Form (which may, in the discretion of the Administrator, be combined in one form). In order for a Director to participate in the deferral portion of the Plan for a given Deferral Period, a Deferral Election Form, completed and signed by him, must be delivered to the Company on or prior to the applicable Election Date. A Director electing to participate in the Plan for a given Deferral Period shall indicate on his Deferral Election Form: (A) the percentage of the Director's Fees for the Deferral Period to be deferred; (B) if the Deferral Election Form is the first such form filed by the Director, the Director's election, in accordance with Sections 4(f) and 4(g), as to the timing and manner of payment of the Deferred Benefits. A Director's election as to the timing and manner of payment of Deferred Benefits in the initial Deferral Election Form shall govern the timing and manner of payment of all subsequent deferrals under the Plan and may not be changed or revoked; and (C) whether amounts deferred for the Deferral Period will be credited to the Deferred Compensation Account as Phantom Stock Units in accordance with Section 4(b) below or Phantom Cash Amounts in accordance with Section 4(c) below. A Director's election as to the method of crediting deferred amounts for a given Deferral Period may not be subsequently changed or revoked. Director's Fees for a given Deferral Period may be deferred in part in Phantom Cash Amounts and in part in Phantom Stock Units. Any such allocation shall be in multiples of 10% (not to exceed 100%) of the amounts deferred. (iii) Effect of No Deferral Election. A Director who does not submit a completed and signed Deferral Election Form to the Company on or prior to the applicable Election Date may not defer his Director's Fees for the Deferral Period. However, a Director's Deferral Election Form filed for one Deferral Period shall be effective for subsequent Deferral Periods if not otherwise revoked by the Director. (b) Establishment of Deferred Compensation Accounts. A Director's deferrals will be credited to a Deferred Compensation Account set up for that Director by the Company in accordance with the provisions of this Section 4. (c) Crediting of Phantom Cash Amounts to Deferred Compensation Accounts. The portion of the Director's Fees that a Director elects to defer in the form of Phantom Cash Amounts shall be credited to the Deferred Compensation Account (i) for any cash retainer payable to a Director, as of the last business day of the fiscal quarter in which such amount would otherwise have been payable to the Director and (ii) for all other Director's Fees (including, but not limited to, fees payable for attendance at a meeting of the Board or a committee thereof or in connection with a site inspection of property in which the Company is contemplating making an investment), as of the date such services are performed. The Phantom Cash Amount credited to the Deferred Compensation Account shall thereafter be credited with notional interest as of the last day of each month. The annual rate of interest in effect for a Deferral Period shall be the "applicable federal rate" for short-term loans with monthly compounding, as promulgated by the Internal Revenue Service under section 1274 of the Code for the first month in such Deferral Period. (d) Crediting of Phantom Stock Units to Deferred Compensation Accounts. (i) Number of Phantom Stock Units. The portion of the Director's Fees that a Director elects to defer in the form of Phantom Stock Units shall be credited to the Deferred Compensation Account (i) for any cash retainer payable to a Director, as of the last business day of the fiscal quarter in which such amount would otherwise have been payable to the Director and (ii) for all other Director's Fees (including, but not limited to, fees payable for attendance at a meeting of the Board or a committee thereof or in connection with a site inspection of property in which the Company is contemplating making an investment), as of the date such services are performed. The number of Phantom Stock Units to be credited to the Deferred Compensation Account shall be determined by dividing (1) the amount of the Director's Fees deferred by (2) the Fair Market Value of a share of Common Stock as of the date of crediting. Any partial Phantom Stock Unit that results from the application of the previous sentence shall be rounded to the nearest whole Phantom Stock Unit. (ii) Dividend Equivalents. In the event that the Company pays any cash or other dividend or makes any other distribution in respect of the Common Stock, each Phantom Stock Unit credited to the Deferred Compensation Account of a Director will be credited with an additional number of Phantom Stock Units (including fractions thereof) determined by dividing (A) the amount of cash, or the value (as determined by the Administrator) of any securities or other property, paid or distributed in respect of one outstanding share of Common Stock by (B) the Fair Market Value of a share of Common Stock as of the date of such payment or distribution. If the sum of such additional Phantom Stock Units (or fractions thereof) would cause the crediting of a partial Phantom Stock Unit, such partial Phantom Stock Unit shall be rounded to the nearest whole Phantom Stock Unit. Such credit shall be made effective as of the date of the dividend or other distribution in respect of the Common Stock. (iii) No Rights as Stockholder. The crediting of Phantom Stock Units to a Director's Deferred Compensation Account shall not confer on the Director any rights as a stockholder of the Company. (e) Written Statements of Account. The Company will furnish each Director with a statement setting forth the value of such Director's Deferred Compensation Account as of the end of each Deferral Period and all credits to and payments from the Deferred Compensation Account during the Deferral Period. Such statement will be furnished no later than 60 days after the end of the Deferral Period. (f) Manner of Payment of Deferred Benefit. Payment of the portion of the Deferred Benefits under the Plan credited as Phantom Cash Amounts shall be in cash and payment of the portion of the Deferred Benefits credited in Phantom Stock Units shall be in shares of Common Stock. Payment shall be made either in a single lump sum