10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 X   

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

For the quarterly period ended June 30, 2003.

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

For the transition period from ________________ to _______________.

Commission File Number 1-12222

BEDFORD PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

           MARYLAND

68-0306514

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

270 Lafayette Circle, Lafayette, CA

94549    

(Address of principal executive offices)

(Zip Code)

(925) 283-8910

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  X   No___

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

Yes  X   No___

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

           Class                                                                

Outstanding as of August 5, 2003

Common Stock, $0.02 par value              

16,564,729

Series A Cumulative Redeemable Preferred

   Stock, $0.01 par value

805,000

BEDFORD PROPERTY INVESTORS, INC.

INDEX

PART I.  FINANCIAL INFORMATION

Page

Item 1.  Financial Statements

1

2

3

4

5

6-16

17-33

34

34

PART II.  OTHER INFORMATION

35-37

38

39

BEDFORD PROPERTY INVESTORS, INC.

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

STATEMENT

We have prepared the following unaudited interim financial statements in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission.  In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations.  These financial statements should be read in conjunction with the notes to consolidated financial statements appearing in the annual report to stockholders for the year ended December 31, 2002.

When used in this Form 10-Q, the words "believes," "expects," "intends," "anticipates" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are subject to risks and uncertainties and actual results could differ materially from those expressed, expected or implied by the forward-looking statements.  The risks and uncertainties that could cause our actual results to differ from management’s estimates and expectations are contained in our filings with the Securities and Exchange Commission, including our 2002 Annual Report on Form 10-K, and as set forth in the section below entitled “Potential Factors Affecting Future Operating Results.”  Readers are cautioned not to place undue r eliance on these forward-looking statements since they only reflect information available as of the date of this filing.  We do not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information.

1

BEDFORD PROPERTY INVESTORS, INC.

BALANCE SHEETS

AS OF JUNE 30, 2003 AND DECEMBER 31, 2002

(Unaudited)   

(in thousands, except share and per share amounts)

	June 30, 2003	December 31, 2002
Assets: Real estate investments:
Industrial buildings	$376,049	$372,105
Office buildings	338,822	336,472
Properties under development	-	2,864
Land held for development	13,882	13,747
	728,753	725,188
Less accumulated depreciation	71,314	62,562
Total real estate investments	657,439	662,626
Cash and cash equivalents	5,264	3,727
Other assets	26,844	27,978
	$689,547	$694,331
Liabilities and Stockholders' Equity:
Bank loans payable	$  98,376	$124,681
Mortgage loans payable	286,941	259,496
Accounts payable and accrued expenses	5,262	10,173
Dividends payable	8,282	8,222
Other liabilities	14,685	15,702
Total liabilities	413,546	418,274
Commitments and contingencies (Note 8)
Stockholders' equity:  Common stock, par value $0.02 per share;     authorized 50,000,000 shares; issued and     outstanding 16,564,605 shares in 2003 and     16,443,664 shares in 2002	331	329
Additional paid-in capital	297,122	293,864
Deferred stock compensation	(6,349)	(4,622)
Accumulated dividends in     excess of net income	(15,103)	(13,514)
Total stockholders' equity	276,001	276,057
	$689,547	$694,331

See accompanying notes to financial statements.

2

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002

(Unaudited)

(in thousands, except share and per share amounts)

	Three Months		Six Months
	2003	2002	2003	2002
Property operations:    Rental income	$  26,508	$  24,323	$  53,461	$  48,127
Rental expenses:         Operating expenses	4,867	4,147	9,443	8,105
Real estate taxes	2,690	2,260	5,369	4,345
Depreciation and amortization	4,995	4,077	9,904	7,828
Income from property operations	13,956	13,839	28,745	27,849
General and administrative expenses	(1,251)	(1,052)	(2,935)	(2,031)
Interest income	33	49	72	85
Interest expense	(5,436)	(4,844)	(10,908)	(9,769)
Income from continuing operations	7,302	7,992	14,974	16,134
Discontinued operations:    Income from operating properties sold, net	-	267	-	500
Gain on sale of operating properties	-	1,798	-	1,798
Income from discontinued operations	-	2,065	-	2,298
Net income	$    7,302	$  10,057	$  14,974	$  18,432
Earnings per share – basic:     Income from continuing operations	$      0.45	$      0.49	$      0.93	$      1.00
Income from discontinued operations	-	0.13	-	0.14
Earnings per share - basic	$      0.45	$      0.62	$      0.93	$      1.14
Weighted average number of shares - basic	16,126,098	16,249,105	16,102,628	16,223,388
Earnings per share – diluted:     Income from continuing operations	$      0.44	$      0.48	$      0.91	$      0.97
Income from discontinued operations	-	0.12	-	0.14
Earnings per share - diluted	$      0.44	$      0.60	$      0.91	$      1.11
Weighted average number of shares –     diluted	16,423,089	16,637,353	16,412,916	16,605,650

See accompanying notes to financial statements.

3

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2003

(Unaudited)

(in thousands, except per share amounts)

	Common stock	Additional paid-in capital	Deferred stock compensation	Accumulated dividends in excess of net income	Total stockholders' equity
Balance, December 31, 2002	$329	$293,864	$(4,622)	$(13,514)	$276,057
Issuance of common stock	2	3,008	-	-	3,010
Repurchase and retirement of common  stock	(2)	(2,761)	-	-	(2,763)
Stock option expense	-	97	-	-	97
Issuance of restricted stock	2	2,935	(2,937)	-	-
Forfeiture of restricted stock	-	(21)	21	-	-
Amortization of restricted stock	-	-	1,189	-	1,189
Dividends to common stockholders  ($1.00 per share)	-	-	-	(16,563)	(16,563)
Net income	-	-	-	14,974	14,974
Balance, June 30, 2003	$331	$297,122	$(6,349)	$(15,103)	$276,001

See accompanying notes to financial statements.

4

BEDFORD PROPERTY INVESTORS, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

(Unaudited)

( in thousands)

	2003	2002
Operating Activities:   Net income	$   14,974	$   18,432
Adjustments to reconcile net income to net cash      provided by operating activities:
Depreciation and amortization, including amortization            of deferred loan costs	10,847	8,990
Gain on sale of operating properties	-	(1,798)
Amortization of deferred compensation	1,189	1,040
Stock compensation expense	97	-
Uncollectible accounts expense	36	257
Change in other assets	(1,121)	(2,109)
Change in accounts payable and accrued expenses	(4,784)	(3,955)
Change in other liabilities	(1,017)	(1,148)
Net cash provided by operating activities	20,221	19,709
Investing Activities:   Investments in real estate	(3,565)	(4,968)
Proceeds from sales of real estate investments, net	-	19,081
Contract retention paid, net	(127)	(774)
Net cash (used) provided by investing activities	(3,692)	13,339
Financing Activities:   Proceeds from bank loans payable, net of loan costs	35,477	16,270
Repayments of bank loans payable	(61,986)	(30,732)
Refund of loan costs	493	2
Proceeds from mortgage loans payable, net of loan costs	48,335	-
Repayments of mortgage loans payable	(21,055)	(2,511)
Issuance of common stock	3,010	1,273
Repurchase and retirement of common stock	(2,763)	(599)
Redemption of Operating Partnership Units	-	(202)
Payment of dividends and distributions	(16,503)	(15,971)
Net cash used by financing activities	(14,992)	(32,470)
Net increase in cash and cash equivalents	1,537	578
Cash and cash equivalents at beginning of period	3,727	5,512
Cash and cash equivalents at end of period	$     5,264	$     6,090
Supplemental disclosure of cash flow information: Cash paid during the year for interest, net of amounts capitalized of    $76 in 2003 and $526 in 2002	$   10,137	$     9,710
Cash paid during the year for income taxes	$        300	$             -
Non-cash investing and financing transactions: Redemption of Operating Partnership Units paid in common stock	$             -	$   (1,483)
Investment in real estate assets	$             -	$         550
Minority interest in consolidated partnership	$             -	$         933

See accompanying notes to financial statements

5

BEDFORD PROPERTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

JUNE 30, 2003

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

The Company

Bedford Property Investors, Inc. is a real estate investment trust (“REIT”) formed in 1993 as a Maryland corporation.  We are a self-administered and self-managed equity REIT engaged in the business of owning, managing, acquiring and developing industrial and suburban office properties concentrated in the western United States.  Our common stock, par value $0.02 per share (the “Common Stock”), trades under the symbol "BED" on both the New York Stock Exchange and the Pacific Exchange.  

Basis of Presentation

We have prepared the accompanying unaudited interim financial statements in accordance with the requirements of Form 10-Q as set forth by the Securities and Exchange Commission.   Therefore, they do not include all information and footnotes necessary for a presentation of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America.  In our opinion, the interim financial statements presented reflect all adjustments, consisting only of normally recurring adjustments, which are necessary for a fair presentation of our financial condition and results of operations.  These unaudited financial statements should be read in conjunction with the Notes to the 2002 audited financial statements.

Stock-Based Compensation

In prior years, we accounted for our stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) 25 and all related interpretations.  As of January 1, 2003, we adopted Statement of Financial Accounting Standards (“SFAS”) 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of SFAS 123,” on a modified prospective basis.SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensa tion and the effect of the method used on reported results.  The impact of adopting SFAS 148 was an increase in compensation expense of $43,000 and $97,000 in the three and six months ended June 30, 2003, respectively.

If we had determined compensation costs for the stock options granted to employees consistent with SFAS 123 during the three and six months ended June 30, 2002, our net income and earnings per share would have

been reduced to the pro forma amounts as follows (in thousands, except per share amounts):

	Three Months Ended June 30, 2002	Six Months Ended June 30, 2002
Net income:
As reported	$10,057	$18,432
Less: compensation expense per SFAS 123	56	112
Pro forma	$10,001	$18,320
Earnings per share – basic:
As reported	$    0.62	$    1.14
Less: compensation expense per SFAS 123	-	0.01
Pro forma	$    0.62	$    1.13
Earnings per share – diluted:
As reported	$    0.60	$    1.11
Less: compensation expense per SFAS 123	-	0.01
Pro forma	$    0.60	$    1.10

6

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 2003 and 2002, respectively:

	2003	2002
Weighted average fair value of options granted   during the year	$1.45	$1.94
Assumptions:   Risk-free interest rate	2.5%	4.0%
Dividend yield	7.3%	7.2%
Volatility factors of the expected market price     of the Common Stock	0.18	0.18
Weighted average expected life of the options	4.3 years	4.3 years

Per Share Data

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

Cash and Cash Equivalents

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

Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees.  FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees.  It requires the guarantor to recognize a liability for the non-contingent component of the guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even it is not probable that payments will be required under the guarant ee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002.  The initial recognition and measurement provisions are effective for all guarantees within the scope of FIN 45 issued or modified after December 31, 2002.  The adoption of this pronouncement did not have any impact on our financial position or results of operations.

In January 2003, the FASB issued SFAS Interpretation (“FIN”) 46, “Consolidation of Variable Interest Entities.”  FIN 46 changes the criteria by which one company includes another entity in its consolidated financial statements.  Previously, the criteria were based on control through voting interest.  FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to entities created prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established.  The adoption of this pronouncement will not have any impact on our financial position or results of operations.

7

In May 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS 149 is effective for contracts entered into or modified after June 30, 2003.  We do not expect the adoption of this pronouncement to have a material impact on our financial position or results of operations.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”  SFAS 150 specifies that instruments within its scope embody obligations of the issuer and that, therefore, the issuer must classify them as liabilities.  Financial instruments within the scope of the pronouncement include mandatorily redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets, and certain obligations to issue a variable number of shares.  SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003.  We do not expect the adoption of the pronouncement to have a material impact on our financial position or results of operations.

Reclassifications

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

 Note 2 – Real Estate Investments

As of June 30, 2003, our real estate investments were diversified by property type as follows (dollars in

thousands):

	Number of Properties	Gross Cost	Percent of Total
Industrial buildings	57	$376,049	52%
Office buildings	30	338,822	46%
Land held for development	11	13,882	2%
Total	98	$728,753	100%

8

The following table sets forth our real estate investments at June 30, 2003 and December 31, 2002 (in thousands):

	Land	Building	Development In-Progress	Less Accumulated Depreciation	Total
Industrial buildings Northern California	$  68,084	$139,106	$          -	$20,057	$187,133
Arizona	22,196	73,859	-	8,875	87,180
Southern California	17,235	41,368	-	6,530	52,073
Northwest	3,408	10,793	-	2,777	11,424
Total industrial buildings	110,923	265,126	-	38,239	337,810
Office buildings Northern California	6,073	25,440	-	3,491	28,022
Arizona	10,588	25,716	-	3,241	33,063
Southern California	9,340	22,099	-	3,196	28,243
Northwest	16,669	100,388	-	12,314	104,743
Colorado	13,706	95,485	-	9,165	100,026
Nevada	2,102	11,216	-	1,668	11,650
Total office buildings	58,478	280,344	-	33,075	305,747
Land held for   development Northern California	5,816	-	-	-	5,816
Arizona	637	-	-	-	637
Southern California	2,347	-	-	-	2,347
Northwest	1,137	-	-	-	1,137
Colorado	3,945	-	-	-	3,945
Total land held for development	13,882	-	-	-	13,882
Total as of June 30, 2003	$183,283	$545,470	$          -	$71,314	$657,439
Total as of December 31, 2002	$182,310	$540,014	$  2,864	$62,562	$662,626

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

9

Note 3.  Debt

Bank Loans Payable

We currently have a revolving credit facility with a bank group led by Bank of America.  The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that gives us the option to expand the facility to $175 million, if needed.  Interest on the facility is at a floating rate equal to either the lender’s prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level as defined in the credit agreement.  As of June 30, 2003, the $150 million facility was secured by our interests in 25 properties, which collectively accounted for approximately 27% of our annualized base rent for 2003 and approximately 29% of our total real estate assets at June 30, 2003.

We also maintain a $40 million unsecured bridge facility with Bank of America, which carries an interest rate of LIBOR plus 1.55%.  On February 10, 2003, we exercised an option to extend the loan for an additional three-month period beginning March 10, 2003.  In March 2003, we paid down $18 million of this credit facility with a portion of the proceeds from our new mortgage from Teachers Insurance and Annuity Association of America described below, leaving a remaining balance of $22 million as of June 30, 2003.  On May 27, 2003, we exercised our second and final option to extend this loan for a three-month period.  The loan will mature on September 10, 2003.

As of June 30, 2003, these facilities had a total outstanding balance of $98,376,000 and an effective interest rate of 2.86%.  The daily weighted average outstanding balances were $115,791,000 and $78,460,000 for the six months ended June 30, 2003 and 2002, respectively.  The weighted average annual interest rates under the credit facilities in each of these periods were 3.39% and 4.84%, respectively.  

The credit facilities contain various restrictive covenants including, among other things, a covenant limiting quarterly dividends to 95% of our average Funds From Operations (“FFO”).  We were in compliance with the various covenants and requirements of our credit facilities during the six months ended June 30, 2003 and during the year ended December 31, 2002.  

Mortgage Loans Payable

In March 2003, we obtained a new $48,500,000 mortgage from Teachers Insurance and Annuity Association of America.  The loan has a ten-year term and carries a fixed interest rate of 5.60%.  It is collateralized by five of our properties representing approximately 8% of our annualized base rent for 2003 and approximately 7% of our total real estate assets at June 30, 2003.  Proceeds from the mortgage financing were used to pay down a portion of the outstanding balance of our lines of credit and to replace an $18,000,000 mortgage from Prudential Insurance Company of America, which matured in March 2003 and carried a fixed interest rate of 7.02%.

10

Mortgage loans payable at June 30, 2003 consist of the following (in thousands):

Lender	Maturity Date	Interest Rate as of     June 30, 2003	Balance
Union Bank	November 19, 2004	3.16%(1)	$  20,956
Union Bank	January 1, 2005	6.00%(2)	4,340
TIAA-CREF	June 1, 2005	7.17%	25,529
Security Life of Denver   Insurance Company	August 1, 2005	2.72%(3)	21,870
Security Life of Denver   Insurance Company	August 1, 2005	2.72%(3)	3,391
Nationwide Life Insurance	November 1, 2005	4.61%	22,315
Prudential Insurance	July 31, 2006	8.90%	7,820
Prudential Insurance	July 31, 2006	6.91%	18,882
TIAA-CREF	December 1, 2006	7.95%	21,017
TIAA-CREF	June 1, 2007	7.17%	34,724
TIAA-CREF	June 1, 2009	7.17%	40,557
Washington Mutual	August 1, 2011	4.92%(4)	17,144
TIAA-CREF	April 1, 2013	5.60%	48,396
	Total		$286,941

(1)

Floating rate based on LIBOR plus 1.60%.  The LIBOR rate was locked for one year at an all-in rate of 3.16% and expires

on December 22, 2003.

(2)

Floating rate based on 3 month LIBOR plus 2.50% with a minimum rate of 6.00% (adjusted quarterly).

(3)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly).  Effective July 3, 2003, the floating interest rate was swapped to a fixed rate of 2.995% until maturity.

(4)

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

The mortgage loans are collateralized by our interests in 55 properties, which collectively accounted for approximately 63% of our annualized base rents for 2003 and approximately 60% of our total real estate assets at June 30, 2003.  We were in compliance with the covenants and requirements of our various mortgages during the six months ended June 30, 2003 and during the year ended December 31, 2002.

The following table presents scheduled principal payments on mortgage loans for each of the twelve-month periods ending June 30 (in thousands):

2004	$    6,504
2005	55,221
2006	49,340
2007	79,035
2008	2,686
Thereafter	94,155
Total	$286,941

11

Note 4.  Discontinued Operations

In accordance with SFAS 144, income from properties sold during the period from January 1, 2002 through December 31, 2002 are presented in the income statement as discontinued operations for the three and six months ended June 30, 2002.  Income from operating properties sold, net includes an allocation of interest expense based on the percentage of the cost basis of properties sold to the cost basis of total real estate assets as of June 30, 2002.  The following schedule presents the calculation of income from operating properties sold, net (in thousands):

	Three Months Ended June 30, 2002	Six Months Ended June 30, 2002
Rental income	$  686	$1,731
Rental expenses
Operating expenses	142	267
Real estate taxes	48	152
Depreciation and amortization	96	445
Income from property operations	400	867
Interest expense	(133)	(367)
Income from operating properties sold, net	$   267	$  500

12

 Note 5.  Segment Disclosure

We have five reportable segments organized by the regions in which we own properties as follows: Northern California (Northern California and Nevada), Arizona, Southern California, Northwest (greater Seattle, Washington and Portland, Oregon) and Colorado.  

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

	For the six months ended June 30, 2003 (in thousands, except percentages)
	Northern California	Arizona	Southern California	Northwest	Colorado	Corporate & Other	Consolidated
Rental income	$  20,740	$    9,282	$    7,026	$    9,312	$    7,101	$            -	$  53,461
Operating expenses and    real estate taxes	4,538	2,953	1,430	2,880	3,011	-	14,812
Depreciation and     amortization	3,248	1,902	1,135	1,912	1,707	-	9,904
Income from property     operations	12,954	4,427	4,461	4,520	2,383	-	28,745
General and administrative     expenses	-	-	-	-	-	(2,935)	(2,935)
Interest income (1)	15	-	-	12	-	45	72
Interest expense	-	-	-	-	-	(10,908)	(10,908)
Net income (loss)	$  12,969	$    4,427	$    4,461	$    4,532	$    2,383	$(13,798)	$  14,974
Percent of income from     property operations	45%	15%	16%	16%	8%	-	100%
Real estate investments	$257,837	$132,996	$  92,387	$132,397	$113,136	$            -	$728,753
Additions of real     estate investments	$       884	$       218	$       432	$       278	$    1,753	$            -	$    3,565
Total assets	$271,354	$115,386	$108,389	$119,058	$  74,005	$    1,355	$689,547

(1)

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

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	For the six months ended June 30, 2002 (in thousands, except percentages)
	Northern California	Arizona	Southern California	Northwest	Colorado	Corporate & Other	Consolidated
Rental income	$  17,526	$    7,334	$    6,582	$   9,671	$    7,014	$         -	$  48,127
Operating expenses and        real estate taxes	3,676	2,084	1,228	2,825	2,637	-	12,450
Depreciation and     amortization	2,408	1,395	942	1,867	1,216	-	7,828
Income from property     operations	11,442	3,855	4,412	4,979	3,161	-	27,849
General and administrative     expenses	-	-	-	-	-	(2,031)	(2,031)
Interest income(1)	12	-	-	8	-	65	85
Interest expense	-	-	-	-	-	(9,769)	(9,769)
Income (loss) from     continuing operations	11,454	3,855	4,412	4,987	3,161	(11,735)	16,134
Discontinued operations:     Income from operating         properties sold, net	119	115	266	-	-	-	500
Gain on sale of         operating properties	-	1,475	323	-	-	-	1,798
Income from discontinued     operations	119	1,590	589	-	-	-	2,298
Net income (loss)	$  11,573	$    5,445	$    5,001	$    4,987	$    3,161	$(11,735)	$  18,432
Percent of income from     property operations	41%	14%	16%	18%	11%	-	100%
Real estate investments	$208,626	$103,383	$  89,539	$130,910	$109,041	$            -	$641,499
Additions (dispositions) of     real estate investments	$       675	$ (5,507)	$ (9,489)	$       144	$    1,614	$            -	$(12,563)
Total assets	$219,870	$100,212	$101,972	$114,035	$  75,488	$    1,084	$612,661

(1)

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

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Note 6.  Earnings Per Share

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2003	2002	2003	2002
Basic:
Income from continuing operations	$    7,302	$    7,992	$  14,974	$  16,134
Income from discontinued operations	-	2,065	-	2,298
Net income for basic earnings per share	$    7,302	$  10,057	$  14,974	$  18,432
Weighted average number of shares – basic	16,126,098	16,249,105	16,102,628	16,223,388
Earnings per share:
Income from continuing operations	$      0.45	$      0.49	$      0.93	$      1.00
Income from discontinued operations	-	0.13	-	0.14
Earnings per share – basic	$      0.45	$      0.62	$      0.93	$      1.14
Diluted:
Income from continuing operations	$    7,302	$    7,992	$  14,974	$  16,134
Income from discontinued operations	-	2,065	-	2,298
Net income for diluted earnings per share	$    7,302	$  10,057	$  14,974	$  18,432
Weighted average number of shares – basic	16,126,098	16,249,105	16,102,628	16,223,388
Weighted average shares of dilutive stock        options using average period stock price        under the treasury stock method	163,179	226,958	161,888	209,507
Weighted average shares issuable upon the        conversion of Operating Partnership Units	-	-	-	5,574
Weighted average shares of non-vested         restricted stock using average period         stock price under the treasury stock method	133,812	161,290	148,400	167,181
Weighted average number of shares – diluted	16,423,089	16,637,353	16,412,916	16,605,650
Earnings per share:
Income from continuing operations	$      0.44	$      0.48	$      0.91	$      0.97
Income from discontinued operations	-	0.12	-	0.14
Earnings per share – diluted	$      0.44	$      0.60	$      0.91	$      1.11

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Note 7.  Related Party Transactions

In prior years, we used Bedford Acquisitions, Inc. (“BAI”), a corporation wholly owned by our Chairman of the Board and Chief Executive Officer, Peter Bedford, to provide services for our acquisition, disposition, financing and development activities.  These services were provided under an agreement that was terminated on July 1, 2002.  Upon termination of the agreement, we hired the employees of BAI.

Fees incurred for services provided during the three and six months ended June 30, 2002 were expensed in the accompanying statements of income to the extent that such fees did not represent payments to BAI for direct and incremental development costs or independent third party costs incurred by BAI on our behalf.   During the three and six months ended June 30, 2002, we paid BAI approximately $440,000 and $1,785,000, respectively, for acquisition, disposition, financing, and development activities provided pursuant to the agreement.  As of December 31, 2002, we had a receivable of $590,000 for excess fees paid to BAI, which was subsequently paid in January 2003 by BAI.  

We occasionally use the services of the law firm Bartko, Zankel, Tarrant & Miller of which a member of our Board of Directors, Martin I. Zankel, is a partner.  During the three and six months ended June 30, 2003, we paid Bartko, Zankel, Tarrant & Miller approximately $54,000 and $80,000, respectively.

Note 8.  Commitments and Contingencies

As of June 30, 2003, we had outstanding contractual construction commitments of approximately $531,000 relating to development in progress and tenant improvements on recently developed properties.  We had outstanding undrawn letters of credit against our credit facility of approximately $6,177,000 as of June 30, 2003.

From time to time, we are subject to legal claims in the ordinary course of business.  We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, prospects, financial condition, operating results or cash flows.  

Note 9.  Subsequent Events

In July 2003, we entered into an interest swap agreement with Bank of America, N.A. on our two floating-rate mortgages with Security Life of Denver Insurance Company.  The agreement, which commenced on July 3, 2003 and terminates on August 31, 2005, exchanges a floating rate of 30-day LIBOR plus 1.40% for a fixed rate of 2.995% on a notional amount of $24.5 million for the first 6 months, $23.5 million in 2004, and $23.0 million in 2005 through the expiration date.

On August 5, 2003, we closed a private placement of $40,250,000 of our 8.75% Series A Cumulative Redeemable Preferred Stock.  The offering was made only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.  We will pay cumulative dividends on the shares from the date of original issuance at the rate of 8.75% of the $50.00 liquidation preference per share per year, which is equivalent to $4.375 per share per year.  Dividends on the shares will be payable quarterly in arrears, beginning on October 15, 2003.  The shares have no stated maturity, will not be subject to any sinking fund or mandatory redemption, and will not be convertible into any other securities.  The shares will be redeemable at our option beginning in August 2008, or earlier if necessary in limited circumstances to preserve our status as a REIT.  We ultimately intend to use the net proceeds from the of fering to finance the potential acquisition or development of properties and for other general corporate uses, which may include opportunistic repurchases of our outstanding common shares from time to time.   In the interim, the net proceeds were used to pay off the outstanding balance of our unsecured bridge facility and to pay down a portion of our $150 million line of credit.  Future acquisitions will be funded by borrowings under the $150 million revolving credit facility.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Real Estate Investments

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

Revenue Recognition and Allowance for Doubtful Accounts

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

Stock Compensation Expense

Beginning January 1, 2003, we voluntarily adopted the recognition provisions of Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for Stock-Based Compensation," using the modified prospective method as prescribed in SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123."  The modified prospective method provides for the calculation of the compensation expense as if the fair value based accounting method had been used to account for all stock options granted in fiscal years after December 15, 1994.  The impact of adopting SFAS 148 was an increase in compensation expense of $43,000 and $97,000 in the three and six months ended June 30, 2003, respectively.

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Deferred Assets

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

Qualification as a REIT

We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code").  A REIT is generally not subject to federal income tax on that portion of real estate investment trust taxable income ("Taxable Income") that is distributed to stockholders, provided that at least 90% of Taxable Income is distributed and other requirements are met.  If we were to fail to qualify as a REIT, we would be, among other things, required to provide for federal income taxes on our income and reduce the level of distributions made to our stockholders.

RESULTS OF OPERATIONS

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

Variances in revenues, expenses, net income and cash flows for the six months ended June 30, 2003 when compared with the same period in 2002 were due primarily to the acquisition, development and sale of operating properties during the following periods:

	Activities from January 1, 2002 to June 30, 2002		Activities from July 1, 2002 to June 30, 2003
	Number of Properties	Square Feet	Number of Properties	Square Feet
Acquisitions         Industrial	-	-	4	544,000
Development         Industrial	1	42,000	-	-
Sales*         Industrial	5	262,000	2	52,000
Office	-	-	1	50,000
	5	262,000	3	102,000

*  Income from Property Operations for 2002 sales has been recorded as discontinued operations and is excluded from the comparisons of Income from Property Operations, Rental Income, and Rental Expenses discussed below.

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Three Months Ended June 30, 2003 Compared with Three Months Ended June 30, 2002

Income from Property Operations

Income from property operations (defined as rental income less rental expenses) increased $117,000 or 1% in 2003 compared with 2002.  This increase is attributable to an increase in rental income of $2,185,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of  $2,068,000.

Rental Income

The net increase in rental income of $2,185,000 is primarily attributable to property acquisitions and development activities, partially offset by a decrease in rental income on existing properties.  Acquired properties contributed an additional $2,307,000 to rental income in 2003 as compared to 2002.  Development activities increased rental income by $82,000.  A decrease in termination fee income primarily contributed to a decrease in rental income on existing properties of $204,000.

Rental Expenses

The net increase in rental expenses of $2,068,000 is primarily attributable to increased operating expense, property acquisitions, and development activities.  An increase in depreciation, property management costs, landscaping, and property taxes contributed to an increase in operating expenses of $1,122,000.  Acquired properties contributed an additional $873,000 to rental expenses in 2003 as compared to 2002.  Development activities increased rental expenses by $73,000.

General and Administrative Expenses

General and administrative expenses increased $199,000 or 19% in 2003 compared with 2002, primarily as a result of increased compensation costs associated with hiring the employees of Bedford Acquisitions, Inc. (see “–Related Party Transactions”) and increased legal and accounting fees, offset by the reversal of the bonus accrual of $192,000 recorded in the first quarter of 2003.  

Interest Expense

Interest expense, which includes amortization of loan fees, increased $592,000 or 12% in 2003 compared with 2002.  The increase is attributable to a higher level of weighted average outstanding debt in 2003 due to share repurchases and the funding of property acquisitions in the third quarter of 2002, offset by lower interest rates on variable rate debt.  The amortization of loan fees was $384,000 and $293,000 in 2003 and 2002, respectively.  The increase in amortization of loan fees is primarily due to loan fees paid in connection with the $40 million bridge facility in September 2002, the $22.6 million mortgage in October 2002, and the $48.5 million mortgage in March 2003.

Discontinued Operations

Income from operating properties sold as presented in the income statement for the three months ended June 30, 2002 consists of income generated during that period for properties sold during the year 2002.

Dividends

Common stock dividends to stockholders declared for the second quarter of 2003 were $0.50 per share.  Common stock dividends to stockholders declared for the second quarter of 2002 were $0.48 per share.  Consistent with our policy, dividends and distributions were paid in the quarter following the quarter in which they were declared.

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Six Months Ended June 30, 2003 Compared with Six Months Ended June 30, 2002

Income from Property Operations

Income from property operations (defined as rental income less rental expenses) increased $896,000 or 3% in 2003 compared with 2002.  This increase is attributable to an increase in rental income of $5,334,000, offset by an increase in rental expenses (which include operating expenses, real estate taxes, and depreciation and amortization) of  $4,438,000.

Rental Income

The net increase in rental income of $5,334,000 is primarily attributable to property acquisitions, development activities, and higher rental income on existing properties.  Acquired properties contributed an additional $4,948,000 to rental income in 2003 as compared to 2002.  Development activities increased rental income by $225,000.  A lower level of bad debt expense contributed to the remaining increase in rental income of $161,000.

Rental Expenses

The net increase in rental expenses of $4,438,000 is primarily attributable to increased operating expenses, property acquisitions, and development activities.  Increases in depreciation, management costs, property taxes, and landscaping contributed to an increase in operating expenses of  $2,545,000.  Acquired properties contributed an additional $1,727,000 to rental expenses in 2003 as compared to 2002.  Development activities increased rental expenses by $166,000.  

General and Administrative Expenses

General and administrative expenses increased $904,000 or 45% in 2003 compared with 2002, primarily as a result of increased compensation costs associated with hiring the employees of Bedford Acquisitions, Inc. (see “–Related Party Transactions”) and increased legal and accounting fees.  

Interest Expense

Interest expense, which includes amortization of loan fees, increased $1,139,000 or 12% in 2003 compared with 2002.  The increase is attributable to a higher level of weighted average outstanding debt in 2003 due to share repurchases and the funding of property acquisitions in the third quarter of 2002, offset by lower interest rates on variable rate debt.  The amortization of loan fees was $810,000 and $577,000 in 2003 and 2002, respectively.  The increase in amortization of loan fees is primarily due to loan fees paid in connection with the $40 million bridge facility in September 2002, the $22.6 million mortgage in October 2002, and the $48.5 million mortgage in March 2003.

Discontinued Operations

Income from operating properties sold as presented in the income statement for the six months ended June 30, 2002 consists of income generated during that period for properties sold during the year 2002.

Dividends

Common stock dividends to stockholders declared for the first and second quarters of 2003 were $0.50 per share.  Common stock dividends to stockholders declared for the first and second quarters of 2002 were $0.48 per share.    Consistent with our policy, dividends and distributions were paid in the quarter following the quarter in which they were declared.

20

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We expect to fund the cost of acquisitions, capital expenditures, costs associated with lease renewals and reletting of space, repayment of indebtedness, share repurchases, development of properties, and dividends from:

-

cash flow from operations;

-

borrowings under our credit facility and, if available, other indebtedness which may include indebtedness assumed in acquisitions,

-

the sale of certain real estate investments; and

-

the net proceeds from the Series A preferred stock offering.

Cash Flows

Our cash and cash equivalents increased to $5,264,000 at June 30, 2003, from $3,727,000 at December 31, 2002.  This increase is due to $20,221,000 of cash provided by operations, offset by $3,692,000 used by investing activities and $14,992,000 used by financing activities.

Net cash of $20,221,000 provided by operating activities consisted primarily of $14,974,000 of net income and $12,169,000 of adjustments for non-cash items, offset by $6,922,000 used in working capital and other activities.  Net cash used in working capital and other activities resulted from purchases of other assets, and payments of accounts payable, accrued expenses, and other liabilities.

Net cash of $3,692,000 used by investing activities consisted of cash used for investments in real estate of $2,706,000 for operating properties and $986,000 for developed properties.  Investments in real estate include the cost of land, buildings, building improvements, and tenant improvements.  We expect to incur capital expenditures for our current portfolio of approximately $7,000,000 for the remainder of 2003.  

Net cash used by financing activities of $14,992,000 consisted of repayments of bank borrowings and mortgage loans of $83,041,000, payment of dividends of $16,503,000, and the repurchase of 106,929 shares of our common stock for $2,763,000, offset by net proceeds from bank borrowings and mortgage loans of $83,812,000, net proceeds from stock options exercised by employees and directors of $3,010,000, and refund of loan costs of $493,000.

Debt Financing

Our ability to continue to finance operations is subject to several uncertainties.  For example, our ability to obtain mortgage loans on income producing property is dependent upon our ability to attract and retain tenants and the  economics of the various markets in which the properties are located, as well as the willingness of mortgage-lending institutions to make loans secured by real property. Approximately 88% of our real estate investments served as collateral for our existing indebtedness as of June 30, 2003. Our ability to sell real estate investments is partially dependent upon the ability of purchasers to obtain financing at reasonable commercial rates.

We currently have a revolving credit facility with a bank group led by Bank of America.  The facility, which matures on June 1, 2004, consists of a $150 million secured line with an accordion feature that allows us at our option to expand the facility to $175 million, if needed.  Interest on the facility is at a floating rate equal to either the lender’s prime rate or LIBOR plus a margin ranging from 1.30% to 1.55%, depending on our leverage level.  We also maintain a $40 million unsecured bridge facility with Bank of America, which carries an interest rate of LIBOR plus 1.55%.  This facility had an outstanding balance of $22 million as of June 30, 2002 and matures on September 10, 2003.  As of June 30, 2003, the facilities had a total outstanding balance of $98,376,000 and an effective interest rate of 2.86%.

21

In March 2003, we obtained a $48,500,000 new mortgage from Teachers Insurance and Annuity Association of America.  The loan has a ten-year term and carries a fixed interest rate of 5.60%.  Proceeds from the mortgage financing were used to pay down a portion of the outstanding balance of our lines of credit and to replace an $18,000,000 mortgage from Prudential Insurance Company of America, which matured in March 2003 and carried a fixed interest rate of 7.02%.

Mortgage loans payable at June 30, 2003 consist of the following (in thousands):

Lender	Maturity Date	Interest Rate as of     June 30, 2003	Balance
Union Bank	November 19, 2004	3.16%(1)	$  20,956
Union Bank	January 1, 2005	6.00%(2)	4,340
TIAA-CREF	June 1, 2005	7.17%	25,529
Security Life of Denver   Insurance Company	August 1, 2005	2.72%(3)	21,870
Security Life of Denver   Insurance Company	August 1, 2005	2.72%(3)	3,391
Nationwide Life Insurance	November 1, 2005	4.61%	22,315
Prudential Insurance	July 31, 2006	8.90%	7,820
Prudential Insurance	July 31, 2006	6.91%	18,882
TIAA-CREF	December 1, 2006	7.95%	21,017
TIAA-CREF	June 1, 2007	7.17%	34,724
TIAA-CREF	June 1, 2009	7.17%	40,557
Washington Mutual	August 1, 2011	4.92%(4)	17,144
TIAA-CREF	April 1, 2013	5.60%	48,396
	Total		$286,941

(1)

Floating rate based on LIBOR plus 1.60%.  The LIBOR rate was locked for one year at an all-in rate of 3.16% and

expires on December 22, 2003.

(2)

Floating rate based on 3 month LIBOR plus 2.50% with a minimum rate of 6.00% (adjusted quarterly).

(3)

Floating rate based on 30-day LIBOR plus 1.40% (adjusted monthly).  Effective July 3, 2003, the floating interest rate was swapped to a fixed rate of 2.995% until maturity.

(4)

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

We were in compliance with the various covenants and other requirements of our debt financing instruments during the six months ended June 30, 2003.  We anticipate that the cash flow generated by our real estate investments and funds available under the $150 million credit facility will be sufficient to meet our short-term liquidity requirements.

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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following summarizes our contractual obligations and other commitments at June 30, 2003, and the effect such obligations could have on our liquidity and cash flow in future periods (in thousands):

	Amount of Commitment Expiring by Period
	Less Than 1 Year	1-3 Years	4-5 Years	Over 5 Years	Total
Bank Loan Payable	$  98,376	$            -	$          -	$          -	$  98,376
Mortgage Loans Payable	6,504	104,561	81,721	94,155	286,941
Construction Contract   Commitments	531	-	-	-	531
Standby Letters of Credit	6,177	-	-	-	6,177
Total	$111,588	$104,561	$81,721	$94,155	$392,025

RELATED PARTY TRANSACTIONS

In prior years, we used Bedford Acquisitions, Inc. (“BAI”), a corporation wholly owned by our Chairman of the Board and Chief Executive Officer, Peter Bedford, to provide services for our acquisition, disposition, financing and development activities.  These services were provided under an agreement that was terminated on July 1, 2002.  Upon termination of the agreement, we hired the employees of BAI.

Fees incurred for services provided during the three and six months ended June 30, 2002 were expensed in the accompanying income statement to the extent that such fees did not represent payments to BAI for direct and incremental development costs or independent third party costs incurred by BAI on our behalf.   During the three and six months ended June 30, 2002, we paid BAI approximately $440,000 and $1,785,000, respectively, for acquisition, disposition, financing, and development activities provided pursuant to the agreement.  As of December 31, 2002, we had a receivable of $590,000 for excess fees paid to BAI, which was subsequently paid in January 2003 by BAI.  

We occasionally use the services of the law firm Bartko, Zankel, Tarrant & Miller of which a member of our Board of Directors, Martin I. Zankel, is a partner.  During the three and six months ended June 30, 2003, we paid Bartko, Zankel, Tarrant & Miller approximately $54,000 and $80,000, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2003 and 2002, we did not have any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

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POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS

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

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

A significant portion of our leases are scheduled to expire in the near future.  As of June 30, 2003, leases representing 7%, 23%, 25% and 14% of our total annualized base rent were scheduled to expire during the remainder of 2003, 2004, 2005 and 2006, respectively.  If the rental rates upon reletting or renewal of leases were significantly lower than current rates, or if we were unable to lease a significant amount of space on economically favorable terms, or at all, our results of operations could suffer.  We are subject to the risk that, upon expiration, some of these or other leases will not be renewed, the space may not be relet, or the terms of renewal or reletting, including the costs of required renovations or concessions to tenants, may be less favorable than current lease terms.  We could face difficulty in reletting our space on commercially acceptable terms when it becomes available. &nb sp;In addition, we expect to incur costs in making improvements or repairs to our properties required by new or renewing tenants and expenses associated with brokerage commissions payable in connection with the reletting of space.  Similarly, our rental income could be reduced by vacancies resulting from lease expirations or by rental rates that are less favorable than our current terms.  If we are unable to promptly renew leases or relet space or if the expenses relating to tenant turnover are greater than expected, our financial results could be harmed.

Our leases with our 25 largest tenants generate approximately 44% of our base rent, and the loss of one or more of these tenants could harm our results of operations.

As of June 30, 2003, our 25 largest tenants accounted for approximately 44% of our total annualized base rent.  One of these tenants, representing approximately 4% of our base rent, has already notified us that they do not intend to renew when their lease expires in February 2004.  If we were to lose any one or more of these tenants, or if any one or more of these tenants were to declare bankruptcy or to fail to make rental payments when due, and we are unable to release this space on equivalent terms, our results of operations could be harmed and our ability to make distributions to our stockholders could be compromised.

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

As of June 30, 2003, approximately 53% of our total annualized base rent was generated by our properties located in the State of California.  As a result of this geographic concentration, the performance of the commercial real estate markets and the local economies in various areas within California could affect the value of these properties and the rental income from these properties and, in turn, our results of operations.  In addition, the geographic concentration of our properties in California in close proximity to regions known for their seismic activity exposes us to the risk that our operating results could be harmed by a significant earthquake.

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

Approximately 14% of our net operating income for the six months ended June 30, 2003 was generated by our office properties and flex industrial properties located in the greater San Francisco Bay Area.  As a result, our business is somewhat dependent on the condition of the San Francisco Bay Area economy in general and the market for office space in the San Francisco Bay Area, in particular.  The market for this space in the San Francisco Bay Area is in the midst of one of the most severe downturns of the past several decades.  This downturn has been precipitated by the unprecedented collapse of many technology and so-called “dot com” businesses, which during the past several years had been chiefly responsible for generating demand for and increased prices of local office properties.  In the event this downturn continues or economic conditions in the San Francisco Bay Area worsen, it could harm the market value of our properties, the results derived therefrom, and our ability to make distributions to our stockholders.

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

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

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the national economic climate;

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the local economic climate;

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

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the attractiveness of our properties to tenants;

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competition from other available space;

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

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

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

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

At any time, a tenant could seek the protection of the bankruptcy laws, which might result in the modification or termination of the tenant’s lease and cause a reduction in our cash flow.  During the six months ended June 30, 2003, three of our tenants, representing less than 1% of our base rent, filed for bankruptcy.  In the event of default by or bankruptcy of a tenant, we may experience delays in enforcing our rights as lessor and may incur substantial costs in protecting our investment.  The default, bankruptcy or insolvency of a major tenant may harm us and our ability to pay dividends to our stockholders.  Any failure of our tenants to affirm their leases following bankruptcy could reduce our funds from operations.  

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

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

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

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

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

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the risks of difficult and complicated construction projects;

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

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

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financial risks relating to financing and construction loan difficulties.

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

We may abandon development opportunities resulting in direct expenses to us.

From time to time, we may invest significant time and resources exploring development opportunities that we subsequently decide are not in our best interest.  The costs of investigating these opportunities will still be considered a direct expense and may harm our financial condition.