or in a series of five or fewer annual installments. The amount of each installment payment to a Director shall be determined in accordance with the formula B/(N - P), where "B" is the total value of the Deferred Compensation Account as of the installment calculation date, "N" is the number of installments elected by the Director and "P" is the number of installments previously paid to the Director. If a Director's Deferred Benefit is credited in part in Phantom Cash Amounts and in part in Phantom Stock Units and the Director elects the payment of Deferred Benefits in more than one installment, then the formula in the previous sentence shall be applied separately with respect to each such portion of the Deferred Compensation Account. (g) Commencement of Payment of Deferred Benefit. Payment of a Director's Deferred Benefit shall commence as soon as practicable (but in no event more than 60 days) after the earlier to occur of: (i) termination of service as a member of the Board or, in the case of a member of the Board who is also an employee of the Company or who becomes an employee upon such individual's termination of service as a member of the Board, after such individual's termination of service as an employee of the Company; or (ii) the date specified in the Deferral Election Form executed by the Director. (h) Death. In the event of a Director's death, the Director's entire Deferred Benefit (including any unpaid portion thereof corresponding to installments not yet paid at the time of death), to the extent not distributed earlier pursuant to Section 4(g), will be distributed in a lump sum to the Director's Beneficiary as soon as practicable after the date of death, but in no event more than six months after the Director's date of death. (i) Restrictions on Transfer. The Company shall pay all Deferred Benefits payable under the Plan only to the Director or Beneficiary designated under the Plan to receive such amounts. Neither a Director nor his Beneficiary shall have any right to anticipate, alienate, sell, transfer, assign, pledge, encumber or change any benefits to which he may become entitled under the Plan, and any attempt to do so shall be void. A Deferred Benefit shall not be subject to attachment, execution by levy, garnishment, or other legal or equitable process for a Director's or Beneficiary's debts or other obligations. (j) Early Payment of Deferred Benefits. In the event that the Internal Revenue Service shall make a final determination that all or a portion of a Director's Deferred Benefits are subject to ordinary income tax prior to the scheduled date of payment of such Deferred Benefit pursuant to the terms of this Plan and the applicable deferral election made by the Director, such Deferred Benefits shall, to the extent determined to be subject to current taxation, be immediately paid to the Director. 5. Designation of Beneficiary. (a) Beneficiary Designations. Each Director may designate a Beneficiary to receive any Deferred Benefit due under the Plan or to exercise an Option upon the Director's death by executing a Beneficiary Designation Form. (b) Change of Beneficiary Designation. A Director may change an earlier Beneficiary designation by executing a later Beneficiary Designation Form and delivering it to the Administrator. The execution of a Beneficiary Designation Form and its receipt by the Administrator revokes and rescinds any prior Beneficiary Designation Form. 6. Change in Control. Anything in the Plan to the contrary notwithstanding, in the event of a Change in Control of the Company, the following provisions shall apply: (a) Any Options outstanding as of the date such Change in Control is determined to have occurred that are not yet exercisable and vested on such date shall become fully exercisable and vested; provided, however, that if the Administrator shall receive an opinion from a nationally recognized firm of accountants to the Company that the accelerated vesting of some or all of the Options will prohibit the utilization of "pooling of interests" accounting in connection with the transaction resulting in the Change in Control of the Company, then such Options shall not become fully exercisable and vested upon the Change in Control. (b) All Deferred Benefits credited to a Director's Deferred Compensation Account shall be paid to the Director (or to the Director's Beneficiary if the Director dies prior to payment) on or prior to the date of the Change in Control. Payment of the portion of the Deferred Benefits under the Plan credited as Phantom Cash Amounts shall be in cash and payment of the portion of the Deferred Benefits credited in Phantom Stock Units shall be in shares of Common Stock. 7. Recapitalization or Reorganization (a) Authority of the Company and Stockholders. The existence of the Plan shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Change in Capitalization. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or exchange of shares (a "Change in Capitalization"), (i) such proportionate adjustments as may be necessary (in the form determined by the Administrator in its sole discretion) to reflect such change shall be made to prevent dilution or enlargement of the rights of Directors under the Plan with respect to the aggregate number of shares of Common Stock authorized to be awarded under the Plan, the number of shares of Common Stock covered by each outstanding Option and the exercise prices in respect thereof, the number of shares of Common Stock covered by future Option grants and the number of Phantom Stock Units credited to a Director's Deferred Compensation Account and (ii) the Administrator may make such other adjustments, consistent with the foregoing, as it deems appropriate in its sole discretion. (c) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each outstanding Option will vest and become exercisable on a date prior to the consummation of the proposed action that is reasonably sufficient to enable the Directors to exercise their Options. All Deferred Benefits credited to the Director's Deferred Compensation Account as of the date of the consummation of a proposed dissolution or liquidation shall be paid in cash to the Director or, in the event of death of the Director prior to payment, to the Beneficiary thereof on the date of the consummation of such proposed action. The cash amount paid for each Phantom Stock Unit shall be the Fair Market Value of a share of Common Stock as of the date of the consummation of such proposed action. 