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

We currently maintain general liability coverage with primary limits of $1 million per occurrence and $2 million in the aggregate, as well as $40 million of umbrella/excess liability coverage.  This coverage protects us against liability claims as well as the cost of legal defense.  We carry property “All Risks” insurance of $200 million on a replacement value basis covering both the cost of direct physical damage and the loss of rental income.  Separate flood and earthquake insurance is provided with an annual aggregate limit of $10 million, subject to a deductible of 5% of total insurable value per building and respective rent loss with respect to earthquake coverage.  Additional excess earthquake coverage with an aggregate limit of $20 million is provided for property located in California, which represents approximately 53% of our portfolio’s annual base rent.  We also c arry additional excess earthquake insurance with an aggregate limit of $10 million for property located in Washington.  Some losses, including those due to acts of war, nuclear accidents, pollution, mold, or terrorism, may be either uninsurable or not economically insurable.  However, we do presently carry insurance for terrorism losses as defined under the Terrorism Risk Insurance Act of 2002 under our “All Risks” property policies, liability policies, primary and umbrella/excess policies.  In addition, “non-certified” terrorism coverage is provided under our property policy for losses in excess of $10 million up to the $200 million limit.

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

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

We have elected to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”).  We believe that we have been organized and have operated in a manner so as to have satisfied the REIT qualification requirements since 1985.  However, the IRS could challenge our qualification as a REIT for taxable years still subject to audit and we may fail to qualify as a REIT in the future.

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

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

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

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

As a REIT, we are subject to complex constructive ownership rules that limit any holder to 9.8% in value of our outstanding common and preferred stock, taken together.  Any shares transferred in violation of this rule are subject to redemption by us and any such transaction is voidable.

To maintain REIT qualification, our charter provides that no holder is permitted to own more than 9.8% in value of our outstanding common and preferred stock, taken together, or more than 9.8% (in value or number) of our outstanding common stock.  In addition, no holder is permitted to own any shares of any class of our stock if that ownership would cause more than 50% in value of our outstanding common and preferred stock, taken together, to be owned by five or fewer individuals, would result in our stock being beneficially owned by less than 100 persons or would otherwise result in our failure to qualify as a REIT.  Acquisition or ownership of our common or preferred stock in violation of these restrictions results in automatic transfer of the stock to a trust for the benefit of a charitable beneficiary or, under specified circumstances, the violative transfer may be deemed void or we may choose to redeem t he violative shares.  Peter B. Bedford is subject to higher ownership limitations than our other stockholders.  Specifically, Mr. Bedford is not permitted to own more than 15% of the lesser of the number or value of the outstanding shares of our common stock.

The ownership limitations described above are applied using the constructive ownership rules of the Code.  These rules are complex and may cause common or preferred stock owned beneficially or constructively by a group of related individuals and/or entities to be constructively owned by one individual or entity.  As a result, the acquisition of less than 9.8% of our outstanding common or preferred stock or the acquisition of an interest in an entity which owns our common or preferred stock by an individual or entity could cause that individual or entity or another individual or entity to constructively own stock in excess of the limits and subject that stock to the ownership restrictions in our charter.

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

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

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The commercial real estate industry is highly competitive, and we compete with companies, including REITs, that may be able to purchase properties at lower capitalization rates than would be accretive for us.

We seek to grow our asset base through the acquisition of industrial and suburban office properties and portfolios of these properties as well as through the development of new industrial and suburban office properties.  Many real estate companies, including other REITs, compete with us in making bids to acquire new properties.  The level of competition to acquire income-producing properties is largely measured by the capitalization rates at which properties are trading.  The capitalization rate is the annual yield that property produces on the investment.  Currently, capitalization rates are low due to the amount of capital available for investment and attractive debt financing terms.  As a result, we may not be able to compete effectively with companies, including REITs, that may be able to purchase properties at lower capitalization rates than would be accretive for us.  

Many of our properties are located in markets with an oversupply of space, and our ability to compete effectively with other properties to attract tenants may be limited to the extent that competing properties may be newer, better capitalized or in more desirable locations than our properties.

Numerous industrial and suburban office properties compete with our properties in attracting tenants.  Some of these competing properties are newer, better located or better capitalized than our properties.  Many of our investments are located in markets that have a significant supply of available space, resulting in intense competition for tenants and lower rents.  We believe the oversupply of available space relative to demand is likely to increase in the near to intermediate term due to the softening U.S. economy.  The number of competitive properties in a particular area could negatively impact our ability to lease space in the properties or at newly acquired or developed properties.  

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

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

All of our properties have had Phase I environmental site assessments, which involve inspection without soil sampling or groundwater analysis, by independent environmental consultants and have been inspected for hazardous materials as part of our acquisition inspections.  None of the Phase I assessments has revealed any environmental problems requiring material costs for clean up.  The Phase I assessment for Milpitas Town Center, however, indicates that the groundwater under that property either has been or may in the future be, impacted by the migration of contaminants originating off-site.  According to information available to us, the responsible party for this offsite source has been identified and has begun clean up.  We do not believe that this environmental matter will impair the future value of Milpitas Town Center in any significant respect, or that we will be required to fund any portion o f the cost of remediation.  We cannot assure you, however, that these Phase I assessments or our inspections have revealed all environmental liabilities and problems relating to our properties.

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

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Costs associated with moisture infiltration and resulting mold remediation may be significant.

Concern about indoor exposure to mold has been increasing because this exposure is allegedly linked to various adverse effects on health.  Increasingly, insurance companies are excluding mold-related risks from their policy coverage.  Costs and potential liability stemming from tenant exposure to mold and the increased costs of renovating and remodeling buildings with exposure to mold could harm our financial position and results.

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

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

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

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

Our $150 million credit agreement and some of our mortgage loans are collateralized by approximately 88% of our total real collateral securing this indebtedness.

As of June 30, 2003, our $150 million credit facility had an outstanding balance of $76.4 million.  We had other floating rate loans of $67.7 million and an unsecured bridge facility of $22.0 million, totaling $166.1 million of floating rate debt.  Borrowings under our credit facility bear interest at a floating rate and we may from time to time incur or assume other indebtedness also bearing interest at a floating rate.  In that regard, our results of operations for the last year have estate assets, and in the event of default under any of these debt instruments, our lenders could foreclose on the benefited from low levels of interest rates that are currently at or near historic lows.  Should this trend in interest rates reverse itself, our operating results would be harmed.  As of June 30, 2003, our $150 million credit facility was secured by mortgages on 25 properties that accounted for approximately 27% of our annualized base rent, along with the rental proceeds from those properties.  As of June 30, 2003, these 25 properties comprised approximately 29% of our total real estate assets.

While the bridge facility is unsecured, we have assigned all sale or refinancing proceeds on a property that accounts for approximately 5% of our annualized base rent and 5% of our total real estate assets to cover the bridge facility.  In addition, our fixed rate mortgage loans were in the aggregate approximately $219.2 million as of June 30, 2003.  All of our mortgage loans were collateralized by 55 properties that accounted for approximately 63% of our annualized base rent and approximately 60% of our total real estate assets.  If we fail to meet our obligations under the credit facility, the mortgage loans, or any other debt instruments we may enter into from time to time, including failure to comply with financial covenants, the holders of this indebtedness generally would be entitled to demand immediate repayment of the principal and to foreclose upon any collateral securing this indebtedness. &nbs p;In addition, default under or acceleration of any debt instrument could, pursuant to cross-default clauses, cause or permit the acceleration of other indebtedness.  Any default or acceleration would harm us, jeopardizing our qualification as a REIT and threatening our continued viability.  

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

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

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

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

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an increase on variable interest rates on indebtedness; and

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

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

We have significant debt service obligations.  As of June 30, 2003, we had total liabilities of approximately $413.5 million, excluding unused commitments under our credit facility, and total stockholders’ equity of approximately $276.0 million.  Payments to service this debt totaled approximately $14.0 million during the six months ended June 30, 2003.  Our debt level increases the possibility that we could be unable to generate cash sufficient to pay the principal of, interest on or other amounts due in respect of our indebtedness.  In addition, we may incur additional debt from time to time to fund our stock buy back program, finance strategic acquisitions, investments or for other purposes, subject to the restrictions contained in our debt instruments.

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

Historically, we have not used interest rate swaps, caps and floors or other derivative transactions extensively to help us mitigate our interest rate risks because we have determined that the cost of these transactions outweighed their potential benefits and could have, in some cases, jeopardized our status as a REIT.  Generally, income from derivative transactions qualifies for purposes of the 95% gross income test but not for purposes of the 75% gross income test.  We recently entered into swap agreements to hedge our exposure to variable interest rates on two mortgages with remaining principal balances of approximately $25.3 million as of June 30, 2003.  Even if we were to use derivative transactions more extensively, we would not be fully insulated from the prepayment and interest rate risks to which we are exposed.  However, we do not have any policy that prohibits us from using derivative tra nsactions or other hedging strategies more extensively in the future.  If we do engage in additional derivative transactions in the future, we cannot assure you that a liquid secondary market will exist for any instruments purchased or sold in those transactions, and we may be required to maintain a position until exercise or expiration, which could result in losses.

We may change our policies without stockholder approval.

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

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Recently enacted U.S. federal income tax legislation reduces the maximum tax rates applicable to corporate dividends from 38.6% to 15%, which may make investments in corporations relatively more attractive than investments in REITs and negatively affect our stock price as a result.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the tax rates applicable to corporate dividends, in the case of individual taxpayers, from as high as 38.6% to 15% through December 31, 2008.  The reduced maximum 15% rate imposed on some corporate dividends implemented by the Jobs and Growth Tax Relief Reconciliation Act of 2003 does not, however, generally apply to ordinary dividends paid by REITs.  We do not presently expect that ordinary dividends paid by us will be eligible for the reduced tax rate on dividends.  This change in the maximum tax rate on qualifying dividends may make investments in corporate stock relatively more attractive than investments in REITs, which could harm our stock price.

An increase in market interest rates could cause the respective prices of our common stock and preferred stock to decrease.

One of the factors that may influence the respective market prices of our shares of common stock and preferred stock will be the annual dividend yield on the price paid for shares of our common stock or preferred stock as compared to yields on other financial instruments.  An increase in market interest rates may lead prospective purchasers of our stock to seek a higher annual yield from their investments, which may adversely affect the respective market prices of our common stock and preferred stock.  As of June 30, 2003, interest rates in the U.S. were near their historic lows.

We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends.

Our governing documents and existing debt instruments do not limit us from incurring additional indebtedness and other liabilities.  As of June 30, 2003, we had approximately $385.3 million of indebtedness outstanding.  We may incur additional indebtedness and become more highly leveraged which could harm our financial position and potentially limit our cash available to pay dividends.  As a result, we may not have sufficient funds to satisfy our dividend obligations relating to the Series A preferred stock, or pay dividends on our common stock, if we assume additional indebtedness.

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

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

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

Our ability to pay dividends on our common stock and preferred stock is further limited by the laws of Maryland.  Under the Maryland General Corporation Law, a Maryland corporation may not make a distribution if, after giving effect to the distribution, either (i) the corporation would not be able to pay indebtedness of the corporation as the indebtedness becomes due in the usual course of business or (ii) the corporation’s total assets would be less than the sum of the corporation’s total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.  Accordingly, we cannot make a distribution, except by dividend, on our common stock or preferred stock if, after giving effect to the distribution, our t otal assets would be less than the sum of our liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of any shares of preferred stock then outstanding, or if we would not be able to pay our indebtedness as it became due.

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FINANCIAL PERFORMANCE

Although Funds From Operations, or FFO, is not a financial measure calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we believe that FFO may be an appropriate alternative measure of the performance of an equity REIT.  FFO during the three and six months ended June 30, 2003 was $12,297,000 and $24,878,000, respectively.  During the same periods in 2002, FFO was $12,432,000 and $24,907,000, respectively.  Presentation of this information provides the reader with an additional measure to compare the performance of equity REITs.  FFO is generally defined by the National Association of Real Estate Investment Trusts as net income (loss) (computed in accordance with GAAP), excluding extraordinary items and gains (losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  We computed our FFO in accordance with this definition.  FFO does not represent cash generated by operating activities in accordance with GAAP; it is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income (loss) as an indicator of our operating performance or as an alternative to cash flow as a measure of liquidity.   Further, FFO as disclosed by other REITs may not be comparable to our presentation.  The most directly comparable financial measure calculated in accordance with GAAP to FFO is net income (loss).  The following table sets forth a reconciliation of the differences between our FFO and our net income for each of the three and six months ended June 30, 2003 and 2002.

	Three Months Ended June 30,		Six Months Ended June 30,
	2003	2002	2003	2002
Funds From Operations     (in thousands, except share amounts):
Net income	$  7,302	$10,057	$14,974	$18,432
Adjustments:                       Depreciation and amortization:                            Continuing operations	4,995	4,077	9,904	7,828
Discontinued operations	-	96	-	445
Gain on sale of operating properties	-	(1,798)	-	(1,798)
Funds From Operations	$12,297	$12,432	$24,878	$24,907
Weighted average number of                           shares – diluted	16,423,089	16,637,353	16,412,916	16,605,650

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Item 3.  Qualitative and Quantitative Disclosures about Market Risk

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

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

	Twelve Month Period Ending June 30,
	2004	2005	2006	2007	2008	Thereafter	Total	Fair Value
Variable rate LIBOR   debt	$100,489	$26,119	$24,215	$     695	$   729	$13,830	$166,077	$166,077
Weighted average   interest rate	2.88%	3.65%	2.78%	4.92%	4.92%	4.92%	3.17%	3.17%
Fixed rate   debt	$   4,390	$29,102	$25,125	$78,341	$1,957	$80,325	$219,240	$228,149
Weighted average   interest rate	6.78%	7.11%	4.98%	7.45%	6.52%	6.30%	6.68%	5.50%

As the table incorporates only those exposures that existed as of June 30, 2003, it does not consider those exposures or positions which could arise after that date.  Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value.  As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time, and interest rates.

Item 4.  Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2003.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.  There have been no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of such evaluation.

34

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities

None

Item 3.  Defaults upon Senior Securities

None

Item 4.  Submission of Matters to Vote of Security Holders

We held our annual stockholders' meeting on May 15, 2003 to consider the following proposals:

1.

To elect five directors by the holders of our common stock for the ensuing year.

2.

To approve our 2003 Employee Stock Plan.

3.

To approve the amendment and restatement of our articles of incorporation.

4.

To ratify the appointment by the Board of Directors of PricewaterhouseCoopers, LLP as independent public accountants for the year ending December 31, 2003.

All proposals were approved.  With respect to the first proposal, the stockholders elected each of the following five nominees to serve as a member of our Board of Directors until the next annual meeting of stockholders or until their earlier retirement, resignation or removal.  Votes for the directors were cast as follows:

Director	For	Withheld
Peter B. Bedford	14,837,876	241,351
Anthony Downs	14,869,855	209,372
Anthony M. Frank	14,434,299	644,928
Thomas H. Nolan	14,403,851	675,376
Martin I. Zankel	9,599,500	5,479,727

35

Following are the results of the voting for proposals 2 through 4:

		For	Against	Abstain
2.	To approve the 2003 Employee Stock Plan	9,083,183	2,046,248	56,016
3.	To approve the amendment and restatement of the articles of incorporation	14,851,070	181,385	46,772
4.	To ratify the appointment by the Board of Directors of our independent public accountants	14,933,469	121,317	24,441

Item 5.  Other Information

None

Item 6.  Exhibits and Reports on Form 8-K

A.

Exhibits

Exhibit No.

Exhibit

3.1(d)*

Articles of Amendment and Restatement of Bedford Property Investors, Inc., filed on May 27, 2003.

3.1(e)*

Articles Supplementary relating to the Series A Cumulative Redeemable Preferred Stock of Bedford Property Investors, Inc., filed on August 4, 2003.

3.2(b)*

Second Amended and Restated Bylaws of Bedford Property Investors, Inc.

4.4*

Series A Cumulative Redeemable Preferred Stock Registration Rights Agreement, dated August 5, 2003, between Bedford Property Investors, Inc. and RBC Dain Rauscher Inc.

10.49*

Form of Retention Agreement.

10.50*

Interest Rate Protection Agreement, dated July 3, 2003, between Bedford Property Investors, Inc. and Bank of America, N.A.

10.51*

Master Agreement, dated March 15, 2002, between Bedford Property Investors, Inc. and Bank of America, N.A.

10.52*

Second Amendment to Employment Agreement, dated July 15, 2003, by and between Peter B. Bedford and Bedford Property Investors, Inc.

10.53*

2003 Employee Stock Plan of Bedford Property Investors, Inc., dated May 13, 2003, as amended on August 6, 2003.

31.1*

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

36

32.1*

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

32.2*

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

*  Filed herewith

B.

Reports on Form 8-K

On April 22, 2003, we filed a report on Form 8-K to furnish to the Securities and Exchange Commission our press release issued on April 22, 2003, which reported our financial results for the quarter ended March 31, 2003.

37

SIGNATURES

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

Dated:  August 8, 2003

BEDFORD PROPERTY INVESTORS, INC.

(Registrant)

By:

/s/ HANH KIHARA

Hanh Kihara

Senior Vice President and

Chief Financial Officer

By:

/s/ KRISTA K. ROWLAND

Krista K. Rowland

Vice President and Controller

38

EXHIBIT INDEX

Exhibit No.

Exhibit

3.1(d)*

Articles of Amendment and Restatement of Bedford Property Investors, Inc., filed on May 27, 2003.

3.1(e)*

Articles Supplementary relating to the Series A Cumulative Redeemable Preferred Stock of Bedford Property Investors, Inc., filed on August 4, 2003.

3.2(b)*

Second Amended and Restated Bylaws of Bedford Property Investors, Inc.

4.4*

Series A Cumulative Redeemable Preferred Stock Registration Rights Agreement, dated August 5, 2003, between Bedford Property Investors, Inc. and RBC Dain Rauscher Inc.

10.49*

Form of Retention Agreement.

10.50*

Interest Rate Protection Agreement, dated July 3, 2003, between Bedford Property Investors, Inc. and Bank of America, N.A.

10.51*

Master Agreement, dated March 15, 2002, between Bedford Property Investors, Inc. and Bank of America, N.A.

10.52*

Second Amendment to Employment Agreement, dated July 15, 2003, by and between Peter B. Bedford and Bedford Property Investors, Inc.

10.53*

2003 Employee Stock Plan of Bedford Property Investors, Inc., dated May 13, 2003, as amended on August 6, 2003.

31.1*

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

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

32.2*

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

*  Filed herewith

39

EX-3

Exhibit 3.1(d)

BEDFORD PROPERTY INVESTORS, INC.

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST:

Bedford Property Investors, Inc., a corporation incorporated and existing under the laws of the State of Maryland (the “Corporation”), desires to amend and restate its charter as currently in effect and as hereinafter amended.

SECOND:

The following provisions are all the provisions of the charter currently in effect and as hereinafter amended:

AMENDED AND RESTATED ARTICLES OF INCORPORATION

ARTICLE I

INCORPORATOR

On June 29, 1993, James J. Hanks, Jr., whose address is 300 East Lombard Street, Baltimore, Maryland 21202, at the time being at least 18 years of age, formed the Corporation under the general laws of the State of Maryland.

ARTICLE II

NAME

The name of the Corporation is Bedford Property Investors, Inc.

ARTICLE III

PURPOSE

The purposes for which the Corporation is formed are to engage in any lawful act or activity (including, without limitation or obligation, engaging in business as a real estate investment trust under the Internal Revenue Code of 1986, as amended, or any successor statute (the “Code”)), for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force. For purposes of these Articles, “REIT” means a real estate investment trust as defined under Sections 856 through 860 of the Code.

ARTICLE IV

PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT

The post office address of the principal office of the Corporation in the State of Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name and address of the resident agent of the Corporation in the State of Maryland is James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202. The resident agent is an individual residing in the State of Maryland.

ARTICLE V

STOCK

Section 1.  Authorized Shares.

The total number of shares of stock which the Corporation has authority to issue is 60,000,000 shares, of which 50,000,000 shares are shares of Common Stock, $0.02 par value per share (“Common Stock”), and 10,000,000 shares are shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).  The aggregate par value of all authorized shares of stock having a par value is $1,100,000.

Section 2.  Common Stock.

Each share of Common Stock shall entitle the holder thereof to one vote.

Section 3.  Preferred Stock.

The Preferred Stock may be issued, from time to time, in one or more series as is authorized by the board of directors of the Corporation (the “Board of Directors”). Prior to issuance of shares of each series, the Board of Directors by resolution shall designate that series to distinguish it from all other series and classes of stock of the Corporation, shall specify the number of shares to be included in the series and shall set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption. Subject to the express terms of any other series of Preferred Stock outstanding at the time and notwithstanding any other provisions of the charter of the Company (the “Charter”), the Board of Directors may increase or decrease the number of shares of, or alter the designation or c lassify or reclassify, any unissued shares of any series of Preferred Stock by setting or changing, in any one or more respects, from time to time before issuing the shares, the terms, preferences, conversion of other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of the shares of any series of Preferred Stock.

Section 4.  Charter and Bylaws.

All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the Charter and the bylaws (as amended from time to time, the “Bylaws”) of the Corporation.

ARTICLE VI

PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS

Section 1.  Number.

The number of directors of the Corporation initially shall be five, which number may be increased or decreased pursuant to the Bylaws of the Corporation; provided, however, that (a) if there is stock outstanding and so long as there are three or more stockholders, the number of directors shall never be less than three and (b) if there is stock outstanding and so long as there are less than three stockholders, the number of directors may not be less than the number of stockholders.

Section 2.  Extraordinary Actions.

Except as otherwise herein specifically provided, notwithstanding any provision of law permitting or requiring any action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if taken or authorized by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter.

Section 3.  Authorization by Board of Stock Issuance.

The Board of Directors of the Corporation may authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Charter or the Bylaws of the Corporation or in the general laws of the State of Maryland.

Section 4.  Preemptive Rights.