8. Termination and Amendment of the Plan. (a) Termination. The Plan shall terminate upon the first to occur of (i) the adoption of a resolution of the Board terminating the Plan or (ii) May 19, 2002 (the ATermination Date@). Following the Termination Date, no further grants of Options shall be made pursuant to the Plan and no further Director's Fees may be deferred by a Director. (b) General Power of Board. Notwithstanding anything herein to the contrary, the Board may at any time and from time to time terminate, modify, suspend or amend the Plan in whole or in part; provided, however, that no such termination, modification, suspension or amendment shall be effective without stockholder approval if such approval is required to comply with any applicable law or stock exchange rule; and provided further that the Board may not, without stockholder approval, increase the maximum number of shares issuable under the Plan except as provided in Section 7(b) above. (c) When Directors' Consents Required. The Board may not alter, amend, suspend, or terminate the Plan without the consent of any Director to the extent that such action would (i) adversely affect his or her rights with respect to Options that have previously been granted or (ii) result in the distribution to such Director of amounts then credited to his Deferred Compensation Account in any manner other than as provided in the Plan or could reasonably be expected to result in the immediate taxation to such Director of Deferred Benefits. 9. Miscellaneous (a) No Right to Reelection. Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any of its members for reelection by the Company's stockholders, nor confer upon any Director the right to remain a member of the Board for any period of time, or at any particular rate of compensation. (b) Unfunded Plan. (i) Generally. This Plan is unfunded. Amounts payable under the Plan will be satisfied solely out of the general assets of the Company subject to the claims of the Company's creditors. (ii) Deferred Benefits. A Deferred Benefit represents at all times an unfunded and unsecured contractual obligation of the Company and each Director or Beneficiary will be an unsecured creditor of the Company. No Director, Beneficiary or any other person shall have any interest in any fund or in any specific asset of the Company by reason of any amount credited to him hereunder, nor shall any Director, Beneficiary or any other person have any right to receive any distribution under the Plan except as, and to the extent, expressly provided in the Plan. The Company will not segregate any funds or assets for Deferred Benefits or issue any notes or security for the payment of any Deferred Benefits. Any reserve or other asset that the Company may establish or acquire to assure itself of the funds to provide benefits under the Plan shall not serve in any way as security to any Director, Beneficiary or other person for the performance of the Company under the Plan. (c) Other Compensation Arrangements. Benefits received by a Director pursuant to the provisions of the Plan shall not be included in, nor have any effect on, the determination of benefits under any other arrangement provided by the Company. (d) Securities Law Restrictions. The Administrator may require each Director purchasing or acquiring shares of Common Stock pursuant to the Plan to agree with the Company in writing that such Director is acquiring the shares for investment and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission or any exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws. (e) Expenses. The costs and expenses of administering the Plan shall be borne by the Company. (f) Governing Law. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Maryland without giving effect to conflicts of law principles. 10. Definitions. "Administrator" means the Chief Financial Officer of the Company or the individual appointed by the Chief Executive Officer of the Company to administer the Plan. "Annual Meeting" means an annual meeting of the Company's stockholders. "Beneficiary" or "Beneficiaries" means an individual or entity designated by a Director on a Beneficiary Designation Form to receive Deferred Benefits and to exercise Options in the event of the Director's death; provided, however, that if no such individual or entity is designated or if no such designated individual is alive at the time of the Director's death, Beneficiary shall mean the Director's estate. "Beneficiary Designation Form" means a document, in a form approved by the Administrator to be used by Directors to name their respective Beneficiaries. No Beneficiary Designation Form shall be effective unless it is signed by the Director and received by the Administrator prior to the date of death of the Director. "Board" means the Board of Directors of the Company. "Change in Control" shall mean the occurrence of any of the following: (i) any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act (other than (A) AEW Capital Management, (B) the Company or any of its subsidiaries or (C) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least three-fourths (:) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company, in each case with respect to which the stockholders of the Company immediately prior to such transaction do not, immediately after such transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such transaction; or (iv) all or substantially all of the assets of the Company are sold, liquidated or distributed. "Code" means the Internal Revenue Code of 1986, as amended, and the applicable rules and regulations promulgated thereunder. "Common Stock" means the common stock of the Company, par value $0.02 per share. "Company" means Bedford Property Investors, Inc., a Maryland corporation, or any successor to substantially all of its business. "Deferral Election Form" means a document, in a form approved by the Administrator, pursuant to which a Director makes a deferral election under the Plan. "Deferral Period" means each calendar year. A short Deferral Period under the Plan shall commence on December 9, 1997 and end on December 31, 1997 for purposes of deferring