Except as may be provided by the Board of Directors in authorizing the issuance of shares of Preferred Stock pursuant to Article V, Section 3, no holder of shares of stock of the Corporation shall, as such holder, have any preemptive right to purchase or subscribe for any additional shares of the stock of the Corporation or any other security of the Corporation which it may issue or sell.

Section 5.  Indemnification.

The Corporation shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a preceding to, (a) any individual who is a present or former director, officer or employee of the Corporation or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The Corporation shall have the power, with the approval of its Board of Directors, to provide such indemnification and advancement of expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.

Section 6.  Related Party Transactions.

Without limiting any other procedures available by law or otherwise to the Corporation, the Board of Directors may authorize any agreement or other transaction with any person, corporation, association, company, trust, partnership (limited or general) or other organization, although one or more of the directors or officers of the Corporation may be a party to any such agreement or an officer, director, stockholder or member of such other party, and no such agreement or transaction shall be invalidated or rendered void or voidable solely by reason of the existence of any such relationship if the existence is disclosed or known to the Board of Directors, and the contract or transaction is approved by the affirmative vote of a majority of the disinterested directors, even if they constitute less than a quorum of the Board. Any director of the Corporation who is also a director, officer, stockholder or member of such other entit y may be counted in determining the existence of a quorum at any meeting of the Board of Directors considering such matter.

Section 7.  Determinations by Board.

The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Directors consistent with the Charter of the Corporation and in the absence of (a) actual receipt of an improper benefit in money, property or services or (b) an adverse judgment or other final adjudication based on a finding that an act or failure to act was the result of active and deliberate dishonesty and was material to the cause of action being adjudicated, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its stock: the amount of the net income of the Corporation for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its stock or the payment of other distribution on its stock; the amount of paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capit al, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Corporation; and any matters relating to the acquisition, holding and disposition of any assets by the Corporation.

Section 8.  Reserved Powers of Board.

The enumeration and definition of particular powers of the Board of Directors included in this Article VI shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other provision of the Charter of the Corporation, or construed or deemed by inference or otherwise in an any manner to exclude or limit the powers conferred upon the Board of Directors under the general laws of the State of Maryland as now or hereafter in force.

Section 9.  REIT Qualification.

The Board of Directors shall use its reasonable best efforts to cause the Corporation and its stockholders to qualify for federal income tax treatment in accordance with the provisions of the Code applicable to a REIT. In furtherance of the foregoing, the Board of Directors shall use its reasonable best efforts to take such actions as are necessary, and may take such actions as in its sole judgment and discretion are desirable, to preserve the status of the Corporation as a REIT; provided, however, that if the Board of Directors determines that it is no longer in the best interests of the Corporation for it to continue to qualify as a REIT, the Board of Directors may revoke or otherwise terminate the Corporation’s REIT election pursuant to Section 856(g) of the Code.

ARTICLE VII

RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES

Section 1.  Definitions.

For the purpose of this Article VII, the following terms shall have the following meanings:

7.1.1.

Aggregate Stock Ownership Limit.

The term “Aggregate Stock Ownership Limit” shall mean not more than 9.8% in value of the aggregate of the outstanding shares of Capital Stock. The value of the outstanding shares of Capital Stock shall be determined by the Board of Directors of the Corporation in good faith, which determination shall be conclusive for all purposes hereof.

7.1.2.

Beneficial Ownership.

The term “Beneficial Ownership” shall mean ownership of Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner”, “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.

7.1.3.

Business Day.

The term “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.

7.1.4.

Capital Stock.

The term “Capital Stock” shall mean all classes or series of stock of the Corporation, including, without limitation, Common Stock and Preferred Stock.

7.1.5.

Charitable Beneficiary.

The term “Charitable Beneficiary” shall mean one or more beneficiaries of the Trust as determined pursuant to Section 7.3.6, provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

7.1.6.

Charter.

The term “Charter” shall mean the charter of the Corporation, as that term is defined in the MGCL.

7.1.7.

Code.

The term “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

7.1.8.

Common Stock Ownership Limit.

The term “Common Stock Ownership Limit” shall mean not more than 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Common Stock of the Corporation. The number and value of outstanding shares of Common Stock of the Corporation shall be determined by the Board of Directors of the Corporation in good faith, which determination shall be conclusive for all purposes hereof.

7.1.9.

Constructive Ownership.

The term “Constructive Ownership” shall mean ownership of Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner”, “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.

7.1.10.

Excepted Holder.

The term “Excepted Holder” shall mean a stockholder of the Corporation for whom an Excepted Holder Limit is created by these Articles or by the Board of Directors pursuant to Section 7.2.7.

7.1.11.

Excepted Holder Limit.

The term “Excepted Holder Limit” shall mean, provided that the affected Excepted Holder agrees to comply with the requirements established by the Board of Directors pursuant to Section 7.2.7, and subject to adjustment pursuant to Section 7.2.8:

(a)

for Peter B. Bedford, 15% of the lesser of the number or value of the outstanding shares of Common Stock, and

(b)

for other, subsequently designated Excepted Holders, as to any class or series of the outstanding Capital Stock, the percentage limit established by the Board of Directors pursuant to Section 7.2.7.

7.1.12.

Initial Date.

The term “Initial Date” shall mean September 13, 1995.

7.1.13.

Market Price.

The term “Market Price” on any date shall mean, with respect to any class or series of outstanding shares of Capital Stock, the Closing Price for such Capital Stock on such date. The “Closing Price” on any date shall mean the last sale price for such Capital Stock, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Capital Stock, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such Capital Stock is not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Capital Stock is listed or admitted to trading or, if such Capital Stock i s not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use or, if such Capital Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Capital Stock selected by the Board of Directors of the Corporation or, in the event that no trading price is available for such Capital Stock, the fair market value of the Capital Stock, as determined in good faith by the Board of Directors of the Corporation.

7.1.14.

MGCL.

The term “MGCL” shall mean the Maryland General Corporation Law, as amended from time to time.

7.1.15.

NYSE.

The term “NYSE” shall mean the New York Stock Exchange.

7.1.16.

Person.

The term “Person” shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit applies.

7.1.17.

Prohibited Owner.

The term “Prohibited Owner” shall mean, with respect to any purported Transfer, any Person who, but for the provisions of Section 7.2.1, would Beneficially Own or Constructively Own shares of Capital Stock, and if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.

7.1.18.

REIT.

The term “REIT” shall mean a real estate investment trust within the meaning of Section 856 of the Code.

7.1.19.

Restriction Termination Date.

The term “Restriction Termination Date” shall mean the first day after the Initial Date on which the Corporation determines pursuant to Article VI, Section 9 of the Charter that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of shares of Capital Stock set forth herein is no longer required in order for the Corporation to qualify as a REIT.

7.1.20.

Transfer.

The term “Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Capital Stock or the right to vote or receive dividends on Capital Stock, including (a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities or rights convertible into or exchangeable for Capital Stock or any interest in Capital Stock or any exercise of any such conversion or exchange right and (c) Transfers of interests in other entities that result in changes in Beneficial or Constructive Ownership of Capital Stock; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by o peration of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.

7.1.21.

Trust.

The term “Trust” shall mean any trust provided for in Section 7.3.1.

7.1.22.

Trustee.

The term “Trustee” shall mean the Person unaffiliated with the Corporation and a Prohibited Owner that is appointed by the Corporation to serve as trustee of the Trust.

Section 2.  Capital Stock.

7.2.1.

Ownership Limitations.

During the period commencing on the Initial Date and prior to the Restriction Termination Date:

(a)

Basic Restrictions.

(i)

(1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Aggregate Stock Ownership Limit, (2) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of Common Stock in excess of the Common Stock Ownership Limit and (3) no Excepted Holder shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Excepted Holder Limit for such Excepted Holder.

(ii)

No Person shall Beneficially or Constructively Own shares of Capital Stock to the extent that such Beneficial or Constructive Ownership of Capital Stock would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, but not limited to, Beneficial or Constructive Ownership that would result in the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).

(iii)

Notwithstanding any other provisions contained herein, any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated interdealer quotation system) that, if effective, would result in the Capital Stock being beneficially owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such shares of Capital Stock.

(b)

Transfer in Trust.

If any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Capital Stock in violation of Section 7.2.1(a)(i) or (ii),

(i)

then that number of shares of the Capital Stock, the Beneficial or Constructive Ownership of which otherwise would cause such Person to violate Section 7.2.1(a)(i) or (ii) (rounded to the nearest whole shares), shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Section 7.3, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such shares; or

(ii)

if the transfer to the Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that number of shares of Capital Stock that otherwise would cause any Person to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee shall acquire no rights in such shares of Capital Stock.

7.2.2.  

Remedies for Breach.

If the Board of Directors of the Corporation or any duly authorized committee thereof shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 7.2.1 or that a Person intends to acquire or has attempted to acquire Beneficial or Constructive Ownership of any shares of Capital Stock in violation of Section 7.2.1 (whether or not such violation is intended), the Board of Directors or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Corporation to redeem shares, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfers or attempted Transfers or other events in violation of Section 7.2.1 shall aut omatically result in the transfer to the Trust described above, and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Directors or a committee thereof.

7.2.3.  

Notice of Restricted Transfer.

Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of shares of Capital Stock that will or may violate Section 7.2.1(a), or any Person who would have owned shares of Capital Stock that resulted in a transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall immediately give written notice to the Corporation of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer on the Corporation’s status as a REIT.

7.2.4.

Owners Required to Provide Information.

From the Initial Date and prior to the Restriction Termination Date:

(a)

every owner of more than 9.8% (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding shares of Capital Stock, within 30 days after the end of each taxable year, shall give written notice to the Corporation stating the name and address of such owner, the number of shares of Capital Stock and other shares of the Capital Stock Beneficially Owned and a description of the manner in which such shares are held. Each such owner shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporation’s status as a REIT and to ensure compliance with the Capital Stock Ownership Limit.

(b)

each Person who is a Beneficial or Constructive Owner of Capital Stock and each Person (including the stockholder of record) who is holding Capital Stock for a Beneficial or Constructive Owner shall provide to the Corporation such information as the Corporation may request, in good faith, in order to determine the Corporation’s status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.

7.2.5.

Remedies Not Limited.

Subject to Article VI, Section 9 of the Charter, nothing contained in this Section 7.2 shall limit the authority of the Board of Directors of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders in preserving the Corporation’s status as a REIT.

7.2.6.

Ambiguity.

In the case of an ambiguity in the application of any of the provisions of this Section 7.2, Section 7.3, or any definition contained in Section 7.1, the Board of Directors of the Corporation shall have the power to determine the application of the provisions of this Section 7.2 or Section 7.3 with respect to any situation based on the facts known to it. In the event Section 7.2 or 7.3 requires an action by the Board of Directors and the Charter fails to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Sections 7.1, 7.2 or 7.3.

7.2.7.

Exceptions.

(a)

Subject to Section 7.2.1(a)(ii), the Board of Directors of the Corporation, in its sole discretion, may exempt a Person from the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if:

(i)

the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain (to the extent practicable and prudent) that no individual’s Beneficial or Constructive Ownership of such shares of Capital Stock will violate Section 7.2.1(a)(ii);

(ii)

the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain (to the extent practicable and prudent) that such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Corporation (or a tenant of any entity owned or controlled by the Corporation) that would cause the Corporation to own, actually or Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact (for this purpose, a tenant from whom the Corporation (or an entity owned or controlled by the Corporation) derives (and is expected to continue to derive) a sufficiently small amount of revenue such that, in the opinion of the Board of Directors o f the Corporation, rent from such tenant would not adversely affect the Corporation’s ability to qualify as a REIT, shall not be treated as a tenant of the Corporation); and

(iii)

such Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions contained in Sections 7.2.1 through 7.2.6) will result in such shares of Capital Stock being automatically transferred to a Trust in accordance with Sections 7.2.1(b) and 7.3.

(b)

Prior to granting any exception pursuant to Section 7.2.7(a), the Board of Directors of the Corporation may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Directors may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.

(c)

Subject to Section 7.2.1(a) (ii), an underwriter which participates in a public offering or a private placement of Capital Stock (or securities convertible into or exchangeable for Capital Stock) may Beneficially Own or Constructively Own shares of Capital Stock (or securities convertible into or exchangeable for Capital Stock) in excess of the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit, or both such limits, but only to the extent necessary to facilitate such public offering or private placement.

(d)

The Board of Directors may only reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written consent of such Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Common Stock Ownership Limit.

7.2.8.

Increase in Aggregate Stock Ownership and Common Stock Owner Limits.

The Board of Directors may from time to time increase the Common Stock Ownership Limit and the Aggregate Stock Ownership Limit.

7.2.9.

Legend.

Each certificate for shares of Capital Stock issued or reissued after May 19, 2003 shall bear the following legend:

The shares represented by this certificate are subject to restrictions on Beneficial and Constructive Ownership and Transfer for the purpose of the Corporation’s maintenance of its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain further restrictions and except as expressly provided in the Corporation’s Charter, (i) no Person may Beneficially or Constructively Own shares of the Corporation’s Common Stock in excess of 9.8% (in value or number of shares) of the outstanding shares of Common Stock of the Corporation unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially or Constructively Own shares of Capital Stock of the Corporation in excess of 9.8% of the value of the total outstanding shares of Capital Stock of the Corporation , unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (iii) no Person may Beneficially or Constructively Own Capital Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; and (iv) no Person may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation being owned by fewer than 100 Persons. Any Person who Beneficially or Constructively owns or attempts to Beneficially or Constructively Own shares of Capital Stock which causes or will cause a Person to Beneficially or Constructively Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation. If any of the restrictions on transfer or ownership are violated, the shares of Capital Stock represented hereby will be automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries. In addition, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab initio. All capitalized terms in this legend have the meanings defined in the Charter of the Corporation, as the same may be amended from time to time, a copy of which, including the restrictions on transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge.

Section 3.  Transfer of Capital Stock in Trust.

7.3.1.

Ownership in Trust.

Upon any purported Transfer or other event described in Section 7.2.1(b) that would result in a transfer of shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have been transferred to the Trustee as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Trust pursuant to Section 7.2.1(b). The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Corporation as provided in Section 7.3.6.

7.3.2.

Status of Shares Held by the Trustee.

Shares of Capital Stock held by the Trustee shall be issued and outstanding shares of Capital Stock of the Company. The Prohibited Owner shall have no rights in the shares held by the Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the Trustee, shall have no rights to dividends and shall not possess any rights to vote or other rights attributable to the shares held in the Trust.

7.3.3.

Dividend and Voting Rights.

The Trustee shall have all voting rights and rights to dividends or other distributions with respect to shares of Capital Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Corporation that the shares of Capital Stock have been transferred to the Trustee shall be paid with respect to such shares of Capital Stock to the Trustee upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Trustee. Any dividends or distributions so paid over to the Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the Trust and, subject to Maryland law, effective as of the date that the shares of Capital Stock have been transferred to the Trustee, the Trustee sha ll have the authority (at the Trustee’s sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Corporation that the shares of Capital Stock have been transferred to the Trustee and (ii) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary. Notwithstanding the provisions of this Article VII, until the Corporation has received notification that shares of Capital Stock have been transferred into a Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies, and otherwise conducting votes of stockholders.

7.3.4.

Sale of Shares by Trustee.

Within 20 days of receiving notice from the Corporation that shares of Capital Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares held in the Trust to a person, designated by the Trustee, whose ownership of the shares will not violate the ownership limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with the event causing the shares to be held in the Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Trust and (2) the price per share received by the Trustee from the sale or other disposition of the shares held in the Trust. Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Corporation that shares of Capital Stock have been transferred to the Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 7.3.4, such excess shall be paid to the Trustee upon demand.

7.3.5.

Purchase Right in Stock Transferred to the Trustee.

Shares of Capital Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) or (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer until the Trustee has sold the shares held in the Trust pursuant to Section 7.3.4. Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

7.3.6.

Designation of Charitable Beneficiaries.

By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that (i) the shares of Capital Stock held in the Trust would not violate the restrictions set forth in Section 7.2.1(a) in the hands of such Charitable Beneficiary and (ii) each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

ARTICLE VIII

AMENDMENTS

The Corporation reserves the right from time to time to make any amendment to its Charter, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in this Charter, of any shares of outstanding stock. Any amendment to the Charter of the Corporation shall be valid only if such amendment shall have been approved by the affirmative vote of a majority of all the votes entitled to be cast on the matter. All rights and powers conferred by the Charter of the Corporation on stockholders, directors and officers are granted subject to this reservation.

ARTICLE IX

LIMITATION OF LIABILITY

To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors, officers and employees, no director, officer or employee of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article IX, nor the adoption or amendment of any other provision of the Charter or the Bylaws of the Corporation inconsistent with this Article IX, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

THIRD:

The amendment to and restatement of the charter as hereinabove set forth have been duly advised by the Board of Directors and approved by the stockholders of the Corporation as required by law.

FOURTH:  

The current address of the principal office of the Corporation is as set forth in Article IV of the foregoing amendment and restatement of the charter.

FIFTH:  

The name and address of the Corporation’s current resident agent is as set forth in Article IV of the foregoing amendment and restatement of the charter.

SIXTH:

As of the date hereof, the Board of Directors of the Corporation consists of five members, and the names of those members currently in office are Peter B. Bedford, Anthony Downs, Anthony M. Frank, Thomas H. Noland, Jr., and Martin I. Zankel.

SEVENTH:

The total number of shares of stock that the Corporation has authority to issue was not increased as a result of the forgoing amendment and restatement.

EIGHTH:  

The undersigned President acknowledges these Articles of Amendment and Restatement to be the corporate act of the Corporation, and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its President and attested to by its Secretary on this 20th day of May of 2003.

ATTEST:		BEDFORD PROPERTY INVESTORS, INC.
By:	/s/ Dennis Klimmek	By:	/s/ James R. Moore
	Name: Dennis Klimmek		Name: James R. Moore
	Title: Secretary		Title: President

EX-3

#

Exhibit 3.1(e)

BEDFORD PROPERTY INVESTORS, INC.

Articles Supplementary

8.75% Series A Cumulative Redeemable Preferred Stock

Bedford Property Investors, Inc., a Maryland corporation, (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST:  Under a power contained in Article V of the Articles of Amendment and Restatement of the Corporation (the “Charter”), the Board of Directors by duly adopted resolutions classified and designated 805,000 shares of authorized but unissued Preferred Stock (as defined in the Charter) as shares of 8.75% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, which, upon any restatement of the Charter, shall become part of Article V of the Charter, with any necessary or appropriate renumbering or relettering of the sections or subsections hereof.

Series A Preferred Stock

(1)

DESIGNATION AND NUMBER. A series of Preferred Stock, designated the “8.75% Series A Cumulative Redeemable Preferred Stock” (the “Series A Preferred Stock”), is hereby established.  The number of shares of the Series A Preferred Stock shall be 805,000.

(2)

RANK.  The Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) senior to all classes or series of Common Stock of the Corporation, and to all equity securities the terms of which specifically provide that such equity securities rank junior to such Series A Preferred Stock; (b) on a parity with all equity securities issued by the Corporation the terms of which specifically provide that such equity securities rank on a parity with the Series A Preferred Stock; and (c) junior to all equity securities issued by the Corporation the terms of which specifically provide that such equity securities rank senior to the Series A Preferred Stock.  The term “equity securities” shall not include convertible debt securities.

(3)

DIVIDENDS.

(a)

Holders of the then outstanding shares of Series A Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate of  8.75% of the $50.00 liquidation preference per annum (equivalent to a fixed annual amount of $4.375 per share).  Such dividends shall be cumulative from the first date on which any Series A Preferred Stock is issued (the “Original Issue Date”) and shall be payable quarterly in arrears on or before July 15, October 15, January 15 and April 15 of each year or, if not a business day, the next succeeding business day (each, a “Dividend Payment Date”).  Any dividend payable on the Series A Preferred Stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months (it being understood that the dividend payable on October 15, 2003 will be for less than the full dividend period).  A “dividend period” shall mean, with respect to the first “dividend period,” the period from and including the Original Issue Date to but excluding the first Dividend Payment Date, and with respect to each subsequent “dividend period,” the period from and including a Dividend Payment Date to but excluding the next succeeding Dividend Payment Date or other date as of which accrued dividends are to be calculated.  Dividends will be payable to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Dividend Payment Date falls or on such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to s uch Dividend Payment Date (each, a “Dividend Record Date”).

(b)

No dividends on shares of Series A Preferred Stock shall be declared by the Corporation or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibit such declaration, payment or setting apart for payment or provide that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c)

Notwithstanding the foregoing, dividends on the Series A Preferred Stock shall accrue whether or not the terms and provisions set forth in Section 3(b) hereof at any time prohibit the current payment of dividends, whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.  Accrued but unpaid dividends on the Series A Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable.

(d)

Except as provided in Section 3(e) below, unless full cumulative dividends on the Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than in shares of Common Stock or in shares of any series of Preferred Stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any Preferred Stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation, nor shall any shares of Common Stock, or any shares of Preferred Stock of the Corporation ranking junior to or on a parity with t he Series A Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for other capital stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon liquidation and except for transfers made pursuant to the provisions of Article VII of the Charter).

(e)

When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) on the Series A Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.  No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series A Preferred Stock which may be in arrears.

(f)

Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.  Holders of the Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock in excess of full cumulative dividends on the Series A Preferred Stock as described above.

(4)

LIQUIDATION PREFERENCE.

(a)

Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of Series A Preferred Stock then outstanding are entitled to be paid out of the assets of the Corporation, legally available for distribution to its stockholders, a liquidation preference of $50.00 per share, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of Common Stock or any series of Preferred Stock of the Corporation that ranks junior to the Series A Preferred Stock as to liquidation rights.

(b)

In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Corporation are insufficient to pay the amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock of the Corporation ranking on a parity with the Series A Preferred Stock in the distribution of assets upon liquidation, then the holders of the Series A Preferred Stock and all other such classes or series of capital stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.

(c)

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Stock will have no right or claim to any of the remaining assets of the Corporation.

(d)

Written notice of any such liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation.

(e)

The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation with or into the Corporation, or the sale, lease or conveyance of all or substantially all of the assets or business of the Corporation, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

(5)

REDEMPTION.

(a)

Right of Optional Redemption.  Except as set forth below, the Series A Preferred Stock is not redeemable prior to August 5, 2008.  However, in order to ensure that the Corporation remains a qualified real estate investment trust (“REIT”) for federal income tax purposes, the Series A Preferred Stock will be subject to the provisions of Article VII of the Charter.  Pursuant to Article VII, and without limitation of any provisions of such Article VII, the outstanding Capital Stock of the Corporation, including the Series A Preferred Stock, owned by a stockholder in excess of the Aggregate Stock Ownership Limit will automatically be transferred to a Trust for the benefit of a Charitable Beneficiary and the Corporation will have the right to purchase such transferred shares from the Trust.  On and after August 5, 2008, the Corporation, at its option and upon not less than 30 nor more than 60 days’ written notice, may redeem shares of the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $50.00 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption (except as provided in Section 5(c) below), without interest.  If less than all of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation.

(b)

Limitations on Redemption. Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been, or contemporaneously are, declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchange for capital stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of shares transferred to a Trust pursuant to Article VII in order to ensure that the Corporation remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock.

(c)

Rights to Dividends on Shares Called for Redemption. Immediately prior to any redemption of Series A Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends to and including the redemption date, unless a redemption date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided above, the Corporation will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Stock which is redeemed.

(d)

Procedures for Redemption.

(i)

Notice of redemption will be (A) given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date, and (B) mailed by the Corporation, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on the stock transfer records of the Corporation.  No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given.

(ii)

In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of shares of Series A Preferred Stock to be redeemed; (D) the place or places where the Series A Preferred Stock is to be surrendered for payment of the redemption price; and (E) that dividends on the shares to be redeemed will cease to accrue on such redemption date. If less than all of the Series A Preferred Stock held by any holder is to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A Preferred Stock held by such holder to be redeemed.

(iii)

If notice of redemption of any shares of Series A Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Corporation in trust for the benefit of the holders of any shares of Series A Preferred Stock so called for redemption, then, from and after the redemption date, dividends will cease to accrue on such shares of Series A Preferred Stock, such shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price.  Holders of Series A Preferred Stock to be redeemed shall surrender such Series A Preferred Stock at the place designated in such notice and, upon surrender in accordance with said notice of the certificates for shares of Series A Preferred Stock so redeemed (properly endorsed or assigned f or transfer, if the Corporation shall so require and the notice shall so state), such shares of Series A Preferred Stock shall be redeemed by the Corporation at the redemption price plus any accrued and unpaid dividends payable upon such redemption. In case less than all the shares of Series A Preferred Stock represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares of Series A Preferred Stock without cost to the holder thereof.

(iv)

The deposit of funds with a bank or trust corporation for the purpose of redeeming Series A Preferred Stock shall be irrevocable except that:

(A)

the Corporation shall be entitled to receive from such bank or trust corporation the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and

(B)

any balance of monies so deposited by the Corporation and unclaimed by the holders of the Series A Preferred Stock entitled thereto at the expiration of two years from the applicable redemption dates shall be repaid, together with any interest or other earnings thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings.

(e)

Application of Article VII.  The shares of Series A Preferred Stock are subject to the provisions of Article VII of the Charter, including, without limitation, the provision for the redemption of shares transferred to the Trust (as defined in such Article).  For this purpose, the Market Price of the Series A Preferred Stock shall equal $50.00 per share, plus all accrued and unpaid dividends on the shares of Series A Preferred Stock.

(f)

Status of Redeemed Shares.  Any shares of Series A Preferred Stock that shall at any time have been redeemed or otherwise acquired by the Corporation shall, after such redemption or acquisition, have the status of authorized but unissued Preferred Stock, without designation as to series until such shares are once more classified and designated as part of a particular series by the Board of Directors.

(6)

VOTING RIGHTS.

(a)

Holders of the Series A Preferred Stock will not have any voting rights, except as set forth below.

(b)

Whenever dividends on any shares of Series A Preferred Stock shall be in arrears for six or more quarterly periods (a “Preferred Dividend Default”), the number of directors of the Corporation shall be increased by two (the “Preferred Stock Directors”) and the holders of such shares of Series A Preferred Stock (voting separately as a class with the holders of all other series of Preferred Stock ranking on a parity with the Series A Preferred Stock as to dividends or upon liquidation (“Parity Preferred”) upon which like voting rights have been conferred and are exercisable) will be entitled to vote for election of the Preferred Stock Directors at a special meeting called by the holders of record of at least 20% of the Series A Preferred Stock or the holders of any other series of Parity Preferred, other than the Series A Preferred Stock, so in arrears (u nless such request is received less than 90 days before the date fixed for the next annual or special meeting of stockholders) or at the next annual meeting of stockholders, and at each subsequent annual meeting until all dividends accumulated on such shares of Series A Preferred Stock for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment.

(c)

If and when all accumulated dividends and the dividend for the then current dividend period on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders of shares of Series A Preferred Stock shall be divested of the voting rights set forth in Section 6(b) hereof (subject to revesting in the event of each and every subsequent Preferred Dividend Default) and, if all accumulated dividends and the dividend for the current dividend period have been paid in full or set aside for payment in full on all other series of Parity Preferred, other than the Series A Preferred Stock, upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so elected shall terminate and the number of directors on the Board of Directors shall decrease by two. Any Preferred Stock Director may be removed a t any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding shares of the Series A Preferred Stock when they have the voting rights set forth in Section 6(b) (voting separately as a class with the Parity Preferred, upon which like voting rights have been conferred and are exercisable).  So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or, if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series A Preferred Stock when they have the voting rights set forth in Section 6(b) (voting separately as a class with all other series of Parity Preferred, upon which like voting rights have been conferred and are exercisable).  The Preferred Stock Directors shall each be entitled to one vote per director on any mat ter.

(d)

So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote of the holders of at least two-thirds of the shares of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any authorized capital stock of the Corporation into any such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares or (ii) amend, alter or repeal the provisions of the Charter, whether by merger, conso lidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock or the holders thereof; provided, however, that with respect to the occurrence of any Event, so long as the Series A Preferred Stock remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the Series A Preferred Stock and; provided, further, that any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or any increase in the amount of authorized shares of such series, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights , preferences, privileges or voting powers.

(e)

The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(7)

CONVERSION.  The Series A Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation.

SECOND:  The shares of Series A Preferred Stock have been classified and designated by the Board of Directors under the authority contained in the Charter.

THIRD:  These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law.

FOURTH:  The undersigned President of the Corporation acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.

[SIGNATURE PAGE FOLLOWS]

#

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its President and attested to by its Secretary on this 4th day of August, 2003.

ATTEST:

BEDFORD PROPERTY INVESTORS, INC.

By:   /s/ Dennis Klimmek     

Name:  Dennis Klimmek

Title:    Secretary

By:    /s/ James Moore                (SEAL)

Name:  James Moore

Title:    President

EX-3

#

Exhibit 3.2(b)

BEDFORD PROPERTY INVESTORS, INC.

SECOND AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

Section 1.  Principal Office

The principal office of the Corporation shall be located at such place or places as the Board of Directors may designate.

Section 2.  Additional Offices

The Corporation may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1.  Place

All meetings of stockholders shall be held at the principal office of the Corporation or at such other place within the United States as shall be stated in the notice of the meeting.

Section 2.  Annual Meeting

An annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on a date and at the time set by the Board of Directors during the month of May in each year, except that in 1995, the Annual Meeting shall be held in the month of September.

Section 3.  Special Meetings

The president, chief executive officer or Board of Directors may call special meetings of the stockholders.  Special meetings of stockholders shall also be called by the secretary of the Corporation upon the written request of the holders of shares entitled to cast not less than 25% of all the votes entitled to be cast at such meeting.  Such request shall state the purpose of such meeting and the matters proposed to be acted on at such meeting.  The secretary shall inform such stockholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Corporation by such stockholders of such costs, the secretary shall give notice to each stockholder entitled to notice of the meeting.  Unless requested by the stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter whi ch is substantially the same as a matter voted on at any special meeting of the stockholders held during the preceding twelve months.

Section 4.  Notice

Not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail or by presenting it to such stockholder personally or by leaving it at his residence or usual place of business.  If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid.

Section 5.  Scope of Notice

Any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice.

Section 6.  Organization

At every meeting of stockholders, the Chairman of the Board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board, one of the following officers present shall conduct the meeting in the order stated:  the Vice Chairman of the Board, if there be one, the President, the Vice Presidents in their order of rank and seniority, or a Chairman chosen by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast, shall act as Chairman, and the Secretary, or, in his absence, an assistant secretary, or in the absence of both the Secretary and assistant secretaries, a person appointed by the Chairman shall act as Secretary.

Section 7.  Quorum

At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the charter of the Corporation for the vote necessary for the adoption of any measure.  If, however, such quorum shall not be present at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting.  At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 8.  Voting

A plurality of all the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a director.  Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted.  A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the charter of the Corporation.  Unless otherwise provided in the charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.

Section 9.  Proxies

A stockholder may vote the stock owned of record by him, either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney in fact.  Such proxy shall be filed with the secretary of the Corporation before or at the time of the meeting.  No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

Section 10.  Voting of Stock by Certain Holders

Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock.  Any director or other fiduciary may vote stock registered in his name as such fiduciary, either in person or by proxy.

Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder.  The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable.  On receipt of such certification, the person specified in the certification shall be regarded as, f or the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.

Notwithstanding any other provision of the charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation.  This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition.

Section 11.  Inspectors

At any meeting of stockholders, the chairman of the meeting may, or upon the request of any stockholder shall, appoint one or more persons as inspectors for such meeting.  Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders.

Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting.  If there is more than one inspector, the report of a majority shall be the report of the inspectors.  The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 12.  Nominations and Stockholder Business

(a)

Annual Meetings of Stockholders

(1)

Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 12(a), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(a).

(2)

For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 12, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation.  To be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tent h day following the day on which public announcement of the date of such meeting is first made.  Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee  and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and of the beneficial owner, if any, on whose behalf the pr oposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner and (y) the number of shares of each class of stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(3)

Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 12(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

(b)

Special Meetings of Stockholders

Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting.  Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 12(b), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(b).  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation’s notice of meeting, if the stockholder’s notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public  announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.

(c)

General

(1)

Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12.  The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such defective nomination or proposal be disregarded.

(2)

For purposes of this Section 12, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(3)

Notwithstanding the foregoing provisions of this Section 12, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12.  Nothing in this Section 12 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

Section 13.  Voting by Ballot

Voting on any question or in any election may be viva voce unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.

ARTICLE III

DIRECTORS

Section 1.  General Powers; Qualifications

The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.

Section 2.  Number, Tenure and Qualifications

At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by the Maryland General Corporation Law, nor more than 15, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors.

Section 3.  Independent Directors

At least one-half of the Board of Directors and a majority of the members of every committee of the Board of Directors shall be Independent Directors.  As used herein, the term “Independent” as it applies to the members of the Board of Directors shall have the meanings ascribed to such term in the Listed Company Manual, as amended from time to time, of the New York Stock Exchange.

Section 4.  Annual and Regular Meetings

An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary.  The Board of Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Directors without other notice than such resolution.

Section 5.  Special Meetings

Special meetings of the Board of Directors may be called by or at the request of (i) the chairman of the board (or any co-chairman of the board if more than one), (ii) the president or (iii) a majority of the directors then in office.  The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them.

Section 6.  Notice

Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, facsimile transmission, United States mail or courier to each director at his business or residence address.  Notice by personal delivery, by telephone or a facsimile transmission shall be given at least two days prior to the meeting.  Notice by mail shall be given at least five days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid.  Telephone notice shall be deemed to be given when the director is personally given such notice in a telephone call to which he is a party.  Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Neither the business t o be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 7.  Quorum

A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum must also include a majority of such group.

The Board of Directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.

Section 8.  Voting

The action of the majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable statute.

Section 9.  Telephone Meetings

Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.  Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 10.  Informal Action by Directors

Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each director and such written consent is filed with the minutes of proceedings of the Board of Directors.

Section 11.  Approval by Independent Directors

For all purposes, a transaction which is subject to approval by a majority of the Independent Directors shall be approved if such transaction is approved by a majority of the Directors present and entitled to vote at a meeting at which a quorum is present, provided that the Independent Directors voting to approve the transaction constitute an absolute majority of all Independent Directors serving at such time.

Section 12.  Vacancies

If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder (even if fewer than three directors remain).  Any vacancy on the Board of Directors for any cause other than an increase in the number of directors shall be filled by a majority of the remaining directors, although such majority is less than a quorum which, in the case of any vacancy arising because an Independent Director ceases to be a Director, shall be a majority of the remaining Independent Directors (although less than a quorum).  Any vacancy in the number of directors created by an increase in the number of directors may be filled by a majority vote of the entire Board of Directors; provided, however, that the number of such vacancies that are required to be held by an Independent Director pursuant to Section 3 of Article II I shall be filled by selection of an Independent Director by a majority vote of the remaining Independent Directors (although less than a quorum).  Any individual so elected as director shall hold office for the unexpired term of the director he is replacing.

Section 13.  Compensation

Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive fixed sums per year and/or per meeting and/or per visit to real property owned or to be acquired by the Corporation and for any service or activity they performed or engaged in as directors.  Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.

Section 14.  Resignations

Any Director may resign at any time by giving written notice of such resignation to the Board of Directors or the Secretary of the Corporation.  Any such resignation shall take effect at the time specified therein or, if no time is specified, upon receipt thereof by the Board of Directors or Secretary, and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 15.  Loss of Deposits

No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or stock have been deposited.

Section 16.  Surety Bonds

Unless required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his duties.

Section 17.  Reliance

Each director, officer, employee and agent of the Corporation shall, in the performance of his duties with respect to the Corporation, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board of Directors or officers of the Corporation, regardless of whether such counsel or expert may also be a director.

Section 18.  Certain Rights of Directors, Officers, Employees and Agents

The directors shall have no responsibility to devote their full time to the affairs of the Corporation.  Any director or officer, employee or agent of the Corporation, in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Corporation.  

Section 19.  Mandatory Retirement

Notwithstanding any provision in these Bylaws to the contrary, no person who has attained his or her 73rd birthday at the time of the relevant annual meeting may serve or continue to serve as a member of the Board of Directors of the Corporation beyond the annual meeting of stockholders at which his or her term as a director expires.

ARTICLE IV

COMMITTEES

Section  1.  Number, Tenure and Qualifications

The Board of Directors may appoint from among its members an Executive Committee, an Audit Committee, a Compensation Committee and other committees, composed of two or more directors, to serve at the pleasure of the Board of Directors.  At least a majority of the Directors serving on each such committee shall be Independent Directors.

Section 2.  Powers

The Board of Directors may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Directors, except as prohibited by law.

Section 3.  Meetings

Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors.  A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee.  The act of a majority of the committee members present at a meeting shall be the act of such committee.  The Board of Directors may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meeting unless the Board shall otherwise provide.  In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member. Each committee shall keep minutes of its proceedings.

Section 4.  Telephone Meetings

Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.  Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 5.  Informal Action by Committees

Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 6.  Vacancies

Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 1.  General Provisions

The officers of the Corporation shall include a chief executive officer, a president, a secretary and a treasurer and may include a chairman of the board (or one or more co-chairmen of the board), a vice chairman of the board, one or more vice presidents, a chief operating officer, a chief financial officer, a treasurer, one or more assistant secretaries and one or more assistant treasurers.  In addition, the Board of Directors may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable.  The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders, except that the chief executive officer may appoint one or more vice presidents, assistant secretaries and assistant treasurers.  If the election of officers shall not be held at such meetin g, such election shall be held as soon thereafter as may be convenient.  Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner hereinafter provided.  Any two or more offices except president and vice president may be held by the same person.  In its discretion, the Board of Directors may leave unfilled any office except that of president, treasurer and secretary.  Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

Section 2.  Removal and Resignation

Any officer or agent of the Corporation may be removed by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.  Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the chairman of the board (or any co-chairman of the board if more than one), the president or the secretary.  Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt.  The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.  Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section 3.  Vacancies

A vacancy in any office may be filled by the Board of Directors for the balance of the term.

Section 4.  Chief Executive Officer

The Board of Directors may designate a chief executive officer.  In the absence of such designation, the chairman of the board (or, if more than one, the co-chairmen of the board in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall be the chief executive officer of the Corporation.  The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation.  In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer.

Section 5.  Chief Operating Officer

The Board of Directors may designate a chief operating officer.  The chief operating officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section 6.  Chief Financial Officer

The Board of Directors may designate a chief financial officer.  The chief financial officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.

Section 7.  Chairman of the Board

The Board of Directors shall designate a chairman of the board (or one or more co-chairmen of the board).  The chairman of the board shall preside over the meetings of the Board of Directors and of the stockholders at which he shall be present.  If there be more than one, the co-chairmen designated by the Board of Directors will perform such duties.  The chairman of the board shall perform such other duties as may be assigned to him or them by the Board of Directors.

Section 8.  President

The president or chief executive officer, as the case may be, shall in general supervise and control all of the business and affairs of the Corporation.  In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer.  He may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.

Section 9.  Vice Presidents

In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to him by the president or by the Board of Directors.  The Board of Directors may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility.

Section 10.  Secretary

The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law;(c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the share transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer, the president or by the Board of Directors.

Section 11.  Treasurer

The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.  In the absence of a designation of a chief financial officer by the Board of Directors, the treasurer shall be the chief financial officer of the Corporation.

The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his transactions as treasurer and of the financial condition of the Corporation.

If required by the Board of Directors, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Corporation.

Section 12.  Assistant Secretaries and Assistant Treasurers

The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Directors.  The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors.

Section 13.  Salaries

The salaries and other compensation of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director.

Section 14.  Bonds

The Board of Directors may require that the fidelity of any or all of its officers, employees or agents be secured by bond or otherwise.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1.  Contracts

The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.  Any agreement, deed, mortgage, lease or other document executed by one or more of the directors or by an authorized person shall be valid and binding upon the Board of Directors and upon the Corporation when authorized or ratified by action of the Board of Directors.

Section 2.  Checks and Drafts

All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.

Section 3.  Deposits

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may designate.

ARTICLE VII

STOCK

Section 1.  Certificates

Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of stock held by him in the Corporation.  Each certificate shall be signed by the chief executive officer, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Corporation.  The signatures may be either manual or facsimile.  Certificates shall be consecutively numbered; and if the Corporation shall, from time to time, issue several classes of stock, each class may have its own number series.  A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.  Each certificate representing shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate.  If the Corporation has authority to issue stock of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of stock and, if the Corporation is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the shares of each series to the extent they have been set and the authority of the Board of Directors to set the relative rights and preferences of subsequent series.  In lieu of such statement or summary, the certificate may state that the Corporation will furnish a full statement of such information to any stockholder upon request and without charge.  If any class of stock is restricted by the Corporation as to transferability, the certificate shall contain a full statement of the restriction or state that the Corporation will furnish information about the restrictions to the stockholder on request and without charge.

Section 2.  Transfers

Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.

Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in all respects to the charter of the Corporation and all of the terms and conditions contained therein.

Section 3.  Replacement Certificate

Any officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed.  When authorizing the issuance of a new certificate, an officer designated by the Board of Directors may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 4.  Closing of Transfer Books or Fixing of Record Date

The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose.  Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.

In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days.  If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days before the date of such meeting.

If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (a) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the directors, declaring the dividend or allotment of rights, is adopted.

When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein.

Section 5.  Stock Ledger

The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder.

Section 6.  Fractional Stock; Issuance of Units

The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine.  Notwithstanding any other provision of the charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation.  Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.

ARTICLE VIII

ACCOUNTING YEAR

The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE IX

DISTRIBUTIONS

Section 1.  Authorization

Dividends and other distributions upon the stock of the Corporation may be authorized and declared by the Board of Directors, subject to the provisions of law and the charter of the Corporation.  Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the charter.

Section 2.  Contingencies

Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the charter of the Corporation, the Board of Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.  

ARTICLE XI

SEAL

Section 1.  Seal

The Board of Directors may authorize the adoption of a seal by the Corporation.  The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland.”  The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.

Section 2.  Affixing Seal

Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.

ARTICLE XII

INDEMNIFICATION AND ADVANCES FOR EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Corporation, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify and shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his service in that capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity.  The Corpor ation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.

Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Bylaws or charter of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the charter of the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.  Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute.  The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

EX-4

#

Exhibit 4.4

Execution Copy

BEDFORD PROPERTY INVESTORS, INC.

SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK

REGISTRATION RIGHTS AGREEMENT

August 5, 2003

RBC Dain Rauscher Inc.
One Beacon Street - 6th Floor
Boston, MA 02018

Ladies and Gentlemen:

Bedford Property Investors, Inc., a Maryland corporation (the “Company”), proposes to issue and sell (the “Private Placement”) to RBC Dain Rauscher Inc. (the “Initial Purchaser”) upon terms set forth in a purchase agreement dated as of July 29, 2003 (the “Purchase Agreement”) between the Company and the Initial Purchaser, 805,000 shares of 8.75% Series A Cumulative Redeemable Preferred Stock, par value $.01 per share, of the Company (the “Shares”).  As an inducement to you to enter into the Purchase Agreement and purchase the Shares and in satisfaction of a condition to your obligations under the Purchase Agreement, the Company agrees with the Initial Purchaser for the benefit of the holders from time to time of the Shares, as follows:

1.

Definitions.  Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings:

“Affiliate” of any specified person means any other person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Commission” means the Securities and Exchange Commission.

“Company” has the meaning set forth in the preamble hereto.