Board meeting fees scheduled to be paid on December 9, 1997. If an individual becomes eligible to participate in the Plan after the commencement of a Deferral Period, the Deferral Period for the individual shall be the remainder of such Deferral Period. "Deferred Benefit" means an amount that will be paid on a deferred basis under the Plan to a Director who has made a deferral election. "Deferred Compensation Account" means the bookkeeping record established for each Director. A Deferred Compensation Account is established only for purposes of measuring a Deferred Benefit and not to segregate assets or to identify assets that may be used to pay a Deferred Benefit. "Director" means a member of the Board. "Director's Fees" means the cash portion of (i) any retainer fee payable to a Director for service on the Board, (ii) any other fee payable for service on, or for acting as chairperson of, any committee of the Board, or in connection with a site inspection of property in which the Company is contemplating making an investment and (iii) any other fee or fees payable in respect of service on the board of directors of any Subsidiary or any committee of any such board of directors. "Disability" shall have the meaning set forth in the Company's long-term disability plan, regardless of whether the Director is a participant in such plan. "Effective Date" shall mean September 4, 1997. "Election Date" means the day immediately preceding the commencement of a Deferral Period. If an individual first becomes eligible to participate in the Plan on an Annual Meeting date or after the start of a Deferral Period, the Election Date shall be the 30th day following such Annual Meeting date or initial participation date, as the case may be. The Election Date for the short Deferral Period commencing on December 9, 1997 and ending on December 31, 1997 shall be December 8, 1997. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations promulgated thereunder. "Fair Market Value" means the value of Common Stock determined as follows: (i) If the Common Stock is listed on the New York Stock Exchange or any other established stock exchange or a national market system (including without limitation the Nasdaq National Market), its Fair Market Value shall be the mean between the high and low sales prices for such stock or the closing bid if no sales were reported, as quoted on such system or exchange (or the exchange with the greatest volume of trading in the Common Stock) for the date of determination or, if the date of determination is not a trading day, the immediately preceding trading day, as reported in The Wall Street Journal or such other source as the Committee deems reliable. (ii) If the Common Stock is regularly quoted on the Nasdaq system (but not on the Nasdaq National Market) or quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock on the date of determination or, if there are no quoted prices on the date of determination, on the last day on which there are quoted prices prior to the date of determination. (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee. "Option" means an option to purchase shares of Common Stock awarded to a Director pursuant to the Plan. "Phantom Cash Amounts" means the amounts credited to a Deferred Compensation Account in accordance with Section 4(c). "Phantom Stock Unit" means a bookkeeping unit representing one share of Common Stock credited to a Deferred Compensation Account in accordance with Section 4(d). "Plan" means the Bedford Property Investors, Inc. Amended and Restated 1992 Directors' Stock Option Plan. "Subsidiary" means any corporation which is a "subsidiary corporation" within the meaning of Section 424(f) of the Code with respect to the Company. 11. Effective Date. The amendments to the Plan set forth herein by restatement shall be effective as of the Effective Date, subject to the approval thereof by the stockholders of the Company by no later than the next Annual Meeting to occur after the Effective Date. If such stockholder approval is not obtained on or before the date of such Annual Meeting, all Director's Fees previously deferred under the Plan (together with notional interest credited at the rate described in the last sentence of Section 4(c) above) shall be paid to the Directors in cash within ten days following the date of the Annual Meeting and the amendments to the Plan herein shall be void ab initio. EX-10 7 EXHIBIT 10.19 Bedford Property Investors, Inc. 270 Lafayette Circle Lafayette, CA 94549 __________ __, 1998 [Addressee] 270 Lafayette Circle Lafayette, CA 94549 Form of Retention Agreement Dear ________: Bedford Property Investors, Inc., a Maryland corporation (the Company), considers it essential to the best interests of its stock- holders to take reasonable steps to retain key management personnel. Further, the Board of Directors of the Company (the Board) recognizes that the uncertainty and questions which might arise among management in the context of a change in control of the Company could result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined, therefore, that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company and its subsidiaries, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible change in control of the Company. In order to induce you to remain in the employ of the Company, the Company has determined to enter into this letter agreement (this Agreement) which addresses the terms and conditions of your employment in the event of a change in control of the Company. Capitalized words which are not otherwise defined herein shall have the meanings assigned to such words in Section 5 of this Agreement. 1. Severance Payments. In the event of your Involuntary Termination during the Change in Control Period, the Company shall pay you the following amounts, in one lump sum cash payment, within ten days following your Involuntary Termination: (a) the full amount of any earned but unpaid base salary through the Date of Termination at the rate in effect at the time of the Notice of Termination; (b) a payment (calculated on the basis of your Reference Salary) for all unused vacation time which you may have accrued as of the Date of Termination; (c) a pro rata portion of the annual bonus for the year in which your Involuntary Termination occurs, calculated on the basis of your target bonus for that year and on the assumption that all performance targets have been or will be achieved; and (d) an amount (the Severance Payment) equal to the product of (i) your Annual Compensation and (ii) your Severance Factor. Your right to receive the Severance Payment shall be conditioned upon your execution of a release in favor of the Company which is in a form reasonably acceptable to the Company and which is not revoked by you within the revocation period provided therein. The Severance Payment shall be reduced by any amount of severance payable under any other plan, arrangement or agreement under which you are entitled to receive cash severance payments. 