“Damages Payment Date” means, with respect to any accrued Liquidated Damages, the next dividend payment date for the Shares following a Registration Default.

“DTC” means The Depository Trust Company.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

“Holder” means the holders from time to time of the Shares.

“Initial Purchaser” has the meaning set forth in the preamble hereto.

“Liquidated Damages” has the meaning set forth in Section 4(b) hereto.

“Losses” has the meaning set forth in Section 5(d) hereto.

“Majority Holders” means the Holders of a majority of the Transfer Restricted Securities.

“Offering Memorandum” has the meaning set forth in the Purchase Agreement.

“Private Placement” has the meaning set forth in the preamble hereto.

“Prospectus” means the prospectus included in any Shelf Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Shares covered by such Shelf Registration Statement, and all amendments and supplements to the Prospectus, including post-effective amendments.

“Purchase Agreement” has the meaning set forth in the preamble hereto.

“Registration Default” has the meaning set forth in Section 4(b) hereof.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

“Shares” means the shares of 8.75% Series A Cumulative Redeemable Preferred Stock to be purchased by the Initial Purchaser pursuant to the Purchase Agreement.

“Shelf Registration” means a registration effected pursuant to Section 2 hereof.

“Shelf Registration Period” has the meaning set forth in Section 2(b) hereof.

“Shelf Registration Statement” means a “shelf” registration statement of the Company pursuant to the provisions of Section 2 hereof, which covers some or all of the Shares on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“Target Effectiveness Date” has the meaning set forth in Section 4(b) hereof.

“Transfer Restricted Securities” means each Share until: (i) the date on which such Share has been disposed of in accordance with the Shelf Registration Statement; or (ii) the date on which such Share is sold in accordance with Rule 144 under the Securities Act.

2.

Shelf Registration.

(a)

The Company shall, as promptly as practicable (but in no event later than the 45th calendar day after the date of this Agreement), file with the Commission a Shelf Registration Statement relating to the offer and sale of the Shares by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and Rule 415 under the Securities Act.

(b)

The Company shall use its reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act on or prior to the 180th calendar day after the obligation to file a Shelf Registration Statement under this Section 2 arises and to keep such Shelf Registration Statement continuously effective in order to permit the Prospectus contained therein to be usable by Holders until the earlier of (x) two years from the date of this Agreement or (y) until all Shares: (i) shall have been disposed of pursuant to such Shelf Registration Statement; (ii) may be sold immediately without restrictions in accordance with Rule 144 under the Securities Act, or (iii) shall have ceased to be outstanding (in any such case, such period being called the “Shelf Registration Period”).  

(c)

The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if the Company voluntarily takes any action that would result in Holders covered thereby not being able to offer and sell Shares during that period, unless such action is (i) required by applicable law and the Company thereafter complies with Section 3(i) below or (ii) permitted pursuant to Section 2(d) below.

(d)

The Company may suspend the use of the Prospectus for period not to exceed 45 days in any 90-day period and in any event not to exceed an aggregate of 90 days in any 12-month period if the Board of Directors of the Company shall have determined in good faith that the public disclosure of the happening of any event contemplated by Section 3(d)(2)(iii) would have a material adverse effect on the business, operations or prospects of the Company or would materially adversely affect a material financing, acquisition or divestiture of assets or stock or other comparable transaction, and it is in the best interests of the Company to suspend such use, and prior to suspending such use the Company provides the Holders with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension.

3.

Registration Procedures.  In connection with the Shelf Registration Statement, the following provisions shall apply:

(a)

As promptly as practicable but in no event less than 28 calendar days prior to the filing of the Shelf Registration Statement, the Company shall mail for next day delivery to each Holder the Notice and Questionnaire (together, the “Notice”) attached hereto as Annex A.  In order for a Holder to be named as a selling securityholder in the Shelf Registration Statement, each Holder must complete, sign and deliver the Notice.  The Company shall not be required to include a Holder’s Shares in the Shelf Registration Statement, and a Holder shall not be entitled to use the prospectus forming a part thereof for resales, if the Shelf Registration Statement has been declared effective by the Commission and such Holder has not delivered to the Company a completed and signed Notice by the deadline set forth in the Notice.  However, if a completed Notice is delivered by a Holder after the later of such deadline and effectiveness of the Shelf Registration Statement, the Company may file post-effective amendments adding Holders to the Shelf Registration Statement as selling securityholders from time to time as it deems appropriate in its sole and absolute discretion.

(b)

The Company shall furnish to each Holder and to the Initial Purchaser and, if identified for the Company by the Holders or the Initial Purchaser, their respective counsel, within a reasonable time prior to the filing thereof with the Commission, a copy of the Shelf Registration Statement, each amendment to the Shelf Registration Statement and each amendment or supplement, if any, to the Prospectus included therein, and shall reflect in each such document, when so filed with the Commission, such comments as such Holders and their counsel shall reasonably request, which have been delivered to the Company within a reasonable amount of time prior to such filing.

(c)

The Company shall ensure that:

(i)

the Shelf Registration Statement and any amendment thereto and any Prospectus contained therein and any amendment or supplement thereto (including each report or document incorporated therein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act and the rules and regulations thereunder;

(ii)

the Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and

(iii)

the Prospectus forming part of the Shelf Registration Statement, including any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d)

(1)

The Company shall advise the Initial Purchaser and the Holders of the Shares covered by the Shelf Registration Statement, and, if requested by any such Holder, confirm such advice in writing:

(i)

when the Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post-effective amendment thereto has become effective; and

(ii)

of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information.

(2)

During the Shelf Registration Period, the Company shall advise the Initial Purchaser and the Holders of Shares covered by the Shelf Registration Statement, and, if requested by the Initial Purchaser or any Holder, confirm such advice in writing:

(iii)

of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose;

(iv)

of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares included therein for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and

(v)

of the happening of any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the Shelf Registration Statement or the Prospectus does not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made).

(e)

The Company shall use its best efforts to obtain the withdrawal of any order suspending the effectiveness of any Shelf Registration Statement at the earliest possible time.

(f)

The Company shall furnish to each Holder of Shares covered by any Shelf Registration Statement that so requests, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto.

(g)

Prior to any offering of Shares pursuant to the Shelf Registration Statement, the Company shall (i) register or qualify or cooperate with the Holders and their respective counsel in connection with the registration or qualification of such Shares for offer and sale under the securities or “blue sky” laws of such jurisdictions within the United States as any such Holders reasonably request in writing and (ii) do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Shares covered by the Shelf Registration Statement; provided, however, that the Company will not be required to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not then so qualified, to file any general consent to service of process or to take any action that would subject it to general service of pr ocess in any such jurisdiction where it is not then so subject or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

(h)

The Company shall, during the Shelf Registration Period, deliver to each Holder of Shares covered by any Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents (except during periods specified in Section 2(d) above and except during the continuance of a happening described in Section 3(d)(2)(iii) provided that the Company thereafter complies with Section 3(i) of this Agreement) to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Shares  covered by the Prospectus or any amendment or supplement thereto.

(i)

Subject to the Company’s rights to suspend the use of the Prospectus pursuant to Section 2(d) of this Agreement, upon the happening of any event contemplated by paragraph (d)(2)(iii) of this Section 3, the Company shall promptly prepare and file a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or any other required document so that, as thereafter delivered to purchasers of the Shares included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and notify the Holders to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event until adequate changes to the Prospectus have been made.  

(j)

Not later than the effective date of any such Shelf Registration Statement hereunder, the Company shall provide a CUSIP number for the Shares registered under such Shelf Registration Statement, and provide the Transfer Agent with a global certificate for such Shares, in a form eligible for deposit with The Depository Trust Company.

(k)

The Company shall file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its securityholders as soon practicable an earnings statement (in form complying with Rule 158 under the Securities Act) for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the Securities Act.

(l)

The Company may require each Holder of Shares to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Shares as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement.  Each Holder as to which the Shelf Registration Statement is being effected agrees to furnish to the Company all information with respect to such Holder necessary to make the information previously furnished to the Company by such Holder for inclusion in the Shelf Registration Statement not materially misleading.  

4.

Registration Expenses; Remedies.

(a)

The Company shall bear all expenses incurred in connection with the performance of its obligations under Sections 2 and 3 hereof, including without limitation: (i) all Commission, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for the Initial Purchaser or Holders in connection with blue sky qualification of any Shares), (iii) all expenses of any persons in preparing or assisting in preparing, word processing, printing and distributing any Shelf Registration Statement, any Prospectus, any amendments or supplements thereto, (iv) the fees and disbursements of the transfer agent and its counsel, and (v) the fees and disbursements of counsel for the Company and the reason able fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Initial Purchaser).  Each Holder shall pay all discounts, commissions, transfer taxes and all other selling expenses, if any, relating to the sale or disposition of such Holder’s Shares pursuant to the Shelf Registration Statement and the fees and disbursements of any counsel (other than as contemplated in the immediately preceding sentence) retained by such Holder.

(b)

In the event that:

(i)

the Company fails to file the Shelf Registration Statement on or before the date specified for such filing under Section 2(a);

(ii)

the Shelf Registration Statement is not declared effective by the Commission on or prior to the date specified for such effectiveness under Section 2(b) (the “Target Effectiveness Date”);

(iii)

the Shelf Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with the resales of Transfer Restricted Securities during the periods specified in this Registration Rights Agreement (each such event referred to in clauses (i) through (iii) above, a “Registration Default”);

then the Company will pay liquidated damages (“Liquidated Damages”), to each Holder from and including the day following such Registration Default until the earlier of: (A) such Registration Default is cured or (B) the expiration of the Shelf Registration Statement Period.  The Company shall pay Liquidated Damages at a rate of 0.50% per year of the liquidation value of the Transfer Restricted Securities held by such Holder.  Notwithstanding the foregoing, if a Registration Default arises under clause (iii) above solely because the Company in good faith has exercised its blackout rights provided in Section 2(d), then the Company shall be under no obligation to pay Liquidated Damages, and no Liquidated Damages shall accrue, during such blackout period.  In addition, notwithstanding the foregoing, a Holder shall not be entitled to Liquidated Damages as a result of a Registration Default if such Holder (x) does not complete and return a Notice to the Company prior to the Target Effectiveness Date and a Registration Default arises under clause (ii) above, or (y) does not complete and return a Notice to the Company prior to the Target Effectiveness Date and is not thereafter named as a selling securityholder in the Shelf Registration Statement and a Registration Default arises under clause (iii) above.

(c)

The Company shall pay all accrued Liquidated Damages on each Damages Payment Date to the Holders entitled thereto by wire transfer of immediately available funds.

(d)

Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease.

(e)

Except as provided in this subsection, the Liquidated Damages as set forth in this Section 4 shall be the exclusive monetary remedy available to the Holders for such Registration Default.  In no event shall the Company be required to pay Liquidated Damages in excess of the applicable maximum amount of one-half of one percent (0.50%) set forth above, regardless of whether one or multiple Registration Defaults exist at the same time.  The Company acknowledges that any failure by the Company to comply with its obligations under Section 2 hereof may result in irreparable injury to the Initial Purchaser or the Holders for which there is no adequate remedy at law, and that in the event of any such failure, the Initial Purchaser or any Holder may be entitled to compel specific performance of the obligations of the Company under this Registration Rights Agreement in accordance with its terms and conditions; provided, however, that in no event shall the Company be required to take any action or permit any sale which, in the opinion of the Company’s outside legal counsel, would result in a violation of applicable state or federal securities laws.

5.

Indemnification and Contribution.

(a)

In connection with the Shelf Registration Statement, the Company agrees to indemnify and hold harmless, the Initial Purchaser, each Holder covered thereby, and each of their directors, officers, employees and agents, and each person who controls them within the meaning of either the Securities Act or the Exchange Act, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in such Shelf Registration Statement or in any Prospectus contained therein, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage or liability (or action in respect thereof); provided, however, that the Company will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such indemnified party specifically for inclusion therein or any information included therein pursuant to Section 3(l); p rovided further, however, that the Company will not be liable in any case with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto to the extent that any such loss, claim, damage or liability (or action in respect thereof) resulted from the fact that any indemnified party sold Shares to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented, if the Company has previously complied with the provisions of Section 3(d) and 3(g) hereof and if the untrue statement contained in or omission from such preliminary prospectus or Prospectus was corrected in the Prospectus as then amended or supplemented.  This indemnity agreement will be in addition to any liability that the Company may otherwise have.

(b)

Each Holder of Shares covered by a Registration Statement severally agrees to (i) indemnify and hold harmless (A) the Company, (B) each of the directors of the Company, (C) each of the officers of the Company who signs such Shelf Registration Statement and (D) each Person who controls the Company within the meaning of either the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with respect to written information furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity; and (ii) reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim; provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Shares pursuant to such Shelf Registration Statement.  This indemnity agreement will be in addition to any liability that any such Holder may otherwise have.

(c)

Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve the indemnifying party from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses, and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel (including local co unsel) of the indemnifying party’s choice at the indemnifying party’s expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party.  Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would, in the reasonable judgment of the indemnified party, present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party.  It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expense s shall be reimbursed as they are incurred.  Any such separate firm for the indemnified Holders shall be designated in writing by the Majority Holders, and any such separate firm for the Company, its directors, respective officers and such control persons of the Company shall be designated in writing by the Company.  An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding.  Anything in this subsection to the contrary notwithstanding, an indemnifying party shall not be liable f or any settlement of any claim or action effected without its prior written consent; provided, however, that such consent was not unreasonably withheld.

(d)

In the event that the indemnity provided in paragraph (a) or (b) of this Section 5 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) (collectively “Losses”) to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Private Placement and sale of the Shares pursuant to the Shelf Registration Statement that resulted in such Losses, as well as any other relevant equit able considerations; provided, however, that in no case shall the Initial Purchaser or any subsequent Holder of any Shares be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Shares.  If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions that resulted in such Losses as well as any other relevant equitable considerations.  Benefits received by the Company shall be deemed to be equal to the total net proceeds from the Private Placement (before deducting expenses).  Benefits received by the Initial Purchaser shall be deemed to be equal to the value of receiving Shares re gistered under the Securities Act.  Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand.  The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation that did not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  For purposes of this Section 5, each person who controls a Holder within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holde r, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, each officer of the Company who shall have signed the Shelf Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d).

(e)

The provisions of this Section 5 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 5 hereof, and will survive the sale of Shares by a Holder pursuant to the Shelf Registration Statement.

6.

Rule 144A.  In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A.

7.

Miscellaneous.

(a)

No Inconsistent Agreement.  The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement that conflicts with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof.

(b)

Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of at least a majority of the then outstanding Shares; provided that, with respect to any matter that directly or indirectly affects the rights of the Initial Purchaser hereunder, the Company shall obtain the written consent of the Initial Purchaser.  Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Shares are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect th e rights of other Holders may be given by the Majority Holders, determined on the basis of Shares being sold rather than registered under such Shelf Registration Statement.

(c)

Notices.  All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery:

(i)

if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 7(c), which address initially is, with respect to each Holder, the address of such Holder maintained by the transfer agent, with a copy in like manner to RBC Dain Rauscher Inc.;

(ii)

if to the Initial Purchaser, at RBC Dain Rauscher Inc., One Beacon Street-6th Fl, Boston, Massachusetts 02108, Attention: Michael Coster, with copies to Clifford Chance US LLP, 200 Park Avenue, New York, New York 10166, Attention: Bonnie A. Barsamian, Esq. and RBC Dain Rauscher Inc. at 1 Liberty Plaza, 165 Broadway, New York, New York 10006, Attention: Mark Egert; and

(iii)

if to the Company, Bedford Property Investors, Inc., 270 Lafayette Circle, Lafayette, CA 94549, Attention: Hahn Kihara, with a copy to Simpson Thacher & Bartlett LLP, 3330 Hillview Avenue, Palo Alto, California 94304, Attention: Kevin Kennedy, Esq.

All such notices and communications shall be deemed to have been duly given when received.  The Initial Purchaser, on the one hand, or the Company, on the other, by notice to the other party or parties may designate additional or different addresses for subsequent notices or communications.

(d)

Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders.  The Company hereby agrees to extend the benefits of this Agreement to any Holder and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.

(e)

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

(f)

Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(g)

Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(h)

Severability.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

(i)

Shares Held by the Company, Etc.  Whenever the consent or approval of Holders of a specified percentage of the Shares is required hereunder, Shares held by the Company or its Affiliates (other than subsequent Holders if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Shares) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

08/08/03 8:47 AM

Please confirm that the foregoing correctly sets forth the agreement between the Company and you.

Very truly yours,

BEDFORD PROPERTY INVESTORS, INC.

By:  /s/ Hanh Kihara

         Name:  Hanh Kihara

         Title: Senior Vice President and

                   Chief Financial Officer

The foregoing Agreement is hereby
accepted as of the date first above written.

RBC DAIN RAUSCHER INC.

By:   /s/ Michael Coster

         Name:  Michael Coster

         Title:  Managing Director

Annex A

Bedford Property Investors, Inc.

Notice of Registration Statement

and

Selling Securityholder Questionnaire

The undersigned beneficial holder of 8.75% Series A Cumulative Redeemable Preferred Stock (the “Registrable Securities”) of Bedford Property Investors, Inc. (the “Company”) understands that the Company has filed or intends to file with the United States Securities and Exchange Commission (the “Commission”) a registration statement on an appropriate form (the “Shelf Registration Statement”) for the registration and resale under Rule 415 of the United States Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities in accordance with the terms of the Registration Rights Agreement, dated as of August 5, 2003 (the “Registration Rights Agreement”), between the Company and the Initial Purchaser party thereto.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  

In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement (or a supplement or amendment thereto), a beneficial owner of Registrable Securities generally will be required to be named as a Selling Securityholder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions, as described below).  In addition, this Notice of Registration Statement and Selling Securityholder Questionnaire must be completed, executed and delivered to the Company at the address set forth herein for receipt ON OR BEFORE OCTOBER 5, 2003.  Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as se lling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities.  However, post-effective amendments adding Selling Securityholders to the Shelf Registration Statement may be filed by the Company from time to time, as it deems appropriate in its sole and absolute discretion.  The Company has agreed to pay liquidated damages pursuant to the Registration Rights Agreement under certain circumstances as set forth therein.

Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby gives notice to the Company of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the Shelf Registration Statement.  The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement.  The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete:

A-#

QUESTIONNAIRE

1.  (a)

Full legal name of Selling Securityholder:

     (b)

Full legal name of registered holder (if not the same as in (a) above) of Registrable Securities listed in Item 3 below:

     (c)

Full legal name of DTC participant (if applicable and if not the same as (b) above) through which

Registrable Securities listed in Item 3 below are held:

2.

Address for notices to Selling Securityholder:

Telephone:

Fax:

Contact Person:

3.

Beneficial ownership of Registrable Securities:

Principal amount of Registrable Securities beneficially owned:  

CUSIP No(s). of such Registrable Securities:  

4.

Beneficial Ownership of other securities of the Company:

Except as set forth below in this Item 4, the undersigned Selling Securityholder is not the beneficial or registered owner of any shares of common stock or any other securities of the Company, other than the Registrable Securities listed above in Item 3.

State any exceptions here:

5.

Relationships with the Company:

Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

6.

Plan of Distribution:

Except as set forth below, the undersigned Selling Securityholder(including its donees or pledges)  intends to distribute the Registrable Securities listed above in Item 3 pursuant to the Shelf Registration Statement only as follows (if at all):  Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents.  Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices.  Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale, (ii) in the over-the-cou nter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options.  In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume.  The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.

State any exceptions here:

By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the prospectus delivery and other provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder, particularly Regulation M.

The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons under certain circumstances as set forth therein.

Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholders against certain liabilities.

In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item 3 above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement.

By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items 1 through 6 above and the inclusion of such information in the Shelf Registration Statement and related Prospectus.  The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related prospectus.

In accordance with the Selling Securityholder's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect.  All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows:

(i)

To the Company:

Bedford Property Investors, Inc.

270 Lafayette Circle

Lafayette, CA  94549

Attention:  Dennis Klimmek

(ii)

With a copy to:

Simpson Thacher & Bartlett

3330 Hillview Avenue

Palo Alto, CA  94304

Attention:  Kevin Kennedy

Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item 3 above).  This Agreement shall be governed in all respects by the laws of the State of New York.

[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]

A-#

IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:  

Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable Securities)

By:  

Name:
Title:

A-#

Exhibit 1
to Annex A

NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT

Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, CA  94549

Attention:  Dennis Klimmek

EquiServe Trust Company, N.A.
525 Washington Blvd., 9^th Floor
Jersey City, NJ  07310

Attention: Thomas McDonough

Re:

Bedford Property Investors, Inc. (the "Company")
8.75% Series A Cumulative Redeemable Preferred Stock (the "Shares")

Dear Sirs:

Please be advised that _____________________ has transferred $___________ aggregate principal amount of the above-referenced pursuant to an effective Registration Statement on Form [S-3] (File No. 333-____) filed by the Company.

We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied with respect to the transfer described above and that the above-named beneficial owner of the Shares is named as a selling securityholder in the Prospectus dated _____, 200_, or in amendments or supplements thereto, and that the aggregate principal amount of the Shares transferred are [all] [a portion of] the Shares listed in such Prospectus as amended or supplemented opposite such owner's name.

Dated:

Very truly yours,

(Name)

By

     (Authorized Signature)

A-#

EX-10

Exhibit 10.49

Bedford Property Investors, Inc.

270 Lafayette Circle

Lafayette, CA 94549

[Date]

[Name of Employee]

270 Lafayette Circle

Lafayette, CA  94549

Change of Control Retention Agreement

Dear ________:

Bedford Property Investors, Inc., a Maryland corporation (the “Company”), considers it essential to the best interests of its stockholders 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 you, 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 that 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, which assumption will be adjusted for any facts that indicate otherwise; 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 in the form attached as Exhibit A hereto and which you do not revoke 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, any successor employer arising from the Change of Control, or by you during the Change in Control Period shall be communicated by a notice of termination to the other party (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 you 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 or (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 previously 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 d evisee, 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.

“Cause” shall mean (a) your felony conviction, (b) your disclosure of material trade secrets or other material confidential information related to the business of the Company and its subsidiaries or (c) your 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) upon failure to cure after reasonable notice from Company and after a subsequent 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.  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-fifths 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) the Company or any of its subsidiaries or (ii) 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 real estate assets of the Company are sold, liquidated or distributed.  If less than all of the real estate assets of the Company are sold, liquidated or distributed, the Board shall conclusively make the determination of whether substantially all of the real estate 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, title, or nature or status of 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 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 or successors (whether by acquisition of stock or assets of the Company) during the Change in Control Period for Good Reason.

“Notice of Termination” has the meaning assigned thereto in Section 4.

“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 three annual bonuses paid to you prior to the your Date of Termination, annualizing bonuses paid for services rendered for less than a full year or (b) the average of the three annual bonuses paid to you prior to the Change in Control Date, annualizing bonuses paid for services rendered for less than a full year.  If you have been eligible to receive fewer than three bonuses prior to such 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.

“Reference Salary” shall mean the greater of (a) the annual rate of your base salary from the Company and its subsidiaries in effect immediately prior to the date of your Involuntary Termination and (b) the annual rate of your base salary from the Company and its subsidiaries 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, ho wever, 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)

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.  

(d)

Withholding.  Amounts paid to you hereunder shall be subject to all applicable federal, state and local withholding taxes.  

(e)

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 that 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.

(f)

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.

(g)

Only Retention Agreement.  Any prior retention agreement between you and the Company and/or between you and Bedford Acquisitions, Inc. is cancelled upon your acceptance of this Retention 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:  /s/ Peter B. Bedford    

Peter B. Bedford, Chairman and CEO

Agreed to as of this [Day] day of [Month], [Year]

____________________________

[Name of Employee]

Severance Factor:  One (1.00)

EX-10

Exhibit 10.50

233 South Wacker Drive, Suite 2800

Chicago, Illinois 60606

Tel  312-234-2732

Fax  312-234-3603

Bank of America N.A.

To:

Bedford Property Investors Inc.

270 Lafayette Circle

Lafayette, CA 94549

ATTN:

Hanh Kihara

TEL:

925-283-8910

FAX:

925-283-5697

FROM:

Bank of America, N.A.

233 South Wacker Drive – Suite 2800

Chicago, Illinois 60606

Gerry Rosales/Mike Allison

Date:

10JUL03 (REVISED 31JUL03)

Our Reference No. 3097721

Internal Tracking Nos.    13027499

THIS CONFIRMATION SUPERSEDES AND REPLACES ANY AND ALL CONFIRMATIONS PREVIOUSLY SENT TO YOU IN RESPECT OF THIS TRANSACTION.

The purpose of this letter agreement is to confirm the terms and conditions of the Transaction entered into between Bedford Property Investors Inc. and Bank of America, N.A. (each a "party" and together "the parties") on the Trade Date specified below (the "Transaction").  This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified in paragraph 1 below (the "Agreement").

The definitions and provisions contained in the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc., (the "Definitions") are incorporated into this Confirmation.  In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern.

1.

This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 15MAR02, as amended and supplemented from time to time (the "Agreement"), between the parties.  All provisions contained in the Agreement govern this Confirmation except as expressly modified below.

In this Confirmation "Party A" means Bank of America, N.A. and "Party B" means Bedford Property Investors, Inc.

2.

The terms of the particular Transaction to which this Confirmation relates are as follows:

Notional Amount:

USD 24,500,000.00

Trade Date:

03JUL03

Effective Date:

03JUL03

Termination Date:

01SEP05, subject to adjustment in accordance with the Following Business Day Convention

Amortization:

APPLICABLE (See Schedule A attached hereto)

Fixed Amounts:

Fixed Rate Payer:

Party B

Fixed Rate Payer Payment Dates:

The 1^st of each Month, commencing 01AUG03 and ending 01SEP05, subject to adjustment in accordance with the Following Business Day Convention.

Fixed Rate:

1.59500%

Fixed Rate Day Count Fraction:

30/360

Floating Amounts:

Floating Rate Payer:

Party A

Floating Rate Payer Payment Dates:

The 1^st of each Month, commencing 01AUG03 and ending 01SEP05, subject to adjustment in accordance with the Following Business Day Convention.

Floating Rate for initial Calculation Period:

1.03500%

Floating Rate Option:

USD-LIBOR-BBA, provided that the word "two" on the third line of Section 7.1(w)(xvii) of the Definitions will be deleted and replaced with the word "six"

Averaging:

Inapplicable

Designated Maturity:

1 Month

Spread:

None

Floating Rate Day Count Fraction:

30/360

Reset Dates:

The first day of each Calculation Period

Compounding:

Inapplicable

Business Days:

New York

Calculation Agent:

Party A

3.

Recording of Conversations:

Each party to this Transaction acknowledges and agrees to the tape recording of conversations between the parties to this Transaction whether by one or other or both of the parties or their agents, and that any such tape recordings may be submitted in evidence in any Proceedings relating to the Agreement and/or this Transaction.

4.

Account Details:

Account for payments to Party A:

USD

We will debit your account.

NAME:

Bank of America

ABA #:

CA

ACCT:

xxxxxxxxxx

              Bedford Property Investors Deposit Acct.

Account for payments to Party B:

USD

NAME:

Bank of America

ABA #:

CA

NAME:

Bedford Property Investors Deposit Acct.

ACCT:

xxxxxxxxxx

5.

Offices:

The Office of Party A for this

Transaction is:

Charlotte, NC

Please send reset notices to fax no. (312–234-3603)

The Office of Party B for this

Transaction is:

California, USA

Credit Support Document:  As per Agreement (and Credit Support Annex if applicable).

Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by returning via telecopier an executed copy of this Confirmation to the attention of Global Derivative Operations at (fax no. (312) 234-3603).

Yours Sincerely,

Bank of America, N.A.

/s/ Dave Walker           

Dave Walker

Senior Vice President

Authorized Signatory

Accepted and confirmed as of the date first written:

Bedford Property Investors Inc.

By:  /s/  Hanh Kihara

Name:  Hanh Kihara

Title:  Chief Financial Officer

Our Reference #3097721

SCHEDULE A TO CONFIRMATION
AMORTIZATION SCHEDULE
CALCULATION PERIOD	NOTIONAL AMOUNT
03JUL03   01AUG03	24,500,000.00
01AUG03   02SEP03	24,500,000.00
02SEP03   01OCT03	24,500,000.00
01OCT03   03NOV03	24,500,000.00
03NOV03   01DEC03	24,500,000.00
01DEC03   02JAN04	24,500,000.00
02JAN04   02FEB04	23,500,000.00
02FEB04   01MAR04	23,500,000.00
01MAR04   01APR04	23,500,000.00
01APR04  03MAY04	23,500,000.00
03MAY04  01JUN04	23,500,000.00
01JUN04   01JUL04	23,500,000.00
01JUL04  02AUG04	23,500,000.00
02AUG04   01SEP04	23,500,000.00
01SEP04   01OCT04	23,500,000.00
01OCT04   01NOV04	23,500,000.00
01NOV04   01DEC04	23,500,000.00
01DEC04   03JAN05	23,500,000.00
03JAN05   01FEB05	23,000,000.00
01FEB05   01MAR05	23,000,000.00
01MAR05   01APR05	23,000,000.00
01APR05   02MAY05	23,000,000.00
02MAY05   01JUN05	23,000,000.00
01JUN05   01JUL05	23,000,000.00
01JUL05   01AUG05	23,000,000.00
01AUG05   01SEP05	23,000,000.00

EX-10

#

(Multicurrency—Cross Border)

ISDA®

^{International Swap Dealers Association. Inc.}

MASTER AGREEMENT

#

Exhibit 10.51

Dated as of March 15, 2002

BANK OF AMERICA, N.A. and BEDFORD PROPERTY INVESTORS, INC.

have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties confirming those Transactions.

Accordingly, the parties agree as follows:—

1.

Interpretation

(a)

Definitions.  The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.

(b)

Inconsistency.  In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail.  In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.

(c)

Single Agreement.  All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions.

2.

Obligations

(a)

General Conditions.

(i)                                                                                                                                                  & nbsp;                                                                     

Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.

(ii)                                                                                                                                                                                                                         

Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.

(iii)                                                                                                                                                   ;                                                                      

Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.

Copyright ©1992 by International Swap Dealers Association, Inc.

(b)

Change of Account.  Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.

(c)

Netting.  If on any date amounts would otherwise be payable:—

(i)

in the same currency; and

(ii)

in respect of the same Transaction,

by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction.  The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date).  This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.

(d)

Deduction or Withholding for Tax.

(i)

Gross-Up.

All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect.  If a party is so required to deduct or withhold, then that party (“X”) will:—

(1)

promptly notify the other party (“Y”) of such requirement;

(2)

pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;

(3)

promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and

(4)

if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required.  However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:—

(A)                                                                                                                                                 &nb sp;                                                                      

the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or

(B)                                                                                                                                                 &nb sp;                                                                      

the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law.

(i)

Liability.  If:—

(1)

X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4);

(2)

X does not so deduct or withhold; and

(3)

a liability resulting from such Tax is assessed directly against X,

then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).

(e)

Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate.  Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.  If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.

3.

Representations

Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:¾

(a)

Basic Representations.

(i)   Status.  It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing;

(ii)   Powers.  It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance;

(iii)  No Violation or Conflict.  Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;

(iv)  Consents.  All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and

(v)  Obligations Binding.  Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).

(b)

Absence of Certain Events.  No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.

(c)

Absence of Litigation.  There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.

(d)

Accuracy of Specified Information.  All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.

(e)

Payer Tax Representation.  Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true.

(f)

Payee Tax Representations.  Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true.

4.

Agreements

Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:¾

(a)

Furnish Specified Information.  It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:¾

(i)

any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;

(ii)

any other documents specified in the Schedule or any Confirmation; and

(iii)

upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,

in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.

(a)

Maintain Authorisations.  It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.

(b)

Comply with Laws.  It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.

(c)

Tax Agreement.  It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure.

(d)

Payment of Stamp Tax.  Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated,

(e)

organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located (“Stamp Tax Jurisdiction”) and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.

1.

Events of Default and Termination Events

(a)

Events of Default.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an “Event of Default”) with respect to such party:—

(i)

Failure to Pay or Deliver.  Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;

(ii)

Breach of Agreement.  Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;

(i)

Credit Support Default.

(1)

Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;

(2)

the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or

(3)

the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;

(i)

Misrepresentation.  A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;

(ii)

Default under Specified Transaction.  The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such ac tion is taken by any person or entity appointed or empowered to operate it or act on its behalf);

(iii)

Cross Default.  If “Cross Default” is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however

(iv)

described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any a pplicable notice requirement or grace period);

(i)

Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:—

(1)

is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is n ot dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the even ts specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or

(i)

Merger Without Assumption.  The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:—

(1)  the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or

(2)  the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.

(b)

Termination Events.  The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event

Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:—

(i)

Illegality.  Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):—

(1)  to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or

(2)  to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;

(ii)  Tax Event.  Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law,  the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));

(iii)  Tax Event Upon Merger.  The party (the “Burdened Party”) on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);

(iv)  Credit Event Upon Merger.  If “Credit Event Upon Merger” is specified in the Schedule as applying to the party, such party (“X”), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or

(v)  Additional Termination Event.  If any “Additional Termination Event” is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).

(c)

Event of Default and Illegality.  If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.

6.

Early Termination

(a)

Right to Terminate Following Event of Default.  If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions.  If, however, “Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately precedi ng the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).

(b)

Right to Terminate Following Termination Event.

(i)  Notice.  If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.

(ii)  Transfer to Avoid Termination Event.  If either an Illegality under Section 5(b)(i)(l) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.

If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after notice is given under Section 6(b)(i).

Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party’s policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.

(iii)  Two Affected Parties.  If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.

(iv)   Right to Terminate. If:—

(1)  a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or

(2)  an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,

either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then

continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.

(c)

Effect of Designation.

(i)  If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.

(ii)  Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).

(d)

Calculations.

(i)  Statement.  On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid.  In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.

(ii)  Payment Date.  An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compoundin g and the actual number of days elapsed.

(e)

Payments on Early Termination.  If an Early Termination Date occurs. the following provisions shall apply based on the parties’ election in the Schedule of a payment measure, either “Market Quotation” or “Loss”, and a payment method, either the “First Method” or the “Second Method”. If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that “Market Quotation” or the “Second Method”, as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.

(i)  Events of Default.  If the Early Termination Date results from an Event of Default:—

(1)  First Method and Market Quotation.  If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts  owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.

(2)  First Method and Loss.  If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party’s Loss in respect of this Agreement.

(3)  Second Method and Market Quotation.  If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the

Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.

(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party’s Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.

(ii)

Termination Events.  If the Early Termination Date results from a Termination Event:—

(1)  One Affected Party.  If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.

(2)  Two Affected Parties. If there are two Affected Parties:—

(A)  if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of  the party with the higher Settlement Amount (“X”) and the Settlement Amount of the party with the lower Settlement Amount (“Y”) and (b) the Termination Currency Equivalent of the Unpaid Amounts owing  to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and

(B)  if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss (“X”) and the Loss of the party with the lower Loss (“Y”).

If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.

(iii)  Adjustment for Bankruptcy.  In circumstances where an Early Termination Date occurs because “Automatic Early Termination” applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).

(iv)   Pre-Estimate.  The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to  recover any additional damages as a consequence of such losses.

7.

Transfer

Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:—

(a)

a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and

(b)

a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8.

Contractual Currency

(a)

Payment in the Contractual Currency.  Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into this Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.

(b)

Judgments.  To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party a s a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term “rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.

(c )

Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.

(d)

Evidence of Loss.  For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made.

9.

Miscellaneous

(a)

Entire Agreement.  This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.

(b)

Amendments.  No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.

(c)

Survival of Obligations.  Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.

(d)

Remedies Cumulative.  Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.

(e)

Counterparts and Confirmations.

(i)  This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.

(ii)  The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.

(f)

No Waiver of Rights.  A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.

(g)

Headings.  The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.

10.

Offices; Multibranch Parties

(a)

If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.

(b)

Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.

(c)

If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation.

11.

Expenses

A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document

to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.

12.

Notices

(a)

Effectiveness.  Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:—

(i)  if in writing and delivered in person or by courier, on the date it is delivered;

(ii)  if sent by telex, on the date the recipient’s answerback is received;

(iii)  if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine);

(iv)  if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or

(v)  if sent by electronic messaging system, on the date that electronic message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.

(b)

Change of Addresses.  Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.

13.

Governing Law and Jurisdiction

(a)

Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule.

(b)

Jurisdiction.  With respect to any suit, action or proceedings relating to this Agreement (“Proceedings”), each party irrevocably:—

(i)  submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and

(ii)  waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.

(c)

Service of Process.  Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings.  If for any

reason any party’s Process Agent is unable to act as such,  such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.

(d)

Waiver of Immunities.  Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.

14.

Definitions

As used in this Agreement:—

“Additional Termination Event” has the meaning specified in Section 5(b).

“Affected Party” has the meaning specified in Section 5(b).

“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.

“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting power of the entity or person.

“Applicable Rate” means:—

(a)

in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b)

in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate;

(c)

in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and

(d)

in all other cases, the Termination Rate.

“Burdened Party” has the meaning specified in Section 5(b).

“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into.

“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent.

“Credit Event Upon Merger” has the meaning specified in Section 5(b).

“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.

“Credit Support Provider” has the meaning specified in the Schedule.

“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.

“Defaulting Party” has the meaning specified in Section 6(a).

“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).

“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.

“Illegality” has the meaning specified in Section 5(b).

“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).

“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and “lawful” and “unlawful” will be construed accordingly.

“Local Business Day” means, subject to the Schedule, a day on which commercial banks are open for  business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the pl ace where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.

“Loss” means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the &nbs p;relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.

“Market Quotation” means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the “Replacement Transaction”) that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have

been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date.  The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values.  If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations.  For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded.  If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.

“Non-default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.

“Non-defaulting Party” has the meaning specified in Section 6(a).

“Office” means a branch or office of a party, which may be such party’s head or home office.

“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Reference Market-makers” means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.

“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.

“Scheduled Payment Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.

“Set-off” means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.

“Settlement Amount” means, with respect to a party and any Early Termination Date, the sum of:—

(a)

the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and

(b)

such party’s Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.

“Specified Entity” has the meaning specified in the Schedule.

“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.

“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transa ctions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.

“Stamp Tax” means any stamp, registration, documentation or similar tax.

“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.

“Tax Event” has the meaning specified in Section 5(b).

“Tax Event Upon Merger” has the meaning specified in Section 5(b).

“Terminated Transactions” means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if “Automatic Early Termination” applies, immediately before that Early Termination Date).

“Termination Currency” has the meaning specified in the Schedule.

“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as woul d be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date.  The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.

“Termination Event” means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.

“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.

“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market

value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate.  Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed.  The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.

IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.

BANK OF AMERICA, N.A.


By: . /s/ Roger H. Heintzelman Name: Roger H. Heintzelman Title: Principal Date:  June 24, 2003 BEDFORD PROPERTY INVESTORS, INC.


By: . /s/ Hanh Kihara Name: Hanh Kihara Title: Sr. V. P. and Chief Financial Officer Date:  June 19, 2003

Multicurrency—Cross Border)

ISDA ®

International Swap Dealers Association, Inc.

SCHEDULE

to the

Master Agreement

dated as of March 15, 2002

between	BANK OF AMERICA, N.A.	and	BEDFORD PROPERTY INVESTORS, INC.
	(“Party A”)		(“Party B”)

PART 1:  Termination Provisions

(a)

“Credit Agreement” means the Fifth Amended and Restated Credit Agreement dated as of May 18, 2001 by and among Party B, the several financial institutions from time to time party thereto, Party A, as Administrative Agent, Union Bank of California, N.A., as Co-Agent, and Banc of America Securities, LLC, as Sole Lead Arranger and Sole Book Manager (as amended, restated, extended, supplemented or otherwise modified in writing from time to time).

(b)

"Specified Entity" means in relation to Party A for the purpose of:-

Section 5(a)(v)  (Default under Specified Transaction),

none;

Section 5(a)(vi) (Cross Default),

none;

Section 5(a)(vii) (Bankruptcy),

none; and

Section 5(b)(iv) (Credit Event Upon Merger),

none;

in relation to Party B for the purpose of:-

Section 5(a)(v) (Default under Specified Transaction)

any Affiliate of Party B;

Section 5(a)(vi) (Cross Default),

any Affiliate of Party B;

Section 5(a)(vii) (Bankruptcy),

any Affiliate of Party B; and

Section 5(b)(iv) (Credit Event Upon Merger),  

any Affiliate of Party B.

(c)

"Specified Transaction" will have the meaning specified in Section 14 but shall also include any transaction with respect to the forward sale or delivery of any security.

(d)

The "Cross-Default" provisions of Section 5(a)(vi) (as amended in Part 5(i))

will apply to Party A and

will apply to Party B.  

In connection therewith, "Specified Indebtedness" will not have the meaning specified in Section 14, and such definition shall be replaced by the following:  "any obligation in respect of the payment of moneys (whether present or future, contingent or otherwise, as principal or surety or otherwise), except that such term shall not include obligations in respect of deposits received in the ordinary course of a party’s banking business."

"Threshold Amount" means with respect to Party A an amount equal to three percent (3%) of the Shareholders' Equity of Bank of America Corporation and with respect to Party B, $10,000,000.

With respect to Party B, any default (howsoever defined) under the Credit Agreement shall be an Event of Default under this Agreement.

"Shareholders' Equity" means with respect to an entity, at any time, the sum (as shown in the most recent annual audited financial statements of such entity) of (i) its capital stock (including preferred stock) outstanding, taken at par value, (ii) its capital surplus and (iii) its retained earnings, minus (iv) treasury stock, each to be determined in accordance with generally accepted accounting principles.

(e)

The "Credit Event Upon Merger" provisions of Section 5(b)(iv)

will apply to Party A

will apply to Party B.

(f)

The "Automatic Early Termination" provision of Section 6(a)

will not apply to Party A

will not apply to Party B.

(g)

Payments on Early Termination.  For the purpose of Section 6(e):

(i)

Loss will apply.

(ii)

The Second Method will apply.

(h)

"Termination Currency" means United States Dollars.

(i)

Additional Termination Event will apply.  It shall be an Additional Termination Event hereunder, with respect to which Party B shall be the Affected Party, if for any reason either Party A's obligation to lend under the Credit Agreement is terminated or Party A ceases to be a party to the Credit Agreement.

PART 2:  Tax Representations

(a)

Payer Tax Representations.  For the purpose of Section 3(e) of this Agreement, Party A and Party B will make the following representation:-

It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement.  In making this representation, it may rely on (x) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (y) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (z) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (y) and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.

(b)

Payee Tax Representations.  For the purpose of Section 3(f) of this Agreement, Party A and Party B will make the following representations specified below, if any:-

(i)

The following representations will apply to Party A:

Party A is a national banking association created or organized under the laws of the United States of America and the federal taxpayer identification number is 94-1687665.

(ii)

The following representations will apply to Party B:

Party B is a corporation created or organized under the laws of the State of Maryland and the federal taxpayer identification number is ___________.