2. Date and Notice of Termination. Any termination of your employment by the Company or by you during the Change in Control Period shall be communicated by a notice of termination to the other party hereto (the Notice of Termination). The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. The date of your termination of employment with the Company and its subsidiaries (the Date of Termination) shall be determined as follows: (i) if your employment is terminated for Disability, 30 days after a Notice of Termination is given (provided that your shall not have returned to the full-time performance of your duties during such 30-day period), (ii) if your employment is terminated by the Company in an Involuntary Termination, five days after the date the Notice of Termination is received by you and (iii) if your employment is terminated by the Company for Cause, the later of the date specified in the Notice of Termination or ten days following the date such notice is received by you. If the basis for your Involuntary Termination is your resignation for Good Reason, the Date of Termination shall be ten days after the date your Notice of Termination is received by the Company; provided, that the events or circumstances cited by you as constituting Good Reason are not cured by the Company during such period in accordance with the terms hereof. The Date of Termination for a resignation of employment other than for Good Reason shall be the date set forth in the applicable notice, which shall be no earlier than ten days after the date such notice is received by the Company. 3. No Mitigation or Offset. You shall not be required to mitigate the amount of any payment provided for herein by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by you as the result of employment by another employer. 4. Successors; Binding Agreement. (a) Assumption by Successor. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform its obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform such obligations if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used herein, the Company shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform its obligations by operation of law or otherwise. (b) Enforceability; Beneficiaries. This Agreement shall be binding upon and inure to the benefit of you (and your personal representatives and heirs) and the Company and any organization which succeeds to substantially all of the business or assets of the Company, whether by means of merger, consolidation, acquisition of all or substantially all of the assets of the Company or otherwise, including, without limitation, as a result of a Change in Control or by operation of law. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 5. Definitions. For purposes of this Agreement, the following capitalized terms have the meanings set forth below: Annual Compensation shall mean the sum of your Reference Salary and Reference Bonus. Bedford Acquisitions shall mean Bedford Acquisitions, Inc., a California corporation. Cause shall mean (a) your felony conviction, (b) your willful disclosure of material trade secrets or other material confidential information related to the business of the Company and its subsidiaries or (c) your willful and continued failure to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure resulting from your resignation for Good Reason) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, and which performance is not substantially corrected by you within ten days of receipt of such demand. For purposes of the previous sentence, no act or failure to act on your part shall be deemed willful unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clause (a), (b) or (c) of the first sentence of this section and specifying the particulars thereof in detail. Change in Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement; provided, that anything in this Agreement to the contrary notwithstanding, a Change in Control shall be deemed to have occurred if: (a) any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity or person, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act (other than (i) AEW Capital Management, (ii) the Company or any of its subsidiaries or (iii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the beneficial owner (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; (b) during any period of two consecutive years (not including any period prior to the effective date of this Agreement), individuals who at the beginning of such period constituted the Board and any new directors, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least three-fourths of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (c) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company, in each case with respect to which the stockholders of the Company immediately prior to such transaction do not, immediately after such transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such transaction; or (d) all or substantially all of the assets of the Company are sold, liquidated or distributed. Change in Control Date shall mean the date on which a Change in Control occurs. Change in Control Period shall mean the two-year period commencing on the Change in Control Date; provided, however, that if your employment with the Company and its subsidiaries terminates prior to the Change in Control Date but on or after a Potential Change in Control Date, and it is reasonably demonstrated that your termination of employment (a) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (b) otherwise arose in connection with or in anticipation of a Change in Control, then the Change in Control Period shall mean, as applied to you, the two-year period beginning on the date immediately prior to the date of your termination of employment. Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder, and any successor provisions thereto. Date of Termination has the meaning assigned thereto in Section 2. Disability shall mean (a) your incapacity due to physical or mental illness which causes you to be absent from the full-time performance of your duties with the Company for six consecutive months and (b) your failure to return to full-time performance of your duties for the Company within 30 days after written Notice of Termination due to Disability is given to you. Any question as to the existence a Disability upon which you and the Company cannot agree shall be determined by a qualified independent physician selected by you (or, if your are unable to make such selection, such selection shall be made by any adult member of your immediate family), and approved by the Company. The determination of such physician made in writing to the Company and to you shall be final and conclusive for all purposes hereunder. Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and rulings issued thereunder, and any successor provisions thereto. Good Reason shall mean the occurrence of any of the following during the Change in Control Period: (a) A meaningful and detrimental alteration in your position, titles, or nature or status of responsibilities (including reporting responsibilities) from those in effect immediately prior to the Change in Control Date; (b) A reduction by the Company in your annual base salary as in effect immediately prior to the Change in Control Date or as the same may be increased from time to time thereafter; or a reduction in your target annual bonus (expressed as a percentage of base salary) below the target in effect for you prior to the Change in Control Date; (c) The relocation of the office of the Company where you are employed immediately prior to the Change in Control Date (the CIC Location) to a location which is more than 25 miles away from the CIC Location or the Company's requiring you to be based more than 25 miles away from the CIC Location (except for required travel on the Company's business to an extent substantially consistent with your customary business travel obligations in the ordinary course of business prior to the Change in Control Date); (d) The failure by the Company to continue to provide you with benefits at least as favorable in the aggregate to those enjoyed by you under the Company's savings, life insurance, medical, health and accident, disability, and fringe benefit plans and arrangements in which you were participating immediately prior to the Change in Control Date; or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect immediately prior to the Change in Control; (e) The failure of the Company to obtain an agreement from any successor to assume and agree to perform the Company's obligations under this Agreement, as contemplated in Section 4(a) hereof; (f) Any termination of your employment which is not effected pursuant to the terms of this Agreement; or (g) A material breach by the Company of the provisions of this Agreement; provided, however, that an event described above in clause (a), (b), (d) or (g) shall not constitute Good Reason unless it is communicated by you to the Company in writing and is not corrected by the Company in a manner which is reasonably satisfactory to you (including full retroactive correction with respect to any monetary matter) within ten days of the Company's receipt of such written notice from you. Involuntary Termination shall mean (a) your termination of employment by the Company and its subsidiaries during the Change in Control Period other than for Cause or Disability or (b) your resignation of employment with the Company and its subsidiaries during the Change in Control Period for Good Reason. Notice of Termination has the meaning assigned thereto in Section 2. Potential Change in Control shall mean the earliest to occur of (a) the date on which the Company executes an agreement or letter of intent, the consummation of the transactions described in which would result in the occurrence of a Change in Control, (b) the date on which the Board approves a transaction or series of transactions, the consummation of which would result in a Change in Control, or (c) the date on which a tender offer for the Company's voting stock is publicly announced, the completion of which would result in a Change in Control; provided, that no such event shall be a Potential Change in Control unless it is followed by a Change in Control within 180 days thereafter. Potential Change in Control Date shall mean the date on which a Potential Change in Control occurs. Reference Bonus shall mean the greater of (a) the average of the aggregate annual bonuses paid to you by the Company and Bedford Acquisitions for the three calendar years prior to the your Date of Termination and (b) the average of the aggregate annual bonuses paid to you by the Company and Bedford Acquisitions for the three calendar years prior to the Change in Control Date; provided, however, that if you have been eligible to receive fewer than three annual bonuses prior to your Date of Termination or the Change in Control Date, as applicable, the amounts described in clauses (a) and (b) hereof shall be calculated using such lesser number of annual bonuses; provided further, however, that any annual bonus described in clauses (a) and (b) shall be annualized for any year during which you were employed by the Company and its subsidiaries for less than a full calendar year. Reference Salary shall mean the greater of (a) the annual rate of your aggregate base salary from the Company and Bedford Acquisitions in effect immediately prior to the date of your Involuntary Termination and (b) the annual rate of your aggregate base salary from the Company and Bedford Acquisitions in effect immediately prior to the Change in Control Date. Severance Factor shall mean the number set forth on the signature page hereof. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Board of Directors, Bedford Property Investors, Inc., 270 Lafayette Circle, Lafayette, CA 94549, with a copy to the General Counsel of the Company, or to you at the address set forth on the first page of this Agreement or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. (a) Amendments, Waivers, Etc. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof; provided, however, that any employment agreement between you and the Company shall remain in full force and effect, subject to the last sentence of Section 1. (b) Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (c) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (d) No Contract of Employment. Nothing in this Agreement shall be construed as giving you any right to be retained in the employ of the Company or shall affect the terms and conditions of your employment with the Company prior to the commencement of the Change in Control Period. (e) Withholding. Amounts paid to you hereunder shall be subject to all applicable federal, state and local withholding taxes. (f) Source of Payments. All payments provided under this Agreement shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. You will have no right, title or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations hereunder. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. (g) Headings. The headings contained in this Agreement are intended solely for convenience of reference and shall not affect the rights of the parties to this Agreement. * * * * * If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, BEDFORD PROPERTY INVESTORS, INC. By: Name: Title: Agreed to as of this ___ day of , 1998 ____________________________ Severance Factor: ____ EX-10 8 EXHIBIT 10.20 August 4, 1997 Mr. Scott R. Whitney 3530 Candleberry Court Bonita Springs, FL 34134 Dear Scott: On behalf of Bedford Property Investors, Inc., I am pleased to confirm our agreement for employment. The position you will hold is Senior Vice President and Chief Financial Officer and you will report directly to me. In this position, you will be responsible for managing all financial functions including treasury, bank relations, accounting, human resources, management information systems, and investor relations. Some of the primary responsibilities we have talked about are: * Access to the capital markets to provide for the future growth of the company. * Develop and maintain banking relationships. * Develop and maintain close relationship with the "Wall Street" analysts who cover the company. * Maintain financial reporting for senior management at the direction of the CEO and Board of Directors, as well as external reporting to regulatory agencies, banks, and shareholders. * Develop and maintain close working relations with both senior management, as well as support staff. * Implement appropriate corporate controls as directed by the Audit Committee of the Board of Directors. * Assist in developing a strategic plan. * Design a capital plan and implement same. The effective date of your employment will be September 8, 1997. The terms of your employment are as follows: * Your commencing salary will be at the rate of $12,500 per month, payable in two installments. Any increase to this base salary will be based on the results of a review of your performance at intervals commencing September 8, 1998, December 31, 1998, and every December 31st thereafter. (The December 31, 1998, performance review will cover a period of less than one year and therefore any adjustments will be prorated.) * Your annual incentive bonus potential will be $200,000, with a guaranty of a first year bonus of $200,000. With the exception of the first year bonus, the annual incentive bonus will be payable in accordance with directives issued by the CEO and approved by the Board of Directors. Your first year bonus will be payable (1) $75,000 on September 8, 1997 and (2) $125,000 on September 8, 1998. * You will be eligible to participate in the standard Bedford Property Investors, Inc., benefits programs, once the specific program standards are met, including the company's 401 (k) program, and health, dental and other insurance benefits as may be offered by the company from time to time. * You will be entitled to a monthly automobile allowance of $550.00 per month. * You will be granted 7,500 restricted shares of Bedford Property Investors, Inc., common stock on September 8, 1997, and it is intended that you will be granted 7,500 restricted shares on each annual performance review (on each date thereafter subject to any changes in the company's Restricted Stock Agreement as adopted by the CEO and approved by the Board of Directors. The restricted share grants will be subject to the terms and conditions of a Restricted Stock Agreement between the company and you. Notwithstanding anything contained therein to the contrary, it is intended that 20% of the restricted shares granted to you shall vest and become non-forfeitable upon each anniversary of the grant. In this manner, you will be 100% vested in each grant of restricted shares upon the fifth anniversary of each grant date. * You will be granted 50,000 stock options on September 8, 1997, entitled you to acquire 50,000 shares of Bedford Property Investors, Inc., common stock in accordance with the terms of the Company's Stock Option Plan. In addition, it is intended that you will be guaranteed an additional 50,000 stock options on each annual performance review each year thereafter, subject to any changes to the Company's Stock Option Plan as adopted by the CEO and approved by the Board of Directors. * Bedford Property Investors, Inc., recognizes that you will incur expenses in connection with your relocation to the Lafayette area, and intends to make your relocation expense neutral to you. Accordingly, we will reimburse you for: 1. The cost of packing and moving your personal belongings to the Lafayette area and storage charges for up to six (6) months, if necessary. 2. Temporary living accommodations for up to six (6) months at a rate not to exceed $2,000 per month. 3. Up to six (6) percent brokerage commission payable in connection with the sale of your home in Bonita Springs, Florida, if at a loss to Scott R. Whitney. 