PART 3:  Agreement to Deliver Documents

For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents:

(a)

Tax forms, documents or certificates to be delivered are:  

Party required to deliver document	Form/Document/Certificate	Date by which to be delivered
Party A and Party B	Any form, document or certificate as may be requested pursuant to Section 4(a)(iii) of this Agreement.	Upon request

(a)

Other documents to be delivered are:-

Party required to deliver document	Form/Document/Certificate	Date by which to be delivered	Covered by Section 3(d) Representation
Party B	Annual Report of Party B and of any Credit Support Provider thereof containing audited, consolidated financial statements certified by independent certified public accountants and prepared in accordance with generally accepted accounting principles in the country in which such party and such Credit Support Provider is organized	Promptly upon request	Yes
Party B	Quarterly Financial Statements of Party B and any Credit Support Provider thereof containing unaudited, consolidated financial statements of such party’s fiscal quarter prepared in accordance with generally accepted accounting principles in the country in which such party and such Credit Support Provider is organized	Promptly upon request	Yes
Party A and Party B	Certified copies of all corporate authorizations and any other documents with respect to the execution, delivery and performance of this Agreement and any Credit Support Document	Upon execution and delivery of this Agreement	Yes
Party A and Party B	Certificate of authority and specimen signatures of individuals executing this Agreement any Credit Support Document and Confirmations	Upon execution and delivery of this Agreement and thereafter upon request of the other party	Yes

PART 4:  Miscellaneous

(a)

Address for Notices.  For the purpose of Section 12(a) of this Agreement:-

Address for notice or communications to Party A:

Bank of America, N.A.

Sears Tower

233 South Wacker Drive, Suite 2800

Chicago, IL 60606

Attention:  Swap Operations

with a copy to:

Bank of America, N.A.

100 N. Tryon St., NC1-007-13-01

Charlotte, North Carolina  28255

Attention:  Capital Markets Documentation

Facsimile No.:  704-386-4113

Address for financial statements to Party A:

Bank of America, N.A.

Mail Code: CA5-801-22-03

600 Montgomery St.
San Francisco, CA 94111-2702

Attention:  Frank Stumpf, Principal

Phone: 415.913.6368
Fax: 415.913.3445

Address for notice or communications to Party B:

Bedford Property Investors, Inc.

270 Lafayette Circle

Lafayette, CA 94549

Attention:  Ms. Hanh Kihara, Chief Financial Officer

Telephone No.:  925-283-8910

Facsimile No.:  925-283-5697

(b)

Process Agent.  For the purpose of Section 13(c):

Party A appoints as its Process Agent:  Not applicable.

Party B appoints as its Process Agent:  Not applicable.

(b)

Offices.  The provisions of Section 10(a) will apply to this Agreement.

(d)

Multibranch Party. For the purpose of Section 10 of this Agreement:-

Party A is a Multibranch Party and may act through its Charlotte, North Carolina, Chicago, Illinois, San Francisco, California, New York, New York or London, England Office, or such other Office as may be agreed to by the parties in connection with a Transaction.  

Party B is not a Multibranch Party.

(e)

Calculation Agent.  The Calculation Agent is Party A.  

(f)

Credit Support Document.  Details of any Credit Support Document:-

Each of the following, as amended, supplemented, modified, renewed, replaced, consolidated, substituted or extended from time to time, is a “Credit Support Document”:

In relation to Party B, the Collateral Documents, as defined in the Credit Agreement.

Party B agrees that the security interests in collateral granted to Party A under the foregoing Credit Support Documents shall secure the obligations of Party B to Party A under this Agreement.

(g)

Credit Support Provider.

Credit Support Provider means in relation to Party A:

Not applicable.

Credit Support Provider means in relation to Party B:

Not applicable.

(h)

Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to its conflict of laws doctrine).

(i)

Netting of Payments. All amounts payable on the same date, in the same currency and in respect of the same Transaction shall be netted in accordance with Section 2(c) of this Agreement.  The election contained in the last paragraph of Section 2(c) of this Agreement shall not apply for the purposes of this Agreement.

(j)

"Affiliate" will have the meaning specified in Section 14 of this Agreement.

PART 5: Other Provisions

(a)

Set-off.  Any amount (the "Early Termination Amount") payable to one party (the Payee) by the other party (the Payer) under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) or (v) has occurred, will, at the option of the party ("X") other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the "Other Agreement Amount") payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off).  X will give notice to the other party of any set-off effected under this Part  5(a).  

For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency.  

If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained.  

Nothing in this Part 5(a) shall be effective to create a charge or other security interest.  This Part 5(a) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).

(b)

Delivery of Confirmations.  For each Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation via facsimile transmission.  Party B agrees to respond to such Confirmation within two (2) Local Business Days, either confirming agreement thereto or requesting a correction of any error(s) contained therein.  Failure by Party A to send a Confirmation or of Party B to respond within such period shall not affect the validity or enforceability of such Transaction.  Absent manifest error, there shall be a presumption that the terms contained in such Confirmation are the terms of the Transaction.  

(c)

Recording of Conversations.  Each party to this Agreement acknowledges and agrees to the tape recording of conversations between trading and marketing personnel of the parties to this Agreement whether by one or other or both of the parties or their agents, and that any such tape recordings may be submitted in evidence in any Proceedings relating to the Agreement.

(d)

Furnishing Specified Information.  Section 4(a)(iii) is hereby amended by inserting “promptly upon the earlier of (i)” in lieu of the word “upon” at the beginning thereof and inserting  “or (ii) such party learning that the form or document is required” before the word “any” on the first line thereof.

(e)

Notice by Facsimile Transmission. Section 12(a) is hereby amended by deleting the parenthetical "(except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system)".

(f)

Section 3(a) of this Agreement is amended by (i) deleting the word "and" at the end of clause (iv); (ii) deleting the period at the end of clause (v) and inserting therein "; and " ; and (iii) by inserting the following additional representation:

“(vi)

Eligible  Contract  Participant.   Each party represents to the other party (which representation will be deemed to be repeated by each party on  each  date  on  which  a Transaction is entered into) that it is an "eligible  contract  participant"  as  defined in Section 1a(12) of the U.S. Commodity Exchange Act, 7 U.S.C. Section 1a(12).”

(g)

Section 3 is revised so as to add the following Section (g) at the end thereof:

“(g)

Relationship Between Parties.  Each party represents to the other party and will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):-

(i)

Non-Reliance.  It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary.  It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction.  Further, such party has not received from the other party any assurance or guarantee as to the expected results of that Transaction.

(ii)

Evaluation and Understanding.  It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction.  It is also capable of assuming, and assumes, the financial and other risks of that Transaction.

(iii)

Status of Parties.  The other party is not acting as an agent, fiduciary or advisor for it in respect of that Transaction.”

(h)

Waiver of Right to Trial by Jury.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(i)

Cross Default.  Section 5(a)(vi) of this Agreement is hereby amended adding the following after the semicolon at the end thereof:

“provided, however, that notwithstanding the foregoing (but subject to any provision to the contrary contained in any such agreement or instrument), an Event of Default shall not occur under either (1) or (2) above if the default, event of default or other similar condition or event referred to in (1) or the failure to pay referred to in (2) is caused not (even in part) by the unavailability of funds but is caused solely due to a technical or administrative error which has been remedied within three Local Business Days after notice of such failure is given to the party.”

(j)

Incorporation by Reference of Terms of Credit Agreement.  The covenants, terms and provisions of, including all representations and warranties of Party B contained in the Credit Agreement, as in effect as of the date of this Agreement, are hereby incorporated by reference in, and made part of, this Agreement to the same extent as if such covenants, terms, and provisions were set forth in full herein.  Party B hereby agrees that, during the period commencing with the date of this Agreement through and including such date on which all of Party B's obligations under this Agreement are fully performed, Party B will (a) observe, perform, and fulfill each and every such covenant, term, and provision applicable to Party B, as such covenants, terms, and provisions, may be amended from time to time after the date of this Agreement with the consent of Party A and (b) deliver to Part y A at the address for notices to Party A provided in Part 4 each notice, document, certificate or other writing as Party B is obligated to furnish to any other party to the Credit Agreement.  In the event the Credit Agreement terminates or becomes no longer binding on Party B prior to the termination of this Agreement, such covenants, terms, and provisions (other than those requiring payments in respect of amounts owed under the Credit Agreement) will remain in force and effect for purposes of this Agreement as though set forth in full herein until the date on which all of Party B's obligations under this Agreement are fully performed, and this Agreement is terminated.

Accepted and agreed:

BANK OF AMERICA, N.A.


By: /s/ Roger H. Heintzelman . . . . . Name: Roger H. Heintzelman Title: Principal BEDFORD PROPERTY INVESTORS, INC.


By: /s/ Hanh Kihara . . . Name: Hanh Kihara Title: Sr. V. P. and Chief Financial Officer

EX-10

Exhibit 10.52

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this “Second Amendment”) is entered into as of July 15, 2003 by and between Peter B. Bedford (“Bedford”) and Bedford Property Investors, Inc., a Maryland corporation and successor in interest to ICM Property Investors, Incorporated (the “Company”), and amends the Employment Agreement between the Company and Bedford dated February 17, 1993 as amended by Amendment No. 1 to Employment Agreement (collectively, the “Agreement”).

THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:

1.

Amendment of Section 3(b).  Section 3(b) of the Agreement is hereby amended in its entirety to provide as follows:

“(b)  Basic Term.      Subject to earlier termination as herein provided, the term of Bedford’s employment hereunder shall be from the date of the Agreement until July 15, 2004; this Agreement automatically shall be renewed for an additional one year term unless either party notifies the other, in writing, not less than 90 days prior to the end of the original term or any renewal thereof that this Agreement shall terminate at the end of such term or any renewal thereof.”

2.

Full Force and Effect.

     The Agreement, as amended by this Second Amendment, remains in full force and effect.

The parties hereby have executed this Second Amendment as of the date first set forth above.

BEDFORD PROPERTY INVESTORS, INC.

By:

/s/ Dennis Klimmek

            Dennis Klimmek

Its:

Executive Vice President

/s/ Peter B. Bedford  

            Peter B. Bedford

EX-10

Exhibit 10.53

BEDFORD PROPERTY INVESTORS, INC.

2003 EMPLOYEE STOCK PLAN

Adopted: March 13, 2003

Approved by Stockholders: May 13, 2003

Amended:  August 6, 2003

Termination Date: March 12, 2013

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.  

(a)

Delegation to Committee.  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 a uthority, subject to the express provisions hereof, (i) to select Participants from the Eligible Individuals and (ii) to make Awards in accordance with the Plan. The Committee shall have, in connection with the administration of the Plan, the powers delegated to it by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Committee’s authority and responsibility have been delegated to it by the Board. The Board may modify or restrict its delegation of authority to the Committee, reallocate the responsibilities for administering the Plan among one or more persons, including the Board, and/or rescind the delegation to the Committee at any time and revest in itself the administration of the Plan.

(b)

Committee Composition when Common Stock is Publicly Traded.  At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.  Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more individuals who are not Outside Directors the authority to grant Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more individuals who are not Non-Employ ee Directors the authority to grant Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

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 1,500,000 shares (the “Limit”).  The shares of Common Stock subject to the Plan may be authorized and unissued shares or reacquired shares, bought on the market or otherwise.  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 subject to an Award (or portion thereof) which is reacquired or repurchased at cost by the Company prior to vesting;

(iii)

the number of shares tendered to pay the exercise price of a Stock Option or other Award, and

(iv)

the number of shares withheld from any Award or contributed by a Participant to satisfy a Participant’s tax withholding obligations.

3.

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.  Subject to the provisions of Section 9(b), 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 150,000 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.

(c)

Consultants.

(i)

A Consultant shall not be eligible for the grant of a Stock Option if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (a) that such grant (x) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (y) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (b) that such grant complies with the securities laws of all other relevant juri sdictions.

(ii)

Form S-8 generally is available to consultants and advisors only if (a) they are natural persons; (b) they provide bona fide services to the issuer, its parents, its majority owned subsidiaries; and (c) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

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 Part icipant’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.  

(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 is 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. Incentive Stock Options may be granted only to Employees.

(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:

(i)

the exercise price per share of each Incentive Stock Option shall be no less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Incentive Stock Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code;  

(ii)

the exercise price per share of each Nonqualified Stock Option shall be no less than eighty-five percent (85%) of the Fair Market Value per share on the date of grant. Notwithstanding the foregoing, a Nonqualified Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Nonqualified Stock Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code; and

(iii)

a Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant.

(c)

Option Term.  The Committee shall fix the term of each Stock Option to be 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. Notwithstanding the foregoing a Ten Percent Shareholder shall not be granted an Incentive Stock Option unless such Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant.

(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 “cash”) 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. Unless otherwise specifically provided in the Award Agreement, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). 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 “cashless 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.

(g)

Transferability of an Incentive Stock Option.  An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.  Notwithstanding the foregoing, the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Stock Option (a “Beneficiary”).

(h)

Transferability of a Nonqualified Stock Option.  A Nonqualified Stock Option shall be transferable to the extent provided in the applicable Award Agreement.  If the applicable Award Agreement does not provide for transferability, then the Nonqualified Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. Notwithstanding the foregoing, the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Stock Option (a “Beneficiary”).

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.  The Stock Appreciation Right exercise price shall be determined by the Committee in its sole discretion at the time the Stock Appreciation Right is granted. In no event, however, may the exercise price per share be less than eighty-five percent (85%) of the Fair Market Value per underlying share of Common Stock on the grant date . At the discretion of the Committee, payments to a Participant upon exercise of a Stock Appreciation Right may be made in shares of Common Stock, 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 canceled 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 canceled automatically to the extent of the number of shares covered by the Stock Option exercise.  Unless the applicable Award Agreement otherwise provides, no Stock Appreciation Rights may be assigned, transferred, otherwise encumbered or disposed of by the Participant. Notwithstanding the foregoing, the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Stock Appreciation Right (a “Beneficiary”).

7.

Restricted Stock Awards.

(a)

Grant of Awards.  The Committee may grant restricted stock bonus awards and restricted stock purchase awards (“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. Restricted stock bonus awards may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. 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 award shall set forth the amount (if any) to be paid by the Participant with respect to such award.  If a Participant makes any payment for Restricted Stock that 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)

Vesting and Forfeiture of Awards.  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 Participant’s name and bear an appropriate legend specifying that such shares are not transferable, if applicable, 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 Participant until such shares vest or are forfeited, all on such terms and conditions as the Committee may determine.  Subject to the provisions of Section 11(e), as soon as practicable after any Restricted Stock vests, the Company shall issue or reissue to the Participant (or to the Participant’s estate in the event of the Participant’s death) one or more certificates for the Common Stock represented by such Award.

(e)

Transferability of Restricted Stock.  Unless the applicable Award Agreement otherwise provides, no Restricted Stock may be assigned, transferred, otherwise encumbered or disposed of by the Participant until such Restricted Stock has vested in accordance with the terms of 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.

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, reincorporation, merger, consolidation, stock split, spinoff, dividend in property other than cash, liquidating dividend, combination or exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (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 securities authorized to be awarded under the Plan, the number of securities covered by each outstanding Stock Opti on and the exercise prices in respect thereof and the number of securities covered by future Stock Option grants and (ii) the Committee may make such other adjustments, consistent with the foregoing, as it deems appropriate in its sole discretion. (The conversion of any convertible securities of the Company shall not be treated as a transaction “not involving the receipt of consideration” by the Company.)

(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) March 12, 2013 (the “Termination Date”).  Following the Termination Date, no further grants of Awards shall be made pursuant to the Plan.

(b)

General Power of Board/Committee.  Notwithstanding anything herein to the contrary, the Board or Committee 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.  Neither the Board nor the Committee may 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.

(d)

Contemplated Amendments.  It is expressly contemplated that the Board or Committee may amend the Plan in any respect the Board or Committee deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

(e)

Amendment of Awards.  The Board or Committee at any time, and from time to time, may amend the terms of any one or more Awards; provided, however, that the rights under any Award shall not be materially impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.  In addition, the Company shall obtain shareholder approval prior to amending the terms of a Stock Option granted to an Employee or Director to reduce the exercise price of any such Award to the then current Fair Market Value. Such shareholder approval shall be obtained in the manner and to the degree required by any applicable law or stock exchange rule.

11.

Miscellaneous.

(a)

Acceleration of Exercisability and Vesting.  The Board shall have the power to accelerate the time at which an Option may first be exercised or the time during which an Option or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Option stating the time at which it may first be exercised or the time during which it will vest.

(b)

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 the Participant any right to continued employment or a continued consulting relationship with the Company or any Affiliate, as the case may be, or interfere in any way with the right of the Company or an Affiliate to terminate the employment or consulting relationship of any Participant at any time and for any reason, with or without cause.

(c)

Incentive Stock Option $100,000 Limitation.  To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonqualified Stock Options.

(d)

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.

(e)

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.

(f)

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 (i) has knowledge and experience in financial and business matters and/or employs a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he/she is capable of evaluating, alone or together with the purchaser representative , the merits and risks of exercising the Award; and (ii) is acquiring the shares for investment and not with a view to the distribution thereof.  The foregoing requirements, and any assurances given pursuant to such requirements, shall generally be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Option has been reg istered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. 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 any 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 .

(g)

Expenses.  The costs and expenses of administering the Plan shall be borne by the Company.

(h)

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 may 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 by any of the following means: (i) tendering a cash payment; (ii) electing to have the Company withhold shares of Common Sto ck from the shares of Common Stock otherwise to be delivered upon the exercise or vesting of an Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) electing to deliver to the Company shares of Common Stock owned separately by the Participant. 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.

(i)

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; provided, however, that pursuant to Section 402 of the Sarbanes-Oxley Act of 2002, no loans shall be made to executive officers or directors of the Company.

(j)

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.

(k)

Compliance with Rule 16b-3.  

(i)

The Plan is intended to comply with Rule 16b-3 under the Exchange Act or any successor provisions 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.

(l)

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.

(m)

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 California without giving effect to conflicts of law principles.

12.

Definitions.

(a)

“Affiliate” means generally with respect to the Company, any entity directly, or indirectly through one or more intermediaries, controlling or controlled by (but not under common control with) the Company. Solely with respect to the granting of any Incentive Stock Options, Affiliate means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

(b)

“Annual Meeting” means an annual meeting of the Company’s stockholders.

(c)

“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.

(d)

“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 the Participant to whom the relevant Award is made execute an Award Agreement.

(e)

“Board” means the Board of Directors of the Company.

(f)

“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 (¾) 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 which the voting securities of the Company owned by the stockholders of the Company immediately prior to such reorganization, merger, consolidation or other corporate transaction do not represent, after conversion if applicable, more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such reorganization, merger, consolidation or other corporate transaction; provided that any person who (1) was a beneficial owner (within the meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) of the voting securities of the Company immediately prior to such reorganization, merger, consolidation or other corporate transaction, and (2) is a beneficial owner of more than twenty percent (20%) of the securities of the Company immediately after such reorganization, merger, consolidation or other corporate transaction, shall be excluded from the list of “stockholders of the Company immediately prior to such reorganization, merger, consolidation or other corporate transaction for purposes of the preceding calculation);

(iv)

The direct or indirect acquisition of beneficial ownership of at least fifty percent (50%) percent of the voting securities of the Company by a person or group of related persons (as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act); provided that “person or group of related persons” shall not include the Company, a Subsidiary, or an employee benefit plan sponsored by the Company or a Subsidiary (including any trustee of such plan acting as trustee).

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions (i) immediately following which the record holders of the Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions; or

(v)

all or substantially all of the assets of the Company are sold, liquidated or distributed to a person or related group which is not an Affiliate of the Company.

(g)

“Code” means the Internal Revenue Code of 1986, as amended, and the applicable rules and regulations promulgated thereunder.

(h)

“Committee” means the Compensation Committee of the Board, any successor committee thereto or any other committee appointed by the Board to administer the Plan.  

(i)

“Common Stock” means the common stock of the Company, par value $0.02 per share.

(j)

“Company” means Bedford Property Investors, Inc., a Maryland corporation, or any successor to substantially all of its business.

(k)

“Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate.  However, the term “Consultant” shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director’s fee by the Company for their services as Directors.

(l)

“Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

(m)

“Director” means a member of the Board.

(n)

“Effective Date” means May 13, 2013.

(o)

“Employee” means an employee of the Company or a Subsidiary.

(p)

“Eligible Individuals” means the individuals described in Section 3 who are eligible for Awards under the Plan.

(q)

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations promulgated thereunder.

(r)

“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.

(s)

“Incentive Stock Option” means a Stock Option that 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.

(t)

“Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(u)

“Nonqualified Stock Option” means a Stock Option that is not an Incentive Stock Option.

(v)

“Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

(w)

“Participant” means an Eligible Individual to whom an Award has been granted under the Plan.

(x)

“Plan” means the Bedford Property Investors, Inc. 2003 Employee Stock Plan.

(y)

“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.

(z)

“Securities Act” means Securities Act of 1933, as amended, and the applicable rules and regulations promulgated thereunder.

(aa)

“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.

(bb)

“Stock Option” means an Award to purchase shares of Common Stock granted to an Eligible Individual pursuant to Section 5 hereof.

(cc)

“Subsidiary” means any corporation that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code with respect to the Company.

(dd)

“Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

13.

Effective Date.  The Plan shall become effective as of the Effective Date, subject to the approval thereof by the stockholders of the Company at the next Annual Meeting of stockholders to be held on or about May 13, 2003.

08/07/03 1:39 PM

EX-31

Exhibit 31.1

CERTIFICATION

I, Peter B. Bedford, certify that:

1.

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

2.

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

3.

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

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 2, 2003

/s/ Peter B. Bedford      

Peter B. Bedford

Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION

I, Hanh Kihara, certify that:

1.

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

2.

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

3.

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

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 5, 2003

/s/ Hanh Kihara

Hanh Kihara

Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Bedford Property Investors, Inc. (the “Company”) for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter B. Bedford, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

1.

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

2.

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

Date:  August 2, 2003

/s/ Peter B. Bedford

Peter B. Bedford

Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Bedford Property Investors, Inc. (the “Company”) for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hanh Kihara, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that:

1.

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

2.

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

Date:  August 5, 2003

/s/ Hanh Kihara

Hanh Kihara

Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.