4. Reasonable mortgage points and closing costs in connection with the purchase of a new home in the Lafayette area. 5. Expenses incurred by you during the first six (6) months of your employment with us in connection with bi-monthly commutes (and house hunting trips) from your Florida home to Lafayette; and 6. The cost of federal, state or local income taxes that results from the treatment of these expense reimbursements as taxable income 7. Items (1) through (6) shall not exceed $100,000. * You will be guaranteed employment until September 8, 1998. Further, if at any time during the first three (3) years of your employment, there occurs a Change in Control of the Company (as such term is defined in the Restricted Stock Agreement) or otherwise terminated without cause, then you will be guaranteed the following: 1. The payment of one year's base salary and maximum annual bonus on the date of such Change in Control or termination, and 2. The immediate grant and vesting of the difference between (a) 22,500 share of common stock pursuant to the Restricted Stock Program, and 150,000 stock options pursuant to the Stock Option Plan, and (b) the amount of restricted stock and stock options previously granted to you. It is understood that this is not an employment contract but is employment at will, and either Bedford Property Investors, Inc., or you may terminate this employment at any time without further obligation except as above indicated. In the event Scott R. Whitney terminates his employment at will during the first twelve (12) months, the Company's obligation will be the moving expenses and the $75,000 bonus. Please sign and date a copy of this letter in the space provided below and return it to me. We look forward to your arrival. Sincerely, /s/ Peter B. Bedford Peter B. Bedford Chairman and Chief Executive Officer Accepted this 7th day of August, 1997. /s/ Scott R. Whitney Scott R. Whitney EX-10 9 EXHIBIT 10.21 November 18, 1997 Mr. Dennis Klimmek 85 Danbury Court Alamo, CA 94507 Dear Dennis: On behalf of Bedford Property Investors, Inc., I am pleased to confirm our agreement for employment. The position you will hold is Senior Vice President of Bedford Property Investors, Inc., and Senior Vice President of Bedford Acquisitions, Inc., and you will report directly to me. You will be responsible for legal work in connection with property acquisitions, general corporate legal work, managing escrow, and other work as I direct. The effective date of your employment will be October 1, 1997. The terms of your employment are as follows: * Your commencing salary will be at the rate of $12,500 per month, payable in two installments. Any increase to this base salary will be based on the results of a review of your performance at intervals commencing October 1, 1998, December 31, 1998, and every December 31st thereafter. (The December 31, 1998, performance review will cover a period of less than one year and therefore any adjustments will be prorated.) * Your annual incentive bonus potential will be $100,000, with a guaranty of a bonus as follows. With the exception of the minimum guaranteed bonus, the annual incentive bonus will be payable in accordance with directives issued by the CEO and approved by the Board of Directors. Your guaranteed minimum bonus will be payable (1) $25,000 on January 2, 1998 and (2) $100,000 on January 2, 1999. * You will be eligible to participate in the standard Bedford Property Investors, Inc., benefits programs, once the specific program standards are met, including the Company's 401(k) program, and health, dental and other insurance benefits as may be offered by the company from time to time. * You will be entitled to a monthly automobile allowance of $550.00 per month. * You will be granted 7,500 restricted shares of Bedford Property Investors, Inc., common stock on November 17, 1997. This includes 2,500 shares to compensate you for the reduction in the value of the stock options from the date of the attached letter. It is intended that you will be granted 5,000 restricted shares on each annual performance review (on each date thereafter subject to any changes in the company's Restricted Stock Agreement as adopted by the CEO and approved by the Board of Directors). The restricted share grants will be subject to the terms and conditions of a Restricted Stock Agreement between the company and you. Notwithstanding anything contained therein to the contrary, it is intended that 20% of the restricted shares granted to you shall vest and become non- forfeitable upon each anniversary of the grant. In this manner, you will be 100% vested in each grant of restricted shares upon the fifth anniversary of each grant date. * You will be granted 60,000 stock options on November 17, 1997. This will entitle you to acquire 60,000 shares of Bedford Property Investors, Inc., common stock in accordance with the terms of the Company's Stock Option Plan. * You will be eligible for four weeks vacation each year to accrue according to the rules of the Company. * You will be guaranteed employment until October 1, 1998. Further, if at any time during the first three (3) years of your employment, there occurs a Change in Control of the Company (as such term is defined in the Restricted Stock Agreement) which results in your termination, relocation to more than 20 miles from your home or any reduction in your total compensation; or you are terminated without cause, then you will be guaranteed the following: 1. The payment of one year's base salary and minimum annual bonus on the date of such Change in Control or termination, and 2. The immediate grant and vesting of the amount of restricted stock previously granted to you, and the stock options previously granted to you. * You will remain "of counsel" to your current law firm through the end of 1997 to finish matters for existing clients. It is anticipated that the work will generally be done in the evenings or on weekends and will not interfere with your performance of your duties for the Company. It is understood that this is not an employment contract but is employment at will, and either Bedford Property Investors, Inc., or you may terminate this employment at any time without further obligation except as above indicated. If you elect to terminate your employment, you will not be entitled to any of the severance benefits set forth in this letter. Please sign and date a copy of this letter in the space provided below and return it to me. Sincerely, /s/ Peter B. Bedford Peter B. Bedford Chairman and Chief Executive Officer Agreed to and Accepted. /s/ Dennis Klimmek Dennis Klimmek -----END PRIVACY-ENHANCED MESSAGE-----